AM Best Withdraws Credit Ratings of Tower Hill Prime Insurance Company
- September 28, 2022 03:41 PM (EDT)
Oldwick //BestWire// - AM Best has downgraded the Financial Strength Rating to B (Fair) from B+ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb” (Fair) from “bbb-” (Good) of Tower Hill Prime Insurance Company (Tower Hill Prime) (Gainesville, FL). The outlook of these Credit Ratings (ratings) is negative. Concurrently, AM Best has withdrawn these ratings as the company has requested to no longer participate in AM Best’s interactive rating process.
The ratings 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 (ERM).
The downgrade of Tower Hill Prime’s Long-Term ICR reflects a significant decline in its overall risk-adjusted capitalization, as measured by the Best Capital Adequacy Ratio (BCAR), to the very strong level from the strongest level, coupled with continued surplus erosion and elevated financial leverage of the holding company. While Tower Hill Prime has benefitted from capital contributions through the holding company and the issuance of surplus notes, the quality of operating company capital has deteriorated as surplus notes currently make up more than half of Tower Hill Prime’s second quarter 2022 surplus. Additionally, Tower Hill Prime continues to face challenges in adequately setting reserves. Reserves, which continue to develop adversely despite strengthening measures, are influenced partly by widespread social inflation driven by increased litigation in the company’s operating territory. Combined with the aforementioned issues is continually climbing financial leverage of the holding company, Tower Hill Holdings, Inc., which AM Best’s continues to view as negative, adding pressure to the overall balance sheet strength assessment.
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. Tower Hill Prime has planned to non-renew about 50% of its Florida personal lines business by the end of 2022 and completely exit the segment by 2023. The company’s Florida personal lines policies will be moved to Tower Hill Insurance Exchange, a separate entity from Tower Hill Prime created specifically to house this volatile segment. 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. Tower Hill Prime faces several challenges ranging from severe hurricanes, more frequent lower level weather-related events and social inflation.
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.