AM Best has downgraded the Financial Strength Rating (FSR) to C+ (Marginal) from B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “b-” (Marginal) from “bb+” (Fair) of Atlantic Coast Life Insurance Company (Charleston, SC) and Sentinel Security Life Insurance Company (Salt Lake City, UT). Both companies are collectively referred to as A-CAP Group. Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings).

The ratings reflect A-CAP Group’s balance sheet strength, which AM Best assesses as weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).

The rating downgrades are based on increasing weakness in A-CAP Group’s balance sheet strength as well as its operating performance during the first half of 2026.

Current capital levels and regulatory capital ratios have deteriorated in the first six months of 2026, continuing a trend since 2024. The group has a significant allocation to illiquid assets and equities that are not traditionally associated with insurance company investments. There is a concentration in individual securities, investments in affiliated assets and concentration in thinly traded Level 3 assets. There is also an elevated level of paid-in-kind assets that continues to increase over time, along with underperforming mortgages.

The group also has concentrated reinsurance leverage. It utilizes a mix of rated and unrated unaffiliated reinsuring counterparties at the rated entities and at captives, as well as an unrated operating company. The risk of the unrated counterparties is mitigated using collateralized reinsurance agreements.

AM Best acknowledges A-CAP Group’s pending capital raise but has concerns regarding execution risk.

Pretax operating gains have been negative for the A-CAP Group each quarter for the past five quarters. Cash flow from operations has been negative at various operating entities over the same period as outflows from benefit payments periodically have exceeded revenues from investment income and varying levels of net premiums and ceding commissions on a quarter-by-quarter basis.

Surrenders have remained elevated from the first quarter of 2025 through the second quarter of 2026. Surrenders peaked at multiples of historical experience in the first half of 2025 after regulatory filings at year-end 2024. After the dismissal of these regulatory filings, surrenders experienced a downward trend through the first quarter of 2026 but were still elevated compared with levels prior to the aforementioned regulatory filings. The downward trend reversed after AM Best’s rating downgrades on A-CAP Group in the first quarter of 2026 but remain below the peak levels experienced in early 2025. Fixed annuity premiums decreased substantially in 2025 after steady growth from 2020 through 2024.

The limited business profile is manifested in reputational damage resulting from publicized regulatory rulings, which have resulted in a material decrease in new premium and material increase in surrenders/outflows.

A-CAP Group's primary focus is the fixed index annuity market, a dynamic and credit sensitive sector with strong long-term prospects. A-CAP Group has been slow to re-establish its brand presence in this competitive landscape.

The marginal ERM assessment reflects A-CAP Group’s risk culture, which has led to an elevated risk profile related to its invested assets for which the investment cash inflow does not match the cash outflow of the insurance liabilities, and its highly levered reinsurance relationships.

The ratings of ACAP Group remain under review with negative implications based on the potential of a credible capital raise and corporate restructuring, while also considering the uncertainty associated with the completion of the capital raise and execution risk of the transaction. The under-review status also acknowledges the recent Rehabilitation Petition filed by the South Carolina Department of Insurance against a member of the A-CAP Group, Atlantic Coast Life Insurance Company.

The ratings will remain under review with negative implications while AM Best assesses the development and impact of the potential transaction, as well as the ongoing regulatory action.

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