OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B- (Fair) from B (Fair) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bb-” (Fair) from “bb” (Fair) of Kingstone Insurance Company (KICO) (Kingston, NY). The outlook of these Credit Ratings (ratings) is negative.
The ratings of KICO reflect its balance sheet strength, which AM Best assesses as adequate, as well as its marginal operating performance, limited business profile and marginal enterprise risk management (ERM).
The rating downgrades are driven by consistent deterioration in underwriting results, driving considerable pre-tax operating losses over the last several years. The results were impacted primarily by a series of weather-related losses, as well as adverse development driven mostly by commercial liability claims. (This line of business subsequently has been placed into run-off.) Overall, the company’s operating metrics in terms of returns on equity and revenue and combined ratios are in line with the marginal assessment. To address operating performance, management has instituted a series of initiatives to return to profitability. Among them are implementing rate increases across all product lines, reducing commissions, closely monitoring catastrophe exposures and modernizing product, technology and processes with a goal of improving profitability in the future.
KICO’s balance sheet strength assessment is adequate based on its adequate risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Significant deterioration in risk-adjusted capitalization has occurred across all return periods in recent years due to a sizeable increase in the net probable maximum loss as result of changes to the company’s reinsurance program structure, adverse reserve development mainly related to commercial liability claims, declines in surplus from weather-related losses and above-average reinsurance dependence as measured by ceded reinsurance leverage as of year-end 2022. While the company has implemented a number of strategic initiatives to lower its overall level of catastrophe exposure and corresponding reinsurance requirements, the negative outlooks reflect the potential for additional negative rating action based on volatility associated with various capital adequacy metrics.
KICO’s limited business profile assessment reflects its product and geographic concentration as it predominately writes personal lines business on Long Island in New York. In 2019, the company decided to no longer underwrite commercial liability risks, which drove much of the underwriting loss and adverse loss development in 2019. Furthermore, the company is aggressively reducing non-New York businesses to improve operating performance metrics and stabilize capital.
KICO’s marginal enterprise risk management assessment reflects the elevated net probable maximum loss for a 100-year return period, which accounted for sizable percentage of the company’s year-end 2022 surplus. There is significant tail risk as reflected at the 99.8% value-at-risk level, which has trended upward in recent years due to considerable change in the amount of catastrophe reinsurance protection. Therefore, the company’s risk appetite is considered above average when considering the risk profile.
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