OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “bbb+” and affirmed the Financial Strength Rating (FSR) of B++ (Good) of Tower Hill Prime Insurance Company (Tower Hill Prime) (Gainesville, FL). The outlook of the FSR has been revised to negative from stable, while the outlook of the Long-Term ICR is negative.
The Credit Ratings (ratings) reflect Tower Hill Prime’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).
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 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. The company’s dependence on reinsurance adds another layer of concern amid the hardening reinsurance market. Tower Hill Prime has reported underwriting losses in each of the past five years whereby its cumulative loss position has been offset primarily by capital contributions and the sale of its National Flood Insurance Program business. Consistent underwriting losses challenge the sustainability of the company’s current capital position.
In response to recent pressures, Tower Hill Prime has re-evaluated its risk appetite and communicated near-term plans to alter the book of business composition that is expected to generate a material reduction in accumulated exposure.
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. Tower Hill Prime faces several challenges ranging from severe hurricanes, more frequent lower level weather-related events and social inflation. As the market develops and patterns change, the analytical team will evaluate the company’s ERM program to ensure it appropriately addresses all areas of risk. Furthermore, the negative outlooks reflect pressure on the company’s operating performance with the severity of recent results not aligning with AM Best’s assessment of marginal.
AM Best’s assessment of the company’s business profile as limited reflects Tower Hill Prime’s concentration in Florida, which is a hurricane-prone state.
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