OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” of Kingstone Insurance Company (KICO) (Kingston, NY). Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term ICR of “bbb-” of Kingstone Companies, Inc. (KINS) (Delaware) [NASDAQ: KINS], the insurance holding company of KICO.
AM Best also has revised the outlooks to negative from stable and affirmed the Long-Term Issue Credit Rating (Long-Term IR) of “bbb-” on KINS’ $30.0 million, 5.50% senior unsecured notes due 2022; and the indicative Long-Term IRs of “bbb-” for senior unsecured notes and “bb+” for subordinated notes of the shelf registration of KINS.
The rating affirmations of KICO reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management. KICO’s risk-adjusted capitalization remains at the strongest level, as measured by Best’s Capital Adequacy Ratio. Additionally, KICO’s five-year and 10-year operating performance measures remain higher than the personal property industry composite average.
The revised outlooks to negative from stable reflect KICO’s recent deterioration in underwriting results, operating performance and policyholders’ surplus, driven, in part, by execution issues from significant growth. Over the past five quarters, KICO has reported $14.4 million in underwriting losses, $5.2 million in pre-tax operating losses and an $11.6 million (11.5%) decline in policyholders’ surplus, driven by winter freeze claims in the first quarter of 2018 and 2019 and a $5.0 million loss reserve strengthening on commercial liability claims in the first quarter of 2019.
KICO has implemented strategic initiatives on winter freeze claims, including tightening underwriting guidelines on seasonal and secondary homes, as well as expanding education efforts for their insureds regarding maintaining minimum heating temperatures while away. Additionally, KICO has taken immediate actions on the reserving issues that developed from a commercial lines liability claims strategy that was not proving to be successful. This has been addressed by hiring new claims leadership and placing a moratorium on the commercial lines business that was driving the problem. The negative outlooks reflect the uncertainty over the near to intermediate term regarding the effectiveness of these strategic initiatives as the group absorbs the significant growth from the last several years.
Lastly, KINS’ Long-Term ICR and Long-Term IR have been affirmed due to moderate adjusted debt leverage of 26.0% and solid interest coverage, which fall within the guidelines for the ratings.
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