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Best’s News & Research Service - May 19, 2020 11:45 AM (EDT)

AM Best Removes From Under Review and Affirms Credit Ratings of Topa Insurance Company and Dorchester Insurance Company, Ltd.

  • May 19, 2020 11:45 AM (EDT)

Oldwick //BestWire// - AM Best has removed from under review with developing implications and affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Ratings of “a-” of Topa Insurance Company (Calabasas, CA) and its subsidiary, Dorchester Insurance Company, Ltd. (U.S. Virgin Islands). These companies, which collectively are referred to as Topa Insurance Group (Topa), are wholly owned subsidiaries of Topa Equities Ltd. The outlook assigned to these Credit Ratings (ratings) is negative.

The ratings reflect Topa’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management.

The rating actions follow mutual agreement that Topa Insurance Group, Inc. (TIG), Topa’s parent, and Altamont Capital Partners (Altamont) will not go forward with their announced transaction under which Altamont would acquire TIG from Topa Equities Ltd.

The ratings consider Topa’s very strong balance sheet strength, inclusive of an adverse development cover (ADC) that protects against adverse reserve development on the entire base of accident-year 2018 and prior loss reserves; adequate operating performance, evidenced in part by profitability on a five-year average basis; and limited business profile as a specialty writer focused primarily on commercial lines and niche market program business.

The negative outlooks reflect challenges the group faces to improve operating results in the near term given the potential for further adverse reserve development in the commercial auto liability line and ongoing expense pressures as the group works to gain traction with operating efficiencies and increase in scale. Company management has implemented a number of strategic business initiatives and underwriting actions to improve profitability in recent years, which include purchasing the ADC, effective Jan. 1, 2019, exiting underperforming business and undesirable classes, implementing rate increases where appropriate, increasing quota share reinsurance and aggressively managing tail risk. There remains a level of execution risk within the strategic initiatives. Topa has reported consistently negative underwriting results and low overall operating profitability over the past five years, and the group is expected to produce an additional underwriting loss in 2020.

AM Best will continue to monitor Topa’s progress on strategic initiatives and the overall impact on Topa’s balance sheet strength, operating performance, business profile and enterprise risk management, as well as continue to evaluate the impact of the COVID-19 pandemic on the group.

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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

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 New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.

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