AM Best has 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 Insurance Company (Calabasas, CA) and its subsidiary, Dorchester Insurance Company, Ltd. (U.S. Virgin Islands). Concurrently, AM Best has maintained the under review with negative implications status for these Credit Ratings (ratings). These companies, which collectively are referred to as Topa Insurance Group (Topa), are wholly owned subsidiaries of Topa Equities, Ltd.
The 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.
The rating downgrades reflect a downturn in operating performance during the fourth quarter of 2022, resulting largely from reserve strengthening actions occurring on the group’s discontinued commercial auto insurance program. To a lesser extent, results also were impacted by several large losses occurring within the specialty program business.
The under review with negative implications status has been maintained in light of the Feb. 7, 2023, announcement that Granada Financial Group, LLC (Granada), has entered into a definitive agreement with Topa Equities, Ltd. to acquire a controlling interest in Topa. Topa Equities, Ltd. is the parent company of Topa Insurance Company and its subsidiary, Dorchester Insurance Company, Ltd. Topa Equities, Ltd. will retain a minority common equity stake in the business. The agreement is anticipated to provide significant financial and operational benefits to Topa; however, if the transaction does not close as expected, further negative rating action would likely ensue. AM Best notes the negative impact recent reserve strengthening has had on policyholder surplus and risk-adjusted capitalization. Further deterioration of this kind could result in additional weakening of the group’s balance sheet strength metrics and likely lead to additional negative rating action.
The ratings will remain under review until the close of the transaction and an assessment by AM Best of the post-transaction details. The transaction is subject to regulatory approvals.
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.
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