OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has removed from under review with negative implications and affirmed the Financial Strength Ratings (FSR) of B++ (Good) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “bbb+” of Knight Insurance Company Ltd. (Knight Insurance) (Cayman Islands) and its reinsured U.S. insurance company subsidiary, Knight Specialty Insurance Company (Wilmington, DE). The outlook assigned to the FSR is stable, while the outlook assigned to the Long-Term ICRs is negative.
Concurrently, A.M. Best has removed from under review with negative implications and affirmed the FSR of B++ (Good) and the Long-Term ICR of “bbb” of its affiliate, KnightBrook Insurance Company (KnightBrook) (Wilmington, DE). The outlook assigned to these Credit Ratings (ratings) is negative. The rating actions follow the completion of the 2016 financial audits, as well as the 2015 and 2016 financial audits of the companies’ parent, Knight Holdings, Inc.
The ratings reflect Knight Insurance’s excellent risk-adjusted capitalization and the strategic role Knight Insurance performs as member of the Hankey Group, a group of companies that operates in the retail automotive industry. Partially offsetting these positive rating factors are continued concerns with regard to heightened execution risk due to significant historical business growth of the companies in recent years, and related uncertainty regarding loss-reserve and premium adequacy, although premium volume has decreased in 2016. These concerns are amplified by sizable adverse loss development beginning in 2014, and the potential for a continuation of that trend to adversely impact future operating results and risk-adjusted capitalization. In addition, there were concerns with financial reporting internal controls as evidenced by a number of significant prior period adjustments recorded in the 2016 audited financial statements of Knight Insurance to correct errors in the recording of a number of transactions over the past few years, which were audited by the predecessor audit firm. Management believes such errors will not recur. Lastly, Knight Insurance and KnightBrook have moderate common stock leverage relative to the composite.
Knight Insurance and KnightBrook’s capitalization has been supported by substantial capital injections over the years to support growing business volumes.
As a wholly owned reinsurer, Knight Insurance generates a significant portion of business from an affiliated automotive finance company, but it also has written programs and unaffiliated third-party business. It also assumes business from KnightBrook and Knight Specialty Insurance Company via significant quota shares.
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