OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B+ (Good) and the Long-Term Issuer Credit Rating to “b” (Marginal) from “bbb-” (Good) of Upstream Life Insurance Company (Upstream) (Dallas, TX). Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings). At the same time, AM Best has withdrawn the ratings in response to the company’s request to no longer participate in AM Best interactive rating process.
The ratings reflect Upstream’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.
In May 2021, AM Best placed Upstream’s ratings under review with negative implications, reflecting continued uncertainty regarding future risk-adjusted capitalization levels and the resolution of its remaining non-admitted assets. At the time of this rating action, the company was in the process of exploring options to readmit the assets in question. Risk-adjusted capitalization ratios, as measured by Best’s Capital Adequacy Ratio (BCAR) have declined as a result of continued operating losses in 2020 and 2021, which has resulted in AM Best revising its assessment of Upstream’s operating performance to marginal from adequate. The company’s capital has been further pressured by the non-admission of assets for three investments imposed by the Texas Department of Insurance in second quarter of 2021. The company has not met its forecast capital levels to date and its capital remains exposed to less liquid assets, along with some equity market risk due to investments held in an on-shore captive. The assets of the on-shore captive are expected to be incorporated into the assets of Upstream by the end of the third quarter.
The company is in the process of selling some of the assets in question and has made progress in this regard. Furthermore, the company has been proactive in pursuing reinsurance solutions to improve risk-adjusted capital. However, there remains significant execution risk to restore risk-adjusted capitalization to suitable levels. Current sales have been tempered to conserve capital but there could be additional surplus strain if sales increase, which may be mitigated by executing flow reinsurance treaties.
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