Best Affirms Torus Group Ratings; Outlook Stable

A.M. Best Europe – Ratings Services Limited has affirmed the financial strength rating (FSR) of ‘A-‘ (Excellent) and issuer credit ratings (ICR) of “a-” of Torus Insurance (Bermuda) Limited, Torus Insurance (UK) Limited and Lichtenstein-based Torus Insurance (Europe) AG. Best also affirmed the ICR of “bbb-” of the group’s ultimate parent holding company, Bermuda-based Torus Insurance Holdings Limited.

In addition, Best affirmed the FSR of ‘A-‘ (Excellent) and ICR of “a-” of Torus Specialty Insurance Company and Torus National Insurance Company, both of which are domiciled in Wilmington, Delaware.

The outlook for all ratings remains stable.

The ratings reflect Best’s expectation that “risk-adjusted capitalization will remain strong both on a consolidated basis and for each operating company within the Torus group. Torus Bermuda operates as the recipient of the majority of the group’s risk through a 65 percent quota share and an aggregate stop loss of Torus UK. In turn, Torus UK provides the same cover to Torus Specialty and Torus National. Torus Bermuda also provides reinsurance support to Torus Europe through a 95 percent quota share arrangement.

“In 2012, risk-adjusted capitalization was strengthened by the issue of $80 million of preference shares to existing investors and to a subsidiary of Berkshire Hathaway Inc., as well as the purchase of additional reinsurance protection. Together, these actions offset the negative effect of 2011’s catastrophe losses on the group’s risk-adjusted capitalization.”

Best also indicated that Torus’ “consolidated financial results have been weak, demonstrated by retained losses between 2008 and 2011 of $144 million. The group has made substantial investments in global infrastructure over this period, and in 2011 performance was affected by catastrophe losses on its reinsurance treaty business.

“Torus has reduced its exposure to catastrophe risk, a process started in 2011, through divestment of business and the purchase of additional reinsurance protection, and this should moderate prospective earnings volatility. However, delivering overall technical profitability will remain challenging given the strong competition from established insurers in Torus’ main business lines. In addition, interest payments on the newly issued preference shares will reduce future retained earnings.”

The report also noted that since its launch in 2008, “Torus has built up a significant market presence through a combination of acquisitions of teams and businesses and organic growth. As a result, Torus now writes a well-diversified specialist portfolio with gross premiums of approximately $1 billion. Business is written worldwide from operations in London, Bermuda, the United States and continental Europe.

“Positive rating actions are unlikely in the near future for the Torus group of companies. Deterioration in risk-adjusted capitalization and continued financial underperformance would put negative pressure on the ratings,” Best concluded.

Source: A.M. Best