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A.M. Best Downgrades, Places Liberty Bankers Life and Mid-Continent Preferred Life Under Review with Negative Implications.

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength ratings (FSR) to B- (Fair) from B (Fair) and the issuer credit ratings (ICR) to "bb-" from "bb" of Liberty Bankers Life Insurance Company (Liberty Bankers) and its primary life insurance subsidiary, Mid-Continent Preferred Life Insurance Company (MCP, recently renamed to American Benefit Life Insurance Company). Both companies are domiciled in Edmond, OK. Concurrently, A.M. Best has placed the ratings for both entities under review with negative implications.

The rating actions for Liberty Bankers primarily reflect the substantial decline in risk-adjusted capitalization resulting from impairments in the company's bond portfolio and a significant increase in delinquencies in its direct commercial mortgage loan portfolio over the most recent period. As a result, the group's risk-adjusted capital position has weakened despite capital contributions from its parent company in recent years. In addition, the company maintains an elevated level of real estate-related assets in its investment portfolio that significantly exceeds industry norms. These assets, which include direct mortgage loans, equity real estate and other alternative real estate investments represent over 400% of the company's capital and surplus. A.M. Best notes management's expertise in managing real estate investments and that management has curtailed new real estate investments; however, it believes the company may continue to experience increased delinquencies in its direct commercial mortgage loan portfolio in the near term due to the current recessionary environment. A.M. Best also notes that the company maintains a significant unrealized loss position within its other fixed income investments, which include exposures to non-agency residential mortgage-backed securities and financial sector corporate bonds. Impairments within these asset classes would result in additional strain on the company's already weakened risk-based capital position.

Liberty Bankers, the flagship operating entity, is the group's primary marketing arm with over $185 million in direct premiums written for 2008. While Liberty Bankers has experienced strong growth in fixed annuity sales over the past few years, the ordinary life line of business has grown only modestly and has experienced lower persistency than expected. Going forward, the company is focused on expanding life insurance sales through a newly established life division. A number of new products were recently developed and filed, and production has begun through a newly developed master general agent network resulting in significant growth in 2009. Although Liberty Bankers has experienced favorable operating results in recent years, A.M. Best believes the group will remain challenged to maintain a balance between a prudent risk-adjusted capital position and its desire to build additional scale.

Liberty Bankers' key insurance subsidiary, MCP, has experienced an increase in net premiums through its current reinsurance relationship in which it assumes pre-need and whole life insurance policies. While the Company maintains a relatively strong risk based capital position, its relatively low level of absolute capital leaves it vulnerable if it were to experience any sizeable investment losses or earnings volatility. A.M. Best will continue to monitor the company's capital position and progress in expanding its currently limited business profile.

The ratings have been placed under review in recognition of the fact that the parent company is currently pursuing a capital raising initiative, which if successful, would result in a substantial increase in Liberty Bankers' surplus during the third quarter of 2009. A.M. Best will re-evaluate the company's capital position and overall financial condition at that time. A.M. Best believes that these efforts will likely improve the risk-adjusted capital position of the insurance entities while supporting growth and offsetting potential investment losses. Should the current capital raising initiative prove unsuccessful, the ratings of Liberty Bankers and MCP would likely be downgraded further.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at

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
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Publication:Business Wire
Date:Jun 18, 2009
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