Regulator alleges A-Cap insurers’ financial soundness ‘grievously undermined’
South Carolina Department of Insurance director Michael Wise (pictured) has filed to place Atlantic Coast Life Insurance and Southern Atlantic Re into rehabilitation, saying the action is necessary to protect policyholders and the wider public, alleging their financial soundness was “grievously undermined”.
Wise said the department had been closely monitoring “a number of concerning” signs regarding the companies’ finances.
The two insurers had previously been placed under confidential supervision by the South Carolina regulator. Regulators in Utah took similar measures, although courts in both states ultimately dismissed those petitions. A South Carolina administrative law judge ruled that the regulator’s decision was unsupported by facts and contrary to state law, AM Best reported.
The latest rehabilitation petition, filed in South Carolina’s Court of Common Pleas for the Fifth Judicial Circuit, alleges the insurers’ financial soundness had been “grievously undermined” while under A-Cap’s control and that policyholder funds had been placed into high-risk and inappropriate investments.
According to the petition, one of the largest counterparties to A-Cap’s investments is 777 Partners, which operated a prominent Bermuda-based reinsurance subsidiary, 777 Re, that filed for bankruptcy in August.
The petition said A-Cap chairman and chief executive Kenneth King had previously told the South Carolina insurance department that the company had virtually eliminated its exposure to 777 Partners and related companies.
However, the petition alleges that 777 Partners’ bankruptcy proceedings revealed A-Cap and its affiliates still held $1.3 billion in loans to 777 Partners companies. The insurance department said it was unclear how those loans would be repaid following the bankruptcy.
The petition further alleges that, alongside investments in distressed companies, many of the insurers’ other investments are nonperforming, receiving no cash principal or interest payments, or have defaulted.
Atlantic Coast and Southern Atlantic have rejected the allegations and pointed to the outcome of the previous litigation.
The companies said they have continued to meet their obligations to policyholders throughout the regulatory actions and court proceedings.
AM Best reported that underwriting entities of A-Cap currently have Best’s Financial Strength Ratings of B (Fair), with the ratings under review.
Did you get value from this story? Sign up to our free newsletters and get stories like this sent straight to your inbox.
