NEWARK, N.J.-The rehabilitation of MBL Life Assurance Corp., formerly Mutual Benefit Life Insurance Co., can be termed a success with the expected sale announced earlier this month of its remaining individual life and individual and group annuity businesses to Los Angeles-based SunAmerica Inc., analysts say.

Just as the insurer's original downfall could be attributed to the real estate market, the upward turn in that sector appears to be the major factor behind the rehabilitation plan's success.

However, the sale also signifies the approaching end of the insurer as an ongoing entity. Mutual Benefit, founded in 1845, was the largest life insurer failure on record when it was put in rehabilitation in 1991.

The failure was largely a result of soured real estate and mortgage investments and a subsequent cash flow drain caused by the withdrawal demands of panicky policyholders. MBL had been the fourth-oldest and 18th-largest insurer in the United States.

MBL reached an agreement to sell the life and annuity businesses to SunAmerica for about $130 million in cash earlier this month. The deal, which is expected to close by the end of the year, is structured as a reinsurance transaction, with MBL's life insurance and annuity businesses fully reinsured by a Sun unit, Anchor National Life Insurance Co.

The transaction will include policies backed by about $5 billion in reserves, including $3 billion of fixed annuity reserves, primarily comprised of 403(b) contracts.

At the end of a transition period estimated to be in June of 1999, which will coincide with the end of Mutual Benefit's rehabilitation, Anchor will assume responsibility for the businesses' servicing and administration.

Annuity contract holders and participants under group annuity contracts will be able to exchange their MBL policies for policies modeled on Anchor National's own annuity products. Life insurance policyholders will be able to retain their current contracts, though it will be under SunAmerica's name, an MBL spokes-woman said.

A SunAmerica spokeswoman said the deal will help bolster SunAmerica's recent entry into the 403(b) market, which is the equivalent of 401(k) programs for non-profit, private employers.

MBL's sale of the annuity and life businesses is the final major step in the company's rehabilitation, whose estimated June 1999 conclusion is six months earlier than originally anticipated.

Shortly after it was put into rehabilitation in 1991, Mutual Benefit announced its plan to sell its group health, accident and life businesses, 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 group's corporate-owned life insurance business, which had produced $1.1 billion in 1990 premiums.

In addition, under its rehabilitation plan, a group of 14 life insurance companies guarantee the insurers' $2 billion worth of separate account guaranteed investment contract business in exchange for managing its assets.

Including proceeds of the sale to SunAmerica, MBL is projected to have a total net value of at least $800 million by the end of 1998. Under terms of a settlement with creditors that became final in February 1997, this will be divided between those creditors and eligible policyholders in a ratio of 70 per cent to 30%, or a total of $240 million to policyholders (BI, Sept. 22, 1997).

Alan J. Bowers, MBL's president and chief executive officer, said in a statement, "With this announcement, we take a major step toward concluding the most successful life insurer rehabilitation in U.S. history."

The statement continued, "Despite an estimated $1 billion shortfall when the rehabilitation began, Mutual Benefit's policyholders retained their full account values and benefits, and continued to earn interest on their accounts. The sale will enable a smooth transition for policyholders to a top-quality company that offers long-term security and value."

The sale still needs the approval of the New Jersey Superior Court, which now oversees the rehabilitation. It is also subject to the approval of state insurance regulators, the National Organization of Life and Health Insurance Guaranty Assns., life insurers that manage the guaranteed investment contract business and MBL creditors.

During the rehabilitation period, policyholders have received full benefits, including death benefits, retirement benefits and hardship benefits, but access to their accounts has otherwise been limited and subject to penalties.

William D. Kennedy, vp of the Princeton, N.J.-based New Jersey Hospital Assn., MBL's largest policyholder group, whose hospital members' employees have a total of about $800 million invested under its group contract, said MBL executives obtained "the best deal the market was prepared to produce."

However, he noted that during the rehabilitation, participants have received only 5.1% interest, while there were variable annuities that offered as much as 7.5% for some periods during that time. "The long and the short of it is that it's a bad story with a decent ending," he said.

"The Sun transaction does provide Mutual Benefit policyholders with the stability of a highly regarded, well-run organization that will give them flexibility in terms of their contract options," said Michael Albanese, vp at Oldwick, N.J.-based A.M. Best Co.

"Every policyholder has been taken care of. It looks like a very positive result to me," said Francis DeRegnaucourt, vp and senior credit officer at Moody's Investors Service Inc. in New York. "It's sort of the world running as it should be. That's what rehabilitation is all about," he said.

"Obviously, there's value in some of the pieces of MBL. They realize the best way to get that value was to sell this franchise to other active players in the industry rather than go it alone," said Mark Puccia, managing director at Standard & Poor's Corp. in New York.

Analysts say the turn in the real estate market was the major factor behind MBL's successful rehabilitation.

Mr. Puccia said, "There's no doubt that a red-hot real estate market helped out enormously," said Mr. Puccia.

"If real estate had not come back, it may not have been possible," agreed Mr. DeRegnaucourt of Moody's.

Larry Brossman, executive vp of Duff & Phelps Credit Rating Co. in Chicago, noted that Mutual Benefit was one of a half dozen major life insurance companies, including Executive Life Insurance Co., that were put into rehabilitation at about the same time because of either real estate or junk bond problems.

Any similar failures are now unlikely because of a combination of regulatory and rating agency scrutiny and risk-based capital guidelines, said Mr. Brossman.

Meanwhile, "it's the final unwinding" of one of the great Eastern mutuals, said Mr. Brossman of MBL. "As somebody who's been almost 40 years in this business, it's kind of sad to see."