A.M. Best Assigns Ratings to Tower Hill Prime Insurance Co.

A.M. Best has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to Tower Hill Prime Insurance Company (Tower Hill Prime) in Gainesville, Fla. The outlook assigned to both ratings is stable.

The ratings assigned to Tower Hill Prime reflect the company’s strong capitalization, long history as a writer of personal residential business in Florida, established relationships with an extensive network of agencies in its operating territories and expertise in the underwriting and servicing of personal property products. The company’s property business exposure to weather-related catastrophe losses is significant; however, it is effectively mitigated through the use of extensive reinsurance that addresses severity and frequency. According to management’s business development plans and catastrophe-modeled exposure analysis, the reinsurance coverage reduces the net after-tax PML (probable maximum loss) from a 100-year hurricane event to a level that puts marginal stress on the capitalization of the company. The company is led by a management team that has a track record of generating strong results and possesses extensive knowledge of the Florida property market.

Negative rating factors include the extensive catastrophic risk exposure and high dependence on reinsurance as evidenced by the company’s elevated gross leverage. However, the associated credit risk related to the company’s reliance on third-party reinsurance recoverables is somewhat mitigated by the credit quality of its reinsurers and the collateralization of some recoverables. Furthermore, as the company’s new business growth is currently concentrated in a single state, there is execution risk as the business development plans are implemented, as well as competitive market conditions and the influence that regulatory and legislative actions in the state may have on management’s plans and strategies.

Future positive rating action could occur if Tower Hill Prime generates a trend of strong underwriting income, operating returns, surplus growth and reduced reinsurance dependence while increasing its level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Negative rating action may occur following a material deterioration in operating performance, unexpected and material decline in risk-adjusted capitalization, or an increased dependence on reinsurance.

Topics Reinsurance AM Best