OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has downgraded the Financial Strength Rating to B++ (Good) from A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) to “bbb” from “a-” of Kingstone Insurance Company (KICO) (Kingston, NY). Concurrently, AM Best has downgraded the Long-Term ICR to “bb" from “bbb-” for Kingstone Companies Inc. (KINS) (Delaware) [NASDAQ: KINS], the insurance holding company of KICO.
AM Best also has downgraded the Long-Term Issue Credit Rating (Long-Term IR) to “bb” from “bbb-” on KINS’ $30.0 million, 5.50% senior unsecured notes due 2022; and the indicative Long-Term IRs to “bb” from “bbb-” for senior unsecured notes and to “bb-” from “bb+” for the subordinated notes of the shelf registration of KINS. The outlook of these Credit Ratings (ratings) is negative.
The ratings downgrade of KICO reflects its balance sheet strength, which AM Best categorizes as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management (ERM).
These rating actions are driven by a revision in KICO’s catastrophe reinsurance program effective July 1, 2020, which significantly reduces the amount of reinsurance protection previously contemplated and purchased. Accordingly, KICO’s risk-adjusted capitalization as measured by Best’s Capital Adequacy Ratio (BCAR) deteriorated considerably, resulting in AM Best’s revised assessment of capitalization to the adequate level.
The negative outlooks previously reflected deterioration in underwriting performance over the past two years and corresponding declines in policyholders’ surplus. These trends were influenced by execution issues from significant growth, weather-related losses and reserve strengthening in commercial lines.
In response to these operating performance trends, KICO has implemented a number of strategic initiatives including senior leadership changes, slowed its expansion efforts, reorganized operations and withdrew from commercial lines. While KICO’s preliminary second quarter 2020 results are favorable, the ultimate effectiveness and sustainability of these efforts is uncertain and partially drives the negative outlook. Additionally, the negative outlook now reflects the change in KICO’s risk tolerance given its increasingly elevated catastrophic exposure – particularly on a net basis for tail events. Given the magnitude and scale of the deterioration in risk-adjusted capitalization, continuation of this trend could lead to a change in AM Best’s adequate capitalization assessment or current appropriate assessment of KICO’s ERM practices.
Lastly, the ratings for the holding company, KINS, reflect its moderate financial leverage and historically favorable interest coverage, which fall within the guidelines for the ratings.
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