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Two US insurers have sued specialist rating agency AM Best in an effort to stop it from downgrading its estimate of their financial strength, in an escalating dispute over their exposure to Everton bidder 777 Partners.
In a lawsuit filed last week, Atlantic Coast Life Insurance and Sentinel Security Life Insurance, part of US insurance group A-Cap, asked a New Jersey court to stop AM Best from “issuing the rating it has prepared” and to force the agency to recalculate it. The planned downgrade would have taken their financial strength rating down three notches, from B++ to B-, they said.
The insurers, which offer life insurance and annuity products to families across America, accused the rating agency of a “fixation” with 777 Re, the Bermuda reinsurer linked to the Miami investment group.
A-Cap has been rushing to take back assets that it ceded to 777 Re through reinsurance transactions, and regulators have pushed it to reduce its exposure to the investment firm, after AM Best raised concerns about the quality of assets held by the reinsurer.
In a separate letter to the court, the plaintiffs’ lawyers argued that the “very existence of [the insurers’] business hangs in the balance”.
The letter also purported to summarise AM Best’s position, saying the agency was refraining from publishing the updated credit rating. That, AM Best reportedly argued, left the market and insurance customers relying on outdated information and left the company at risk of breaching its own policies on prompt publication.
AM Best did not immediately respond to a request for comment.
A-Cap said. “This matter is the subject of litigation and we have already communicated our views on it in the filing referenced. It speaks for itself.”
The A-Cap insurers argued in their suit that AM Best had misunderstood the relationship between the insurers and 777 Re, had taken too dim a view of assets at 777 Re and had not taken into account A-Cap insurers’ progress in reducing their exposure to the reinsurer. They said AM Best had stated in an email that it would apply $1bn in writedowns “largely on assets held outside of the A-Cap insurers’ books”.
The insurers accused the agency of using “flawed methods, improper assumptions, and demonstrably false data” and of a “capricious review process that swung wildly between arbitrary ratings without considering relevant information or co-operating with the A-Cap insurers”.
The insurers said they had provided new information to AM Best relating to the recent “successful recapture” of $510mn of 777 Re-related assets which had been “transferred to a new insurer at par”. In the filing, made on April 23, the insurers said they expected to eliminate their 777 Re exposure by the end of that month.
The scrutiny has taken its toll on 777 Re, which had helped to fund 777 Partners’ investments. The Miami group has stakes in a global portfolio of football clubs, including Genoa in Italy, Vasco da Gama in Brazil, Hertha Berlin in Germany and Standard Liège in Belgium.
777 Partners agreed to buy Everton in September 2023 and had expected to complete the takeover by the end of the calendar year. However, the Premier League has not yet approved its takeover of the Liverpool-based club.
The league has put in place a number of conditions for 777 Partners to meet, including the need to repay £158mn of debt which is owed to lenders including MSP Sports Capital in connection with the new stadium that Everton is building.
In the meantime, 777 Partners has lent more than $200mn to Everton to help meet working capital requirements, said two people briefed on the matter.
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