It appears one of the nation’s better known cannabis insurance specialists is having to do some scrambling after AM Best announced it was downgrading the credit ratings of Topa Insurance Co. in Calabasas, California, and its subsidiary, Dorchester Insurance Company Ltd. in the U.S. Virgin Islands.
Topa and Dorchester provide a sizable amount of insuring cannabis capacity in the space.
A cannabis focused managing general agent said on Monday it is quickly moving new and renewal business from Topa, and at least one broker believes that Topa’s ratings drop could cause brokers problems with brokers’ errors and omissions coverage, because the policies are now written on “B-paper.” Another broker, who asked not to be named, said he knew other brokers who were having to scramble to place their clients with other carriers.
Cannabis brokers have for years called out the lack of capacity in the space as one of the biggest problems, and this appears to be a step in the opposite direction. If the carrier is out of consideration for cannabis brokers, it robs the specialty of some of that much-needed capacity.
The loss of capacity comes as brokers are working harder to find competitive rates and coverages for cannabis clients that are increasingly eyeing their bottom-lines and expenses as the industry struggles with a product glut and a slowdown in venture capital funding.
Erich Schutz, vice president at Jencap Specialty Insurance Services, is one of those brokers who sees Topa’s AM Best ratings drop as bad news for capacity. He said many brokers will be worried about their own E&O coverage, which may prevent them from placing policies with Topa.
“This couldn’t come at a worse time in the marketplace,” Schutz said. “We’ve got consolation, TIV’s (total insured value) spiking up, and we have one of the biggest property capacity providers no longer able to be used by some of these biggest and best brokers and agents in the space, so that leaves cannabis insurance in a tough place.”
Cannasure Insurance Services, which has become almost synonymous with cannabis insurance across the U.S., uses Topa and Dorchster to write some of its cannabis businesses insurance. The MGA, which was purchased by brokerage giant One80 Intermediaries in 2021, also uses Sutton National as a fronting carrier for California accounts as well as some others, according to one person with the firm who asked not to be named.
The source said Cannasure was watching closely when AM Best downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Ratings to “bbb+ (Good) from “a-” (Excellent) of Topa and its subsidiary, Dorchester.
AM Best also maintained the under review with negative implications status for the ratings for the companies, which are wholly owned subsidiaries of Topa Equities, Ltd. That status is being maintained in light of an announcement earlier this year that Granada Financial Group LLC entered into a definitive agreement to acquire a controlling interest in Topa.
Cannasure issued the following company statement on Topa’s downgrade:
“Cannasure is going to issue all new business and renewal quotes on Sutton National/Sutton Specialty paper. They are our current fronting carrier for California, New York and multi-state accounts – easiest to transition to them for all business due to the Topa/Dorchester downgrade. All systems go – this doesn’t impact the existing Cannasure MGA program whatsoever.”
A Topa spokesperson declined to comment for this article.
- AM Best Downgrades Credit Ratings of Topa in California
- Granada Financial Agrees to Acquire Controlling Interest in Topa Insurance Group
- AM Best Revises Outlook to Stable for Topa in California
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