THE OHIO NATIONAL LIFE INSURANCE COMPANY A+ OHIO … · and Annuity Company (NSLAC), are among the leaders in life sales, ranking #19 and, in variable annuity sales, #16 (Per LIMRA

Printed December 21, 2017 www.ambest.com Page 1 of 22

Best’s Rating Report

THE OHIO NATIONAL LIFE INSURANCE COMPANY A+

OHIO NATIONAL LIFE ASSURANCE CORPORATION A+

Cincinnati, Ohio

Ultimate Parent: Ohio National Mutual Holdings Inc

THE OHIO NATIONAL LIFE INSURANCE COMPANYOne Financial Way

Cincinnati, OH 45242Mailing Address: P.O. Box 237, Cincinnati, OH 45201

Web: www.ohionational.comTel.: 513-794-6100 Fax: 513-794-4516AMB#: 006852 NAIC#: 67172Ultimate Parent#: 050742 FEIN#: 31-0397080

BEST’S CREDIT RATING

Best’s Financial Strength Rating: A+ Outlook: StableBest’s Financial Size Category: XII

RATING RATIONALE

The following text is derived from A.M. Best’s Credit Report on OhioNational Life Group (AMB# 069717).

Rating Rationale: The ratings for the Ohio National Life Insurance Company(ONLIC) and its wholly owned subsidiary, Ohio National Life AssuranceCorporation (together referred to as Ohio National), reflect the increaseddiversification of its business profile, growth in life insurance sales, afavorable trend in total ordinary life premiums and positive statutory andGAAP results coupled with strong levels of risk-adjusted capitalization.Partially offsetting rating factors include a relatively high percentage ofseparate account business subject to equity, interest rate and market volatilityrisk; higher than average financial leverage when measured on a tangiblecapital basis; and the intense level of competition within the retirement, lifeand annuity marketplaces.

Ohio National offers a diverse portfolio of life, annuity, retirement anddisability products and is strategically emphasizing expansion into the highlycompetitive U.S. retirement services marketplace. Within its core lifeinsurance and variable annuity product lines the group continues to enjoymid-level market positions with a demonstrated track record of increasing lifesales over the last twenty-seven years. Statutory and GAAP managementoperating earnings trends (MOE), which reflect adjustments for themark-to-market impact of hedging variable annuities and reinsurance, arepositive, although GAAP MOE results have remained relatively flat over thefive-year period. Risk management practices, particularly within the front endof variable annuity product design, are viewed as strong, although there ismoderate retention (net of hedging and reinsurance) of equity market, interestrate and volatility risk.

Despite some progress in diversifying Ohio National’s business profile,about two-thirds of its liabilities are related to separate account business, well

above the life industry average. Consequently, this elevated exposurecontributes to potential operating and balance sheet volatility. Whilerisk-adjusted capital remains strong, the quality of capital has been reducedthrough the use of captive insurers to support XXX and AXXX redundantreserves and issuance of surplus notes. Financial leverage, when measured ona tangible capital basis is high, although leverage on a total capital basisremains within the higher range of A.M. Best’s guidelines. A.M. Best alsonotes that interest coverage on a GAAP MOE basis has historically beensomewhat low relative to the expectations for this rating level.

A sustained decline in net operating performance could lead to a ratingsdowngrade. A decline in risk-adjusted capitalization could also result in anegative rating action. Additionally, a meaningful increase in financialleverage or a decline in interest coverage could lead to a negative rating action.

FIVE YEAR RATING HISTORY

DateBest’sFSR Date

Best’sFSR

08/02/17 A+ 06/12/14 A+07/29/16 A+ 06/07/13 A+07/22/15 A+

KEY FINANCIAL INDICATORS ($000)Total Capital

Year Assets

CapitalSurplusFunds

AssetValuation

Reserve

NetPremiumsWritten

NetInvest

IncomeNet

Income2012 21,631,247 1,048,316 25,244 3,259,841 332,818 107,6152013 25,381,811 1,002,744 22,183 2,830,633 322,054 61,6082014 27,449,337 1,097,074 23,641 2,758,874 330,218 90,3912015 27,589,840 1,087,220 33,539 2,538,315 340,224 62,6642016 29,061,741 1,082,091 32,507 2,180,838 332,305 36,427

(*) Within several financial tables of this report, this company is compared against theIndividual Annuity Composite.

(*) Data reflected within all tables of this report has been compiled from the company-filedstatutory statement.

BUSINESS PROFILEThe following text is derived from A.M. Best’s Credit Report on Ohio

National Life Group (AMB# 069717).

The Ohio National Life group of companies offers a diversified array ofindividual life and annuity products serving the middle market as well as thesmall business and professional markets. The lead company, Ohio NationalLife Insurance Company (ONLIC) and its wholly owned subsidiaries, OhioNational Life Assurance Corporation (ONLAC) and National Security Lifeand Annuity Company (NSLAC), are among the leaders in life sales, ranking#19 and, in variable annuity sales, #16 (Per LIMRA - 2016). Assets undermanagement total about $40 billion in 2016. Also, nearly two-thirds of OhioNational’s business is separate accounts related. A major strength of OhioNational lies in the strong ties of the distribution force to the group, whichhave been cultivated over time through excellent service and a strongly



integrated compensation structure that rewards loyalty and quality business.As a result of this structure, these channels have historically enjoyed strongpersistency, strong channel growth and sales growth when compared toindustry averages.

ONLIC is wholly owned by Ohio National Financial Services, Inc. (ONFS),an intermediate holding company, which, in turn, is wholly owned by itsultimate parent, Ohio National Mutual Holdings, Inc. (ONMH). Lifepremiums have increased for 27 consecutive years, which is a source of pridefor the group.

ONLIC is the lead company in the Ohio National Life group and marketsseveral participating whole life insurance products, and various individual andgroup annuities. Fixed annuities have not been promoted since 2009, and aconsiderable amount of the company’s fixed annuity business has beenreinsured. ONLIC’s annuity product line includes individual and groupvariable annuities, individual deferred annuities, immediate annuities,guaranteed investment contracts (GIC), fixed index annuities, and structuredlottery settlements. GIC contracts and structured settlement products aretypically sold on an opportunistic basis, and these products have beende-emphasized over the past several years. Both the individual and groupvariable annuities include a fixed income option as well as over two hundredaccount options, which provide consumers the opportunity to diversify amonga variety of investments, managers and styles. Additionally, the companyoffers pension administration servicing capabilities.

ONLAC markets universal life insurance, term life insurance and individualdisability income insurance. ONLAC has three universal life products: onefocused on young insureds, term conversions and small policies, anotherfocused on longer-term cash accumulation, and a third that is used exclusivelyfor BOLI (Bank-Owned Life Insurance). Variable universal life productsinclude a fixed income option as well as over sixty account options, whichprovide consumers the opportunity to diversify among a variety ofinvestments, managers and styles. There are three level term products withvarying guaranteed payment durations and riders from which to choose. Allare fully priced for Regulation XXX statutory reserves. These reserves arefunded with long term debt and stop loss reinsurance. All term products areavailable with accelerated death benefit and waiver of premium. OhioNational has experienced favorable mortality and persistency in its individuallife lines, and continues to enjoy a significant competitive advantage as a lowunit cost provider in its core life and annuity lines.

The group organizes its lines of business along five business segments: lifeinsurance, retirement plans, annuities, disability income insurance andinternational.

Life InsuranceThe life product portfolio is diversified and has recorded strong sales

growth that has outpaced the industry. The size of the average life policy ismore than double the industry average which management believes gives thema cost advantage. Ohio National continues to build its distribution through avariable cost system focused on life insurance. Employee regional officersalso facilitate the relationships between the group and the independentproducers/general agents. The life business mix has shifted somewhat inrecent years. Whole Life insurance, which A.M. Best considers verycreditworthy and less risky, has increased significantly since 2008. Universal

life sales have decreased significantly since 2008. Term life sales havedecreased since 2008.

Life sales are through two distribution channels: producer general agents(PGA) and career agency systems. The PGA channel is comprised of 32regions covering 33 states. The strategy for future sales in this channelincludes a heavy focus on writing permanent insurance. The career agencychannel is an entrepreneurial general agency system, where the agency ownsits business plan along with a variable expense structure. It is also OhioNational’s oldest distribution system which includes a high degree of loyaltyfrom its agents. The traditional agency channel model leverages the group’sfocus on the traditional buyer of individual life insurance, annuity anddisability income products and secondly on the small business andprofessional markets. Target consumer markets within the traditional lifemarket include affluent and emerging affluent individuals and small tomedium business owners with estate planning or tax-deferred capitalaccumulation and traditional income preservation needs.

Retirement PlansCurrently retirement plans represent a modest percentage of total sales, but

management views this as a strategically important line of business and isplanning on significant growth in the near to mid-term. Distribution throughboth institutional and traditional channel producers sold $165.9 million in2016, up from $20 million in 2011. Plans are in place to increase thedistribution network and build up its infrastructure.

AnnuitiesOhio National is among the market leaders in the variable annuity market

and is well positioned to take advantage of market trends. The target market isbaby boomers that need guaranteed lifetime income, and have shown anaversion to risk. Specific products are targeted to younger accumulationclients and older income clients. In the absence of defined pension plans,which are increasingly rare, management feels that their variable annuityproducts are well suited to this demographic, especially if these products haveliving benefits which offer guaranteed lifetime income.

Ten variable annuity products are offered, with each offering flexiblepayments with different combinations of fund choices, death benefit options,liquidity features and various expense charge levels. Variable annuities areunderwritten by ONLIC, which offers living benefit features including GMIB,GLWB and GMAB in the form of policy riders. Ohio National uses both firstdollar and stop-loss reinsurance to reduce its GMDB exposure and hasprudent risk management practices (a combination of hedging, reinsuranceand use of managed volatility funds) to mitigate risks associated with its livingbenefit riders.

Distribution is through security brokerages, such as wirehouses andregional firms, and independent broker-dealers and financial institutions. Thesecurity brokerage channel consists of 18 wholesalers and 2 divisional salesmanagers. The independent broker-dealer and financial institutions channelhave 18 wholesalers and 2 divisional sales managers.

In an effort to manage risk in its products, Ohio National introducedManaged Volatility Portfolios (MVP) in 2011. Currently, there are 21 MVPfunds from 12 fund managers. As of 2012, all new living benefit riders require100% usage of MVPs, which represents about 30% of the group’s retainedinforce business. In 2013, Ohio National introduced a rider with an



interest-sensitive component. It hedges the low interest rate risk, and if thecontract value is reduced to zero, lifetime income is determined by current 10year U.S. Treasury rates with a floor of 3% and a cap of 9%.

In September of 2016, Ohio National entered the fixed indexed annuitymarket. While sales were relatively modest in 2016, sales are expected toaccount for roughly 25% of the annuity segment’s sales in 2017.

Disability IncomeThe Disability Income line of business is an opportunity by Ohio National

to take advantage of what it believes is an underserved market. They are in theprocess of building out the sales and marketing teams and expect it to addsome earnings diversity through recurring premium. While sales were modestin 2016, management is projecting strong sales growth in the near to mid-term.

InternationalThe international segment’s objective is to augment U.S. life sales growth

with life insurance sales in higher growth markets such as Latin America. Thissegment also maintains a book of fixed annuity business in Chile.

Scope of Operations: The Ohio National life companies are licensedthroughout the U.S. except for the state of New York.

TOTAL PREMIUM COMPOSITION & GROWTH ANALYSISReinsurance

Period ————DPW———— ——Prem Assumed——Ending ($000) (% Chg) ($000) (% Chg)2012 3,263,995 60.3 173,286 53.02013 2,834,257 -13.2 208,090 20.12014 2,847,211 0.5 163,179 -21.62015 2,670,305 -6.2 163,400 0.12016 2,365,433 -11.4 173,179 6.0

5-Yr CAGR … 3.0 … 8.9

ReinsurancePeriod ———Prem Ceded——— —NPW & Deposits—Ending ($000) (% Chg) ($000) (% Chg)2012 177,440 -11.7 3,572,693 81.72013 211,715 19.3 2,905,274 -18.72014 251,516 18.8 2,986,708 2.82015 295,391 17.4 2,729,797 -8.62016 357,774 21.1 2,352,304 -13.8

5-Yr CAGR … 12.2 … 3.7

Territory: The company is licensed in the District of Columbia, Puerto Rico,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.

2016 BY-LINE BUSINESS ($000)

——DPW——Reinsurance

—Prem Assumed—Product Line ($000) (%) ($000) (%)Ordinary life 569,242 24.1 170,178 98.3Individual annuities 1,363,838 57.7 3,002 1.7Group annuities 418,857 17.7 … …Individual A&H 13,495 0.6 … …

Total 2,365,433 100.0 173,179 100.0Reinsurance

——Prem Ceded—— ——NPW——Product Line ($000) (%) ($000) (%)Ordinary life 120,898 33.8 618,521 28.4Individual annuities 230,036 64.3 1,136,804 52.1Group annuities … … 418,857 19.2Individual A&H 6,840 1.9 6,655 0.3

Total 357,774 100.0 2,180,838 100.0

BY-LINE RESERVES ($000)Product Line 2016 2015 2014 2013 2012Ordinary life 3,439,545 3,006,514 2,595,988 2,216,705 1,875,971Group life 2,856 3,168 3,550 3,934 4,767Supplementary contr 3,952 4,785 3,966 3,513 3,835Individual annuities 2,237,429 2,158,596 2,280,586 2,453,638 2,623,693Group annuities 185,921 209,430 210,381 207,091 205,238Deposit type contracts 718,374 712,454 694,858 569,534 603,967Individual A&H 29,242 27,332 26,187 81,903 84,190

Total 6,617,318 6,122,280 5,815,516 5,536,318 5,401,661

LIFE POLICIES STATISTICS-Ordinary Policies- -Group Policies- -Group Certificates-

Year Issued In Force Issued In Force Issued In Force2012 5,388 161,791 … … … 3712013 5,615 191,827 … … … 3062014 6,579 204,188 … … … 2662015 7,071 214,096 … … … 2502016 8,489 227,476 … … … 224

LIFE INSURANCE IN FORCE ($000)

Year

Whole LifeEndow. &

Adds Term Credit Group Industrial

TotalInsuranceIn Force

2012 12,749,819 52,223,860 … 12,007 … 64,985,6862013 14,454,790 71,129,648 … 9,826 … 85,594,2642014 17,102,330 78,668,682 … 8,532 … 95,779,5432015 19,004,338 84,456,409 … 7,767 … 103,468,5142016 21,538,949 90,012,372 … 7,044 … 111,558,365



NEW LIFE BUSINESS ISSUED ($000)

YearWhole Life& Endow. Term Credit Group

Indus-trial

TotalInsurance

Issued

Non-Par(%)

Par(%)

2012 1,722,053 99,876 … … … 1,821,929 … 100.02013 1,761,293 205,458 … … … 1,966,751 … 100.02014 2,164,509 241,148 … … … 2,405,657 … 100.02015 2,548,507 238,209 … … … 2,786,715 … 100.02016 3,107,876 211,798 … … … 3,319,674 … 100.0

ORDINARY LIFE STATISTICSOrd. 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 Force2012 7.5 93.6 338,146 401,590 7.10 16.4 66.1 148.702013 7.0 91.6 350,267 446,154 6.22 13.7 83.4 174.062014 6.0 96.5 365,657 469,033 6.40 17.4 70.9 190.062015 6.5 93.9 394,105 483,245 6.12 17.3 74.6 222.142016 5.7 94.4 391,056 490,387 6.63 18.2 72.1 224.82

First Year Gen’l Exp/ Return onNumber of Policies Premium Reserves Reserves

Year Issued In Force (000) (%) (%)2012 5,388 161,791 48,032 1.25 0.432013 5,615 191,827 45,097 1.48 -0.522014 6,579 204,188 69,039 1.47 0.232015 7,071 214,096 81,706 1.56 0.142016 8,489 227,476 103,690 1.47 0.20

INDIVIDUAL ANNUITY STATISTICS

YearNPW(000)

Res(000)

Exp toRes(%)

Comm &Exp toNPW(%)

Benefits &Wdrwls toNPW (%)

Benefits &Wdrwls to

Res (%)2012 2,677,886 2,627,528 2.0 9.7 39.7 40.42013 2,150,214 2,457,151 2.0 11.4 54.5 47.72014 2,007,500 2,284,552 2.6 13.5 72.1 63.42015 1,718,748 2,163,381 2.9 15.7 86.2 68.52016 1,136,804 2,241,381 3.5 22.8 129.7 65.8

GROUP ANNUITY STATISTICS

YearNPW(000)

Res(000)

Exp toRes (%)

Comm &Exp toNPW(%)


Benefits &Wdrwls to

Res (%)2012 141,627 205,238 4.8 10.2 141.3 97.52013 169,164 207,091 4.7 8.5 130.1 106.32014 235,276 210,381 7.2 8.2 100.9 112.82015 254,175 209,430 8.6 9.1 106.0 128.62016 418,857 185,921 12.8 6.9 101.6 228.8

TOTAL ANNUITY ACTUARIAL RESERVESBY WITHDRAWAL CHARACTERISTICS

YearTotal Annuity

Res (000)

Min or NoSurrender

Charge (%)

WithSurrenderCharge 5%or more (%)

WithMVA (%)

NoSurrender

Allowed (%)2012 2,832,766 87.2 4.1 2.7 6.02013 2,664,242 91.8 1.6 1.6 5.02014 2,494,933 92.0 0.7 1.5 5.82015 2,372,812 90.5 0.6 1.5 7.42016 2,427,302 89.2 0.9 1.5 8.4

SEPARATE ACCOUNT DATA

2016 2015 2014 2013 2012Sep Acct Assets 20,795,232 19,864,746 20,071,414 18,394,289 14,816,672% Growth 4.7 -1.0 9.1 24.1 28.6S/A Assets/Adm Assets 71.6 72.0 73.1 72.5 68.5

Sep Acct Reserves 20,510,932 19,542,635 19,799,555 18,122,795 14,575,904% Individual Annuities 95.3 95.6 95.6 95.5 95.1% Group Annuities 4.7 4.4 4.4 4.5 4.9Other Liabilities 284,300 322,110 271,858 271,494 240,768Sep Acct Surplus … 1 1 … …

S/A Prems & Deposits 1,288,965 1,786,324 1,976,824 1,949,964 2,333,590% Individual Annuities 69.3 86.7 88.9 92.1 94.4% Group Annuities 30.7 13.3 11.1 7.9 5.6

Sep Acct Fees & Charges 258,206 263,957 248,872 212,686 171,248% Individual Annuities 97.1 96.7 96.8 96.4 95.4% Group Annuities 2.9 3.3 3.2 3.6 4.6Fees & Chgs to Assets% 1.3 1.3 1.3 1.3 1.3

Sep Acct Ben & Wdrwls 1,634,993 1,442,968 1,329,553 1,090,480 929,215% Individual Annuities 78.0 84.6 85.6 84.0 82.2% Group Annuities 22.0 15.4 14.4 16.0 17.8Ben & Wdrwl to Assets% 8.0 7.2 6.9 6.6 7.1

Market Share/Market Presence: Ohio National’s market position (perLIMRA) ranked #16 for variable annuity sales and #19 for life sales as ofyear-end 2016. In recent years, Ohio National’s variable annuity sales havedeclined, although this is generally consistent with the industry as a whole.Conversely, its U.S. life insurance sales have grown at a rate well in excess ofthe industry over the last several years. Additionally, Ohio National hasrecently entered the fixed indexed annuity market, although 2016 sales werenot material. It has also announced its plans to expand further into the U.S.retirement market which will require significant scale to build market share.



GEOGRAPHIC BREAKDOWN BYDIRECT PREMIUM WRITINGS ($000)

2016 2015 2014 2013 2012Ohio 367,047 320,605 405,452 210,889 402,485Florida 224,540 247,233 296,590 275,308 285,060California 143,236 181,001 205,038 192,388 208,496Pennsylvania 139,277 162,108 167,352 170,736 193,459Michigan 109,278 146,612 133,358 131,158 169,392Virginia 100,927 101,208 117,727 102,690 134,657Illinois 100,386 113,176 138,391 149,029 139,980Connecticut 98,872 61,438 52,276 53,529 150,968Texas 96,321 134,950 133,202 152,372 178,688North Carolina 85,697 125,773 123,916 128,128 164,965All Other 969,095 1,183,220 1,227,566 1,287,699 1,487,190

Total 2,434,676 2,777,324 3,000,868 2,853,928 3,515,340

RISK MANAGEMENTThe following text is derived from A.M. Best’s Credit Report on Ohio


Ohio National’s risk management capabilities are supportive of its riskprofile, and are headed by the Chief Risk Officer (CRO) who is responsible forthe enterprise risk management program. The Enterprise Risk OversightCommittee is chaired by the CRO, and the other members on this committeeinclude the CEO, all of the CEO’s direct reports, and the heads of the strategicbusiness units (SBUs) and Internal Audit functions. The standing committeesthat address specific activities and risks include the Investment Management,Hedge Oversight, Underwriting Review, Business Continuation, BusinessProcess Review, Compliance, Interest Rate, Enterprise Product Managementand Model Assumption Governance. Internal Audit ensures that the ERMprocesses are appropriate for their objectives, information produced is of goodquality, and that process controls are operating as designed. Ohio National’smutual structure allows the enterprise to adopt a longer term perspective andbe more deliberate in its planning and actions, which is also embedded in thegroup’s risk culture. The leaders are responsible for identifying risk in theirrespective areas, and risk priorities are arranged according to their strategicimportance.

Risks are separated into sixteen categories and according to board and auditcommittee participation. Risks which are monitored by the full board are:Strategic, Life Insurance, Disability Income, Annuity, Retirement Plans,International and Non-Insurance Subsidiaries risks. The Investment ReviewCommittee monitors Credit, Interest Rate, Liquidity and Hedging risks. TheAudit Committee monitors Operational, Financial, Legal/Regulatory,Compliance and Reputation risks. For each risk, key risks are identified, alongwith risk appetite, commentary and mitigation plans.

Several key metrics are also used to monitor performance. GAAP MOE is akey profitability measure which takes out the market value changes inderivatives used in hedging living benefits on its variable annuity products.Risk-based capital and the Best Capital Adequacy Ratio are used to assessrisk-adjusted capitalization.

The life group is experienced at developing or enhancing products in whichactual results are within pricing. Reserves are also adequate and withinpricing, as verified by the actuarial memorandums and cash flow testingprogram. XXX/AXXX reserving issues are mitigated through the use ofcaptive reinsurers. Regulatory developments are monitored closely, and anOhio captive reinsurer was established in 2015 to address term reserves issuesassociated with Actuarial Guideline 48 (AG-48). Ohio National usesreinsurance extensively to mitigate exposure to risk through highly ratedexternal reinsurers or captives. To enhance financial flexibility, lines of creditare arranged in addition to FHLB financing. Investment analysis is doneregularly, in which bond allocations, durations and purchases are reviewed.General account assets and liabilities are well matched. The Company hasbrought its hedging program in house. The Company manages its variableannuity risks through a combination of reinsurance, current product design,which limits interest rate risk, managed volatility funds and delta hedging.Vega risk is partially mitigated through external reinsurance on older productdesigns along with managed volatility funds for newer products. These fundsreduce overall risk through the fund design. Net rho, or interest rate risk, onvariable annuity guarantees is limited by a portfolio of options ($2B+notional) that hedge against low rates. In addition, current product designssignificantly reduce the Company’s exposure to interest rate risk. TheCompany estimates that the newer design reduces interest rate risk on avariable annuity to roughly 20% of a traditionally designed product.Additionally, roughly 36% of rho risk for the older block has been mitigatedthrough reinsurance. The Company’s current product plans are geared towardsresponding to the current evolving regulatory environment, as well asassessing alternate product lines that provide risk diversification, incomediversification and potentially improve overall capital efficiency.

Operations are well managed. Policies and procedures are reviewed on aregular basis, and training programs are in place for home office staff and fieldforce. Succession plans are in place. Also, there are strong backup plans inregards to disaster recovery.

OPERATING PERFORMANCEThe following text is derived from A.M. Best’s Credit Report on Ohio


Operating Results: Ohio National’s combined statutory net income in 2016was almost $23 million, down from $56 million in 2015. Variable annuitysales continued to decline, as did yields and net investment income. 2015results decreased from $79 million in 2014, as premiums decreased modestlyprimarily due to a decrease in variable annuity sales. In addition, results wereimpacted by higher annuity and surrender benefits and higher generalexpenses, which were partially offset by higher investment income and lowerfederal taxes incurred.

The company manages to a GAAP MOE metric which adjusts for theimpact of changes in the value of an external reinsurance agreement and themarket impact of hedging variable annuities. GAAP MOE results have beenrelatively flat over the last five years. The group benefits from a variable coststructure and prudent expense management.



Ohio National’s combined statutory net income in 2014 was $79 million, anincrease from $50 million in 2013. Premiums increased modestly in 2014, asan increase in life premiums offset a decrease in variable annuity sales.Partially offsetting revenues are higher annuity and surrender benefits andhigher general expenses partially offset by transfers from separate accounts,lower federal taxes incurred and a decrease in change in reserves due to therecapture of disability income and less variable annuity sales. GAAP netincome improved mainly due to higher premiums, lower derivative relatedcapital losses, a decrease in benefits and claims partially offset by higherdeferred acquisition costs, other operating costs and higher deferred incometaxes.

Ohio National’s combined statutory net income for 2013 was $50 million,down from $105 million in 2012. Net income includes new business strainfrom the sale of ordinary life insurance, strain from guaranteed investmentcontracts, increases in policyholder dividends, lower portfolio yields andhigher general insurance expenses. Growth in variable annuity sales, whilestill strong, contracted somewhat in 2013 in response to ongoing productde-risking. Ordinary life premium was strong, with a five year compoundannual growth rate well in excess of the industry average.

PROFITABILITY ANALYSIS ($000)————————Company————————

Pre-tax NetPeriod Net Oper Operating Net TotalEnding Income Gain Income Return2012 159,808 145,532 107,615 70,0152013 115,262 102,130 61,608 -46,0572014 121,758 104,011 90,391 71,8492015 82,890 78,329 62,664 51,8282016 46,275 60,777 36,427 27,719

5-Yr Total 525,993 490,779 358,706 175,354

———Company——— —Industry Composite—Period Operating Operating Operating OperatingEnding ROR (%) ROE (%) ROR (%) ROE (%)2012 3.7 14.9 7.6 19.52013 2.8 10.0 8.5 21.82014 2.9 9.9 6.0 18.42015 2.3 7.2 5.8 15.22016 1.9 5.6 6.3 15.2

5-Yr Avg 2.7 9.4 6.8 17.9

PROFITABILITY TESTSComm & Pre-tax

Ben Paid Exp to NOG Operating Investto NPW NPW to Tot NOG to Return on Net Total

Year & Dep & Dep Assets Tot Rev Equity Yield Return2012 39.0 10.4 0.7 3.7 14.9 5.30 4.042013 53.1 12.8 0.4 2.8 10.0 5.00 2.682014 61.3 13.8 0.4 2.9 9.9 4.95 4.512015 69.5 15.9 0.3 2.3 7.2 4.84 4.472016 87.7 18.5 0.2 1.9 5.6 4.45 3.95

5-Year Avg 60.0 13.9 0.4 2.7 9.4 4.89 3.94

(*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data -see Calculation Specifications

NET OPERATING GAIN ($000)Product Line 2016 2015 2014 2013 2012Ordinary life 6,830 4,211 5,994 -11,863 8,256Group life 209 221 245 230 602Supplementary contr -507 218 -14 585 271Individual annuities 54,031 65,179 98,596 108,120 119,498Group annuities 98 8,008 -490 5,203 19,307Individual A&H 115 492 -321 -146 2,800Other … … … … -5,200

Total 60,777 78,329 104,011 102,130 145,532

ACCIDENT & HEALTH STATISTICS ($000)Net Premiums Net Premiums Loss Exp. Underwriting

Year Written Earned Ratio Ratio Results2012 11,750 11,702 35.3 19.0 -2372013 11,036 10,837 56.9 33.8 -2,9102014 -48,361 -47,569 107.1 -4.3 5682015 6,871 6,822 33.7 18.8 2,3942016 6,623 6,615 49.0 20.6 957Current Year Experience:Non-can. 6,091 6,087 46.8 20.6 979Guarant renew 531 528 74.5 20.7 -22

INVESTMENT GAINS ($000)—————————Company—————————Net Realized UnrealizedInv Capital Capital

Year Income Gains Gains2012 332,818 -37,918 -37,6002013 322,054 -40,522 -107,6652014 330,218 -13,619 -18,5432015 340,224 -15,664 -10,8362016 332,305 -24,349 -8,708

5-Year Total 1,657,619 -132,073 -183,352



——————Company—————— -Industry Composite-Pre-taxInvest

Inv Inc Inv Return on Total Inv Inc InvGrowth Yield Inv Assets Return Growth Yield

Year (%) (%) (%) (%) (%) (%)2012 -2.0 5.3 4.7 4.0 0.6 5.22013 -3.2 5.0 4.4 2.7 6.1 5.32014 2.5 5.0 4.8 4.5 3.2 5.32015 3.0 4.8 4.6 4.5 1.0 5.02016 -2.3 4.5 4.1 4.0 1.6 4.8

5-Yr Avg -0.4 4.9 4.5 3.9 2.4 5.1


BALANCE SHEET STRENGTHThe following text is derived from A.M. Best’s Credit Report on Ohio


Capitalization: The Ohio National Life Group’s risk-adjusted capitalizationis more than sufficient to support its insurance, investment and business risks.Surplus remained relatively flat from 2014 to 2016, despite dividends to itsparent. Surplus increased to $1.1 billion in 2014 from $1.0 billion in 2013mainly due to net income, partially offset by a change in unrealized losses insubsidiaries and increased dividends to its parent. Surplus decreased to $1.0billion in 2013 from $1.05 billion in 2012, mainly due to the payment ofdividends to its parent, the payment of the Montgomery Re surplus note, andthe impact of derivative losses related to its hedging program. Partiallyoffsetting these losses were net income and a capital contribution from itsparent.

On a qualitative basis, the assets of ONFS and ONMH (the intermediate andtop-tier holding company entities of the mutual holding company structure)are available to support policyholder claims in the unlikely event that ONLICneeds funds to meet its liabilities. ONLIC’s and ONLAC’s statutory capitalbenefits by its use of surplus notes which represents nearly 30% of total capitaland surplus. In addition, Ohio National extensively uses reinsurance to helpmitigate its risk exposures, which includes the use of captive reinsurers for itsXXX and AXXX reserves and living benefit guarantees associated with itsvariable annuities.

ONLIC’s statutory capitalization includes three surplus notes. Two surplusnotes, which were used to purchase all of the ownership of NSLAC, wereissued to Security Mutual Life Insurance of New York. One is for $4.5 milliondue December 15, 2031. The other is for $6.0 million due April 1, 2027. A$250 million surplus note was issued in 2012 and used to retire debt at theholding company and support XXX reserves at Montgomery Re.

Current BCAR: 219

CAPITAL GENERATION ANALYSIS ($000)——————Source of Surplus Growth——————

Pre-Tax Net Realized UnrealizedAdjusted Capital Income Capital

Year Gain Gains Taxes Gains2012 159,808 -37,918 14,276 -37,6002013 115,262 -40,522 13,132 -107,6652014 121,758 -13,619 17,747 -18,5432015 82,890 -15,664 4,561 -10,8362016 46,275 -24,349 -14,502 -8,708

5-Yr Total 525,993 -132,073 35,215 -183,352—————Source of Surplus Growth—————Change Change % Chg

in Other in inYear AVR Changes C&S C&S2012 -3,209 78,995 145,800 16.22013 3,061 -2,576 -45,571 -4.32014 -1,459 23,939 94,330 9.42015 -2,008 -59,674 -9,853 -0.92016 -379 -32,469 -5,130 -0.5

5-Yr Total -3,994 8,215 179,575 3.7

QUALITY OF SURPLUS ($000)Surplus Other Contributed Unassigned

Year Notes Debt Capital Surplus2012 309,241 … 193,297 545,7782013 309,317 … 293,297 400,1302014 309,393 … 293,297 494,3832015 309,470 … 293,297 484,4542016 309,546 … 293,297 479,248

Year-End Asset Valuation AdjustedYear C&S Reserve C&S2012 1,048,316 25,244 1,073,5592013 1,002,744 22,183 1,024,9272014 1,097,074 23,641 1,120,7152015 1,087,220 33,539 1,120,7592016 1,082,091 32,507 1,114,598

LEVERAGE ANALYSIS————————Company———————— -Industry Composite-C&S NPW & Dep Change C&S

to Surplus to Total in NPW to SurplusYear Liab(%) Relief(%) Capital & Dep(%) Liab(%) Relief(%)2012 18.7 0.4 3.3 81.7 11.1 3.02013 17.2 0.5 2.8 -18.7 11.0 4.52014 17.9 1.6 2.7 2.8 11.2 4.72015 17.0 2.1 2.4 -8.6 10.7 4.32016 15.6 4.0 2.1 -13.8 10.5 8.0



CEDED REINSURANCE ANALYSIS—————————Company————————— -Industry Composite-

Face Affil Unaffil Total TotalAmount Reins Reins Reins Surplus Reins Reins Reins

Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage2012 24,183,660 0.0 1.3 1.3 0.4 143.5 4.0 197.52013 29,540,941 0.1 0.7 0.8 0.5 126.8 4.1 201.12014 30,817,361 0.1 1.1 1.1 1.6 122.4 3.9 195.22015 31,426,421 0.2 0.7 0.9 2.1 150.4 4.4 201.82016 33,833,210 0.3 1.4 1.7 4.0 179.8 4.4 214.0


Liquidity: Ohio National holds sufficient liquidity to meet sudden, unplannedneeds for cash. Short-term and long term liquidity ratios are strong, andcurrent and overall liquidity ratios are comparable to industry averages. Atyear-end 2016, cash and short-term assets comprise 3.1% of general accountinvested assets. . In April 2016, ONFS entered into a senior unsecured,syndicated letter of credit facility with a capacity of $525 million at December31, 2016. This facility replaced two facilities ONFS had previously had inplace with capacities of $150 million and $170 million. At December 31,2016, ONFS used $365 million of the new facility to secure a letter of creditfor Sycamore Re, a subsidiary of ONFS, and $15 million is outstandingrelated to initial transactions in the Latin American corporate structure thatwere carried forward from the prior two facilities. In addition, Ohio National isa member of the Federal Home Loan Bank of Cincinnati. Other liquidityresources include access to securities lending programs for both ONLIC andONLAC. Financial leverage for ONFS is elevated when measured on atangible capital basis, but within the guidelines for its ratings on a traditionaldebt to capital basis, although interest coverage is below guidelines. However,interest coverage is supported by some holding company liquidity and no nearterm debt maturities. The company does not have a minimum holdingcompany liquidity threshold but does try to maintain a minimum of 2 timesinterest coverage at the holding company level.

LIQUIDITY ANALYSIS———————————Company———————————

Operating Non-Inv Delnq &Cash Quick Current Grade Bonds Foreclsd

Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital2012 278,998 44.8 82.4 20.2 0.32013 236,229 42.8 83.6 19.2 0.72014 249,998 42.1 84.4 18.6 0.12015 428,299 43.6 86.4 19.2 …2016 614,107 39.9 84.0 26.6 …

————Company———— ——Industry Composite——Mortgage Affil

& RE Invest Quick CurrentYear to Capital to Capital Liquidity Liquidity2012 79.9 52.6 48.7 87.92013 84.8 44.7 47.4 86.72014 73.2 39.7 46.6 87.22015 72.9 31.1 45.1 86.82016 72.5 30.9 43.1 86.0


Investments: Ohio National’s invested assets as of year-end 2016 are $11billion, up from $10.2 billion in 2015. Total invested assets are comprised of76% bonds, 10.6% mortgages, 3.6% other invested assets, 3.1% cash &short-term with the balance in stocks, real estate and contract loans. Separateaccount assets as of December 2016 are $21.4 billion, up from $20.5 billion in2015 and up significantly from $11.9 billion in 2011. The primary drivers ofgrowth include variable annuity sales and deposits and continued favorableequity market performance.

In recent years, Ohio National has taken measures to reduce its investmentrisk profile. One of the main initiatives involved the use of managed volatilityportfolios (MVPs), which was first introduced in 2011. MVP’s are part of itsseparate account assets and used to reduce the overall risk profile of itsvariable annuities. MVPs offer 21 funds from 12 product managers, andmanagement plans to offer additional funds going forward. For all new livingbenefit riders introduced since January 2012, Ohio National mandates 100%usage of MVPs, which now comprise over 30% of retained in-force.

INVESTMENT YIELDSCash & Invest.

Net Short- —Real Estate— Exp.Year Yield Bonds Stocks Mortgages Term Gross Net Ratio2012 5.30 5.73 7.77 6.84 0.04 11.58 -23.30 6.992013 5.00 5.37 8.47 6.45 0.02 3.73 -9.96 8.262014 4.95 5.16 11.40 6.05 0.02 12.04 -1.58 8.742015 4.84 4.99 12.72 5.91 0.01 12.90 -4.10 8.532016 4.45 4.70 10.47 5.66 0.04 11.99 -6.27 8.98

Investments - Bond Portfolio: At year-end 2016, bonds comprise about 76%of general account invested assets. Holdings are primarily invested incorporate bonds, and are well diversified among various industry sectorsincluding utilities, energy, financial services, asset-backed andmortgage-backed securities. Almost 95% of bonds are investment grade.About 38% of bonds are private placements, as the life group increased itsholdings in this asset type to increase yield while trading some liquidity.Structured securities represent a typical portion of holdings and are highlyrated and performing well. Ohio National employs a buy and hold strategy,where bond turnover is less than the industry average.



While bond yields have been steadily decreasing in recent years, due to lowinterest rates, they are above the life industry average. Unrealized gainscontinue to be strong at about $310 million. However, A.M. Best notes that thegroup’s unrealized gain position will be compromised if there is a rapid rise ininterest rates.

INVESTMENTS - SECURITIESCurrent Year Distribution of Bonds By Maturity

————Years———— Yrs-Avg0-1 1-5 5-10 10-20 20+ Maturity

Government 1.3 0.9 1.4 0.3 0.1 5Gov’t Agencies & Muni 0.9 3.0 5.4 4.3 1.0 9Industrial & Misc 6.1 26.8 33.6 11.7 3.2 7Hybrid Securities … … … … 0.1 25

Total 8.3 30.8 40.5 16.2 4.3 7

2016 2015 2014 2013 2012Bonds (000) 5,477,140 5,041,825 4,750,475 4,543,336 4,214,962US Government 3.0 2.7 2.7 2.9 2.1Foreign Government 0.1 … … 0.2 0.3State/Special Revenue - US 14.9 15.5 15.1 15.6 12.3Industrial & Misc - US 82.0 81.8 82.2 81.3 85.3

Private Issues 38.3 36.9 35.7 33.2 33.5Public Issues 61.7 63.1 64.3 66.8 66.5

Bond Quality (%) 2016 2015 2014 2013 2012Class 1 62.0 63.4 62.7 61.2 60.7Class 2 32.7 32.4 33.1 34.5 34.5Class 3 3.8 3.5 3.5 3.0 3.2Class 4 0.8 0.3 0.2 0.8 1.1Class 5 0.3 0.1 0.2 0.2 0.3Class 6 0.4 0.3 0.4 0.2 0.3

INVESTMENTS - EQUITIES2016 2015 2014 2013 2012

Stocks (000) 411,788 420,662 413,422 421,284 518,949Unaffiliated Common 9.4 9.0 9.3 9.0 7.3Affiliated Common 83.5 82.9 82.5 85.0 89.5Unaffiliated Preferred 7.1 8.0 8.3 5.9 3.2

Investments - Mortgage Loans and Real Estate: Commercial mortgagesrepresented 10.6% of invested assets at year-end 2016, and have beendeclining in recent years. While management likes this asset class, they alsofeel that increased competition for mortgages may not result in the desiredyields and have moderated the issuance of mortgages. The mortgage portfoliois well diversified by both state and property type. Mortgages are issued in 42states, with the highest exposure in the East North Central and South Atlanticregions. Holdings by property type are Office (21%), Retail (29%), Other(20%) and the balance in Industrial and Apartments. The average loan to value

is relatively low and debt service coverage ratios are strong. Overallperformance of the mortgages is strong, with no foreclosures in 2016. Whilethe allocation to mortgages is close to the industry average, Ohio Nationaldoes not buy investment real estate and has limited CMBS exposure. Inaddition, both the mortgage and private placement portfolios containmake-whole provisions which protect against reinvestment risk.

INVESTMENTS - MORTGAGE LOANS & REAL ESTATE2016 2015 2014 2013 2012

Mortgages (000) 782,244 790,215 796,771 844,874 854,364Commercial 100.0 100.0 100.0 100.0 100.0Mortgage Quality (%) 2016 2015 2014 2013 201290 Days Delinquent … … 0.1 … …In Process of Foreclosure … … … 0.5 …Total Delinquencies … … 0.1 0.5 …

2016 2015 2014 2013 2012Real Estate (000) 25,604 26,938 23,982 24,212 3,450Property Occupied by Co … … 14.8 … …Property Held for Inc 100.0 100.0 85.2 86.2 8.6Property Held for Sale … … … 13.8 91.4

INVESTMENTS - OTHER INVESTED ASSETS2016 2015 2014 2013 2012

Other Inv Assets (000) 1,116,665 1,069,082 962,586 778,603 896,234Cash 19.3 22.7 20.9 31.7 13.3Short-Term 10.9 18.4 15.0 9.6 28.4Schedule BA Assets 7.3 7.0 11.3 5.5 12.2All Other 62.6 51.9 52.9 53.2 46.0

HISTORYDate Incorporated: 09/09/1909 Date Commenced: 10/10/1910

Domicile: OH

Originally incorporated as a stock company in 1909, the companycompleted the process of mutualization in 1959. On August 1, 1998, thecompany reorganized under Ohio’s Mutual Insurance Holding Company Act.The Ohio National Life Insurance Company is now a stock life insurancecompany whose shares are owned entirely by Ohio National FinancialServices, Inc., an intermediate holding company whose shares of stock areentirely owned by Ohio National Mutual Holdings, Inc., a mutual insuranceholding company whose members are exclusively the life insurance andannuity policyholders of The Ohio National Life Insurance Company.

MANAGEMENT

Officers: Chairman, President and Chief Executive Officer, Gary T. Huffman;Vice Chairman, Christopher A. Carlson (Strategic Businesses); ExecutiveVice President and Chief Administrative Officer, Barbara A. Turner;Executive Vice President and Chief Officer, H. Douglas. Cooke, III



(Distribution); Senior Vice President and Chief Financial Officer, Arthur J.Roberts; Senior Vice President and Chief Investment Officer, Paul J. Gerard;Senior Vice President and Chief Actuary, Kush V. Kotecha; Senior VicePresident, General Counsel and Chief Compliance Officer, Dennis L. Schoff;Senior Vice President and Chief Human Resource Officer, Anthony G.Esposito; Vice President and Secretary, Therese S. McDonough; VicePresident and Treasurer, Doris L. Paul; Executive Vice President and ChiefRisk Officer, Kristal E. Hambrick.

Directors: Jack E. Brown, Christopher A. Carlson, Victoria B. Gluckman,John W. Hayden, Gary T. Huffman, Julie S. Janson, James F. Orr, John R.Phillips, J. Michael Schlotman, James C. Votruba, Gary E. Wendlandt.

REGULATORYAn examination of the financial condition was made as of December 31,

2015, by the insurance department of Ohio. The 2016 annual independentaudit of the company was conducted by KPMG, LLP. The annual statement ofactuarial opinion is provided by Kush V. Kotecha, Senior Vice President &Chief Corporate Actuary.

Reserve basis: (Current ordinary business): 2001 CSO 3% – 3.5%; CRVM.(Current annuity business): IAR2012 3.75%-4%

REINSURANCEThe following text is derived from A.M. Best’s Credit Report on Ohio


Ohio National Life maintains a number of reinsurance agreements withprofessional carriers. Reinsurance has been used judiciously during the lastseveral years. Maximum net retention on any one life was increased from$1,000,000 to $2,000,000 effective January 1, 2014. Since the new retentionwent into effect, Ohio National Life has ceded approximately twenty percentof its total in-force life insurance business. For individual disability incomepolicies, the company has an 80/20 coinsurance agreement with MunichAmerican Re and General Reinsurance, whereby ONLIC retains 20% of therisk.

ONLAC reinsures some of its XXX reserves and universal life secondaryguarantee AXXX reserves through Montgomery Re, which is a specialpurpose financial captive reinsurance company wholly owned by ONLIC.ONLAC also reinsures some of its XXX reserves through Kenwood Re, aVermont domiciled special purpose financial captive reinsurer, and CamargoCaptive Re, an Ohio domiciled special purpose financial captive reinsurer.

ONLIC mitigates a material portion its variable annuity guaranteed benefitsrisk via reinsurance solutions through non-affiliated and affiliated reinsurers.Non-affiliated reinsurance is through Ace Tempest Life Reinsurance and CGTWells Fargo, and affiliated reinsurance is through Sycamore Re, Ltd, aCayman Islands domiciled captive.

FINANCIAL INFORMATIONBALANCE SHEET ($000) - YE 2016

Assets LiabilitiesTotal bonds 5,477,140 +Net policy reserves 5,898,944Total preferred stocks 29,297 Policy claims 16,217Total common stocks 382,491 Deposit type contracts 718,374Mortgage loans 782,244 Interest maint reserve 38,413Real estate 25,604 Comm taxes expenses 39,741Contract loans 465,938 Asset val reserve 32,507Cash & short-term inv 337,089 Payable for securities lending 189,816Securities-colltrl assts 189,816 Other liabilities 250,405Prems and consids due 62,172Accrued invest income 54,514 Tot liab w/o sep accts 7,184,418Other assets 460,203 Separate account bus 20,795,232

Tot assets w/o sep accts 8,266,509 Total liabilities 27,979,650Separate account bus 20,795,232 Common stock 10,000

Surplus notes 309,546Paid in & contrib surpl 283,297Unassigned surplus 487,536Other surplus -8,289

Assets 29,061,741 Total 29,061,741

+Analysis of reserves; Life $3,418,721; annuities $2,320,320; supplementary contracts withlife contingencies $3,952; accidental death benefits $87; disability active lives $17,467;disability disabled lives $6,125; miscellaneous reserves $103,030; accident & health $29,242.



SUMMARY OF OPERATIONS ($000)Premiums: Death benefits 82,436Ordinary life 618,521 Matured endowments 655Individual annuities 1,136,804 Annuity benefits 619,603Group annuities 418,857 Disability benefits 715Acc & health other 6,655 Surrender benefits 1,340,473Total premiums 2,180,838 Acc & health benefits 1,370

Supplementary contracts 227 Int on policy funds 14,574Net investment income 332,305 Supplementary contracts 1,371Amort interest maint res 6,626 Other benefits 1,051Comm & exp reins ceded 43,696 Incr life reserves 502,324Res adj on reins ceded 40,093 Incr a & h reserves 1,910Other income 257,832 Commissions 297,743Mgt and/or service fee 302,829 Comm exp reins assumed 9,519

Insur taxes lic & fees 15,911General ins expenses 156,213Net transf to sep acct -19,646

Total 3,164,446 Total 3,026,224

Gain from operations before FIT & div to policyholders....................................... 138,222

Dividends to policyholders: life......................................................................... 89,704

Dividends to policyholders: accident & health..................................................... 2,243

Gains from operations after dividends to policyholders........................................ 46,275

Federal income taxes incurred........................................................................... -14,502

Net gain from operations after FIT and dividends................................................ 60,777

CASH FLOW ANALYSIS ($000)

Funds Provided Funds AppliedGross cash from oper 2,831,510 Benefits paid 1,753,175Long-term bond proceeds 536,970 Comm, taxes, expenses 432,409Mortgage loan proceeds 134,296 Long-term bonds acquired 978,253Other cash provided 62,863 Other cash applied 504,041Decr cash & short-term 102,239

Total 3,667,878 Total 3,667,878

—— ♦ ——

Ultimate Parent: Ohio National Mutual Holdings Inc

OHIO NATIONAL LIFE ASSURANCE CORPORATIONOne Financial Way

Cincinnati, OH 45242Mailing Address: P.O. Box 237, Cincinnati, OH 45201Tel.: 513-794-6100 Fax: 513-794-4516AMB#: 008930 NAIC#: 89206Ultimate Parent#: 050742 FEIN#: 31-0962495

BEST’S CREDIT RATING

Best’s Financial Strength Rating: A+ Outlook: StableBest’s Financial Size Category: XII

RATING RATIONALE

Rating Rationale: The ratings of Ohio National Life Insurance Company(ONLIC) have been extended to Ohio National Life Assurance Corporation(ONLAC) due to its importance to the group’s business mix, well integratedinto the group’s strategic plan, readily identified with its parent company, andthe diversity provided since ONLAC markets mainly term and universal lifefor the enterprise. Even though different products are sold through ONLAC,the two companies are operated for most purposes as if they were oneorganization. All the officers and other personnel perform the same functionsfor both companies, and both companies have the same underwriting,investment and pricing standards.


The ratings for the Ohio National Life Insurance Company (ONLIC) and itswholly owned subsidiary, Ohio National Life Assurance Corporation(together referred to as Ohio National), reflect the increased diversification ofits business profile, growth in life insurance sales, a favorable trend in totalordinary life premiums and positive statutory and GAAP results coupled withstrong levels of risk-adjusted capitalization. Partially offsetting rating factorsinclude a relatively high percentage of separate account business subject toequity, interest rate and market volatility risk; higher than average financialleverage when measured on a tangible capital basis; and the intense level ofcompetition within the retirement, life and annuity marketplaces.

Ohio National offers a diverse portfolio of life, annuity, retirement anddisability products and is strategically emphasizing expansion into the highlycompetitive U.S. retirement services marketplace. Within its core lifeinsurance and variable annuity product lines the group continues to enjoymid-level market positions with a demonstrated track record of increasing lifesales over the last twenty-seven years. Statutory and GAAP managementoperating earnings trends (MOE), which reflect adjustments for themark-to-market impact of hedging variable annuities and reinsurance, are



positive, although GAAP MOE results have remained relatively flat over thefive-year period. Risk management practices, particularly within the front endof variable annuity product design, are viewed as strong, although there ismoderate retention (net of hedging and reinsurance) of equity market, interestrate and volatility risk.

Despite some progress in diversifying Ohio National’s business profile,about two-thirds of its liabilities are related to separate account business, wellabove the life industry average. Consequently, this elevated exposurecontributes to potential operating and balance sheet volatility. Whilerisk-adjusted capital remains strong, the quality of capital has been reducedthrough the use of captive insurers to support XXX and AXXX redundantreserves and issuance of surplus notes. Financial leverage, when measured ona tangible capital basis is high, although leverage on a total capital basisremains within the higher range of A.M. Best’s guidelines. A.M. Best alsonotes that interest coverage on a GAAP MOE basis has historically beensomewhat low relative to the expectations for this rating level.

A sustained decline in net operating performance could lead to a ratingsdowngrade. A decline in risk-adjusted capitalization could also result in anegative rating action. Additionally, a meaningful increase in financialleverage or a decline in interest coverage could lead to a negative rating action.

FIVE YEAR RATING HISTORY

DateBest’sFSR Date

Best’sFSR

08/02/17 A+ 06/12/14 A+07/29/16 A+ 06/07/13 A+07/22/15 A+

KEY FINANCIAL INDICATORS ($000)Total Capital

Year Assets

CapitalSurplusFunds

AssetValuation

Reserve

NetPremiumsWritten

NetInvest

IncomeNet

Income2012 3,315,254 317,400 20,258 213,072 150,963 30,0782013 3,408,148 316,776 25,773 278,606 153,757 13,5952014 3,605,812 296,020 30,077 281,209 153,885 18,1032015 3,688,527 281,508 29,795 238,149 156,226 20,8342016 3,956,974 277,951 32,170 253,398 154,362 14,116

(*) Within several financial tables of this report, this company is compared against theIndividual Life Composite.

(*) Data reflected within all tables of this report has been compiled from the company-filedstatutory statement.

BUSINESS PROFILEThe following text is derived from A.M. Best’s Credit Report on Ohio


The Ohio National Life group of companies offers a diversified array ofindividual life and annuity products serving the middle market as well as thesmall business and professional markets. The lead company, Ohio NationalLife Insurance Company (ONLIC) and its wholly owned subsidiaries, Ohio

National Life Assurance Corporation (ONLAC) and National Security Lifeand Annuity Company (NSLAC), are among the leaders in life sales, ranking#19 and, in variable annuity sales, #16 (Per LIMRA - 2016). Assets undermanagement total about $40 billion in 2016. Also, nearly two-thirds of OhioNational’s business is separate accounts related. A major strength of OhioNational lies in the strong ties of the distribution force to the group, whichhave been cultivated over time through excellent service and a stronglyintegrated compensation structure that rewards loyalty and quality business.As a result of this structure, these channels have historically enjoyed strongpersistency, strong channel growth and sales growth when compared toindustry averages.

ONLIC is wholly owned by Ohio National Financial Services, Inc. (ONFS),an intermediate holding company, which, in turn, is wholly owned by itsultimate parent, Ohio National Mutual Holdings, Inc. (ONMH). Lifepremiums have increased for 27 consecutive years, which is a source of pridefor the group.

ONLIC is the lead company in the Ohio National Life group and marketsseveral participating whole life insurance products, and various individual andgroup annuities. Fixed annuities have not been promoted since 2009, and aconsiderable amount of the company’s fixed annuity business has beenreinsured. ONLIC’s annuity product line includes individual and groupvariable annuities, individual deferred annuities, immediate annuities,guaranteed investment contracts (GIC), fixed index annuities, and structuredlottery settlements. GIC contracts and structured settlement products aretypically sold on an opportunistic basis, and these products have beende-emphasized over the past several years. Both the individual and groupvariable annuities include a fixed income option as well as over two hundredaccount options, which provide consumers the opportunity to diversify amonga variety of investments, managers and styles. Additionally, the companyoffers pension administration servicing capabilities.

ONLAC markets universal life insurance, term life insurance and individualdisability income insurance. ONLAC has three universal life products: onefocused on young insureds, term conversions and small policies, anotherfocused on longer-term cash accumulation, and a third that is used exclusivelyfor BOLI (Bank-Owned Life Insurance). Variable universal life productsinclude a fixed income option as well as over sixty account options, whichprovide consumers the opportunity to diversify among a variety ofinvestments, managers and styles. There are three level term products withvarying guaranteed payment durations and riders from which to choose. Allare fully priced for Regulation XXX statutory reserves. These reserves arefunded with long term debt and stop loss reinsurance. All term products areavailable with accelerated death benefit and waiver of premium. OhioNational has experienced favorable mortality and persistency in its individuallife lines, and continues to enjoy a significant competitive advantage as a lowunit cost provider in its core life and annuity lines.

The group organizes its lines of business along five business segments: lifeinsurance, retirement plans, annuities, disability income insurance andinternational.

Life InsuranceThe life product portfolio is diversified and has recorded strong sales

growth that has outpaced the industry. The size of the average life policy is



more than double the industry average which management believes gives thema cost advantage. Ohio National continues to build its distribution through avariable cost system focused on life insurance. Employee regional officersalso facilitate the relationships between the group and the independentproducers/general agents. The life business mix has shifted somewhat inrecent years. Whole Life insurance, which A.M. Best considers verycreditworthy and less risky, has increased significantly since 2008. Universallife sales have decreased significantly since 2008. Term life sales havedecreased since 2008.

Life sales are through two distribution channels: producer general agents(PGA) and career agency systems. The PGA channel is comprised of 32regions covering 33 states. The strategy for future sales in this channelincludes a heavy focus on writing permanent insurance. The career agencychannel is an entrepreneurial general agency system, where the agency ownsits business plan along with a variable expense structure. It is also OhioNational’s oldest distribution system which includes a high degree of loyaltyfrom its agents. The traditional agency channel model leverages the group’sfocus on the traditional buyer of individual life insurance, annuity anddisability income products and secondly on the small business andprofessional markets. Target consumer markets within the traditional lifemarket include affluent and emerging affluent individuals and small tomedium business owners with estate planning or tax-deferred capitalaccumulation and traditional income preservation needs.

Retirement PlansCurrently retirement plans represent a modest percentage of total sales, but

management views this as a strategically important line of business and isplanning on significant growth in the near to mid-term. Distribution throughboth institutional and traditional channel producers sold $165.9 million in2016, up from $20 million in 2011. Plans are in place to increase thedistribution network and build up its infrastructure.

AnnuitiesOhio National is among the market leaders in the variable annuity market

and is well positioned to take advantage of market trends. The target market isbaby boomers that need guaranteed lifetime income, and have shown anaversion to risk. Specific products are targeted to younger accumulationclients and older income clients. In the absence of defined pension plans,which are increasingly rare, management feels that their variable annuityproducts are well suited to this demographic, especially if these products haveliving benefits which offer guaranteed lifetime income.

Ten variable annuity products are offered, with each offering flexiblepayments with different combinations of fund choices, death benefit options,liquidity features and various expense charge levels. Variable annuities areunderwritten by ONLIC, which offers living benefit features including GMIB,GLWB and GMAB in the form of policy riders. Ohio National uses both firstdollar and stop-loss reinsurance to reduce its GMDB exposure and hasprudent risk management practices (a combination of hedging, reinsuranceand use of managed volatility funds) to mitigate risks associated with its livingbenefit riders.

Distribution is through security brokerages, such as wirehouses andregional firms, and independent broker-dealers and financial institutions. The

security brokerage channel consists of 18 wholesalers and 2 divisional salesmanagers. The independent broker-dealer and financial institutions channelhave 18 wholesalers and 2 divisional sales managers.

In an effort to manage risk in its products, Ohio National introducedManaged Volatility Portfolios (MVP) in 2011. Currently, there are 21 MVPfunds from 12 fund managers. As of 2012, all new living benefit riders require100% usage of MVPs, which represents about 30% of the group’s retainedinforce business. In 2013, Ohio National introduced a rider with aninterest-sensitive component. It hedges the low interest rate risk, and if thecontract value is reduced to zero, lifetime income is determined by current 10year U.S. Treasury rates with a floor of 3% and a cap of 9%.

In September of 2016, Ohio National entered the fixed indexed annuitymarket. While sales were relatively modest in 2016, sales are expected toaccount for roughly 25% of the annuity segment’s sales in 2017.

Disability IncomeThe Disability Income line of business is an opportunity by Ohio National

to take advantage of what it believes is an underserved market. They are in theprocess of building out the sales and marketing teams and expect it to addsome earnings diversity through recurring premium. While sales were modestin 2016, management is projecting strong sales growth in the near to mid-term.

InternationalThe international segment’s objective is to augment U.S. life sales growth

with life insurance sales in higher growth markets such as Latin America. Thissegment also maintains a book of fixed annuity business in Chile.

Scope of Operations: The Ohio National life companies are licensedthroughout the U.S. except for the state of New York.

TOTAL PREMIUM COMPOSITION & GROWTH ANALYSISReinsurance

Period ————DPW———— ——Prem Assumed——Ending ($000) (% Chg) ($000) (% Chg)2012 536,220 16.4 812 -7.62013 581,764 8.5 715 -12.02014 626,266 7.6 658 -7.92015 580,190 -7.4 564 -14.32016 605,720 4.4 507 -10.0

5-Yr CAGR … 5.6 … -10.4

ReinsurancePeriod ———Prem Ceded——— —NPW & Deposits—Ending ($000) (% Chg) ($000) (% Chg)2012 323,959 26.7 213,203 3.52013 303,873 -6.2 278,712 30.72014 345,715 13.8 283,363 1.72015 342,605 -0.9 241,549 -14.82016 352,829 3.0 356,524 47.6

5-Yr CAGR … 6.7 … 11.6

Territory: The company is licensed in the District of Columbia, Puerto Rico,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.

2016 BY-LINE BUSINESS ($000)

——DPW——Reinsurance

—Prem Assumed—Product Line ($000) (%) ($000) (%)Ordinary life 584,735 96.5 … …Individual annuities 75 0.0 … …Individual A&H 20,910 3.5 507 100.0

Total 605,720 100.0 507 100.0Reinsurance

——Prem Ceded—— ——NPW——Product Line ($000) (%) ($000) (%)Ordinary life 341,710 96.8 243,025 95.9Individual annuities … … 75 0.0Individual A&H 11,120 3.2 10,297 4.1

Total 352,829 100.0 253,398 100.0

BY-LINE RESERVES ($000)Product Line 2016 2015 2014 2013 2012Ordinary life 3,000,141 2,835,151 2,675,500 2,525,998 2,416,136Supplementary contr 777 894 642 722 847Individual annuities 52,787 58,651 62,413 67,909 72,483Deposit type contracts 105,169 4,501 3,346 1,131 1,234Individual A&H 88,874 92,866 97,557 44,325 45,184

Total 3,247,748 2,992,063 2,839,458 2,640,085 2,535,884

LIFE POLICIES STATISTICS-Ordinary Policies- -Group Policies- -Group Certificates-

Year Issued In Force Issued In Force Issued In Force2012 24,051 249,909 … … … …2013 23,709 257,050 … … … …2014 23,322 262,832 … … … …2015 20,912 266,869 … … … …2016 19,424 270,958 … … … …

LIFE INSURANCE IN FORCE ($000)

Year

Whole LifeEndow. &

Adds Term Credit Group Industrial

TotalInsuranceIn Force

2012 18,009,302 115,429,507 … … … 133,438,8092013 18,918,177 121,558,674 … … … 140,476,8522014 19,743,731 128,095,243 … … … 147,838,9752015 22,660,305 130,818,687 … … … 153,478,9922016 22,621,801 135,780,443 … … … 158,402,244

NEW LIFE BUSINESS ISSUED ($000)

YearWhole Life& Endow. Term Credit Group

Indus-trial

TotalInsurance

Issued

Non-Par(%)

Par(%)

2012 1,681,677 13,916,566 … … … 15,598,243 100.0 …2013 1,531,456 14,199,707 … … … 15,731,163 100.0 …2014 1,522,888 15,251,541 … … … 16,774,429 100.0 …2015 1,198,628 13,399,289 … … … 14,597,917 100.0 …2016 1,155,480 12,773,859 … … … 13,929,339 100.0 …

ORDINARY LIFE STATISTICSOrd. 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 Force2012 6.0 89.6 648,549 533,950 3.89 7.8 103.5 170.752013 5.6 93.4 663,510 546,496 4.01 7.3 105.5 178.962014 5.7 91.1 719,253 562,485 4.11 6.4 110.7 178.132015 5.2 90.2 698,064 575,110 3.65 6.2 111.3 183.452016 5.1 93.3 717,120 584,601 3.69 5.2 120.6 161.41

First Year Gen’l Exp/ Return onNumber of Policies Premium Reserves Reserves

Year Issued In Force (000) (%) (%)2012 24,051 249,909 40,487 1.77 1.262013 23,709 257,050 41,173 1.82 0.312014 23,322 262,832 38,854 1.75 1.052015 20,912 266,869 34,906 1.73 0.922016 19,424 270,958 30,266 1.46 0.70

INDIVIDUAL ANNUITY STATISTICS

YearNPW(000)

Res(000)

Exp toRes(%)

Comm &Exp toNPW(%)


Benefits &Wdrwls to

Res (%)2012 182 73,330 0.3 114.7 999.9 12.62013 244 68,631 0.7 197.1 999.9 11.22014 101 63,055 0.3 165.6 999.9 11.92015 98 59,545 0.3 158.1 999.9 10.32016 75 53,564 0.5 384.0 999.9 10.9

TOTAL ANNUITY ACTUARIAL RESERVESBY WITHDRAWAL CHARACTERISTICS

YearTotal Annuity

Res (000)

Min or NoSurrender

Charge (%)

WithSurrenderCharge 5%or more (%)

WithMVA (%)

NoSurrender

Allowed (%)2012 73,330 86.1 0.6 … 13.32013 68,631 85.7 … … 14.32014 63,055 82.4 … … 17.62015 59,545 78.6 … … 21.42016 53,564 28.9 … … 71.1



SEPARATE ACCOUNT DATA

2016 2015 2014 2013 2012Sep Acct Assets 253,233 248,777 271,568 274,182 235,538% Growth 1.8 -8.4 -1.0 16.4 5.3S/A Assets/Adm Assets 6.4 6.7 7.5 8.0 7.1

Sep Acct Reserves 249,818 244,232 265,005 261,582 228,235% Ordinary Life 100.0 100.0 100.0 100.0 100.0Other Liabilities 3,415 4,545 6,563 12,600 7,303

S/A Prems & Deposits 12,778 13,990 14,481 15,719 17,436% Ordinary Life 100.0 100.0 100.0 100.0 100.0

Sep Acct Fees & Charges 1,416 1,552 1,604 1,542 1,497% Ordinary Life 100.0 100.0 100.0 100.0 100.0Fees & Chgs to Assets% 0.6 0.6 0.6 0.6 0.7

Sep Acct Ben & Wdrwls 12,562 15,569 19,225 15,975 19,716% Ordinary Life 100.0 100.0 100.0 100.0 100.0Ben & Wdrwl to Assets% 5.0 6.0 7.0 6.3 8.6

Market Share/Market Presence: Ohio National’s market position (perLIMRA) ranked #16 for variable annuity sales and #19 for life sales as ofyear-end 2016. In recent years, Ohio National’s variable annuity sales havedeclined, although this is generally consistent with the industry as a whole.Conversely, its U.S. life insurance sales have grown at a rate well in excess ofthe industry over the last several years. Additionally, Ohio National hasrecently entered the fixed indexed annuity market, although 2016 sales werenot material. It has also announced its plans to expand further into the U.S.retirement market which will require significant scale to build market share.

GEOGRAPHIC BREAKDOWN BYDIRECT PREMIUM WRITINGS ($000)

2016 2015 2014 2013 2012Ohio 149,192 42,307 37,116 43,654 55,498California 49,908 58,347 58,967 59,814 45,256Texas 49,902 55,785 48,344 48,584 34,271Florida 43,955 27,123 37,846 32,058 24,544North Carolina 29,936 13,066 13,239 12,181 11,089Virginia 23,596 31,133 11,165 13,073 9,110Pennsylvania 21,539 20,124 28,896 18,091 29,226New Jersey 21,172 17,881 30,181 18,123 17,666Kansas 21,017 7,502 7,426 11,854 8,659Tennessee 20,655 23,037 19,320 21,234 20,137All Other 277,750 287,969 328,622 294,725 277,859

Total 708,622 584,274 621,122 573,391 533,316

RISK MANAGEMENTThe following text is derived from A.M. Best’s Credit Report on Ohio


Ohio National’s risk management capabilities are supportive of its riskprofile, and are headed by the Chief Risk Officer (CRO) who is responsible forthe enterprise risk management program. The Enterprise Risk OversightCommittee is chaired by the CRO, and the other members on this committeeinclude the CEO, all of the CEO’s direct reports, and the heads of the strategicbusiness units (SBUs) and Internal Audit functions. The standing committeesthat address specific activities and risks include the Investment Management,Hedge Oversight, Underwriting Review, Business Continuation, BusinessProcess Review, Compliance, Interest Rate, Enterprise Product Managementand Model Assumption Governance. Internal Audit ensures that the ERMprocesses are appropriate for their objectives, information produced is of goodquality, and that process controls are operating as designed. Ohio National’smutual structure allows the enterprise to adopt a longer term perspective andbe more deliberate in its planning and actions, which is also embedded in thegroup’s risk culture. The leaders are responsible for identifying risk in theirrespective areas, and risk priorities are arranged according to their strategicimportance.

Risks are separated into sixteen categories and according to board and auditcommittee participation. Risks which are monitored by the full board are:Strategic, Life Insurance, Disability Income, Annuity, Retirement Plans,International and Non-Insurance Subsidiaries risks. The Investment ReviewCommittee monitors Credit, Interest Rate, Liquidity and Hedging risks. TheAudit Committee monitors Operational, Financial, Legal/Regulatory,Compliance and Reputation risks. For each risk, key risks are identified, alongwith risk appetite, commentary and mitigation plans.

Several key metrics are also used to monitor performance. GAAP MOE is akey profitability measure which takes out the market value changes inderivatives used in hedging living benefits on its variable annuity products.Risk-based capital and the Best Capital Adequacy Ratio are used to assessrisk-adjusted capitalization.

The life group is experienced at developing or enhancing products in whichactual results are within pricing. Reserves are also adequate and withinpricing, as verified by the actuarial memorandums and cash flow testingprogram. XXX/AXXX reserving issues are mitigated through the use ofcaptive reinsurers. Regulatory developments are monitored closely, and anOhio captive reinsurer was established in 2015 to address term reserves issuesassociated with Actuarial Guideline 48 (AG-48). Ohio National usesreinsurance extensively to mitigate exposure to risk through highly ratedexternal reinsurers or captives. To enhance financial flexibility, lines of creditare arranged in addition to FHLB financing. Investment analysis is doneregularly, in which bond allocations, durations and purchases are reviewed.General account assets and liabilities are well matched. The Company hasbrought its hedging program in house. The Company manages its variableannuity risks through a combination of reinsurance, current product design,which limits interest rate risk, managed volatility funds and delta hedging.Vega risk is partially mitigated through external reinsurance on older productdesigns along with managed volatility funds for newer products. These fundsreduce overall risk through the fund design. Net rho, or interest rate risk, onvariable annuity guarantees is limited by a portfolio of options ($2B+notional) that hedge against low rates. In addition, current product designs



significantly reduce the Company’s exposure to interest rate risk. TheCompany estimates that the newer design reduces interest rate risk on avariable annuity to roughly 20% of a traditionally designed product.Additionally, roughly 36% of rho risk for the older block has been mitigatedthrough reinsurance. The Company’s current product plans are geared towardsresponding to the current evolving regulatory environment, as well asassessing alternate product lines that provide risk diversification, incomediversification and potentially improve overall capital efficiency.

Operations are well managed. Policies and procedures are reviewed on aregular basis, and training programs are in place for home office staff and fieldforce. Succession plans are in place. Also, there are strong backup plans inregards to disaster recovery.

OPERATING PERFORMANCEThe following text is derived from A.M. Best’s Credit Report on Ohio


Operating Results: Ohio National’s combined statutory net income in 2016was almost $23 million, down from $56 million in 2015. Variable annuitysales continued to decline, as did yields and net investment income. 2015results decreased from $79 million in 2014, as premiums decreased modestlyprimarily due to a decrease in variable annuity sales. In addition, results wereimpacted by higher annuity and surrender benefits and higher generalexpenses, which were partially offset by higher investment income and lowerfederal taxes incurred.

The company manages to a GAAP MOE metric which adjusts for theimpact of changes in the value of an external reinsurance agreement and themarket impact of hedging variable annuities. GAAP MOE results have beenrelatively flat over the last five years. The group benefits from a variable coststructure and prudent expense management.

Ohio National’s combined statutory net income in 2014 was $79 million, anincrease from $50 million in 2013. Premiums increased modestly in 2014, asan increase in life premiums offset a decrease in variable annuity sales.Partially offsetting revenues are higher annuity and surrender benefits andhigher general expenses partially offset by transfers from separate accounts,lower federal taxes incurred and a decrease in change in reserves due to therecapture of disability income and less variable annuity sales. GAAP netincome improved mainly due to higher premiums, lower derivative relatedcapital losses, a decrease in benefits and claims partially offset by higherdeferred acquisition costs, other operating costs and higher deferred incometaxes.

Ohio National’s combined statutory net income for 2013 was $50 million,down from $105 million in 2012. Net income includes new business strainfrom the sale of ordinary life insurance, strain from guaranteed investmentcontracts, increases in policyholder dividends, lower portfolio yields andhigher general insurance expenses. Growth in variable annuity sales, whilestill strong, contracted somewhat in 2013 in response to ongoing productde-risking. Ordinary life premium was strong, with a five year compoundannual growth rate well in excess of the industry average.

PROFITABILITY ANALYSIS ($000)————————Company————————

Pre-tax NetPeriod Net Oper Operating Net TotalEnding Income Gain Income Return2012 39,329 30,929 30,078 30,8172013 17,194 7,914 13,595 13,5402014 42,005 24,942 18,103 18,0962015 25,311 21,622 20,834 20,7952016 28,394 17,465 14,116 14,154

5-Yr Total 152,233 102,872 96,726 97,402

———Company——— —Industry Composite—Period Operating Operating Operating OperatingEnding ROR (%) ROE (%) ROR (%) ROE (%)2012 7.0 9.5 5.6 7.02013 1.5 2.5 7.9 8.92014 4.8 8.1 12.6 12.82015 4.8 7.5 5.5 8.52016 3.7 6.2 13.2 12.0

5-Yr Avg 4.3 6.8 8.5 9.9

PROFITABILITY TESTSComm & Pre-tax

Ben Paid Exp to NOG Operating Investto NPW NPW to Tot NOG to Return on Net Total

Year & Dep & Dep Assets Tot Rev Equity Yield Return2012 68.0 27.2 1.0 7.0 9.5 5.79 5.702013 49.1 19.1 0.2 1.5 2.5 5.60 5.442014 54.0 25.6 0.7 4.8 8.1 5.31 5.342015 61.1 34.6 0.6 4.8 7.5 5.14 5.042016 44.5 20.2 0.5 3.7 6.2 4.77 4.67

5-Year Avg 53.9 24.7 0.6 4.3 6.8 5.30 5.21


NET OPERATING GAIN ($000)Product Line 2016 2015 2014 2013 2012Ordinary life 20,956 26,006 28,114 7,759 30,495Supplementary contr 288 -7 19 4 -40Individual annuities 750 565 1,084 975 1,271Group annuities 1,049 … … … …Individual A&H -5,579 -4,940 -4,274 -824 -797

Total 17,465 21,622 24,942 7,914 30,929



ACCIDENT & HEALTH STATISTICS ($000)Net Premiums Net Premiums Loss Exp. Underwriting

Year Written Earned Ratio Ratio Results2012 4,997 5,161 29.2 74.6 -4,5912013 4,963 4,891 39.8 74.3 -4,3592014 64,167 64,637 96.4 13.6 -10,3962015 9,484 9,434 56.2 117.0 -13,5302016 10,286 10,202 61.7 123.2 -13,938Current Year Experience:Non-can. 9,307 9,229 67.3 127.5 -13,567Guarant renew 807 813 -6.8 61.9 261Non-renew, S.R. 171 160 86.2 173.7 -633

INVESTMENT GAINS ($000)—————————Company—————————Net Realized UnrealizedInv Capital Capital

Year Income Gains Gains2012 150,963 -851 7392013 153,757 5,682 -552014 153,885 -6,839 -72015 156,226 -788 -392016 154,362 -3,349 38

5-Year Total 769,193 -6,146 676——————Company—————— -Industry Composite-

Pre-taxInvest

Inv Inc Inv Return on Total Inv Inc InvGrowth Yield Inv Assets Return Growth Yield

Year (%) (%) (%) (%) (%) (%)2012 -1.9 5.8 5.8 5.7 -6.5 5.02013 1.9 5.6 5.8 5.4 3.9 5.22014 0.1 5.3 5.2 5.3 15.0 5.82015 1.5 5.1 5.2 5.0 -11.0 5.02016 -1.2 4.8 4.7 4.7 1.7 4.9

5-Yr Avg 0.1 5.3 5.3 5.2 0.2 5.2


BALANCE SHEET STRENGTHThe following text is derived from A.M. Best’s Credit Report on Ohio


Capitalization: The Ohio National Life Group’s risk-adjusted capitalizationis more than sufficient to support its insurance, investment and business risks.Surplus remained relatively flat from 2014 to 2016, despite dividends to itsparent. Surplus increased to $1.1 billion in 2014 from $1.0 billion in 2013mainly due to net income, partially offset by a change in unrealized losses insubsidiaries and increased dividends to its parent. Surplus decreased to $1.0

billion in 2013 from $1.05 billion in 2012, mainly due to the payment ofdividends to its parent, the payment of the Montgomery Re surplus note, andthe impact of derivative losses related to its hedging program. Partiallyoffsetting these losses were net income and a capital contribution from itsparent.

On a qualitative basis, the assets of ONFS and ONMH (the intermediate andtop-tier holding company entities of the mutual holding company structure)are available to support policyholder claims in the unlikely event that ONLICneeds funds to meet its liabilities. ONLIC’s and ONLAC’s statutory capitalbenefits by its use of surplus notes which represents nearly 30% of total capitaland surplus. In addition, Ohio National extensively uses reinsurance to helpmitigate its risk exposures, which includes the use of captive reinsurers for itsXXX and AXXX reserves and living benefit guarantees associated with itsvariable annuities.

ONLIC’s statutory capitalization includes three surplus notes. Two surplusnotes, which were used to purchase all of the ownership of NSLAC, wereissued to Security Mutual Life Insurance of New York. One is for $4.5 milliondue December 15, 2031. The other is for $6.0 million due April 1, 2027. A$250 million surplus note was issued in 2012 and used to retire debt at theholding company and support XXX reserves at Montgomery Re.

Current BCAR: 219

CAPITAL GENERATION ANALYSIS ($000)——————Source of Surplus Growth——————

Pre-Tax Net Realized UnrealizedAdjusted Capital Income Capital

Year Gain Gains Taxes Gains2012 39,329 -851 8,400 7392013 17,194 5,682 9,280 -552014 42,005 -6,839 17,063 -72015 25,311 -788 3,689 -392016 28,394 -3,349 10,929 38

5-Yr Total 152,233 -6,146 49,361 676—————Source of Surplus Growth—————Change Change % Chg

in Other in inYear AVR Changes C&S C&S2012 -6,437 -39,386 -15,006 -4.52013 -5,515 -8,648 -623 -0.22014 -4,303 -34,548 -20,756 -6.62015 282 -35,589 -14,513 -4.92016 -2,375 -15,336 -3,557 -1.3

5-Yr Total -18,349 -133,508 -54,455 -3.5



QUALITY OF SURPLUS ($000)Surplus Other Contributed Unassigned

Year Notes Debt Capital Surplus2012 … … 97,576 219,8232013 … … 97,576 219,2002014 … … 97,576 198,4442015 … … 97,576 183,9312016 … … 97,576 180,374

Year-End Asset Valuation AdjustedYear C&S Reserve C&S2012 317,400 20,258 337,6582013 316,776 25,773 342,5492014 296,020 30,077 326,0972015 281,508 29,795 311,3032016 277,951 32,170 310,121

LEVERAGE ANALYSIS————————Company———————— -Industry Composite-C&S NPW & Dep Change C&S

to Surplus to Total in NPW to SurplusYear Liab(%) Relief(%) Capital & Dep(%) Liab(%) Relief(%)2012 12.3 16.0 0.6 3.5 17.7 4.52013 12.3 20.1 0.8 30.7 17.8 3.32014 10.8 19.1 0.9 1.7 17.5 2.12015 10.0 13.8 0.8 -14.8 17.3 3.82016 9.1 14.4 1.1 47.6 17.8 5.6

CEDED REINSURANCE ANALYSIS—————————Company————————— -Industry Composite-

Face Affil Unaffil Total TotalAmount Reins Reins Reins Surplus Reins Reins Reins

Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage2012 109,698,487 1.5 6.6 8.1 16.0 508.5 2.9 86.12013 125,449,522 2.9 4.1 7.0 20.1 600.5 2.8 99.92014 132,417,666 3.7 6.9 10.5 19.1 721.5 2.9 106.82015 137,312,453 5.2 8.4 13.6 13.8 847.8 3.0 112.32016 142,166,121 4.4 5.9 10.3 14.4 928.8 3.0 108.8


Liquidity: Ohio National holds sufficient liquidity to meet sudden, unplannedneeds for cash. Short-term and long term liquidity ratios are strong, andcurrent and overall liquidity ratios are comparable to industry averages. Atyear-end 2016, cash and short-term assets comprise 3.1% of general accountinvested assets. . In April 2016, ONFS entered into a senior unsecured,syndicated letter of credit facility with a capacity of $525 million at December31, 2016. This facility replaced two facilities ONFS had previously had inplace with capacities of $150 million and $170 million. At December 31,2016, ONFS used $365 million of the new facility to secure a letter of credit

for Sycamore Re, a subsidiary of ONFS, and $15 million is outstandingrelated to initial transactions in the Latin American corporate structure thatwere carried forward from the prior two facilities. In addition, Ohio National isa member of the Federal Home Loan Bank of Cincinnati. Other liquidityresources include access to securities lending programs for both ONLIC andONLAC. Financial leverage for ONFS is elevated when measured on atangible capital basis, but within the guidelines for its ratings on a traditionaldebt to capital basis, although interest coverage is below guidelines. However,interest coverage is supported by some holding company liquidity and no nearterm debt maturities. The company does not have a minimum holdingcompany liquidity threshold but does try to maintain a minimum of 2 timesinterest coverage at the holding company level.

LIQUIDITY ANALYSIS———————————Company———————————

Operating Non-Inv Delnq &Cash Quick Current Grade Bonds Foreclsd

Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital2012 147,204 36.2 79.7 43.5 …2013 145,321 37.9 81.6 38.4 …2014 201,455 38.1 82.5 42.0 …2015 157,728 38.5 82.6 38.6 …2016 204,593 38.2 84.4 49.9 …

————Company———— ——Industry Composite——Mortgage Affil

& RE Invest Quick CurrentYear to Capital to Capital Liquidity Liquidity2012 118.5 … 48.1 82.52013 114.4 … 46.3 81.72014 116.0 … 45.4 80.92015 123.2 … 44.9 81.02016 122.4 … 45.7 81.9


Investments: Ohio National’s invested assets as of year-end 2016 are $11billion, up from $10.2 billion in 2015. Total invested assets are comprised of76% bonds, 10.6% mortgages, 3.6% other invested assets, 3.1% cash &short-term with the balance in stocks, real estate and contract loans. Separateaccount assets as of December 2016 are $21.4 billion, up from $20.5 billion in2015 and up significantly from $11.9 billion in 2011. The primary drivers ofgrowth include variable annuity sales and deposits and continued favorableequity market performance.

In recent years, Ohio National has taken measures to reduce its investmentrisk profile. One of the main initiatives involved the use of managed volatilityportfolios (MVPs), which was first introduced in 2011. MVP’s are part of itsseparate account assets and used to reduce the overall risk profile of itsvariable annuities. MVPs offer 21 funds from 12 product managers, andmanagement plans to offer additional funds going forward. For all new living



benefit riders introduced since January 2012, Ohio National mandates 100%usage of MVPs, which now comprise over 30% of retained in-force.

INVESTMENT YIELDSCash & Invest.

Net Short- —Real Estate— Exp.Year Yield Bonds Stocks Mortgages Term Gross Net Ratio2012 5.79 5.82 1.83 6.38 … … … 1.552013 5.60 5.56 6.23 6.35 … … … 1.132014 5.31 5.20 5.28 6.62 … … … 1.212015 5.14 5.05 5.80 6.16 … … … 1.262016 4.77 4.72 4.88 5.53 … … … 1.54

Investments - Bond Portfolio: At year-end 2016, bonds comprise about 76%of general account invested assets. Holdings are primarily invested incorporate bonds, and are well diversified among various industry sectorsincluding utilities, energy, financial services, asset-backed andmortgage-backed securities. Almost 95% of bonds are investment grade.About 38% of bonds are private placements, as the life group increased itsholdings in this asset type to increase yield while trading some liquidity.Structured securities represent a typical portion of holdings and are highlyrated and performing well. Ohio National employs a buy and hold strategy,where bond turnover is less than the industry average.

While bond yields have been steadily decreasing in recent years, due to lowinterest rates, they are above the life industry average. Unrealized gainscontinue to be strong at about $310 million. However, A.M. Best notes that thegroup’s unrealized gain position will be compromised if there is a rapid rise ininterest rates.

INVESTMENTS - SECURITIESCurrent Year Distribution of Bonds By Maturity

————Years———— Yrs-Avg0-1 1-5 5-10 10-20 20+ Maturity

Government 0.2 1.2 1.8 0.8 0.1 8Gov’t Agencies & Muni 0.3 2.5 5.7 7.5 1.4 11Industrial & Misc 7.6 24.0 34.1 10.5 2.3 7Hybrid Securities … … … … 0.1 25

Total 8.1 27.7 41.5 18.8 3.8 8

2016 2015 2014 2013 2012Bonds (000) 2,846,876 2,573,285 2,466,038 2,265,214 2,177,370US Government 4.0 2.9 3.2 3.3 2.3Foreign Government 0.1 0.0 0.0 0.1 0.1State/Special Revenue - US 17.3 17.3 14.1 13.9 10.6Industrial & Misc - US 78.6 79.8 82.6 82.7 87.0

Private Issues 36.2 34.0 34.1 33.3 34.2Public Issues 63.8 66.0 65.9 66.7 65.8

Bond Quality (%) 2016 2015 2014 2013 2012Class 1 60.9 59.5 57.0 56.1 53.6Class 2 33.6 35.8 37.4 38.1 39.6Class 3 4.3 3.8 4.6 4.4 4.5Class 4 0.7 0.7 0.6 0.9 1.6Class 5 0.2 0.0 0.2 0.4 0.5Class 6 0.2 0.1 0.1 0.1 0.2

INVESTMENTS - EQUITIES2016 2015 2014 2013 2012

Stocks (000) 19,537 16,107 16,868 11,374 5,365Unaffiliated Common 32.9 0.0 0.0 1.0 2.0Unaffiliated Preferred 67.1 100.0 100.0 99.0 98.0

Investments - Mortgage Loans and Real Estate: Commercial mortgagesrepresented 10.6% of invested assets at year-end 2016, and have beendeclining in recent years. While management likes this asset class, they alsofeel that increased competition for mortgages may not result in the desiredyields and have moderated the issuance of mortgages. The mortgage portfoliois well diversified by both state and property type. Mortgages are issued in 42states, with the highest exposure in the East North Central and South Atlanticregions. Holdings by property type are Office (21%), Retail (29%), Other(20%) and the balance in Industrial and Apartments. The average loan to valueis relatively low and debt service coverage ratios are strong. Overallperformance of the mortgages is strong, with no foreclosures in 2016. Whilethe allocation to mortgages is close to the industry average, Ohio Nationaldoes not buy investment real estate and has limited CMBS exposure. Inaddition, both the mortgage and private placement portfolios containmake-whole provisions which protect against reinvestment risk.

INVESTMENTS - MORTGAGE LOANS & REAL ESTATE2016 2015 2014 2013 2012

Mortgages (000) 379,644 383,523 378,230 391,902 400,006Commercial 100.0 100.0 100.0 100.0 100.0

INVESTMENTS - OTHER INVESTED ASSETS2016 2015 2014 2013 2012

Other Inv Assets (000) 188,128 156,352 188,917 172,518 166,957Cash -2.8 -7.6 -3.0 -2.6 -4.5Schedule BA Assets … 0.1 0.1 0.1 0.2All Other 102.8 107.5 103.0 102.5 104.2

HISTORYDate Incorporated: 06/26/1979 Date Commenced: 08/22/1979

Domicile: OH

MANAGEMENT

Officers: Chairman, President and Chief Executive Officer, Gary T. Huffman;Vice Chairman, Christopher A. Carlson (Strategic Businesses); Executive



Vice President and Chief Risk Officer, Kristal E. Hambrick; Executive VicePresident and Chief Administrative Officer, Barbara A. Turner; ExecutiveVice President and Chief Officer, H. Douglas Cooke III (Distribution); SeniorVice President and Chief Financial Officer, Arthur J. Roberts; Senior VicePresident and Chief Investment Officer, Paul J. Gerard; Senior Vice Presidentand Chief Actuary, Kush V. Kotecha (Corporate); Vice President andSecretary, Therese S. McDonough; Vice President and Treasurer, Doris L.Paul; Senior Vice President, General Counsel and Chief Compliance Officer,Dennis L. Schoff.

Directors: Christopher A. Carlson, Harry D. Cooke III, Gary T. Huffman,Barbara A. Turner.

REGULATORYAn examination of the financial condition was made as of December 31,

2015, by the insurance department of Ohio. The 2016 annual independentaudit of the company was conducted by KPMG, LLP. The annual statement ofactuarial opinion is provided by Kush V. Kotecha, Senior Vice President &Corporate Actuary.

Reserve basis: (Current ordinary business): 1980 and 2001 CSO 4 1/2%;CRVM. (Current annuity business): Annuity 2000 3%.

FINANCIAL INFORMATIONBALANCE SHEET ($000) - YE 2016

Assets LiabilitiesTotal bonds 2,846,876 +Net policy reserves 3,142,579Total preferred stocks 13,106 Policy claims 14,190Total common stocks 6,431 Deposit type contracts 105,169Mortgage loans 379,644 Interest maint reserve 8,159Contract loans 107,931 Comm taxes expenses 11,724Cash & short-term inv -5,178 Asset val reserve 32,170Securities-colltrl assts 84,665 Payable for securities lending 84,665Prems and consids due 138,534 Other liabilities 27,134Accrued invest income 30,395Other assets 101,336 Tot liab w/o sep accts 3,425,790

Separate account bus 253,233Tot assets w/o sep accts 3,703,741

Separate account bus 253,233 Total liabilities 3,679,023Common stock 9,600Paid in & contrib surpl 87,976Unassigned surplus 180,374

Assets 3,956,974 Total 3,956,974

+Analysis of reserves; Life $2,987,563; annuities $52,787; supplementary contracts with lifecontingencies $777; accidental death benefits $87; disability active lives $1,196; disabilitydisabled lives $6,569; miscellaneous reserves $4,726; accident & health $88,874.

SUMMARY OF OPERATIONS ($000)Premiums: Death benefits 64,531Ordinary life 243,025 Matured endowments 10Individual annuities 75 Annuity benefits 3,612Acc & health other 10,297 Disability benefits 585Total premiums 253,398 Surrender benefits 72,508

Net investment income 154,362 Acc & health benefits 10,385Amort interest maint res 3,119 Int on policy funds 1,776Comm & exp reins ceded 39,956 Supplementary contracts 119Other income 1,416 Other benefits 5,176Mgt and/or service fee 19,492 Incr life reserves 177,552

Incr a & h reserves -3,228Commissions 48,349Comm exp reins assumed 37Insur taxes lic & fees 15,312General ins expenses 48,307Net transf to sep acct -1,682

Total 471,744 Total 443,350

Gain from operations before FIT & div to policyholders....................................... 28,394

Federal income taxes incurred........................................................................... 10,929

Net gain from operations after federal income taxes............................................. 17,465

CASH FLOW ANALYSIS ($000)

Funds Provided Funds AppliedGross cash from oper 446,041 Benefits paid 121,256Long-term bond proceeds 276,450 Comm, taxes, expenses 122,412Mortgage loan proceeds 60,955 Long-term bonds acquired 551,263Other cash provided 116,401 Other cash applied 98,229

Incr cash & short-term 6,687

Total 899,847 Total 899,847





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A Best's Financial Strength Rating (FSR) is an independent opinion ofan insurer's financial strength and ability to meet its ongoing insurancepolicy and contract obligations. An FSR is not assigned to specificinsurance policies or contracts and does not address any other risk,including, but not limited to, an insurer's claims-payment policies orprocedures; the ability of the insurer to dispute or deny claims payment ongrounds of misrepresentation or fraud; or any specific liabilitycontractually borne by the policy or contract holder. An FSR is not arecommendation to purchase, hold or terminate any insurance policy,

contract or any other financial obligation issued by an insurer, nor doesit address the suitability of any particular policy or contract for aspecific purpose or purchaser.

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Documents

THE OHIO NATIONAL LIFE INSURANCE COMPANY A+ OHIO … · and Annuity Company (NSLAC), are among the leaders in life sales, ranking #19 and, in variable annuity sales, #16 (Per LIMRA