A.M. Best Takes Various Rating Actions on Security Benefit Life Insurance Company.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and downgraded the issuer credit rating (ICR) to "a" from "a+" of Security Benefit Life Insurance Company (SBL) (Topeka, KS). A.M. Best has also affirmed the FSR of A (Excellent) and assigned an ICR of "a" to SBL's affiliate, First Security Benefit Life Insurance and Annuity Company of New York (together known as Security Benefit) (White Plains, NY). Concurrently, A.M. Best has downgraded to "bbb+" from "a-" the existing surplus notes of SBL. The outlook for all ratings is stable. (See below for a detailed listing of the ratings.)

These actions follow the announcement that Security Benefit Corporation (SBC), SBL's intermediate holding company, will acquire Rydex Investments (Rydex), a privately held Maryland-based investment management company. Rydex provides institutional style investments to the retail market through more than 80 mutual funds. The transaction, which is expected to close in fourth quarter 2007, adds scale with approximately $35 billion in assets under management and $52 billion of assets under administration for the combined group. However, it also adds a substantial level of intangibles and results in higher consolidated leverage, reduced coverage and lower risk-adjusted capital at SBL. These negative rating factors were key to the downgrading of the ICR.

The transaction also reflects execution risk, as A.M. Best notes the considerable size of the transaction relative to SBL's current asset base and product line. While the acquisition is of strategic value, it further exposes SBL to equity market risk. Security Benefit maintains a somewhat narrow business mix, which is concentrated primarily in flexible premium deferred (FPDA) variable annuities and mutual funds sold into the retirement and wealth accumulation marketplace.

The current ratings acknowledge Security Benefit's adequate levels of absolute and risk-adjusted capitalization, improved risk management practices and efficient administrative and service platforms. While A.M. Best previously viewed the risk-adjusted capital levels as strong for the present ratings, the transaction will deploy a significant level of Security Benefit's excess capital. A.M. Best views as positive Security Benefit's solid market position in the employer-sponsored plan arena, particularly 403(b) programs, and notes its diversified sales and earnings of annuities and mutual funds to individual investors and institutions. Also, the company's service end-to-end business unit continues to expand its third-party administrative service platform to the annuity marketplace, which leverages the strong technological capabilities of Security Benefit and could ultimately generate non-market related earnings. A.M. Best believes that Security Benefit, along with its peers, will be challenged to improve trends in 403(b) assets under management due to increased competition within its core market, despite solid sales of mutual funds within employer plans or to individuals. A.M. Best believes Security Benefit's operating returns will likely remain in the mid to high single-digit range over the near to medium term.

The following debt ratings have been downgraded:

Security Benefit Life Insurance Company--
-- to "bbb+" from "a-" on $50 million 8.75% surplus notes, due 2016
-- to "bbb+" from "a-" on $100 million 7.45% surplus notes, due 2033

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.