AM Best has revised the implications of the under review status to developing from negative for the financial strength rating of C- (Weak) and the long-term issuer credit rating of “cc” (Very Weak) of American Millennium Insurance Company of New Jersey, a wholly owned subsidiary of Bermudian-based Citadel Reinsurance Company Limited.

Additionally, AM Best has revised the implications of the under review status to developing from negative for the FSR of B (Fair) and the Long-Term ICR of “bb” (Fair) of Citadel Re.

The ratings of Amic reflect its balance sheet strength, which AM Best assesses as very weak, as well as its weak operating performance, limited business profile and marginal enterprise risk management.

The ratings of Citadel Re reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, neutral business profile and marginal ERM.

AM Best downgraded the credit ratings of both Amic and Citadel Re in February 2021 and maintained the under review with negative implications status following the downgrade of Amic’s ratings in October 2020.

These rating actions resulted from persistent net underwriting losses that continued into the second half of 2020 and negatively impacted the risk-adjusted capitalisation of Amic and Citadel Re given its direct ownership of Amic.

For Amic the impact of these unanticipated losses (net of reinsurance) resulted in a significant deterioration in surplus, and notably, risk-based capital (RBC) levels which, at the time, were likely to prompt state regulatory actions, AM Best said.

The under-review status was pending the parent, Citadel Re, potentially recapitalising Amic’s balance sheet and its plans to raise more capital from outside investors.

In August 2021, Citadel Re completed its recapitalisation of Amic with a $6.2 million cash injection, raising the RBC to above 300 per cent to the satisfaction of Amic’s regulator, the Department of Banking and Insurance of New Jersey.

Although some of the uncertainties incorporated in the previous under review status had been addressed through the completion of the recapitalisation, management’s planned external capital raising has not yet been completed and is likely to be delayed until 2023, AM Best said.

The rating status also considers the improved profitability of Amic’s existing core commercial auto business.

However, the ultimate performance of this book of business and its associated loss reserves may require more time to flesh out, which also could have an impact on Citadel Re’s earnings and capitalisation owing to ownership and consolidation.

AM Best has revised the implications of the under review status to developing from negative for Amic and Citadel Re.

The developing implications reflect AM Best’s need to see how these various trends play out, the agency said.