MAY 07, 2003 12:00 AM (EDT)

A.M. Best Downgrades Rating of Baltimore Life


CONTACTS:
 Analyst(s)
Andrew Gold
(908) 439-2200, ext. 5487
andrew.gold@ambest.com
Public Relations
Jim Peavy
(908) 439-2200, ext. 5644
james.peavy@ambest.com

Rachelle Striegel
(908) 439-2200, ext. 5378
rachelle.striegel@ambest.com

FOR IMMEDIATE RELEASE

OLDWICK, N.J. - MAY 07, 2003 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B+ (Very Good) from B++ (Very Good) of the Baltimore Life Insurance Company (Owings Mills, MD). The rating has been assigned a negative outlook.

This rating action reflects the decline in the company's capitalization on both an absolute and risk-adjusted basis, combined with a weakened operating performance. Capital and surplus declined by two-thirds in the last five years. Over the same period, direct premium writings grew by over 100%, which has put pressure on the company's capital base due to the expanded new business production.

Baltimore Life has reported statutory operating losses the last three years and declining operating results over the last five years. Strain from its recent sales growth and high general expenses are primary contributors to the weakened operating results. The relatively high cost career agency distribution system has undergone recent productivity initiatives in an effort to increase new business levels at more favorable unit costs. The company expects these agency initiatives-when combined with other corporate initiatives to control expenses-to ultimately improve operating results. However, A.M. Best notes that measures to-date have not resulted in improved operating earnings.

Baltimore Life's declining profitability and investment losses, combined with its success in growing sales, have significantly weakened its risk-adjusted capitalization. A.M. Best is also concerned with the level of credit risk as the company's position in below investment grade bonds represents nearly two times capital and surplus.

Capitalizing on its product development and marketing expertise, Baltimore Life continues to demonstrate solid growth trends in its new specialty product businesses, such as worksite marketing, final expense life insurance and group term life insurance. In recent years, the company's worksite marketing operation, which markets voluntary term life, disability, dental and critical illness products through independent worksite professionals, has grown rapidly. Baltimore Life has increased the number of distribution sources in each of its distribution channels in recent years, which reflects the group's success with its strategy of identifying and servicing specific market needs.

The financial strength rating of B++ (Very Good) of Baltimore Life's subsidiary, Life of Maryland, Inc. (Owings Mills, MD), has been revised to NR-3 (Rating Procedure Inapplicable). This rating action recognizes that all business was reinsured to Baltimore Life in late 2002 and that Life of Maryland is currently not generating any new business.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source.

Related Companies

For information about each company, including the Best's Credit Reports, group members (where applicable) and news stories, click on the company name. An additional purchase may be required.

AMB# Company Name
006143 Baltimore Life Insurance Company
009056 Life of Maryland Inc