AM Best

A.M. Best Downgrades Ratings of SBLI USA Mutual Life Insurance Company and Its Subsidiary



Steven Faulks

(908) 439-2200, ext. 5035

Thomas Rosendale

(908) 439-2200, ext. 5201

Public Relations

Jim Peavy

(908) 439-2200, ext. 5644

Rachelle Morrow

(908) 439-2200, ext. 5378


OLDWICK, N.J. - JUNE 08, 2009 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit ratings to "bbb" from "a-" of SBLI USA Mutual Life Insurance Company (SBLI USA) (New York, NY) and its wholly owned subsidiary, S.USA Life Insurance Company (S.USA) (Phoenix, AZ). The two companies are collectively referred to as the SBLI USA Group. The outlook for all ratings has been revised to negative from stable. S.USA supports SBLI USA's geographic expansion efforts outside of New York State.

While acknowledging the group's consolidated risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR) currently remains sufficient relative to its current business and investment risks, the substantial decline in absolute capital and surplus has left the group with substantially less excess capital and reduced its financial flexibility. Specifically, these rating actions reflect an approximately 30% decline in SBLI USA Group's absolute capital and surplus in 2008 and through first quarter 2009, principally due to investment losses triggered by the current credit market turmoil and the continued weakening of the economic environment.

The rating actions further consider A.M. Best's view that the group's absolute and risk-adjusted capital positions remain at risk for additional impairments, should the current credit market environment and general economic conditions further deteriorate. SBLI USA Group's fixed income portfolio is currently exposed to a substantial gross unrealized loss position—more than two times total capital and surplus. This gross unrealized loss position is concentrated primarily in its sizeable portfolio of mortgage-backed securities—both commercial and residential with exposure to the Alt-A and subprime residential markets—as well as its investments in financial sector corporate bonds.

SBLI USA has invested in highly rated tranches and has conducted extensive stress-testing of its mortgage-backed securities portfolio under a variety of economic scenarios. Currently, all mortgage-backed securities are paying interest and principal. However, A.M. Best believes that these holdings along with SBLI USA's direct investments in commercial mortgage loans and limited real estate partnerships represent a significant investment concentration. A.M. Best expects rising defaults industry-wide as the United States navigates through the current economic climate.

SBLI USA's ratings reflect its strong brand name recognition in New York its diverse distribution strategy and ordinary life product portfolio, continuing geographic expansion efforts outside New York and overall positive operating performance.

Offsetting these positive rating factors is A.M. Best's belief that SBLI USA may be challenged going forward to sustain and improve its operating performance. Expense associated with expected new business growth, the challenges of the continuing low interest rate environment and costs associated with its geographic expansion efforts may continue to dampen earnings. Furthermore, A.M. Best believes the company may continue to be challenged to successfully execute its marketing initiatives given the potential impact of the current economic climate on SBLI USA's target customer base in the moderate income market and the intense competition from larger life insurers and other financial services companies.

For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.

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