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

The Long-Term ICR downgrade is based on A-CAP Group’s risk management of reinsurance counterparties and its reliance on those counterparties. The underlying collateral is under review, as well as the financial wherewithal of its unaffiliated reinsurers over the near term. The company is also placing new business in unrated counterparties even as its weight of counterparty risk from unrated reinsurers increases.

AM Best acknowledges the impact of ACAP Group’s high reinsurance leverage and declining counterparty credit quality, which may affect the group’s Best’s Capital Adequacy Ratio (BCAR) score. Further, AM Best expects A-CAP Group’s management to reduce the operating companies’ exposure to reinsurance partners and therefore reduce the group’s counterparty risk. AM Best acknowledges that A-CAP Group is seeking a capital raise to support its ongoing growth. However, adequate risk-based capital measures may not be achieved should any potential recapture of ACAP Group’s at-risk business occur and the assets backing those liabilities are brought back onto its balance sheet. By placing A-CAP Group under review with negative implications, AM Best will work to produce a 2023 BCAR score following the group’s 2023 statutory financial statement submissions and will factor in ACAP’s success in reducing the group’s counterparty risk and raising capital.

A-CAP Group is projected to report strong operating performance and its business in the annuity space continues to grow as it competes for market share in the heavily competitive annuity segment. There is some product diversification in other life and medical supplement type products, but A-CAP Group is predominantly a writer of a various mix of fixed annuity product offerings.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

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