Best’s News & Research Service - April 16, 2015 01:53 PM (EDT)
A.M. Best Removes From Under Review and Affirms Ratings of Top Layer Reinsurance Ltd.
- April 16, 2015 01:53 PM (EDT)
Oldwick //BestWire// - A.M. Best has removed the under review with negative implications and affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of "aa-" of Top Layer Reinsurance Ltd. (Top Layer) (Hamilton, Bermuda). Both ratings have been assigned a stable outlook.
The ratings have historically reflected the substantial amount of support Top Layer receives from its co-owners, State Farm Mutual Automobile Insurance Company (State Farm) (currently with an FSR of A++ [Superior] and an ICR of "aa+") and Renaissance Reinsurance Ltd. (RenaissanceRe) (currently with an FSR of A+ [Superior] and an ICR of "aa-"). This continues to be the case even as RenaissanceRe's ultimate parent recently completed a sizeable acquisition.
Since Top Layer's inception in 1999, it has generated outstanding operating results, which are due to the property catastrophe underwriting expertise of RenRe, combined with very few catastrophes significant enough to impact the programs written in Top Layer's core markets. Top Layer's business scope is limited to the assumption of high excess layers of non-U.S. property catastrophe risks underwritten on a global basis as is best viewed over a long time horizon. Since inception, Top Layer has had two years with underwriting losses, 2010 and 2011. Top Layer has performed in line with how it was designed.
Top Layer maintains a modest amount of on-balance sheet capital relative to the high excess layers of property catastrophe risks it assumes. The company's capital profile is rather unique from a qualitative and quantitative perspective, but fundamentally, Top Layer offers clients credit security in the layers of a reinsurance program in which credit security is paramount. Top Layer's capitalization is enhanced through various contractual obligations, resulting in substantial capital support and reinsurance protection from State Farm and, to a much lesser degree, RenRe. The occurrence of losses will trigger capital calls for State Farm and RenRe to replenish Top Layer's capital. Moreover, State Farm provides Top Layer with $3.9 billion excess of $100 million stop-loss reinsurance protection. This coverage is significantly larger than the aggregate exposures Top Layer undertakes in each of its geographic zones.
A.M. Best acknowledges that Top Layer's ratings are largely dependent upon the support it receives from State Farm and RenRe. A.M. Best monitors these companies on an ongoing basis and continues to assess how any developments may impact Top Layer's ratings.
Factors that could result in a positive outlook or an upgrading of Top Layer's ratings are a continuation of both its long-term profitability and the support from its co-owners. Factors that could lead to a downgrading of the company's ratings or a revision of its outlook to negative would be increased frequency of losses, which would prompt A.M. Best to question the strategy or risk management, or if RenRe/State Farm reduce their commitment to Top Layer.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- Catastrophe Analysis in A.M. Best Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for Property/Casualty Insurers
- Understanding Universal BCAR
This press release relates to rating(s) that have been published on A.M. 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 visit A.M. Best's Ratings & Criteria Center.
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