NEW YORK–(BUSINESS WIRE)–On June 17, 2020, Kroll Bond Rating Agency (KBRA) assigned the following insurance financial strength ratings (IFSR) to the insurance subsidiaries of the Tower Hill Insurance Group (Tower Hill): A- to Tower Hill Prime Insurance Company (TH Prime); BBB+ to Tower Hill Preferred Insurance Company; and BBB+ to Tower Hill Signature Insurance Company (TH Signature). The Outlook for all ratings is Stable. Tower Hill is a privately owned organization comprised of three Florida-domiciled direct writers, an affiliate offshore reinsurer, a managing general agency (MGA), and two claims services companies. Tower Hill is one of Florida’s largest residential property insurers with approximately 6% market share.
Tower Hill’s ratings reflect its well-integrated operating model, solid capitalization, sound catastrophe management, and broad distribution relationships across various channels. The group’s solid capital position was recently enhanced by a capital contribution from its MGA following the merger of two of its insurers into TH Signature. KBRA believes the surviving entity is financially stronger and has greater capacity to write new business. Similar to other Florida carriers, Tower Hill utilizes an efficient operating model by leveraging affiliated services. The MGA and claims administration companies provide a complementary revenue stream (essentially all intercompany related) via the MGA commission agreement and claims fee schedule. Additionally, the majority owner, as well as minority owner Renaissance Re, continue to provide financial and operational support as well as underwriting expertise and risk management solutions. KBRA views Tower Hill’s overall catastrophe reinsurance program as strong, its investment portfolio as conservative, and notes that its premium leverage is below most Florida regional peers. Moreover, the organization’s distribution relationships are broad and well-established, including affiliates of well-recognized national direct writers as well as on-line agencies.
Balancing these strengths are the organization’s exposure to natural catastrophes, lack of geographic and product diversification, and recent adverse loss reserve development. Tower Hill’s revenues, and hence earnings, are highly concentrated in Florida, a state exposed to both natural catastrophes and significant legal challenges for residential property insurance writers. Roughly 85% of Tower Hill’s direct written premium (DWP) in 2019 was homeowners’ business, and Florida accounts for nearly 98% of 2019 DWP. The group seeks to mitigate this concentration through product and geographic expansion with near-term plans to grow in the small commercial lines market (written exclusively in TH Prime) and to secure additional state licenses. Additionally, as a top-three Florida homeowners’ writer, any sizeable hurricane activity or significant change in limits/costs for reinsurance may constrain the operating position (profitability/leverage) of any affected insurance subsidiary. Consistent with Florida peers, Tower Hill experienced adverse loss reserve development primarily from the storms of 2017 and 2018. Additionally, based on KBRA’s reserve review and historical loss development patterns, there is some concern regarding the ultimate adequacy of Tower Hill’s reserves. In 2019, TH Prime purchased an adverse development cover to mitigate continuing loss development exposure from prior losses. In addition, KBRA notes Tower Hill’s reinsurance for Hurricane Irma claims has sufficient limit remaining to cover additional loss creep. Finally, while the insurance entities share common management and ultimate ownership, a formal intercompany pooling arrangement among the companies is lacking. KBRA believes that a pooling arrangement is a form of explicit support that would allow for more efficient allocation of capital to match the commensurate risks of each insurer.
KBRA continues to monitor the direct and indirect impacts of the coronavirus (COVID-19) on the insurance sector. Please click here for more detail on KBRA’s research on the continuing impact of COVID-19.]
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Disclosures
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.
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