A-Cap suspends Sentinel Security Life business; gets reprieve for Atlantic Coast Life

Update: A-Cap provided a second statement addressing Utah's financial audit of its assets. See below.

Sentinel Security Life Insurance Co. has suspended writing new business until a judge hears its appeal of a Utah order in March.

Sentinel Security is in such poor shape financially, Utah regulators say, that it is using new premium to meet ongoing financial obligations as they come due. The Utah Insurance Department order barred Sentinel Security Life Insurance Co. from writing new business after Dec. 31, 2024.

The order also covers two associated reinsurance companies: Haymarket Insurance Co. and Jazz Reinsurance Co. The three companies share the same Salt Lake City address and are owned by Advantage Capital Partners, known as A-Cap.

A-Cap sent InsuranceNewsNet a statement today on the suspension of Sentinel Security business:

“Based on the Verified Petition and Emergency Order issued by the Commissioner, the Department has the burden to prove that Sentinel is in a hazardous financial condition. SSL vigorously disputes the Department’s claims and is aggressively defending against these allegations. A trial is scheduled for March, 2025, so a final ruling on the Departments false assertions has not been issued. However, absent an official ruling we have decided to suspend new business at SSL for the time being. We remain actively engaged in a process to bring this disagreement over the valuation of certain aspects of A-CAP’s holdings to a successful conclusion.”

Stay granted in South Carolina

South Carolina also barred an A-Cap life insurer and a reinsurer from writing new policies last month. But a judge granted a stay Monday to allow those companies – Atlantic Coast Life Insurance Co. and Southern Atlantic Re – to remain in business until a hearing can be held.

Chief Administrative Law Judge Ralph King Anderson III wrote that permitting the status quo to continue would "prevent irreparable harm" to the A-Cap insurers. During a conference call with all parties, Anderson was not convinced that the insurers are financially unsound.

"The Department argues ACL has shifted its obligations to 777 Re, Ltd., a Bermuda-based reinsurance company who has since lost its license and ceased operations," Anderson writes in granting the stay. "In other words, the Department believes Petitioners are wholly unsound because one particular reinsurer that ACL is using is not financially strong. The insolvency of one reinsurer is simply not ample evidence to establish that Petitioners are unsound."

An A-Cap representative informed Anderson that Atlantic Coast continues "to pay all their debts and that its pre-need insurance business has a positive cash flow," the order reads.

Also, absent changes made by an adjusted RBC report, Atlantic Coast would have a risk-based capital ratio of 628.64%, and Southern Atlantic would have a risk-based capital ratio of 1,382.87%. Both numbers are well above industry standards.

Utah regulators: 'Negative capital'

In Utah, regulators say a "full-scope financial examination" ordered by Commissioner Jon Pike yielded troubled results. The examination probed the insurance companies for the years 2020 through 2023, the order states.

An independent contractor performed the examination and found several problems, the order says:

• More than 10% of the companies’ investments are in a single entity in violation of Utah code.
• The companies’ risk-based capital ratio, a key indicator of financial health, has declined.
• The companies’ investment portfolios included "a disproportionately large number of high-risk investments."
• The companies hold investments in more than thirty loans or loan packages.

The examiner hired Harvest Investments to value assets held by the A-Cap insurers, the order states. Harvest reviewed three specific loans or loan packages to Flair Airlines, PAC Wagon/Phoenix Aviation, and JARM.

All were deemed by Harvest to be worth well less than the internal valuations assigned by the insurers. Relying on the Harvest valuations, Utah examiners adjusted the "capital and surplus" of the three insurers to:

Sentinel Security: from $130,478,003 to ($143,106,666)
Haymarket: from $63,471,407 to ($239,660,592)
Jazz Re: from $3,083,242 to ($138,740,748)

"With negative capital and surplus in the hundreds of millions of dollars, the Companies’ admitted assets are less than their liabilities; and the Companies are using funds from new premiums and/or liquidating investments other than the impaired investments to pay their obligations as they become due," the order says.

According to Utah examiners, the three insurers “are in a Hazardous Financial Condition and that such condition presents an immediate and significant danger to the public health, safety, or welfare, and that immediate action is necessary and in the public interest.”

A-Cap sent this statement on Harvest's audit:

“The disagreement with Utah boils down to the regulator’s reliance on a flawed valuation analysis. While A-CAP’s valuation of its assets has been reaffirmed by highly-experienced, credentialed and independent valuation firms, the regulator relied on a deeply flawed valuation. That valuation analysis was obviously wrong in numerous ways – as just a few examples, it used comparisons to firms in completely different industries; it ignored the liquidation value of our assets; and perhaps most important, it applied a 22% discount rate to conclude that productive aviation assets have an unrealistically low present value.

If the regulator had relied on a proper analysis and used an appropriate discount rate, it would have concluded that all of these assets are worth at least par. We continue to work in good faith to address Utah’s concerns, but the regulator should not have taken such drastic action based on an obviously mistaken analysis.”

The ban on writing new business applies nationwide, said Steve Gooch, public information officer for the Utah Insurance Department.

In May, Sentinel Security and Atlantic Coast sued to prevent AM Best from downgrading their financial strength ratings from B++ to B-. That lawsuit was later settled.

Contacted in December, an AM Best spokesman said "we don't have any updates to provide" regarding future ratings for the A-Cap companies.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.