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Credit ratings for Citadel Re withdrawn

Citadel Reinsurance Company Limited’s principal address is Continental Building, 25 Church Street, Hamilton (Photograph by David Fox)

Uncertainty surrounds the future business prospects for a Bermuda reinsurer and its long-troubled American insurer after recent regulatory and credit rating action, AM Best has concluded.

And the rating agency has determined that the challenges associated with the regulatory and capital requirements imposed on Citadel Reinsurance Company Limited by the Bermuda Monetary Authority, leaves much doubt for the future of the Class 3A company and its wholly owned subsidiary, American Millennium Insurance Company of Bridgewater, New Jersey.

AMIC is under a negative credit rating, after being under review with developing implications.

It came after AM Best further downgraded AMIC’s financial strength rating from Weak (C-) to Poor (D) and the long-term issuer credit rating to poor from very weak.

Best also removed the parent Citadel Re from under review with developing implications and downgraded its FSR to C+ (Marginal) from B (Fair) and the Long-Term ICR to “b-” (Marginal) from “bb” (Fair). The outlook assigned to this rating is also negative.

But at the same time, AM Best has withdrawn the ratings of AMIC and Citadel Re as the companies have requested to no longer participate in AM Best’s interactive rating process.

Best said the AMIC ratings reflect its very weak balance sheet strength, as well as its weak operating performance, limited business profile and marginal enterprise risk management.

The agency said the Citadel Re ratings reflect its weak balance sheet strength, its marginal operating performance, limited business profile and marginal ERM.

Prior to these rating actions, AM Best downgraded the ratings of AMIC and Citadel Re in February 2021, and maintained the under review with negative implications status, resulting from persistent underwriting losses that negatively impacted the risk-adjusted capitalisation of both companies.

The under review status was pending due to a planned recapitalisation of AMIC and Citadel Re to raise capital from outside investors.

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

AM Best said: “However, management’s planned capital raise was not successful, as the transaction failed to get approval from the Bermuda Monetary Authority.

“The failed transaction also led to Citadel Re having to return a portion of its capital to the outside investor and causing Citadel Re’s capital to fall below Bermuda’s Solvency Capital Requirement; consequently, the BMA ordered Citadel Re to stop writing any new and renewal business.

“The downgrading of Citadel Re’s ratings reflects its weakened balance sheet strength, as well as a lower assessment of its business profile due to its run-off status.

“The downgrading of AMIC’s ratings is mainly due to it no longer receiving lift from Citadel Re, because of Citadel Re’s diminished capital position.”

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Published May 11, 2023 at 7:52 am (Updated May 11, 2023 at 7:52 am)

Credit ratings for Citadel Re withdrawn

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