Rating agency claims ‘lifeblood’ is at stake in the 777-related downgrade dispute

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AM Best, the specialist rating agency for the insurance sector, has said its credibility risks being “irreparably damaged” by a legal bid to prevent it from downgrading US insurers exposed to Everton football club bidder 777 Partners.

The agency is arguing in a New Jersey court that it has a First Amendment right to publish its views on a company’s financial strength, after two U.S. insurers accused the company of using “flawed methods, inappropriate assumptions and demonstrably false data.” use to lower the rating.

“The lifeblood of AM Best’s business is its credibility, and that credibility is irreparably damaged if the company is prevented from publishing its opinion about an insurer’s creditworthiness to the public, even if, and often especially when, that opinion is negative is,” the rating said. The agency stated this in a response submitted to the court this week.

The insurers, Atlantic Coast Life Insurance and Sentinel Security Life Insurance, are part of Kenneth King’s A-Cap Group. They filed a lawsuit last month asking the court to prevent AM Best from issuing the rating and to force the rating to be recalculated.

A-Cap has in recent years built up significant exposure to 777, a Miami investment firm that last year agreed to add the English soccer club to an esoteric portfolio ranging from low-cost airlines to litigation financing.

A-Cap, which has $11.5 billion in assets across five insurers and reinsurers that back family life insurance and annuity policies across America, had lent billions of dollars to 777-linked companies or ceded to its Bermuda-based reinsurer, 777 Re.

As scrutiny over 777 and its bid for Everton has intensified, A-Cap has begun efforts to recapture these assets and reduce its exposure under pressure from US regulators. AM Best has downgraded both 777 Re and A-Cap over the past year, amid concerns about the level of 777-linked assets on the reinsurer’s balance sheet and the impact on the insurer’s own creditworthiness if these assets are recaptured.

In the lawsuit, AM Best said A-Cap had “promised for months that it was close to raising another $300 million in capital,” but that this had not materialized.

It argued that asset valuations provided by A-Cap were “unreliable and dated”, and that assets that would be recaptured by the insurer, such as a private aviation holding company, would be “extremely difficult” to liquidate in the event of a hurry. in claims from policyholders.

The rating agency said it also had concerns about other A-Cap reinsurance deals, which include “the same types of illiquid assets.”

Evidence submitted by King in a separate filing this week states: “You cannot look at a single asset, or even multiple assets, and determine that an insurer has a liquidity problem simply because those assets are illiquid.”

He mentioned structural protection measures to reduce the risk of customers canceling their life insurance contracts. Write-downs to zero by AM Best of certain assets, such as Nutmeg, an entity involved in 777’s football investments, had “no justification”, he added.

The insurer also submitted expert testimony, using industry data, to argue that “without compelling evidence, there is no basis for believing that an asset is essentially worthless simply because it may be relatively more difficult to liquidate are”.

A-Cap told the Financial Times earlier this month that it planned to get back its last assets of 777 Re by the end of May. In the filing, King said that “to the extent there is any serious execution risk” to the plan to recapture assets and raise capital, it is a risk that “AM Best has created itself by virtue of its unwarranted downgrade.”

More than one reinsurer it had been in talks with to replace 777 Re had halted talks because of the lawsuit, King added.

A-Cap declined to comment on the active lawsuit. AM Best did not immediately comment.

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