CHICAGO--(BUSINESS WIRE)--Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings of Security Benefit Life Insurance Company (SBLIC) and its affiliate, First Security Benefit Life Insurance and Annuity Company of New York (FSBLIANY) to 'A' from 'A '. The short-term IFS of SBLIC remains at 'F1'. The ratings remain on Rating Watch Negative.

The action follows this morning's announcement by Security Benefit Corporation (Security Benefit), SBLIC's intermediate holding company, that it has completed its acquisition of Rydex Investments (Rydex). In a Rating Action Commentary released on June 28, 2007, following Security Benefit's announcement of the deal, Fitch placed the company's ratings on Rating Watch Negative and indicated that the ratings would be lowered by one notch when the transaction was completed.

While Fitch believes that the acquisition of Rydex makes strategic sense given Security Benefit's focus on the variable annuity and asset management businesses, today's rating action reflects Fitch's concerns regarding financing of the transaction and the related adverse effect on Security Benefit's balance sheet fundamentals, the historical strength of which has provided substantial support for the company's ratings.

The Negative Watch status reflects Fitch's concerns regarding ultimate financing of the acquisition and the company's exposure to subprime mortgages through its investments in securities backed by such assets.

The acquisition is being funded through an immediate payment of two-thirds of the purchase price, with the balance being paid in two equal installments three months and six months after the close. Fitch expects funding to be accomplished through a combination of asset sales and some form of debt issuance.

The company's surplus exposure to subprime related investments is significantly above average for the life insurance industry, and Fitch believes that deteriorating conditions in the mortgage market and the economy as a whole could further impair the quality of Security Benefit's portfolio of asset-backed securities.

Rydex is a privately-held asset management company headquartered in Rockville, Maryland. The company manages in excess 80 mutual funds covering a broad assortment of strategies, and reported approximately $16 billion in assets under management at September 30, 2007.

Security Benefit's ratings reflect the company's solid balance sheet fundamentals, strong competitive position in the 403(b) K-12 market, and modest earnings profile. Based on yearend 2006 financial information, Security Benefit's score on Prism, Fitch's new economic capital model, indicated that the company's available capital was 176% of required capital at the 'AAA' level. Adjusting for the acquisition of Rydex, Security Benefit's score is expected to remain modestly above 'AAA' capital, but the excess will be greatly diminished. At year-end 2006, SBLIC reported an NAIC risk-based capital (RBC) ratio of 743% of company-action level. Fitch estimates that the company's RBC ratio will drop significantly below 500% as a result of this transaction.

Security Benefit's ratings also consider SBLIC's significant revenue exposure to equity market performance, given its large book of variable annuities and its mutual fund operation, and what Fitch considers to be an above average exposure of its fixed annuity block to low interest rates.

Topeka, Kansas-based, Security Benefit Corporation is a financial services organization marketing fixed and variable annuities, mutual funds, various retirement programs and administrative services. The primary operating company, SBLIC, reported statutory admitted assets of $12.5 billion and capital and surplus of $577 million at September 30, 2007.

Fitch downgrades the following ratings and maintains the Rating Watch Negative:

Security Benefit Life Insurance Company

--IFS from 'A ' to 'A';

First Security Benefit Life Insurance and Annuity Company of New York

--IFS from 'A ' to 'A';

Fitch maintains the Rating Watch Negative on the following for SBLIC:

--Short-term IFS at 'F1'

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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Source: Fitch Ratings

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