OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating (FSR) of B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “bbb-” (Good) of SILAC Insurance Company (SILAC) (Salt Lake City, UT). The outlook assigned to these Credit Ratings (ratings) is stable.
The ratings reflect SILAC’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, neutral business profile and marginal enterprise risk management (ERM).
SILAC’s capital position had weakened over the 2020 and 2021 reporting periods as measured by Best’s Capital Adequacy Ratio (BCAR) due to a significant increase in annuity sales. SILAC’s 2022 BCAR has been assessed within the adequate category following its capital improvement initiatives. SILAC’s adequate balance sheet strength assessment is reflective of the measures the company has taken to improve its capital position over the past year, which includes a $75 million preferred equity investment through SILAC’s partnership with Hildene Capital (Hildene); Hildene will in turn acquire a 14.4% economic interest in SILAC. Hildene has also become SILAC’s newest asset manager and will manage $2 billion of SILAC’s general account assets. SILAC has also entered into a $2.5 billion reinsurance agreement—allocated over three years through 2025—with Ludlow Re, Hildene’s Cayman-based reinsurance subsidiary. Furthermore, SILAC has secured a bank debt facility totaling $120 million.
Furthering its commitment to strengthen its balance sheet, SILAC has increased its internal risk-based capital target to a 600% authorized control level (ACL) (300% company action level [CAL]) from 400% ACL (200% CAL). Additionally, SILAC has committed to and adhered to managing its top-line growth to maintain an acceptable level of risk-adjusted capitalization as measured by BCAR. AM Best notes that SILAC’s relatively high financial and reinsurance leverage somewhat diminishes the overall quality of SILAC’s capital position and is also embedded in SILAC’s final balance sheet strength assessment.
SILAC has consistently reported favorable operating performance with net income reaching $52 million as of third-quarter 2022. Earnings are primarily driven by SILAC’s fixed indexed annuity product. Earnings remain strong despite SILAC’s strategy to reduce sales.
SILAC’s business profile assessment has been revised upward to neutral from limited and reflects SILAC’s leading position in annuity sales and geographic diversification. SILAC offers a variety of FIA and multiyear guaranteed annuity products, which bodes well in the marketplace. AM Best continues to note SILAC’s high allocation to interest sensitive business.
SILAC’s ERM is marginal and is reflective of SILAC’s minimal capital maintenance in relation to top-line growth in recent periods. AM Best expects that SILAC will continue to build out and improve its ERM program.
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