Best Affirms Top Layer Re ‘A+’ Rating

April 5, 2004

A.M. Best Co. announced that it has affirmed the financial strength rating of “A+” (Superior) of Top Layer Reinsurance Ltd. (Bermuda) with a stable outlook.

“The rating reflects the substantial amount of support the company receives from its co-owners, State Farm Mutual Automobile Insurance Company (State Farm) (currently rated “A++” (Superior)) and Renaissance Reinsurance Ltd. (RenaissanceRe) (currently rated “A+ “(Superior)),” said Best. “Additionally, since the company’s inception in 1999, it has generated outstanding operating results, which is due to the property catastrophe underwriting expertise of RenaissanceRe, combined with the lack of catastrophes significant enough to impact the programs written in the company’s core markets.”

The company underwrites only high excess layers of non-U.S. property catastrophe risks on a global basis.

As an offsetting facto, Best noted that “on a stand-alone basis, Top Layer is only modestly capitalized relative to the high excess layers of property catastrophe risks it assumes.”

“However,” the rating agency continued, “through various contractual obligations of the co-owners, the company receives substantial capital support and reinsurance protections from State Farm and, to a much lesser degree, RenaissanceRe. Top Layer is structured so that its maximum full limit net loss during any calendar year is capped at $100 million. Losses can trigger mandatory or discretionary capital calls for State Farm and RenaissanceRe to replenish Top Layer’s capital.

“Additionally, State Farm provides Top Layer with $3.9 billion excess of $100 million stop-loss reinsurance protection. This cover is significantly larger than the aggregate exposures the company undertakes in the geographic zones where it assumes risks.”

Best acknowledged that “Top Layer’s rating is fully dependent upon the support that it receives from State Farm and RenaissanceRe, but it stressed that it also “monitors these companies on an ongoing basis and continues to assess how any developments within these companies may impact Top Layer’s rating.”

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