OLDWICK, N.J.--()--A.M. Best Co. has upgraded the financial strength rating (FSR) to B+ (Good) from B (Fair) and issuer credit ratings (ICR) to “bbb-” from “bb” of Security Benefit Life Insurance Company (Topeka, KS) and its affiliate, First Security Benefit Life and Annuity Company of New York (Rye Brook, NY) (collectively known as Security Benefit Group).
In addition, A.M. Best has upgraded the debt ratings to “bb-” from “b+” on the existing surplus notes issued by Security Benefit Life Insurance Company. All ratings have been removed from under review with positive implications and assigned a stable outlook. Both companies are subsidiaries of Security Benefit Corporation, which will be controlled by a new holding company led by Guggenheim Partners (Guggenheim). (See below for a detailed listing of the debt ratings.) With the completion of the acquisition transaction by Guggenheim on July 30, 2010, Security Benefit Mutual Holding Corporation has been demutualized.
The rating actions reflect Security Benefit Group’s improved risk-adjusted capitalization, which is supported by a large cash capital infusion by Guggenheim, enhanced financial flexibility to support new business growth opportunities and the potential improvement in the asset allocation strategy given the benefits of Guggenheim’s investment expertise. A.M. Best also notes that Security Benefit Group’s financial leverage and exposure to a high level of intangible assets associated with the past acquisition of the Rydex Holdings transaction will be lowered as a result of the fresh capital contribution from Guggenheim.
Security Benefit Group’s relationship with Guggenheim, who has managed the group’s investment portfolio since June 2009, provides it with investment management expertise, better asset/liability management focus and potential improvement to the group’s asset allocation strategy going forward. Security Benefit Group’s GAAP and statutory operating income have improved in recent periods due to improved investment results and reduction of its operating expenses as well as an improvement in the financial markets, which positively impacted guaranteed minimum death benefit reserves and surrender activity.
Partially offsetting factors are the group’s reduced premiums, particularly within its variable annuity lines of business, high asset allocation to residential mortgage-backed securities, which are mostly agency sponsored bonds, reduced but still a large unrealized loss position in its general account portfolio tied to collateralized debt obligations and other structured asset classes, and its large affiliated investment in SGI-Rydex, which represents significant exposure relative to its capital and surplus position. The group also will face challenges as it attempts to rebuild marketing momentum in its core variable and fixed annuity businesses, sold primarily to the 403(b) retirement marketplace.
A.M. Best expects that the levels of risk-adjusted capitalization, financial leverage ratios and operating results will continue to support the current ratings. A.M. Best also expects that the level of intangible assets at the holding company will be at a manageable level following the completion of the restructuring.
The following debt ratings have been upgraded:
Security Benefit Life Insurance Company—
-- to “bb-” from “b+” on $50 million 8.75% surplus notes, due 2016
-- to “bb-” from “b+” on $100 million 7.45% surplus notes, due 2033
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The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.
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