A.M. Best Assigns Rating to Reliance Standard Life's Funding Agreement-Backed Securities Program.

OLDWICK, N.J. -- A.M. Best Co. has assigned a debt rating of "a" to the funding agreement-backed global medium term note program (GMTN) established by Reliance Standard Life Insurance Company (Reliance Standard) (Chicago, IL), the lead operating company of Delphi Financial Group, Inc. (Delphi) (NYSE: DFG) (Wilmington, DE). The rating outlook is stable.

These funding agreements will be issued to a new Delaware business trust, Reliance Standard Life Global Funding, which will in turn issue its own notes to third party investors in both the U.S. and foreign capital markets secured by the funding agreements.

The rating reflects Reliance Standard's established presence within the small to mid-sized employee benefit market place as well as its profitable operating performance and the solid financials of its ultimate parent company, Delphi.

Reliance Standard's exposure to institutional spread-based liabilities is expected to be moderate at roughly 20% of general account liabilities. A.M. Best does not expect this ratio to exceed 25% in the near to medium term. With the use of this registered program, Reliance Standard life has the ability to sell these products to retail investors, facilitating more regular periodic funding, which should help smooth out uneven cash flows that are characteristic of institutional note transactions.

In addition, in the event of an insolvency of an Illinois domestic insurance company, claims under funding agreements would be treated pari passu with life insurance policy and annuity claims.

A.M. Best has recently observed companies issuing less funding agreements. Among the main reasons for slowdown is the increased difficulty companies are having in achieving their targeted spreads with the current shape of the yield curve. Similarly, A.M. Best believes Reliance Standard will be challenged to generate the necessary yields it expects from its program. In addition to increased interest rate risk, credit risk will also become more of a rating factor going forward, given the fact that Reliance Standard's funds investment program will primarily consist of lower investment grade securities. A.M. Best would be uncomfortable if Reliance Standard were to rapidly expand its program to the allotted $400 million level, if the current interest rate environment remained unchanged for an extended period of time.

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