AM Best has downgraded the Financial Strength Rating (FSR) to B+ (Good) from B++ (Good), and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb-” (Good) from “bbb” (Good) of Tower Hill Prime Insurance Company (Tower Hill Prime).
The outlook of these credit ratings is negative.
The ratings are said to reflect Tower Hill Prime’s balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management.
The downgrade of Tower Hill Prime’s Long-Term ICR reflects further surplus erosion and ongoing difficulty in organically growing surplus through operations and continued challenges in adequately setting reserves.
Reserves, which continue to develop adversely, are influenced partly by widespread social inflation driven by increased litigation in the company’s operating territory.
Furthermore, Tower Hill Prime, as is typical of Florida property writers and their risk exposure, has elevated gross underwriting leverage reflective of its reinsurance programs.
In a press release, it states that the company’s dependence on reinsurance adds another layer of concern amid the hardening reinsurance market.
In addition, AM Best says that combined with the aforementioned issues is elevated financial leverage of the holding company, Tower Hill Holdings, Inc. which resulted in AM Best’s revised view of the holding company to negative from neutral, adding pressure to the downgrade.
Furthermore, Tower Hill Prime’s cumulative capital position has declined due to underwriting losses reported in each of the past five years, despite capital contributions from the holding company.
However, in response to recent pressures, Tower Hill Prime has re-evaluated its risk appetite and implemented plans to non-renew 50% of its Florida personal lines business by the end of 2022, and completely exit the segment by the end of 2023, as the business will renew into Tower Hill Insurance Exchange, which is due to commence on September 1, 2022.
AM Best says that it expects Prime’s exit of this segment to generate a material reduction in accumulated exposure and probable maximum losses, as well as reduce the demonstrated volatility of operational results.
The negative outlooks reflect AM Best’s concern related to the effectiveness of current risk mitigation strategies as they relate to Tower Hill Prime’s ERM assessment and the execution risk of exiting the volatile Florida personal lines segment.
Furthermore, the negative outlooks also reflect pressure on the company’s operating performance with the severity of recent results not aligning with AM Best’s assessment of marginal.
