AM Best Downgrades Credit Ratings of A-CAP Group Members; Maintains Under Review with Negative Implications Status

OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating (FSR) to B (Fair) from B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb+” (Fair) from “bbb” (Good) of Atlantic Coast Life Insurance Company (Charleston, SC) and Sentinel Security Life Insurance Company (Salt Lake City, UT). Both companies are collectively referred to as A-CAP Group. Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings).

The ratings reflect A-CAP Group’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The rating downgrades are based on weakness in A-CAP Group’s business profile as manifested in the material decrease in new premium and material increase in surrenders/outflows, as well as reputational damage resulting from publicized regulatory rulings. AM Best notes that these rulings were subsequently paused or stayed and also notes that the company has provided information that demonstrates surrenders and outflows have decreased. A-CAP Group's primary focus is the fixed index annuity market, a dynamic and credit sensitive sector with strong long-term prospects. A-CAP Group is taking deliberate steps to rebuild and re-establish its brand presence in this competitive landscape.

The downgrades are also based on a decline in AM Best’s overall assessment of A-CAP Group’s balance sheet strength. AM Best acknowledges A-CAP Group’s pending capital raise, but also recognizes its level of illiquid assets, concentrated reinsurance leverage, which is mitigated through the use of funds held and modified coinsurance agreements, along with a recent decline in its overall capital adequacy ratios that have not fully recovered to historic levels.

The adequate operating performance assessment recognizes ACAP’s historical premium growth and profitable operating results, but also notes declines in both metrics in the past year and possible pressure in the near term.

The marginal ERM assessment reflects A-CAP Group’s risk culture, which has led to elevated amounts of recent litigation, an elevated risk profile related to its reinsurance relationships and assets for which the investment cash inflow does not match the cash out-flow of the insurance liabilities. A-CAP has made progress to integrate ERM into its strategy, daily operations and decision-making and enhanced its governance practices and policies.

The under review with negative implications status reflects AM Best’s acknowledgement of the previously mentioned pending capital raise, but also reflects the execution risk of the undertaking.

On April 24, 2024, AM Best determined an FSR of B- (Fair) and a Long-Term ICR of “bb-” (Fair) for the A-CAP Group while maintaining the under review with negative implications status.

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