AM Best downgrades Texas captive after deviation from business plan

AM Best has downgraded the financial strength rating to B- (Fair) from B++ (Good) of Cadence Indemnity, a captive serving The Sullivan Brothers Family of Companies (SFBC).

Additionally, AM Best has placed these ratings under review with negative implications. Concurrently, AM Best has withdrawn these public ratings of Cadence per the company’s request.

AM Best stated there was a significant decline in the Texas-domiciled captive’s risk-adjusted capitalisation after premium growth that substantially deviated from the business plans originally shared with the ratings agency.

Operating as a Texas-domiciled single-parent captive, Cadence was assigned its ratings only last year, and its first full year of operation was 2023.

In the note assigning those ratings last year, it was stated Cadence provides affordable coverage on a direct basis for a diversified portfolio of risks from several commonly owned operating companies, collectively known as The Sullivan Brothers Family of Companies (SFBC).

The revised ratings reflect Cadence’s balance sheet strength, which AM Best assesses as weak, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The rating downgrades reflect the weakening in Cadence’s balance sheet strength, driven by a significant decline in risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), and increasing underwriting leverage metrics.

In the latter half of 2025, AM Best stated Cadence experienced premium growth that substantially deviated from the business plans originally shared with the ratings agency at the time the company was initially rated in March 2025.

Consequently, the captive’s underwriting risk materially increased, causing a significant decline in its BCAR score.

These rating actions also reflect a revision in AM Best’s assessment of Cadence’s ERM to marginal from appropriate.

AM Best said that the ratings will remain under review with negative implications pending additional meetings with management to evaluate Cadence’s ERM framework, including risk mitigation strategies and processes, receipt of a revised business plan, the filing of Cadence’s year-end 2025 statutory financial statements and the finalisation of its year-end actuarial review.

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.