AM Best downgrades AMIC and places Citadel Re under review

AM Best has downgraded American Millennium Insurance Company’s (AMIC) financial strength rating (FSR) to C++ (marginal) from B+ (good).

AM Best also placed Citadel Reinsurance Company’s (Citadel Re) FSR of B++ (good) under review with negative implications. AMIC is a wholly owned subsidiary of Citadel Re.

AM Best described AMIC’s balance sheet strength as very weak. AM Best also flagged its marginal operating performance, limited business profile and marginal enterprise risk management, following Q2 results that delivered underwriting and operating losses that were well outside of management’s expectations.

These extraordinary losses stem from higher-than-expected loss costs and adverse loss reserve development related to two commercial auto programmes, AM Best said. Both programmes were discontinued and placed into runoff in 2018. While reinsurance will play a key role in absorbing the majority of these losses, the scope and magnitude of the development was such that the net loss for the quarter depleted surplus by more than 30 percent. This resulted in lower-than-expected risk-adjusted capital, including those prescribed under statutory risk-based capital (RBC) guidelines, AM Best noted.

AM Best warned the scale of AMIC’s surplus loss also has negatively impacted the consolidated balance sheet strength of its parent, Citadel Re. However, it stressed Citadel Re’s balance sheet remains strong.

The rating agency noted that AMIC’s ratings contemplate a substantial amount of implied support from its parent, with Citadel Re’s management currently developing initiatives to recapitalise AMIC’s balance sheet and reorganise its legacy runoff operations.

The ratings will remain under review pending further discussions between AM Best and Citadel Re’s management regarding its plans to refine AMIC’s business strategy and its more immediate plans to recapitalise AMIC's balance sheet, which management expects to be finalised within 60 days. If these initiatives do not materialise, or if the timing of these initiatives are protracted, AMIC's ratings could be lowered further, AM Best warned.