The reddish stuff looks like a sponge or similar growth, I see it on many Ive gotten over the years. Ill call it sponge for now. Ive seen similar growth on coral skeletons Ive received over the years. Most would likely say that its probably harmless however I scrape it off any that I get. Since the tissue is receding in that area I would recommend pulling it out and removing the sponge as best you can. Take your time and be careful not to scrape the tissue unless the sponge is in direct contact and requires contacting the tissue to remove it.
Looking at the pics the flesh on the other two heads appears to be receding also so there may be another issue. I would think the sponge would only affect the polyp that its encroaching on. However, from what I've read on sponges some can release toxins into the water column, so it could be a defensive chemical reaction from the sponge as it gets closer to torch's tissue (a positive ID on the growth would be needed to confirm any possibility of this theory) If all three heads are showing signs of recession I would start testing the water, which I suppose you're already doing everyday test while the tank settles from the algae bloom. Speaking of the algae bloom, as the algae dies off and releases nutrients back into the water i would keep a check on PO4 and NO3 once a day at least.
I see a few other Euphyllia in the tank, are there any signs of tissue recession on those?
For now I would clean the growth off the skeleton and move it to a slightly lower flow area towards the bottom of the tank to reduce the PAR its getting also.
Let us know the test results the next few days.
