Top Layer Reinsurance IFS Rating Affirmed by S&P’s

Standard & Poor’s has affirmed its ‘AA’ financial strength rating on Top Layer Reinsurance Ltd. (Top Layer), a Bermuda-based reinsurer of risk-remote property catastrophe exposure, based on support from the company’s parents and a $3.9 billion reinsurance contract.

Top Layer is a 50/50 joint venture of State Farm Mutual Automobile Insurance Co. (SFMA; ‘AA/Stable’) and Renaissance Reinsurance Ltd. (RenRe; ‘A+/Stable’), a Bermuda-based reinsurer of property and specialty risks.

Top Layer accepts exposure worldwide except in the U.S. and windstorms in the Caribbean. It is responsible for the first $100 million of aggregate losses in any contract year (a calendar year) and is backed by a $3.9 billion aggregate excess-of-loss reinsurance contract from SFMA ($2.9 billion for first events and $1.0 billion for second events). “Top Layer’s exposure for its own account is supported by clean, irrevocable, secured letters of credit issued by a ‘AA-‘ rated bank and by a shareholders’ agreement between the joint venture partners,” said Standard & Poor’s credit analyst Charles Titterton. “If Top Layer becomes insolvent, the policyholders have a cut-through to SFMA – the right to claim directly on SFMA rather than Top Layer.”

Formed in 1999 and managed by RenRe, Top Layer has never incurred a loss. Although it is subject to very large individual risks, exposure is reportedly prudently managed by zones using sophisticated modeling and control techniques. SFMA’s coverage is far in excess of any reasonably foreseeable combination of claims during a contract year.

The company is capitalized, structured, and managed to pay such claims in the normal course of business.