The company remains solvent but has seen its surplus funds plummet 97 percent in a year.

Shenandoah Life Insurance Co. prepared to sell its group insurance business Friday, setting the stage for the next phase of the struggling Roanoke company's rehabilitation.

Assurant Employee Benefits, a Kansas City, Mo., insurance company, agreed to acquire part of Roanoke-based Shenandoah for $500,000. The deal first had been announced in August.

The partial dismantlement of the company was devised by a team lead by Don Beatty, the on-site manager who has been running Shenandoah Life on behalf of the Virginia State Corporation Commission, which took over the company Feb. 12.

Beatty said by e-mail that the deal was scheduled to close Friday, transferring Shenandoah's group life, accidental death and dismemberment, dental, disability and vision insurance businesses to Assurant. He said Shenandoah was losing the business to other carriers anyway.

The state declared that 93-year-old Shenandoah Life was in hazardous financial condition in February after heavy investment losses savaged Shenandoah Life's surplus funds, which were invested in part in once-trustworthy mortgage-backed securities. Regulators said they would try to restore Shenandoah to financial health and said that might require a sale of some assets to replenish the surplus.

Now that the group businesses are being sold, that leaves the company's more extensive individual insurance lines of business.

Asked what's next for the company, Beatty on Friday wrote: "If an acceptable proposal is received, we will work toward a sale of the company."

Regulators remain hopeful, he said.

"We are continuing discussions with potential investors and remain optimistic that an acceptable proposal will be submitted," according to Beatty.

But Beatty also revealed evidence that financial pressures are mounting. Shenandoah Life's surplus, or excess funds beyond what it would need to pay claims, fell to $4.4 million on June 30, Beatty said. That's down 97 percent from a year ago, when the surplus was reported to be a healthy $127.9 million.

Beatty said the company remains solvent, meaning it has sufficient money to pay expected claims.

As a step to rehabilitate the company, the sale of the group business to Assurant won't produce a windfall. Beatty said the $500,000 sale nonetheless represents money added to Shenandoah's ledger.

Assurant will receive premium payments, reserves and claims-payment responsibility for the designated policies, while Shenandoah will continue to administer the policies. It is expected that Assurant would offer affected policyholders replacement coverage with Assurant within a year.

Beatty also detailed the scope of the team working to save Shenandoah. He named five legal firms, an investment adviser, accounting experts, an information systems company and an actuarial service. He said the city of Roanoke is providing building security.

Some of them are working in Roanoke, some not, Beatty said. State officials previously explained that all expert expenses will be paid for by the company. Beatty is a state employee.

Beatty declined to discuss Shenandoah Life's work force. Employment stood at 280 a year ago, the last time a figure was made public.