OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has maintained the under review with developing implications status for the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of SILAC Insurance Company (SILAC) (Salt Lake City, UT).
SILAC’s ratings were placed under review with developing implications on Dec. 29, 2021, after the company’s risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR), declined to an assessed level of weak as of year-end 2020 (see related press release). The company’s capital was strained significantly by rapid top-line growth and an increase in below investment grade bonds in its general account investment portfolio. During 2021, SILAC reduced its allocation to below investment grade bonds and received a capital contribution of $40 million from its parent, SILAC, Inc. In addition, the company recorded favorable earnings over the past year, which also contributed positively to its capital position. However, risk-adjusted capital remained low for its current rating level and the company’s relatively high level of financial and reinsurance leverage somewhat diminished the overall quality of capital for the organization. The under review status reflected SILAC’s intention of raising additional capital via a surplus note, which was expected to close in early January 2022.
Following the Dec. 29, 2021, rating action, SILAC pivoted from its commitment to secure the surplus note, but remains committed to increasing its risk-based capital with an internal management target of 600% authorized control level (ACL) (300% company action level [CAL]). Instead, SILAC will pursue alternative strategic opportunities, and management has outlined a plan to bolster its capital position in the intermediate term, which is expected to strengthen the company’s risk-adjusted capitalization, as measured by BCAR, and thus, the overall balance sheet strength.
The ratings of SILAC will remain under review with developing implications until AM Best can fully assess the company's strategic plans including its ability to manage to an increased capital target, while also managing top-line growth in order to maintain an acceptable level of risk-adjusted capitalization for its current ratings.
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