Eric Brady | The Roanoke Times

Its investment portfolio battered by the subprime mortgage meltdown, Roanoke-based Shenandoah Life Insurance Co. said Wednesday it intends to merge with a large Indiana insurance company.

The same day the company revealed a more than $60 million loss so far this year, it announced a plan to merge into OneAmerica Financial Partners and receive a cash infusion from its suitor.

While regulators and policyholders analyze the deal, which could be finalized in mid-2009, Shenandoah Life expects to continue normal operations.

Signs of trouble became evident in September when Shenandoah confirmed that it was one of a number of U.S. companies facing big-time losses in the stock of secondary mortgage market entities Freddie Mac and Fannie Mae. Shares of the companies have plunged in the wake of subprime, or credit-challenged, borrowers defaulting on home loans in record numbers.

During the first nine months of the year, Shenandoah Life made money selling insurance, but its investments lost $69.9 million, resulting in a net loss of $61.5 million. During the same period last year, it earned $4.7 million.

While the Virginia Bureau of Insurance said the company continues to meet all the requirements to hold its license, company executives decided Shenandoah might be healthier if linked to a larger entity.

"Given the current economic environment and our own position within that environment and our industry, it makes good business sense to look at a possible merger with a strong partner to achieve enhanced capital strength and a larger scale," Shenandoah Life spokeswoman Cynthia Light said.

Light said the two corporations negotiated a letter of intent to merge during the past several weeks. Light said she did not know the amount of the cash infusion OneAmerica would be anticipated to provide.

Shenandoah Life Chief Executive Officer Robert Clark, who became president in 1994 after leaving Meridian Life Insurance Co. in Indianapolis, could not be reached for comment.

Clark's predecessor, Joseph Stephenson, was forced to step down in 1993 amid complaints from the company's 200 general agents of mismanagement and arbitrary decisionmaking. Stephenson's exit followed the company's posting of a $1.7 million loss in 1992.

Western Virginians won't soon forget the loss of local corporate headquarters as homegrown companies such as Norfolk & Western Railway and Dominion Bankshares in Roanoke and First National Bank in Christiansburg entered into corporate mergers.

Now Shenandoah Life, which was founded in Roanoke in 1914 and has become the second-largest Virginia-based life insurer, is proposing its own merger.

In this case, the proposal would make Shenandoah Life a subsidiary of an Indiana holding company, American United Life Insurance Co., which operates OneAmerica. Both are in Indianapolis.

That said, Shenandoah Life said it expects to keep its name, Brambleton Avenue headquarters and 280 employees, Light said.

Shenandoah Life would "remain a distinct insurance company with significant operations and growth opportunities in Roanoke," a news release said.

According to Light: "Neither side is looking at this as just an economies-of-scale, expense-savings move. It's about growth."

The two companies have a number of things in common.

OneAmerica, which offers individual life insurance polices and annuity products, retirement products and employee benefits, operates in 49 states.

Shenandoah, which offers individual life policies and annuity products and employee benefits, operates in 31 states. Both operate in the District of Columbia and both are policyholder owned, meaning customers also share in the financial success of the operation.

OneAmerica has nearly $20 billion in assets and carries a rating of "excellent" for financial strength from A.M. Best Co., a credit rating company. Shenandoah Life, by comparison, has assets of $1.6 billion and a rating of "good" for its financial strength.

A.M. Best said Wednesday that, in light of the merger plan, it had changed its outlook for Shenandoah Life from "negative" to a more favorable status called "developing implications."

Robert Stewart, an A.M. Best analyst, said he will review Shenandoah Life again if the two companies receive regulator and policyholder approval and indeed merge.

"I think this is pretty preliminary," he said. "They signed their agreements. There are more steps they are going to take."

Edward Buyalos, chief financial auditor for the state insurance bureau, offered a favorable comment in a brief interview.

"OneAmerica seems to be a very good company, and it seems to be a good combination," he said.

If the deal goes through, Shenandoah Life policyholders will become stakeholders in OneAmerica. In the meantime, Shenandoah Life plans to keep paying dividends to its policyholders despite the huge investment losses this year.

Joyce Waugh, president of the Roanoke Regional Chamber of Commerce, said her read on the potential deal is positive.

"They keep their name. They keep their place. And become stronger," she said. "I think it's a win-win."