A.M. Best Downgrades Issuer Credit Ratings of CUNA Mutual Insurance Society and Its Subsidiaries; Revises Outlook to Negative.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the issuer credit rating (ICR) to "a" from "a+" and affirmed the financial strength rating (FSR) of A (Excellent) of CUNA Mutual Insurance Society (CUNA Mutual) (Madison, WI), the lead parent organization within the CUNA Mutual Group. Concurrently, A.M. Best has downgraded the ICRs to "a" from "a+" and affirmed the FSR of A (Excellent) of CUMIS Insurance Society Group (CUMIS) (Madison, WI) and its members, which are wholly owned property/casualty subsidiaries of CUNA Mutual. The outlook for these ratings has been revised to negative from stable. (See below for a detailed listing of the companies.)

These rating actions reflect CUNA Mutual's sizeable decline in its consolidated GAAP and moderate decline in statutory capitalization, its continuing exposure to potential investment losses from structured securities and other higher risk assets and the challenges faced by CUNA Mutual due to continued weakness in the U.S. economy.

The negative outlook on the ratings considers CUNA Mutual's vulnerability to both operating and investment risks during 2009, which may further negatively impact its overall financial flexibility and risk-adjusted capitalization. A.M. Best notes that while CUNA Mutual's unrealized investment losses relative to its consolidated policyholders' funds have improved somewhat in recent months, they still represent a substantial level of risk to the group's balance sheet. Despite CUNA Mutual's systematic de-risking process across multiple asset classes, its exposure to securities in non-agency mortgage-backed, asset-backed, commercial mortgage-backed loans, alternative asset, and privately issued corporate bonds, remains high and could pose additional financial risks going forward.

Other areas of concern include the level of inconsistency in statutory by-line earnings and increasing levels of interest-sensitive annuity reserves as a percentage of total reserves. The annuity segment will be challenged due to potential spread compression in changing interest rate markets, while reinvestment opportunities in the credit markets remain uncertain.

Partially offsetting the above factors are CUNA Mutual's consolidated positive statutory and GAAP net operating results, adequate risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio and its diverse business profile, which is supported by several lines of business and distribution channels. The ratings also acknowledge CUNA Mutual's long-established position as a leader in providing financial solutions through its life, health and retirement products to members and employees of credit unions. Due to the ongoing implementation of three years of transformation initiatives, CUNA Mutual has improved its overall operating efficiency in its core target market of credit unions.

The rating actions on CUMIS reflect the aforementioned concerns with its parent, as well as the weakening of CUMIS' risk-adjusted capital due to a moderate decline in statutory surplus driven by a significant increase in unrealized capital losses, other surplus charges in 2008 and continued growth in premium volumes through expansion initiatives. CUMIS' ratings also recognize underwriting volatility over the last five years, which resulted in variability in operating results--although remaining positive--and the execution risk associated with a number of CUMIS' diversification efforts.

Positive rating factors include CUMIS' sound risk-adjusted capital despite its weakening in recent years, conservative balance sheet and positive operating profitability. Favorable prior year loss reserve development over the years further corroborates the quality of CUMIS' balance sheet. The ratings also acknowledge the prominent role that CUNA Mutual and its subsidiaries play in supporting credit unions, their political interests and their ability to compete with other financial services organizations.

The outlook for CUMIS' ratings reflect the uncertainties surrounding general macroeconomic conditions and continued volatility in the capital markets that could result in further realized and unrealized capital losses, which would negatively impact operating earnings and risk-adjusted capital.

In addition, A.M. Best has downgraded the ICR to "bbb+" from "a-" and the FSR to B++ (Good) from A- (Excellent) of MEMBERS Life Insurance Company (MEMBERS Life) (Iowa). The outlook for both ratings is stable.

These rating actions reflect the significant reduction in the company's statutory capital and large operating loss recorded in 2008.

The ICRs have been downgraded to "a" from "a+" and the FSR of A (Excellent) has been affirmed for CUMIS Insurance Society Group and its following members:

* CUMIS Insurance Society, Inc.

* CUMIS Specialty Insurance Company Inc.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at www.ambest.com/ratings/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. For more information, visit www.ambest.com.