On April 2, Florida Commissioner of Insurance David Altmaier, advised the state’s chief financial officer in a letter that American Capital Assurance Company is insolvent and that its board of directors consented to an Order of Receivership.
Under the order, American Capital Assurance consented to the appointment of Florida’s Department of Financial Services as receiver.
In March, Demotech Inc. withdrew its financial stability rating for the company at the request of American Capital Assurance.
On March 25, AM Best removed the company from under review with negative implications and downgraded its financial strength rating to D (Poor) from C (Weak). Concurrently, AM Best withdrew American Capital Assurance’s ratings at the request of the company. The C to D downgrade came after AM Best downgraded American Capital Assurance to C (Weak) from A- (Excellent) on March 5.
AM Best said the rating actions resulted from net underwriting losses from multiple severe weather events in the second half of 2020, particularly the hurricanes in Louisiana, as well as losses from the Texas Freeze weather event in February 2021, all of which led to significant surplus loss. The diminished operating results, according to AM Best, are indicative of product and geographic concentration in the commercial property book of business in Florida, Texas and Louisiana.
The most recent financial information available on the Texas Department’s website shows that American Capital Assurance wrote $14.6 million in premium in Texas in 2019 and $101.4 million nationwide; Texas premium amounted to 14.4 percent of the company’s volume.
In 2019, the company had $24.1 million in direct losses paid and $43.9 million in direct losses incurred in Texas.
According to the NAIC’s website, the company’s net income was a negative $41.3 million in 2020, leaving it with $21.7 million in policyholders’ surplus. The company’s assets amounted to $101.1 million, while liabilities were $79.3 million.
An examination report as of Dec. 31, 2018, showed American Capital Assurance had $61.1 million in policyholders’ surplus, which was down from the $81.4 million the company reported per an examination as of Dec. 31, 2013. The decrease in surplus from 2013 to 2018 amounted to $20.3 million.
At the time of the 2018 examination report, American Capital Assurance had a layered reinsurance program designed to provide coverage for up to two one-in-100 year events. The company participates in the Florida Hurricane Catastrophe Fund, which provides coverage of approximately 90 percent of $133.2 million in excess of $41.3 million. The company’s private catastrophe coverages wrap around the Florida cat fund, according to the examination report, which is dated June 4, 2020, and can be found on the Florida Office of Insurance Regulation website.
The examination report begins with a history of the American Capital Assurance as follows. Prior to June 1, 2016, the company was a wholly owned subsidiary of ARX Holding Corp., with Progressive Corporation as the ultimate controlling parent. On June 1, 2016, Ark Royal Holdings LLC completed the transfer of its interest in Ark Royal Insurance Company and Ark Royal Underwriters LLC to ARX. In exchange for its interest in Ark Royal Insurance Company and Ark Royal Underwriters, ARX transferred 100 percent of its interest in American Capital Assurance and Safe Harbor Underwriters LLC to ACAC Holding Corp., a wholly owned subsidiary of Ark Royal Holdings.
Following the completion of the transaction, Ark Royal Holdings became the ultimate controlling entity. Effective Jan. 1, 2017, Ark Royal Holdings changed its legal name to AmCap Holdings LLC, and Safe Harbor Underwriters changed its name to AmCap Underwriters LLC.
On June 1, 2016, American Capital Assurance entered into a quota share reinsurance agreement with ASI Lloyds, a Texas domiciled property and casualty insurer, but the agreement was for one year and ended on June 1, 2017, according to the examination report.
AmCap Underwriters LLC, formerly SHU, provides American Capital Assurance with underwriting, premium and claims processing and negotiation services for the company’s artisan contractors’ general liability product and commercial package policies in Florida, according to the exam report. AmCap Underwriters subcontracts the claims services to ASI Underwriters Corp.
The examination report states that American Capital Assurance, as of Dec. 31, 2018, was authorized to transact insurance business in Florida, Texas, Louisiana and South Carolina. The company is authorized to write fire, allied lines, commercial multi-peril, homeowners multi-peril, inland marine and other liability.
An earlier examination as of Dec. 31, 2013, covering the period Jan. 1, 2010, through Dec. 31, 2013, stated that American Capital Assurance was a wholly owned subsidiary of ARX Holding, a Delaware corporation. At the end of the examination period, American Capital Assurance’s “ultimate parents were XL Re Ltd. (40 percent), ARX Executive Holdings LLLP (22 percent), Fasteau Insurance Holdings LLC (8.0 percent), Marc Fasteau (7.0 percent), Flexpoint Fund LP (7.0 percent), PC Investment Company (5.0 percent) and other individuals and entities (each owning less than 4.0 percent and collectively less than 11 percent).” The company had a wholly owned subsidiary, ASI Home Insurance Corp., for the duration of the examination period.
American Capital Assurance was formed on June 1, 2006, and commenced business on June 30, 2006. On Nov. 21, 2006, the company received funds from the State Board of Administration of Florida in the form of a $25 million surplus note. The note had a floating interest rate set quarterly based on the 10-year Treasury bond rate. The term was 20 years with the first three years of payments interest only followed by a 17-year amortization period. Payments were made as dictated by the schedule, according to the examination report, dated March 26, 2015.
The terms of the note required the company to maintain $50 million in surplus and a 1.5:1 ratio of net written premium to surplus for the duration of the note. As of Dec. 31, 2010, the company met the surplus requirement, but not the premium to surplus ratio. Consequently, the company was charged additional interest of 450 basis points.
In June 2011, the company filed for an agreement with the Florida State Board of Administration to accelerate the payment by five years, thereby exempting the premium to surplus ratio requirement. As of Dec. 31, 2013, the company was in compliance with the agreement.
American Capital Assurance operated under another consent agreement obligating the company to obtain prior approval in writing before declaring any dividends. During the exam period Jan. 1, 2010, through Dec. 31, 2013, the company complied with the consent agreement. The company had been out of compliance during a prior examination as of Dec. 31, 2009, when the company failed to get prior approval and paid a $6.5 million dividend to its parent.
During the four years the 2013 examination covered, American Capital Assurance’s earned premium nearly doubled from $38.5 million in 2010 to $72.6 million in 2013. Net income escalated from $5.0 million to $13.6 million; total assets went from $105.9 million to $173.1 million; policyholders’ surplus went from $59.8 million to $81.4 million.