KBRA Assigns Ratings to Knight Insurance Group’s Key Operating Subsidiaries

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) assigns insurance financial strength ratings (IFSR) of A- to the insurance subsidiaries of the Knightbrook LLC: Knight Insurance Company, Ltd. (KIC); Knight Specialty Insurance Company; KnightBrook Insurance Company; and Guilderland Reinsurance Company. KIC is a Cayman Islands company and the lead member of the Knight Insurance Group (Knight), which provides underwriting capability for niche insurance program business. The group’s primary lines of business include commercial auto liability, commercial general liability, specialty insurance and general liability. The Outlook for all ratings is Stable.

Knight’s ratings are based on its improved operating metrics driven by strong surplus growth since 2015. The combined ratio has improved considerably in recent years, with lower reserve development, program management initiatives and effective use of a dual admitted/non-admitted structure. Knight has generated net income in four of the past five years and reported over $230 million in net income for the last three years combined.

Knight’s capital is supported by its low underwriting leverage with NPW/PHS under 0.6:1 at year-end 2019. Knight’s business strategy is to operate with less underwriting risk, so it can pursue a more aggressive investment strategy. Since 2016, the company’s capital position has been enhanced by its investment performance, improving underwriting profitability and capital contributions from the ultimate parent. Improved operating performance has benefitted from Knight’s analytics and operational support, as the group continues to build out its technology platform for rigorous monitoring and interfacing with third party administrators and general agents, resulting in cost savings, tighter underwriting surveillance, and claims process control.

Balancing these strengths are Knight’s heightened level of investment risk due to its elevated equity holdings and non-investment grade fixed income investment strategy as was evidenced by the significant decline in the asset portfolio due to the financial market downturn from COVID-19. Knight’s equity exposure can cause significant fluctuations in capital. However, on an inception to date basis, Knight has posted favorable investment returns. KBRA also notes that the company engages in related party transactions of material size, where KIC functions as a lender to Hankey Group affiliates. Knight is also dependent on fronting arrangements for approximately 65% of total premium, which has added approximately 5% to the combined ratio.

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Disclosures

Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.

A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.

Information on the meaning of each rating category can be located here.

Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.

About KBRA

KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.