A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of B- (Fair) and issuer credit ratings (ICR) of ?bb-? of Liberty Bankers Life Insurance Company (LBL) and its primary life insurance subsidiary, American Benefit Life Insurance Company (American Benefit [formerly Mid-Continent Preferred Life Insurance Company]). Both companies (referred to collectively as Liberty Bankers) are domiciled in Oklahoma. The outlook assigned to both companies is negative.

The rating actions for Liberty Bankers primarily reflect the recent substantial increase in surplus due to $17.65M in cash and income producing real estate contributed by its ultimate parent, Realty Advisors, Inc. In addition, the unrealized loss position in its fixed-income securities portfolio has improved over the most recent period. However, A.M. Best notes that risk-adjusted capital remains modest due to continued downward credit rating migration in its fixed-income securities portfolio and significant delinquencies in its direct commercial mortgage loan portfolio.

While the group has recently increased its investment allocation to investment grade corporate bonds, Liberty Bankers? exposure to real estate-related investments remains elevated relative to other companies with similar business profiles. A.M. Best remains particularly concerned about the commercial real estate market going forward and believes Liberty Bankers may experience further delinquencies and impairments in its direct commercial loan portfolio. Any further investment impairments would result in additional strain on the company?s risk-based capital position.

LBL, the flagship operating entity, is the group?s primary marketing arm with over $185 million in direct premiums written in 2008. While LBL 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. The group is focused on expanding life insurance sales and improving persistency. Although LBL 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.

LBL?s key insurance subsidiary, American Benefit, 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-adjusted capital position, its relatively low level of absolute capital and surplus leaves it vulnerable to sizeable investment losses or earnings volatility. However, the recent $1 million capital contribution from its parent has somewhat mitigated this concern. A.M. Best will continue to monitor the company?s capital position and progress in expanding its currently limited business profile.