AM Best Withdraws Credit Ratings of Capacity Insurance Company

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to C++ (Marginal) from B (Fair) and the Long-Term Issuer Credit Rating to “b” (Marginal) from “bb+” (Fair) of Capacity Insurance Company (Capacity) (Sunrise, FL). The outlook of these Credit Ratings (ratings) is negative. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.

The ratings reflect Capacity’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 (ERM).

The rating downgrades reflect a reassessment of Capacity’s overall balance sheet strength, operating performance and ERM practices. The rating actions also reflect an unfavorable shift in the company’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), which declined to the weak level from strong since the last review. The shift is a product of a surplus erosion in 2022 and larger net probable maximum losses, more profoundly in the outlying periods. Furthermore, the company’s capital structure is dependent on a $7 million surplus note (due in 2029) that was issued in early 2022. The company has continued to report adverse loss reserve development stemming primarily from management’s efforts to correct current reserves and subdue future deficiencies. Concurrently, AM Best has lowered its operating performance assessment as corrective actions implemented by management did not result in the expected near-term improvement. As a result of continued volatility, operating performance was reassessed to marginal from adequate. Finally, Capacity’s ERM was revised to marginal given its extended volatility over numerous years despite corrective actions implemented by management.

The negative outlooks reflect continued pressure on overall balance sheet strength amid operating performance volatility that has eroded the surplus position. While management has implemented a number of ERM initiatives, volatility has persisted and continues to challenge the overall strength of the company.

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