Two US insurers that previously did business with the failed Bermuda reinsurer 777 Re are facing an attempt by South Carolina regulators to place them into rehabilitation amid concerns over their financial condition and alleged continuing exposure to 777 Partners.

Atlantic Coast Life Insurance Co and its reinsurance subsidiary Southern Atlantic Re are alleged to be in a “financially hazardous” position, according to a petition filed by Michael Wise, director of the South Carolina Department of Insurance.

Southern Atlantic Re previously ceded business to 777 Re Ltd, the Bermuda Class E reinsurer, which was owned by an affiliate of 777 Partners, and whose insurance registration was cancelled by the Bermuda Monetary Authority in 2024.

The action in South Carolina comes nearly three years after the BMA intervened at 777 Re over what it described as significant concerns about the reinsurer’s corporate governance, risk management and decision-making.

The BMA subsequently found that 777 Re was acting contrary to the prudent person principle in relation to investments in affiliated assets and had failed to meet its enhanced capital requirements after its parent failed to make contractual capital contributions.

The regulator restricted 777 Re from writing new business and ordered it to reduce its exposure to affiliated investments through asset sales and restructuring.

The reinsurer ceased conducting insurance business in May 2024 and its Bermuda registration was cancelled four months later.

Atlantic Coast Life is indirectly owned by Advantage Capital Holdings LLC, or A-Cap, the Miami-based private equity firm controlled by Kenneth King.

In his petition to place Atlantic Coast Life and Southern Atlantic Re into rehabilitation, Mr Wise alleged that the insurers remained exposed to collapsed investment firm 777 Partners, had overstated the value of certain assets and had failed to fully disclose some investments with affiliates, Bloomberg reported.

Mr Wise also pointed to a separate 777 bankruptcy filing indicating that A-Cap and its affiliates may be owed almost $1.3 billion.

“Improper investments threaten respondents’ ability to pay back the thousands of mostly elderly policyholders who bought annuities and other insurance products from Atlantic Coast Life,” the petition states.

Despite Atlantic Coast Life’s previous assurances that it had resolved certain exposures to 777, Mr Wise wrote: “The Department has substantial concerns that the financial distress will increase and spread.”

Atlantic Coast Life’s combined capital and surplus, a measure of its financial cushion against losses, fell 42 per cent in the first six months of this year as policyholders cashed out a gross $463 million of annuities, according to the petition.

Rehabilitation is a process through which financially-distressed insurers are placed into receivership with the intent of identifying the source of any issues and working to remedy them.

If the court grants the petition, the insurers will be placed under the control of the South Carolina regulator, which will “attempt to identify and implement appropriate measures to restore the companies to sound financial footing”.