Insurers’ lawsuit over AM Best ratings delayed again amid settlement talks

A New Jersey judge granted another extension Friday to give AM Best and two life insurers more time to finalize an agreement to end a lawsuit over negative ratings.

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

In June, attorneys informed the court that they had reached a tentative settlement but needed to work out the details. Judge Zahid N. Quriashi granted a 30-day adjournment of a preliminary injunction hearing. On Friday, Quriashi reset the hearing to Sept. 17 after another request from Liza M. Walsh, attorney for the insurers.

"The parties remain engaged in settlement negotiations and have exchanged drafts of a settlement agreement," Walsh informed the court. "However, the parties require additional time to finalize the settlement in light of the complexity of the agreement and the summer travel schedules of party principals whose input and consent is required."

'They want fairness'

The insurance companies, Atlantic Coast Life Insurance, of Charleston, S.C., 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 AM 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.”

AM 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 agency said in a news release. "The company is also placing new business in unrated counterparties even as its weight of counterparty risk from unrated reinsurers increases."

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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 john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.