ALDUICK, NJ December 21, 2023—(BUSINESS WIRE)–AM Best revised the outlook to negative from stable and affirmed the financial strength rating of B+ (good) and the long-term issuer credit rating of ‘bbb-‘ (good) of SILAC Insurance Company (SILAC) (Salt Lake City, UT).
These credit ratings (ratings) reflect SILAC’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating results, neutral business profile and enterprise risk margin management (ERM).
The negative outlook reflects the deterioration in the quality of SILAC’s reinsurance counterparties and risk-adjusted capital due to increasing reinsurance leverage as measured by Best’s capital adequacy ratio (BCAR). SILAC has entered into several reinsurance agreements with unrated reinsurers and maintains relatively high reinsurance leverage to control capital stress. Although SILAC’s capital and surplus have grown over the past year due to favorable earnings retention and capital contribution from investors, its risk-adjusted capitalization is assessed as weak. AM Best also notes SILAC’s somewhat limited financial flexibility if additional capital is needed to fund new growth or replenish capital due to investment impairments or recovery of divested businesses.
SILAC has consistently reported favorable operating results with net income reaching $41 million by the third quarter of 2023. The company’s earnings are primarily driven by investment spreads in SILAC’s Fixed Indexed Annuity (FIA) products. Earnings remain strong despite SILAC’s strategy to reduce sales to manage capital levels. SILAC’s business profile assessment reflects its favorable market position in annuity sales and its geographic diversification. SILAC offers a variety of FIAs and multi-year guaranteed annuity products, which augurs well for the market. AM Best continues to note SILAC’s high allocation to interest-sensitive business.
SILAC’s ERM mainly reflects the deteriorating quality of its reinsurance and heavy reliance on reinsurance to control capital stress. AM Best notes that SILAC has identified key risk categories relevant to its business and established its risk appetite and tolerance levels for each category. While SILAC has controls in place to manage its reinsurance exposure, AM Best will continue to monitor the company’s ability to build and expand its ERM program.
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