A.M. Best Co. has upgraded the financial strength rating to B+ (Good) from B (Fair) and the issuer credit rating (ICR) to “bbb-” from “bb+” of Kingstone Insurance Company (Kingstone) (Kingston, NY). Concurrently, A.M. Best has upgraded the ICR to “bb-“ from “b+” of Kingstone Companies, Inc. (NASDAQ: KINS), the publicly traded holding company for Kingstone. The outlook for all ratings is stable.

The ratings and outlook reflect Kingstone’s adequate capitalization, favorable operating performance, low investment leverage ratios and local market knowledge in the state of New York. The company’s favorable operating performance is reflected in its five-year average double-digit pre-tax returns on revenue and surplus, generated by positive net underwriting income and favorable investment income. Surplus growth has been consistently solid over the last five years, increasing at a double-digit average annual rate.

The upgrading of the ICR for Kingstone Companies, Inc. reflects the reduction in the holding company’s debt leverage ratios in 2010, as shares of preferred stock were converted to common stock.

Partially offsetting Kingstone’s positive rating factors are its unfavorable calendar year loss reserve development deriving primarily from lead paint claims originating from earlier accident years, its elevated net underwriting and ceded leverage ratios and its single-state concentration of risk, which exposes it to weather-related events as well as to market, regulatory and judicial issues. Reserve development for the more recent accident years has been favorable, and older lead paint claims are now adequately reserved.

Despite Kingstone’s surplus growth, its net underwriting leverage ratio increased in 2010, stemming from the company’s cancellation of its commercial automobile quota share reinsurance. This resulted in a modestly lower, but still elevated, ceded leverage ratio. Both of these measures exceed the commercial automobile composite averages, although the ceded leverage ratio has been reduced in each of the last five years.

While the company’s single-state concentration exposes it to weather-related events, catastrophe exposure is partially mitigated through catastrophe reinsurance, for which the company has purchased increased limits in recent years, the use of hurricane deductibles, visual risk inspections and distance-from-shore restrictions.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition , which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk

Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Catastrophe Risk Management Incorporated Within the Rating Analysis”; “Catastrophe Analysis in A.M. Best Ratings”; “A.M. Best’s Ratings & the Treatment of Debt”; and “Natural Catastrophe Stress Test Methodology.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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