Utah-based SILAC Insurance coverage Firm (SILAC) has had its outlook adjusted from steady to destructive by AM Finest.

The shift to a destructive outlook is primarily as a result of a decline within the high quality of SILAC’s reinsurance counterparties and a lower in risk-adjusted capital, as measured by Finest’s Capital Adequacy Ratio (BCAR). That is attributed to elevated reinsurance leverage following a number of agreements with unrated reinsurers and a technique of sustaining excessive reinsurance leverage to handle capital pressure.

Regardless of this alteration, AM Finest has affirmed SILAC’s Monetary Power Score at B+ (Good) and its Lengthy-Time period Issuer Credit score Score at “bbb-” (Good). The scores replicate SILAC’s ample stability sheet power and working efficiency, together with its impartial enterprise profile and marginal enterprise threat administration (ERM).

Though SILAC’s capital and surplus have grown over the previous yr, bolstered by retained earnings and investor capital contributions, its risk-adjusted capitalization stays weak. AM Finest has additionally expressed considerations relating to SILAC’s restricted monetary flexibility for potential capital necessities to assist new development or offset funding impairments or recapture of ceded enterprise.

SILAC has maintained a positive working efficiency, reporting web earnings of $41 million as of the third quarter of 2023. The corporate’s earnings are largely derived from funding spreads on its fixed-indexed annuity (FIA) merchandise.

SILAC’s technique of lowering gross sales to handle capital ranges has additionally not considerably impacted its robust earnings. The corporate’s enterprise profile is supported by its place in annuity gross sales and geographic diversification, providing a variety of FIA and multiyear assured annuity merchandise.

The evaluation of SILAC’s ERM is influenced by the deteriorating high quality of its reinsurance relationships and a heavy dependence on reinsurance to handle capital pressure. Whereas SILAC has recognized key threat classes and established threat urge for food and tolerance ranges for every, its reliance on reinsurance stays a priority. AM Finest will proceed to watch SILAC’s efforts to develop and improve its ERM program.

What are your ideas on this story? Please be happy to share your feedback beneath.