OLDWICK, NJ–(BUSINESS WIRE)–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) (Gainesville, FL). The outlook of these Credit Ratings (ratings) is negative.
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.
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 partly influenced 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. The company’s dependence on reinsurance adds another layer of concern amid the hardening reinsurance market. 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.
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. In response to recent pressures, Tower Hill Prime has re-evaluated its risk appetite and implemented plans to exit its Florida personal lines segment as this business will renew into Tower Hill Insurance Exchange commencing Sept. 1, 2022. AM Best expectations 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. 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. 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 intensity 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.
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