Insurers, A.M. Best reach preliminary settlement in financial ratings case

By Doug Bailey

The parties in a case accusing the credit rating agency A.M. Best of unfairly downgrading a pair of life insurers have reached a preliminary settlement, according to a letter filed with the court.

Atlantic Coast Life Insurance and Sentinel Security Life Insurance want to stop A.M. Best from downgrading their financial strength ratings, which would drop from B++ to B-, according to the lawsuit filed last month in the District of New Jersey federal court.

On Wednesday, lawyers for A.M Best asked the judge in the case for a 30-day adjournment of a preliminary injunction hearing scheduled for Friday. The court was to hear A.M. Best’s motion to dismiss the compliant. However, according to the letter signed by attorney Liza M. Walsh, the parties had “reached a settlement in principle to dispose of the action.” Details of the proposed settlement were not included, but Walsh wrote the letter was written with the consent of the defendant insurers.

The insurance companies, Atlantic Coast Life Insurance, of Charleston, South Carolina, and Sentinel Security Life Insurance, of West Valley City, Utah, are part of the A-Cap insurance group. They say in their suit they have done business with A.M. Best for nearly 50 years.

“When insurers pick an agency, they want fairness, transparency, consistency, and objectivity,” the partially redacted complaint said. “A credit rating is only useful if the rating is backed up by the same accurate, reasoned analysis the rating agency has applied in the past and would apply to any insurer.”

The plaintiffs contend AM Best broke its promises to the insurance companies when it changed the team that rates them and threatened multiple times to downgrade their credit ratings.

A-CAP successfully rebutted two write-down threats but has been unable to prevent the third threatened write-down, which the complaint says is “based on flawed methods, improper assumptions, and demonstrably false data.”

A.M. Best in February said its decision to downgrade was 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 judge in the case Zahid N. Quriashi, granted A.M. Best’s motion to redact much of the details of the company’s response, citing the need to protect proprietary competitive information about how it calculates its ratings.

“A.M. Best has an interest in avoiding public disclosure of the confidential materials in order to prevent competitors from using the information to their financial detriment, and to shield the privacy of their employees,” Best’s attorneys told the judge.

It’s believed the case will conclude within the next 30 days assuming the proposed settlement is finalized.

Doug Bailey is a journalist and freelance writer who lives outside of Boston. He can be reached at [email protected].