A.M. Best Upgrades First Allmerica Financial Life Insurance Company and Affirms Commonwealth Annuity and Life Insurance Company

Business Editors/Insurance Writers

OLDWICK, N.J.--(BUSINESS WIRE)--January 19, 2009--A.M. Best Co. has removed from under review with positive implications and upgraded the financial strength rating (FSR) to A- (Excellent) from B+ (Good) and the issuer credit rating (ICR) to “a-” from “bbb-” of First Allmerica Financial Life Insurance Company (FAFLIC) (Southborough, MA). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICR of “a-” of Commonwealth Annuity and Life Insurance Company (Commonwealth) (Southborough, MA). The outlook for all ratings is stable. Commonwealth is a direct wholly-owned subsidiary of The Goldman Sachs Group, Inc. (Goldman Sachs), which has become a federally chartered bank holding company.

These rating actions follow Commonwealth’s January 2009 acquisition of FAFLIC. FAFLIC is now a wholly owned subsidiary of Commonwealth, and with a New York license, enhances Commonwealth’s geographic reach. The upgrading of FAFLIC’s ratings reflect its strong risk-adjusted capitalization, A.M. Best’s belief that FAFLIC fits strategically with Commonwealth’s business model and the expectation that FAFLIC will operate more efficiently and be accretive to Commonwealth’s earnings in 2009.

While Commonwealth has taken investment write offs and remains exposed to a few troubled credits, A.M. Best believes that the company’s investment portfolio is fairly conservative. A.M. Best expects that Commonwealth has access to hedging expertise, capital, deal flow and other Goldman Sachs’ resources, as needed. Since it was acquired by Goldman Sachs in December 2005, the company closed several reinsurance transactions prior to FAFLIC. To support the acquisition of its variable annuity blocks of business, Commonwealth, with assistance from its parent, has developed hedging strategies designed to cover guaranteed minimum benefit exposure following equity market declines.

Despite these positive attributes, A.M. Best believes Commonwealth may encounter challenges in achieving meaningful scale efficiencies given the highly competitive nature of the life reinsurance market, which is dominated by players with low cost structures and well established life reinsurance franchises. If additional blocks cannot be acquired at the expected pace, Commonwealth may not grow into the scale required to generate consistent and strong statutory profits. Additionally, as the company’s business plan relies on derivatives to offset the market risk associated with the variable annuity contract guarantees, the recent market environment has made the cost of hedging strategies an additional challenge to acquiring new business at target return levels.

For Best’s Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

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 www.ambest.com.