Changes at Tower Hill Secure Rating from Demotech

Insurance company rating firm Demotech, Inc. said it has affirmed the Financial Stability Ratings of A, Exceptional, assigned to Tower Hill Prime Insurance Co., Tower Hill Preferred Insurance Co., Tower Hill Select Insurance Co. and Omega Insurance Co.

Demotech said its analysis was affected by several positive changes implemented by the Florida property insurer during the month of September — including the addition of $22 million in capital and the filing of new rates for homeowners business.

In August, rating analysts at A.M. Best downgraded Tower Hill. A.M. Best said its rating actions considered the companies’ exposure as Florida personal property writers to frequent and severe catastrophic weather events. A.M. Best also questioned the insurer’s reinsurance program.

At the time, Tower Hill said it expected that action and stood by its decision to buy private reinsurance rather than rely on the state-backed hurricane fund, a decision it said was behind the downgrades.

Demotech said steps taken by Tower Hill have improved its financial and reinsurance positions. Specifically, Tower Hill initiated a direct capital infusion of nearly $8 million and an additional $14 million in indirect capital infusions retroactive to June 1, 2009. The aggregate additional capital infused in calendar year 2009 will approximate $22 million.

Also, the insurer has restructured it catastrophe reinsurance to address Demotech’s concerns related to the smaller insurers within the group. The company also purchased additional $10,000,000 of underlying reinsurance. These amendments to the reinsurance treaties and protection already in place reduce the net catastrophic loss associated with a first event, in Demotech’s view. Reliance on the Florida Hurricane Catastrophe Fund remains limited to the mandatory layer, according to Demotech.

Demotech also cited management’s review of the adequacy of homeowners insurance rates and its submission of new rate filings as positive developments.

“Management’s effort to monitor rate adequacy in conjunction with the anticipated improvements in market conditions addressed within the provisions of HB 1495 have placed the Tower Hill Insurance Companies in an excellent competitive position,” said Demotech.

HB 1495 legislation lifted a rate freeze in Florida and cleared the way for rates charged by the state-backed property insurer, Citizens, to also go up, making it easier for private insurers compete with Citizens.

According to Joe Petrelli, president, Demotech, Inc., the market changes brought about by the legislation influenced his firm’s analysis of Tower Hill’s situation, in addition to the changes made by the insurer’s management.

Topics Florida Carriers Reinsurance