OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has maintained the under review with negative implications status for the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Ratings of “bbb+” (Good) of Topa Insurance Company (Calabasas, CA) and its subsidiary, Dorchester Insurance Company, Ltd. (U.S. Virgin Islands). These companies are wholly owned subsidiaries of Topa Equities, Ltd. and collectively referred to as Topa Insurance Group (Topa).
The Credit Ratings (ratings) reflect Topa’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.
The ratings of the members of Topa remain under review with negative implications in light of news that a recently formed private holding company has entered into a definitive stock purchase agreement, dated June 14, 2024, with Topa Equities, Ltd. to acquire 100% of Topa's intermediate holding company, Topa Insurance Group, Inc. (TIG). TIG is the parent company of Topa Insurance Company and its subsidiary, Dorchester Insurance Company, Ltd. The agreement is anticipated to provide significant financial and operational benefits to Topa; however, if the transaction does not close as expected, negative rating action likely would ensue.
Topa reported a decline in policyholder surplus in 2023, due to an increase in pre-tax operating losses driven by weakened underwriting results, offset partially by a capital contribution from the ultimate parent, Topa Equities, Ltd., in the amount of $30 million. The increase in losses was due in part to adverse loss reserve development occurring on prior-year reserves. The group took substantial reserve strengthening actions to increase its year-end 2023 carried reserve position up to the midpoint estimate of the actuarial range. AM Best notes the negative impact of this reserve strengthening on the group’s surplus and risk-adjusted capitalization. Additional deterioration of this kind could weaken the group’s balance sheet strength metrics further and likely lead to negative rating action.
The ratings will remain under review with negative implications pending the close of the transaction and an assessment by AM Best of the post-transaction details. The transaction is subject to regulatory approval from the California Department of Insurance and the U.S. Virgin Islands Department of Banking, Insurance and Financial Regulation.
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