The ratings reflect TIL’s adequate risk-adjusted capitalization, which results from the company’s moderate underwriting leverage, prudent reinsurance arrangement and conservative investments. In addition, over the past four accident years, the company continues to report favorable underwriting results, with combined ratios consistently below 95%.

A major offsetting factor in TIL’s rating assessment is the volatility in its historical earnings, stemming largely from prior-year reserve adjustments for unsettled Canterbury earthquake claims. Another offsetting factor is the high dividend payout ratio, which has constrained growth in its absolute and risk-adjusted capitalization.

The negative outlook for TIL’s ratings reflects A.M. Best’s concern about the company’s financial profile deteriorating in the event of further loss development from the Canterbury earthquake claims. Based on the company’s interim financial statements through March 31, 2016, the estimated gross ultimate incurred claims for the February 2011 event have exceeded the catastrophe reinsurance and adverse development cover limits. Hence, any further significant loss development on the unsettled claims in relation to this event will be fully retained by the company and may have a material impact on its prospective financial strength.

TL is a non-operating insurance holding company, and the level and the outlook of its ICR illustrates the principle of standard notching from the rating of TIL, which is its lead insurance subsidiary.

Factors that may lead to negative rating actions include continued adverse loss development or a reduction in capital that could cause the company’s risk-adjusted capitalization to decline. Furthermore, TIL’s ratings may experience downward pressure if TL’s financial flexibility deteriorates significantly on a consolidated basis.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.
This press release relates to rating(s) that have been published on A.M. 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 A.M. Best’s Recent Rating Activity web page.

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