A-CAP Group insurers face AM Best downgrade as capital and operating pressure intensify

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A-CAP insurers downgrade risk

Highlights

AM Best downgraded the Financial Strength Rating to C+ from B and the Long-Term Issuer Credit Rating to b- from bb+ for Atlantic Coast Life Insurance and Sentinel Security Life Insurance, citing weakened balance sheet and operating performance in H1 2026.
A-CAP Group's capital ratios and liquidity further deteriorate in H1 2026, driven by heavy exposure to illiquid assets, thinly traded Level 3 securities, underperforming mortgages, and concentrated reinsurance leverage.
Pretax operating gains turn negative for five consecutive quarters and fixed annuity premiums drop sharply in 2025 as elevated surrenders and regulatory actions erode new business and trigger reputational damage.

Rating cuts follow weaker capital metrics

As reported by AM Best, the agency lowered the Financial Strength Rating to C+ from B and the Long-Term Issuer Credit Rating to b- from bb+ for Atlantic Coast Life Insurance Company of South Carolina and Sentinel Security Life Insurance Company of Utah. AM Best says the ratings continue to carry under review with negative implications status.

The agency says the downgrades reflect weaker balance sheet strength and operating performance in the first half of 2026. It assesses the group’s balance sheet strength as weak, while also citing marginal operating performance, a limited business profile and marginal enterprise risk management.

AM Best says current capital levels and regulatory capital ratios deteriorate in the first six months of 2026, extending a trend that has been in place since 2024. It also points to heavy exposure to illiquid assets, equities not traditionally associated with insurer portfolios, concentrations in individual securities, affiliated investments, thinly traded Level 3 assets, growing paid-in-kind assets and underperforming mortgages.

The agency also highlights concentrated reinsurance leverage across a mix of rated and unrated unaffiliated counterparties, including captives and an unrated operating company. While collateralized reinsurance agreements help mitigate some counterparty risk, AM Best says it remains concerned about execution risk tied to the group’s pending capital raise.

Operating losses and regulatory issues weigh on outlook

Pretax operating gains are negative in each of the past five quarters, according to AM Best, while cash flow from operations is also negative at various operating entities over the same period. Benefit payment outflows periodically exceed revenue from investment income, net premiums and ceding commissions on a quarter-by-quarter basis.

Surrenders remain elevated from the first quarter of 2025 through the second quarter of 2026. AM Best says they peak at multiples of historical experience in the first half of 2025 after year-end 2024 regulatory filings, then trend lower through the first quarter of 2026 after those filings are dismissed, before rising again following the agency’s earlier first-quarter 2026 downgrade, though still below early 2025 peaks.

The agency says reputational damage from publicized regulatory rulings hurts new business and increases outflows, especially in the fixed index annuity market where A-CAP Group is primarily focused. Fixed annuity premiums decrease sharply in 2025 after steady growth from 2020 through 2024, and AM Best says the group has been slow to rebuild its brand position in a competitive and credit-sensitive segment.

The under-review status remains in place as AM Best evaluates the potential impact of a credible capital raise and corporate restructuring, alongside uncertainty over whether the transaction will be completed. The review also takes into account the Rehabilitation Petition filed by the South Carolina Department of Insurance against Atlantic Coast Life Insurance Company.

In our earlier article, we covered the affirmation of Ceat Kelani Holdings’ AA+(lka) National Long-Term Rating with a Stable Outlook amid rising input and energy costs and intensifying competition from imports. We noted that while margins were expected to soften, the company’s market leadership and low leverage were key supports, with adequate credit metrics projected to hold despite near-term pressure.

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