SILAC outlook downgraded attributable to decline in reinsurance high quality

Utah-based SILAC Insurance Company (SILAC) has had its outlook adjusted from secure to unfavorable by AM Best.

The shift to a unfavorable outlook is primarily attributable to a decline within the high quality of SILAC’s reinsurance counterparties and a lower in risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio (BCAR). This 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.

Despite this alteration, AM Best has affirmed SILAC’s Financial Strength Rating at B+ (Good) and its Long-Term Issuer Credit Rating at “bbb-” (Good). The rankings mirror SILAC’s sufficient steadiness sheet power and working efficiency, together with its impartial enterprise profile and marginal enterprise danger administration (ERM).

Although SILAC’s capital and surplus have grown over the previous 12 months, bolstered by retained earnings and investor capital contributions, its risk-adjusted capitalization stays weak. AM Best 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 good working efficiency, reporting internet earnings of $41 million as of the third quarter of 2023. The firm’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 firm’s enterprise profile is supported by its place in annuity gross sales and geographic diversification, providing a spread 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. While SILAC has recognized key danger classes and established danger urge for food and tolerance ranges for every, its reliance on reinsurance stays a priority. AM Best will proceed to watch SILAC’s efforts to develop and improve its ERM program.

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