AM Best downgrades A-Cap insurers amid financial and regulatory troubles

Update: A spokesperson for A-Cap released a statement after this article was published:

“We disagree with today’s rating action and believe it does not reflect A-CAP’s pending capital raise and corporate restructuring initiatives, which were acknowledged by AM Best and are continuing to develop.

“Sentinel Security Life and Atlantic Coast Life have been insurance companies for more than a century. Through their long and proud history they have served policyholders through generations of economic and market cycles and remains committed to its employees and meeting its obligations to policyholders throughout the United States.”

AM Best has downgraded the financial strength ratings of two Advantage Capital Holdings' insurers, citing deteriorating capital levels, weak operating performance and concerns about the companies’ investment and reinsurance exposures.

The ratings agency lowered the Financial Strength Rating of Atlantic Coast Life Insurance Co. of Charleston, S.C., and Sentinel Security Life Insurance Co. of Salt Lake City to C+ (Marginal) from B (Fair). The rating agency also downgraded the companies’ Long-Term Issuer Credit Ratings to “b-” (Marginal) from “bb+” (Fair).

The ratings remain under review with negative implications, AM Best said in a news release.

The ratings downgrade comes a week after Director Michael Wise of the South Carolina Department of Insurance filed a 56-page petition seeking to take control of insurers Atlantic Coast and Southern Atlantic Re Inc.

In its own 32-page lawsuit, the A-Cap insurers accuse Wise of a prolonged and failed campaign to punish the companies and ask the Fifth Judicial Circuit in Richland County for an immediate and permanent injunction.

A spokesman for the Utah Department of Insurance said regulators there have no news to report on any related actions involving Sentinel Security.

'Weakness' in the balance sheet

The downgrades reflect what AM Best described as increasing weakness in A-Cap’s balance sheet strength and operating performance during the first half of 2026. The group’s balance sheet strength is assessed as weak, while its operating performance, business profile and enterprise risk management are rated marginal.

Capital levels and regulatory capital ratios deteriorated during the first six months of the year, continuing a trend that AM Best said has been evident since 2024.

The insurers also have significant exposure to illiquid assets and equities that are not traditionally associated with insurance company investment portfolios. AM Best cited concentrations in individual securities, affiliated assets and thinly traded Level 3 assets, as well as rising levels of paid-in-kind assets and underperforming mortgages.

The group also has concentrated reinsurance leverage, using a combination of rated and unrated unaffiliated reinsurers at its rated companies and captives, as well as an unrated operating company. Collateralized reinsurance agreements help mitigate the risk associated with the unrated counterparties, AM Best said.

AM Best acknowledged a pending capital raise by A-Cap Group but said it remains concerned about execution risk.

The group’s operating performance also remains under pressure. Pretax operating gains have been negative in each of the past five quarters, while cash flow from operations has been negative at various operating entities during the same period.

Benefit payments periodically have exceeded revenues from investment income, net premiums and ceding commissions, AM Best said.

Elevated surrenders cited

Surrenders also have remained elevated from the first quarter of 2025 through the second quarter of 2026. They peaked at multiples of historical experience during the first half of 2025 following regulatory filings at the end of 2024.

Surrenders declined after those regulatory filings were dismissed and continued to trend downward through the first quarter of 2026, although they remained above levels recorded before the filings. That trend reversed after AM Best downgraded A-Cap Group in the first quarter of 2026, although surrender activity remained below the peaks reached in early 2025.

Fixed annuity premiums also fell substantially in 2025 after growing steadily from 2020 through 2024.

AM Best said the group’s limited business profile is "manifested in reputational damage resulting from publicized regulatory rulings, which have resulted in a material decrease in new premium and material increase in surrenders/outflows."

The A-Cap insurers primarily focus on fixed indexed annuities, which AM Best described as a dynamic and credit-sensitive market with strong long-term prospects. The group has been slow to re-establish its brand presence in the competitive market, the rating agency said.

AM Best also cited concerns with the group’s enterprise risk management, pointing to an elevated investment risk profile in which investment cash inflows do not match the cash outflows associated with insurance liabilities. The agency also cited the group’s highly leveraged reinsurance relationships.

The ratings will remain under review with negative implications as AM Best evaluates a potential capital raise and corporate restructuring, along with the uncertainty surrounding completion of the transaction and its execution.

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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.