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American Capital Assurance Corp., a Florida-based insurer focused on commercial residential and non-residential property risks, as well as flood coverage, had its Demotech rating withdrawn and was downgraded by AM Best.

Demotech announced March 5 that it had withdrawn American Capital’s financial stability rating (FSR) of “A” after review and analysis of 2020 statutory financial information filed by the insurer and the company’s decision to no longer participate in Demotech’s rating process. As of March 4, 2021, American Capital Assurance Corp. is no longer followed or rated by Demotech

“We advised AmCap we would no longer support an FSR at the A level and offered them an FSR of M or withdrawal,” Demotech Founder and President Joseph Petrelli said in an e-mail to Insurance Journal. “AmCap then opted to be not rated rather than rated M [moderate].”

On March 8, AM Best said it had downgraded the company’s financial strength rating to “C” (weak) from “A-” (excellent) and the long-term issuer credit rating to “ccc+” from “a-” In addition, AM Best placed the company’s credit ratings under review with negative implications.

Best said the ratings reflect AmCap’s balance sheet strength, which it assessed as “very weak, as well as its marginal operating performance, limited business profile and marginal enterprise risk management.”

Best said the rating actions result from net underwriting losses from multiple severe weather events in the second half of 2020, particularly in Louisiana, which led to significant surplus loss and a severe negative impact to AmCap risk-adjusted capitalization on a standard and catastrophe-stressed basis, as measured by Best’s Capital Adequacy Ratio (BCAR).

“These diminished operating results are also indicative of product and geographic concentration concerns in the commercial property insurance book of business in Florida, Texas and Louisiana, calling into question the soundness and fundamentals of ACAC’s enterprise risk management program,” Best said.

Best said AmCap management has communicated near-term strategic initiatives that are designed to “immediately improve risk-adjusted capitalization and stabilize operating results.”

The under review with negative implications status indicates continued pressure on the ratings and the heightened execution risk of strategic alternatives that AmCap management is currently pursuing, Best added. The ratings will remain under review pending further discussions with AmCap management regarding the progress of its strategic initiatives. Best said the company expects these actions to be implemented, resolved and executed within the next 60 days.

“The negative implications status suggests that if these initiatives do not materialize, or if the timing of these initiatives are delayed, AmCap ratings could be lowered further,” Best said.

AmCap had more than 1,900 policies in force in Florida as of Sept. 30, 2020, with nearly $80 million in annualized premium, according to data from the Florida Office of Insurance Regulation. The company also writes business in Georgia, Louisiana, North Carolina, South Carolina and Texas.