A.M. Best Places Ratings of Beneficial Life Insurance Company Under Review With Negative Implications.

OLDWICK, N.J. -- A.M. Best Co. has placed the financial strength rating (FSR) of A (Excellent) of Beneficial Life Insurance Company (Beneficial) (Salt Lake City, UT) under review with negative implications due to concerns regarding material losses in its mortgage-backed securities (MBS) portfolio and risk management practices for monitoring investment credit risk. Concurrently, A.M. Best has assigned an issuer credit rating (ICR) of "a" to Beneficial and placed the ICR under review with negative implications.

These rating actions reflect Beneficial's above-average exposure to structured investment products (primarily MBS) and, in particular, its exposure to subprime and Alt-A mortgages, which currently exceeds three times statutory capital and surplus. The MBS marketplace is currently experiencing heightened investment risk--namely, pricing volatility and valuation risk--as well as elevated default and liquidity risk, which combined create the potential for substantial asset impairments. These circumstances, which are still evolving and therefore subject to considerable uncertainty, will likely require a material capital contribution in the near term by Beneficial's immediate parent, Deseret Management Corporation, an intermediate holding company owned by the Church of Jesus Christ of Latter Day Saints. A.M. Best expects the amount of this capital infusion (as well as future contributions, if needed) to preserve a risk-adjusted capitalization level commensurate with Beneficial's current ratings. Additionally, A.M. Best notes that Beneficial faces increased liquidity needs over the next 12 months as roughly $350 million of funding agreements will come due as investors have exercised put options. A.M. Best believes Beneficial's current liquidity position is sufficient to meet these obligations.

More broadly, A.M. Best anticipates ongoing price volatility, lack of pricing clarity (particularly among lower-rated subprime tranches) and divergent accounting treatment for impaired securities as well as the possibility of a contagion effect on overall asset default rates, which could negatively impact the industry as a whole. A.M. Best expects Beneficial to take a conservative approach in accounting for asset impairments related to mortgage-backed securities.

Furthermore, A.M. Best notes that Beneficial's overall exposure to MBS highlights weaknesses within its enterprise risk management (ERM) practices, which will need to be addressed going forward. Currently, Beneficial is focusing on strengthening its overall ERM practices, including modeling the economic valuation of its structured securities portfolio to determine the magnitude of asset impairments and reallocating invested assets to achieve more prudent diversification. Going forward, A.M. Best will monitor the progress Beneficial makes within these areas and its ability to sustain sound risk-adjusted capitalization while simultaneously maintaining favorable operating trends and sufficient liquidity. The degree to which Beneficial satisfies these requirements will be a key driver in A.M. Best's determination of maintaining the current ratings and resolving the under review status.

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.