Insurance

Regulator Deems Florida-Based American Capital Assurance Corp. Insolvent

After negative moves by ratings agencies last month to address its financial issues, Florida’s insurance regulator says American Capital Assurance Corp. (AmCap) is insolvent and should be placed in receivership,

In a letter dated April 2 to Chief Financial Officer Jimmy Patronis, Florida Insurance Commissioner David Altmaier said the Office of Insurance Regulation (OIR) has determined that grounds exist for the “initiation of delinquency proceedings” against AmCap. Included in the letter is a consent to order of receivership signed by AmCap “in which it admits that is insolvent.”

The Florida-based insurer, which focused on commercial residential and non-residential property risks, as well as flood coverage, had more than 1,900 policies in force in Florida as of Sept. 30, 2020, with nearly $80 million in annualized premium, according to OIR data. The company also writes business in Georgia, Louisiana, North Carolina, South Carolina and Texas.

Company liquidations are handled by the Department of Financial Services Division of Rehabilitation and Liquidation, which plans coordinates and directs the receivership process on behalf of DFS, of which Patronis oversees. DFS serves as the receiver of any insurer placed into receivership in Florida.

“Respondent specifically admits that it is presently unable to pay its debts as they become due in the usual course of business and therefore as of the date of this consent is insolvent as that term is defined pursuant [to Florida law],” the included consent order states.

The order further states that AmCap has consented to the appointment of DFS as the receiver for liquidation purposes, and consents to any injunctions the receivership court deems necessary and appropriate, and that it waives “any and all rights to notice and hearing” with regard to the DFS appointment.

The liquidation order comes just a month after Insurance Journal reported that AmCap’s rating had been downgraded by AM Best and withdrawn by Demotech.

Demotech said it withdrew AmCap’s rating after it notified the insurer that it’s rating would be downgraded.

“We advised AmCap we would no longer support an FSR at the A level and offered them an FSR of M or withdrawal,” Demotech Founder and President Joseph Petrelli said told Insurance Journal at the time. “AmCap then opted to be not rated rather than rated M [moderate].”

Shortly after, AM Best announced it had downgraded the company’s financial strength rating to “C” (weak) from “A-” (excellent) and the long-term issuer credit rating to “ccc+” from “a-.” AM Best then placed the company’s credit ratings under review with negative implications. On March 25, AM Best said the company had been downgraded to D (Poor) from C (Weak) and the Long-Term Issuer Credit Rating to “c” from “ccc+”. Concurrently, AM Best withdrew the ratings as the company requested to no longer participate in AM Best’s rating process.

Best assessed AmCap’s balance sheet strength as “very weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management,” in early March when it first downgraded the company. It noted then the rating actions were a result of net underwriting losses from multiple severe weather events in the second half of 2020, particularly in Louisiana, which led to significant surplus loss and a severe negative impact to AmCap risk-adjusted capitalization on a standard and catastrophe-stressed basis, as measured by Best’s Capital Adequacy Ratio (BCAR).

“These diminished operating results are also indicative of product and geographic concentration concerns in the commercial property insurance book of business in Florida, Texas and Louisiana, calling into question the soundness and fundamentals of ACAC’s enterprise risk management program,” Best said.

At that time and in its March 25 announcement, Best said AmCap management had communicated near-term strategic initiatives that are designed to “immediately improve risk-adjusted capitalization and stabilize operating results.”

Requests for comment to company representatives were not immediately returned. A request for comment by OIR was also not immediately returned.

Topics
Florida

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