OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit rating (ICR) of “aa-” of Top Layer Reinsurance Ltd. (Top Layer) (Hamilton, Bermuda). The outlook for both ratings is stable.
The ratings reflect the substantial amount of support Top Layer receives from its co-owners, State Farm Mutual Automobile Insurance Company (State Farm) (currently with an FSR of A++ [Superior] and an ICR of “aa+”) and Renaissance Reinsurance Ltd. (RenRe) (currently with an FSR of A+ [Superior] and an ICR of “aa-”).
Since Top Layer’s inception in 1999, the company has generated outstanding operating results, which are due to the property catastrophe underwriting expertise of RenRe, combined with very few catastrophes significant enough to impact the programs written in Top Layer’s core markets. Top Layer’s business scope is limited to the assumption of high excess layers of non-U.S. property catastrophe risks underwritten on a global basis. The company experienced its first loss in September 2010 as a result of an earthquake that struck New Zealand, and it experienced its second loss in February 2011 when another earthquake struck New Zealand. Both losses were within Top Layer’s retention, and the company has performed in line with how it was designed.
Top Layer has a modest amount of on-balance sheet capital relative to the high excess layers of property catastrophe risks it assumes. The company’s capital profile is rather unique from a qualitative and quantitative perspective. Top Layer’s capitalization is enhanced through various contractual obligations, resulting in substantial capital support and reinsurance protection from State Farm and, to a much lesser degree, RenRe. Top Layer is structured so that its maximum full limit net loss during any calendar year is capped at $100 million. The occurrence of losses will trigger capital calls for State Farm and RenRe to replenish Top Layer’s capital. Moreover, State Farm provides Top Layer with $3.9 billion excess of $100 million stop-loss reinsurance protection. This coverage is significantly larger than the aggregate exposures Top Layer undertakes in each of its geographic zones.
A.M. Best acknowledges that Top Layer’s ratings are largely dependent upon the support it receives from State Farm and RenRe. A.M. Best monitors these companies on an ongoing basis and continues to assess how any developments may impact Top Layer’s ratings.
The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding Universal BCAR”; and “Natural Catastrophe Stress Test Methodology.” Methodologies can be found at www.ambest.com/ratings/methodology.
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