OLDWICK, New Jersey – (COMMERCIAL THREAD) –AM Best maintained status under review with negative implications for the financial strength rating (FSR) of C- (low) and the long-term issuer credit rating (long-term ICR) of “cc” (low) of the American Millennium Insurance Company (AMIC) (Bridgewater, NJ), a wholly owned subsidiary of Citadel Reinsurance Company Limited (Citadel Re) (Hamilton, Bermuda). In addition, AM Best maintained the status under review with negative implications for the FSR of B (Fair) and the long term ICR of “bb” (Fair) of Citadel Re.
AM Best downgraded the credit ratings (ratings) of AMIC and Citadel Re in February 2021 and maintained the status under review with negative implications following the downgrade of AMIC’s ratings in October 2020. These measures ratings resulted from persistent net underwriting losses that continued into the second half of 2020 and had a negative impact on the risk-adjusted capitalization of AMIC and Citadel Re given its direct ownership of AMIC. For AMIC, the impact of these unforeseen losses (net of reinsurance) led to a significant deterioration in surpluses and in particular in risk capital levels (RBC), which were likely to encourage the State to take regulatory measures. The status “under review” was pending the potential recapitalization of AMIC’s balance sheet by parent company Citadel Re and its plans to raise more capital from outside investors. The negative implications for AMIC considered the ongoing regulatory pressures and the uncertainty associated with AMIC as a going concern.
At the end of June 2021, AMIC’s regulator, the New Jersey Department of Banking and Insurance (DOBI), had agreed that Citadel Re would immediately recapitalize AMIC with $ 2.55 million in the first tranche, to correct the RBC to 200%. or more, based on the financial statements for the first quarter of 2021. The first tranche of the recapitalization is now complete. DOBI expects another cash contribution of $ 3.65 million before the end of July (to push RBC above 300%), in line with Citadel Re’s fundraising schedule.
AM Best maintains the status under review with negative implications for AMIC and Citadel Re. Although some of the uncertainties incorporated in the previous review status have been addressed with the completion of the first tranche of the recapitalization, the Planned external fundraising has not yet been completed and is expected to be delayed until August. Although Citadel Re has signaled some interest from potential investors, the ultimate success of these efforts is far from certain. If external fundraising ultimately fails, AM Best expects continued pressure from AMIC’s regulator (DOBI) while Citadel Re’s ratings could also be negatively affected. AM Best plans to finalize the under review status of Citadel Re and AMIC once the external funding is completed, which is expected to take place in the third quarter of 2021.
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