A.M. Best Downgrades Ratings of Security Benefit Life Insurance Company and Its Subsidiary; Assigns Negative Outlook.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating to B (Fair) from B++ (Good) and issuer credit ratings to "bb" from "bbb+" of Security Benefit Life Insurance Company (SBL) (Topeka, KS) and its wholly owned subsidiary, First Security Benefit Life Insurance and Annuity Company of New York (FSBL) (White Plains, NY). Concurrently, A.M. Best has downgraded the debt rating to "b+" from "bbb-"on the existing surplus notes of SBL. All ratings have been removed from under review and assigned a negative outlook. SBL and FSBL are operating insurance companies of Security Benefit Corporation (SBC Group), an intermediate parent company that is ultimately owned by Security Benefit Mutual Holding Company (Topeka, KS). (See below for a detailed listing of the debt ratings.)

These rating actions reflect A.M. Best's belief that SBC Group will incur a material decline in its consolidated GAAP equity and statutory capital and surplus funds due to continued deterioration in the value of its collateralized debt obligations (CDO) investments. A.M. Best also notes very high levels of goodwill and intangibles relative to its modest stockholders' equity, declining GAAP and statutory financial results, significant declines in its separate account business due to the U.S. equity market turmoil and a high level of affiliated investments on SBL's balance sheet and surplus notes backing its statutory capital and surplus funds.

A.M. Best expects a higher level of realized investment losses for 2008, given that these CDOs represent exposure to subprime residential mortgages and other structured credits. SBC Group's balance sheet contains a high level of goodwill and intangible assets resulting from the 2008 acquisition of an asset management company, Rydex Investments (Rydex). A.M. Best expects a large decline in the group's separate account business and the related fee income from assets under management due to the continuing equity market volatility in the United States.

On a statutory basis, SBL's capital and surplus funds also have declined significantly in 2008 as a result of realized and unrealized investment losses from its fixed income and stock portfolios. A.M. Best also notes that SBL's statutory capital and surplus funds are supported by $150 million in surplus notes owed to private investors and affiliated investments represent a measurable portion of invested assets.

Partially offsetting rating factors include SBL's long established presence in the 403(b) plan marketplace, an insignificant exposure to commercial mortgages and commercial mortgage-backed securities, generally stable fixed annuity liabilities with surrender protection, strong third-party administration operation and a large base of assets under management and administration. Additionally, A.M. Best notes that SBC Group continues its efforts to raise new capital to strengthen SBL's statutory surplus position.

The following debt ratings have been downgraded:

Security Benefit Life Insurance Company--

-- to "b+" from "bbb-" on $50 million 8.75% surplus notes, due 2016

-- to "b+-" from "bbb-" on $100 million 7.45% surplus notes, due 2033

For Best's Debt Ratings, all other Best's Credit 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.