NEWARK, N.J.-MBL Life Assurance Corp., formerly Mutual Benefit Life Insurance Co., is likely to be bought relatively quickly by an insurer seeking more market share and additional economies of scale.

Mutual Benefit was the largest life insurer failure on record when it was put in rehabilitation in 1991, largely as a result of soured real estate and mortgage investments and a subsequent cash flow drain caused by panicky policyholders' withdrawal demands. It has been in rehabilitation since then.

Last week, the company said it has hired New York-based Goldman Sachs & Co. as financial adviser to explore its strategic options, including selling it before its rehabilitation plan is scheduled to end in 1999.

Alan J. Bowers, MBL Life's president and chief executive officer, said in a statement: "MBL has transformed the nature of its invested assets and made great strides in rebuilding its capital base. Our financial position is now very strong, and we continue to build capital."

MBL, which still has 450,000 policyholders although it is not writing any new business, had total consolidated assets of about $14.3 billion and total adjusted capital of $474 million as of June 30.

Others also term the rehabilitation an apparent success. Observers say the most likely buyer of MBL is one of the large mutual insurance companies, such as The Prudential Insurance Co of America, Metropolitan Life Insurance Co. or John Hancock Mutual Life Insurance Co.

Other candidates include industry "consolidators," such as Conseco Inc., GE Capital Services Inc. or American General Corp.

The companies mentioned either had no comment or did not return calls.

The block of business is likely to sell for $750 million to $1.5 billion, estimated John L. Ward, CEO of Cincinnati-based Ward Financial Group.

Company rehabilitators filed an official plan of rehabilitation for court approval in 1992 (BI, Aug. 10, 1992, Dec. 14, 1992), and an amended court-approved plan went into effect in 1994. The plan transferred the insurer's assets and liabilities to MBL Life Assurance Corp., a new company.

The plan, however, sparked appeals from policyholders and unsecured general creditors over several issues. A settlement was reached in December 1996 and became final in February. Among other provisions, it called for unsecured creditors and policyholders, including pension plan participants, to share on a 70/30 basis any future value of MBL after the company emerges from rehabilitation in 1999 (BI, Dec. 9, 1996).

Not all of the original Mutual Benefit is now left. Shortly after it was put into rehabilitation, Mutual Benefit announced its plan to sell its group health, accident and life business, which had generated more than $1 billion in revenues in 1990, to AMEV Holdings Inc., a New York-based company owned by Dutch and Belgian insurers.

In 1992, Hartford Life Insurance Co. agreed to assume and reinsure the insurer's corporate-owned life insurance business, which had produced $1.1 billion in 1990 premiums (BI, May 18, 1992, Nov. 2, 1992).

Mutual Benefit also has about $2 billion worth of guaranteed investment contract business, but in a separate account, said a spokeswoman. Under the rehabilitation plan, a group of 14 life insurance companies guarantee this business in exchange for managing its assets.

"It's not likely all of it would go in a sale," she said, adding the contracts' disposition would be determined on a contract-by-contract basis, although "it's anticipated that most of those contracts would be paid out at the end of 1999," when the rehabilitation period is now scheduled to end.

MBL's remaining business includes a little more than $3 billion in pension liabilities, primarily tax-deferred annuities, and $2.7 billion in individual liabilities, primarily life insurance, said the spokeswoman.

Among the options MBL considered was a joint venture or emerging as a stand-alone entity after the rehabilitation period ends. "The indications we had, based on our initial analysis, are that a sale would probably be the optimal result for various stakeholders, including policyholders" so Goldman Sachs was engaged "to see whether there's a buyer out there," said the spokeswoman.

MBL "may have more value sold off as a block of business" rather than trying to grow or to regain its status as a major mutual life insurance company by producing a lot of business, said Larry Brossman, executive vp of Duff & Phelps Credit Rating Co. in Chicago.

"The Mutual Benefit name probably isn't very good in the marketplace any more," he said, adding, "There have been very few examples-almost none-of companies that have gone through insolvency and come forward as ongoing enterprises."

The MBL spokeswoman, who refused to say whether any potential buyer has expressed interest so far, said the company expects to have identified a buyer by the first quarter of 1998. Approvals still would be needed to complete the deal, including those of the New Jersey Commissioner of Banking and Insurance, the National Organization of Life and Health Insurance Guaranty Assns., reinsurers, certain creditors, and the New Jersey Superior Court.

A sale could mean the rehabilitation plan ends earlier than originally scheduled, she said. "We're not saying that if we find a buyer that the sale would necessarily mean that the rehabilitation plan would end sooner than that. It might, but it's too soon to tell for sure," the spokeswoman said.

She noted one consideration is that under the rehabilitation plan, there continue to be ongoing restrictions on policyholder access to funds. A policyholder cannot withdraw money without incurring a penalty of a little more than 16% this year and a little more than 10% in 1998. "That would end if the rehabilitation period ends," she said, adding this issue will not be resolved until a buyer is identified.

She noted these restrictions have enabled Mutual Benefit to rebuild its asset base. "When Mutual Benefit went into rehabilitation, over 50% of our assets were in real estate-related investments. With the ongoing restrictions on funds to policyholders, they're also getting interest rates less than the market, and that's enabled us to have the time to reduce our real estate assets gradually and reinvest in investment-grade corporate bonds" rather than to sell Mutual Benefit's real estate holdings in a "fire-sale atmosphere."

According to MBL's statutory balance sheet as of Dec. 31, 1996, of MBL's $14.37 billion in admitted assets, the largest single portion, $5.62 billion, is in bonds, with only $5.9 million in mortgage loans on real estate and owned real estate.

A cooperative economy, including a revived real estate market and relatively low interest rates, has helped Mutual Benefit's rehabilitation process, observers say.

The economy has been "very nice" to Mutual Benefit the past few years, said Mark Puccia, managing director at Standard & Poor's Corp. in New York.

There has been a "substantial rebound in the real estate marketplace, which has increased the value of their portfolio as well as provided liquidity, so that they can divest the properties they no longer find viable," said Mr. Puccia. "And so as a result, you've seen their real estate mortgage holdings decline significantly, and they've been able to grow their surplus."

Larry Mayewski, senior vp at A.M. Best Co. in Oldwick, N.J., said the rehabilitation can be considered "successful" from the perspective that the organization has strengthened its solvency.

"That's not to diminish that policyholders received less value than expected and obviously were restricted from taking certain actions they might have wanted to take," Mr. Mayewski said.

The Mutual Benefit spokes-woman said among the insurer's likely attractions to a buyer is "we have 450,000 policyholders, we have capital of almost $500 million, we have internal expertise in policy administration and customer service (and) asset management, we still have a relationship, although we don't have a field force. . .with former agents of Mutual Benefit."

Observers say the business should appeal to buyers seeking to boost their market share. "They have the potential to be a very attractive investment play for some acquirer who's looking to consolidate and get economies of scale," said S&P's Mr. Puccia.

Mr. Brossman, who anticipates the company will quickly find a buyer, said, "There are a lot of people who are paying a big premium for size."

There are going to be a "few gorillas" in the business, and there are 30 to 50 insurers in the business who "want to be one of those gorillas, and that means size."

"There's a lot of consolidation activity," said Francis deRegnaucourt, an analyst with Moody's Investors Service in New York who also anticipates the company will be sold soon.

"You've seen it all over, so there are plenty of people out there who are full-time looking for properties, looking for blocks (of business), since everything is selling like hot cakes."

S&P's Mr. Puccia said one potential drawback is a statement by New Jersey Commissioner of Banking and Insurance Elizabeth Randall, who must approve a deal, that she would consider the impact of any sale on the Newark business community and the company's employees in the Newark office.

Any purchaser will probably "have to retain some level of employment in Newark, and (yet) the best way to maximize financial value is to cut expenses," said Mr. Puccia, "so that's the balance they're going to have to play." He pointed out, however, that Prudential's corporate headquarters are in Newark.

Another consideration is the lack of a sales force, say observers. "A buyer obviously is buying a book of business, really, without a distribution system, so you would assume it's somebody who already has the distribution system in place," said analyst Gloria Vogel, senior vp at Advest Inc. in New York.

Some of the larger mutual insurers might find an MBL acquisition to be a "seamless" transaction in terms of integration, allowing them to attain some additional scale and improve the dynamics of their own in-force block of business, said A.M. Best's Mr. Mayewski.

This "seems to be the more logical path, although it's not unimaginable that another buyer could come in outside the large mutual group" and also find the in-force book of business' profitability attractive, Mr. Mayewski said.

However, Mr. Ward believes one of the "consolidators" is a likely candidate.

"It would be desirable primarily to those companies that are the consolidators in the industry who expand their operation by acquiring blocks of business and administering profitably companies that are not heavily reliant on agents or distribution systems," said Mr. Ward.