Fitch Downgrades Security Benefit Life Insurance Company

CHICAGO--(Business Wire)--
Fitch Ratings has downgraded the Insurer Financial Strength (IFS) ratings of
Security Benefit Life Insurance Company (SBLIC) and its affiliate, First
Security Benefit Life Insurance and Annuity Company of New York (FSBLIANY),
collectively referred to as Security Benefit, to 'CCC' from 'BB'. The short-term
IFS of SBLIC has been downgraded to 'C'. The Rating Outlook is Negative.

Today's rating action primarily reflects Fitch's increasing concern about the
quality of SBLIC's reported capital position, as well as the company's weakened
liquidity and operating profile, all of which have been adversely affected by
poor capital market conditions. Also, during 2008, SBLIC's risk-adjusted capital
position was adversely impacted by its acquisition of an asset management
company, Rydex Investments (Rydex), as well as substantial investment losses,
which have continued into 2009. Fitch considers SBLIC's risk-adjusted capital
position to be weak.

Although SBLIC impaired a large portion of the securities that account for its
most risky asset exposure, specifically asset-backed securities backed by
subprime mortgages, Fitch expects further significant losses to materialize in
this and other segments of the company's investment portfolio in the coming
quarters.

Fitch's ratings on SBLIC have historically been heavily supported by the
company's strong capital position, the foundation of which was a diversified,
highly liquid investment portfolio. In funding its acquisition of Rydex early
last year, a large portion of these liquid investments were sold and replaced by
a highly illiquid 60.5% ownership interest in an asset management firm and an
unsecured, illiquid $250 million note from its parent, Security Benefit Corp.
(SBC), the proceeds of which were used by SBC to buy the remaining 39.5%
ownership interest in Rydex. This series of transactions left the company's
remaining investment portfolio heavily exposed to worsening capital market
conditions, particularly in the market for structured securities backed by
subprime collateral.

Over the course of 2008, SBLIC paid SBC $22.8 million in dividends. During the
month of December 2008, SBLIC received capital infusions from SBC totaling $39.5
million, consisting of $10 million in cash, $12.7 million in mortgage loans made
to officers of the company, and the common stock of an affiliated distribution
operation valued at $16.8 million. On Dec. 31, 2008, SBLIC transferred its
ownership interest in Rydex and two smaller subsidiaries to SBC in exchange for
a $450 million collateralized inter-company loan and pledge agreement. As a
result of these intercompany transactions, at March 31, 2009, SBLIC reported
capital and surplus of $241 million, with $740 million of its investment
portfolio composed of loans made to its parent company, which Fitch considers to
be highly illiquid. In addition, Fitch views the collateral backing the $450
million inter-company loan and pledge agreement, in particular Rydex, to have
declined in value since its acquisition date. Positively, from a liquidity
perspective, SBLIC has no near-term refinance risk associated with its
outstanding debt, which consists of $150 million of surplus notes.

The Negative Outlook status of the ratings reflects Fitch's concerns regarding
near-term operating performance and business persistency, as well as the
potential for further deterioration in the company's investment portfolio.

Topeka, Kansas-based Security Benefit Corporation is a financial services
organization marketing fixed and variable annuities, mutual funds, various
retirement programs and administrative services. The primary operating company,
SBLIC, reported statutory admitted assets of $8.7 billion and capital and
surplus of $241.4 million at March 31, 2009.

Fitch has downgraded the following ratings:

Security Benefit Life Insurance Company

--IFS to 'CCC' from 'BB'.

--Short-term IFS to 'C' from 'B'.

First Security Benefit Life Insurance and Annuity Company of New York

--IFS to 'CCC' from 'BB'.

The Rating Outlook is Negative.

Fitch's rating definitions and the terms of use of such ratings are available on
the agency's public site, www.fitchratings.com. Published ratings, criteria and
methodologies are available from this site, at all times. Fitch's code of
conduct, confidentiality, conflicts of interest, affiliate firewall, compliance
and other relevant policies and procedures are also available from the 'Code of
Conduct' section of this site. The issuer did not participate in the rating
process other than through the medium of its public disclosure.

Fitch Ratings, Chicago
Bradley S. Ellis, CFA, 312-368-2089
Douglas L. Meyer, CFA, 312-368-2061
or
Media Relations:
Brian Bertsch, 212-908-0549, New York
Email: brian.bertsch@fitchratings.com

Copyright Business Wire 2009