AM Best Removes From Under Review With Negative Implications and Affirms Credit Ratings of Topa Insurance Company and Dorchester Insurance Company, Ltd.

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)--
AM Best has removed from under review with negative implications and affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bbb+” (Good) of Topa Insurance Company (Calabasas, CA) and its subsidiary, Dorchester Insurance Company, Ltd. (U.S. Virgin Islands). These companies are wholly owned subsidiaries of Topa Equities, Ltd. and collectively referred to as Topa Insurance Group (Topa). The outlook assigned to the FSR is stable, while the outlook assigned to the Long-Term ICRs is negative.

The Credit Ratings (ratings) reflect Topa’s balance sheet strength, which AM Best assesses as very strong, as well as its marginal operating performance, limited business profile and appropriate enterprise risk management (ERM).

The ratings of Topa’s members have been removed from under review with negative implications following confirmation that a previous agreement to be acquired has been cancelled. The stock purchase transaction, if completed, would have resulted in a newly formed private holding company acquiring 100% of Topa’s intermediate holding company, Topa Insurance Group, Inc. (TIG). TIG is the parent company of Topa Insurance Company and its subsidiary, Dorchester Insurance Company, Ltd.

Topa’s risk-adjusted capitalization as of Sept. 30, 2024, has benefited from the continued run-off of its admitted book of business. As legacy loss reserves run off, capital levels are expected to remain supportive of the very strong balance sheet assessment over the intermediate term. However, Topa’s risk-adjusted capitalization has been impacted by declines in policyholder surplus in recent years, due to pre-tax operating losses driven by weakened underwriting results, offset partially by capital contributions from the ultimate parent, Topa Equities, Ltd., to replenish surplus. Topa Equities, Ltd. made capital contributions to Topa of $30 million in 2023 and $5 million in 2024.

The group’s operating results in recent years have been impacted by adverse development occurring on prior-year loss reserves in the group’s discontinued commercial auto liability and commercial multi-peril lines, which accounted for a large portion of the adverse development reported in 2022 and 2023. The group also took substantial reserve strengthening actions to increase its year-end 2023 carried reserve position up to the midpoint estimate of the actuarial range.

In 2024, Topa experienced significant volatility in its operating results, due primarily to sizable weather-related losses in its non-admitted homeowners and commercial package book of business. Topa has been writing this program since 2023, which focuses on catastrophe-exposed business produced by a managing general agent, with a majority of premiums written in Florida, Texas and Louisiana.

The negative Long-Term ICR outlook assigned to Topa is based on pressure on its ERM assessment, driven by natural catastrophe losses and adverse reserve development, which were higher than expected in recent years. While AM Best expects the group will more appropriately manage the potential impact of future catastrophe events on its balance sheet strength and operating performance, while also stemming future adverse development trends, failure to execute on strategic plans successfully is likely to result in negative rating actions.

This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.