Since Top Layer’s inception in 1999, it 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, and is best viewed over a long-term time horizon. Despite the company’s first underwriting loss ever in 2010, which was followed by an underwriting loss again in 2011, Top Layer has performed in line with how it was designed.
Top Layer maintains 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, but fundamentally, Top Layer offers clients credit security in the layers of a reinsurance program where credit security is paramount. 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. The occurrence of losses will trigger 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.
Factors that could result in an upgrading of Top Layer’s ratings or a positive outlook are a continuation of its very long-term profitability and a continuation of support from its owners. Factors that could lead to a downgrading of the company’s or revision of its outlook to negative include an increased frequency of losses that would cause A.M. Best to question the strategy or risk management and if RenRe and/or State Farm reduce their commitment to Top Layer.