A.M. Best has revised the outlook to positive from stable and affirmed the financial strength rating of B+ (Good) and the issuer credit rating (ICR) of “bbb-” of Kingstone Insurance Company (Kingstone) and the ICR of “bb-” of the publicly traded holding company of Kingstone, Kingstone Companies, Inc. [NASDAQ: KINS]. Both companies are headquartered in Kingston, NY. The revised outlook reflects Kingstone’s recently improved risk-adjusted capitalization and continued favorable operating earnings, which have enabled it to consistently grow its policyholders’ surplus. Kingstone’s risk-adjusted capitalization significantly improved at year-end 2013, driven by a $15.0 million capital contribution from its parent, following an $18.8 million public offering on December 13, 2013. The capital raised in this public offering also enabled management to repay all of its outstanding debt at Kingstone Companies Inc. The ratings reflect Kingstone’s strong risk-adjusted capitalization, favorable five-year operating performance and local market knowledge in its predominant operating territory of New York State. The company’s favorable operating performance is reflected in its double-digit five-year pre-tax returns on revenue and equity, generated by positive net underwriting income and supplemented by net investment and other income. Kingstone’s policyholders’ surplus growth has been solid over the last five years, increasing at a double-digit average annual rate. Additionally, the ICR for Kingstone Companies, Inc. acknowledges the standard notching off of the ICR for the operating company. Partially offsetting Kingstone’s positive rating factors are its dependence on reinsurance and its concentration of risk, primarily in downstate New York, which exposes it to weather-related events as well as to market, regulatory and judicial issues. Kingstone also has reported adverse loss reserve development in recent calendar and accident years, driven in part by historical lead paint claims. Furthermore, Kingstone is projecting substantial growth in net premiums written in 2014, driven by increased retention on its quota share reinsurance contracts and new policy growth. However, Kingstone’s increased capital position should comfortably support management’s growth plans.
While Kingstone’s single-state concentration exposes it to weather-related events, catastrophe exposure is partially mitigated through catastrophe reinsurance, which it purchased increased limits in recent years, as well as the use of hurricane deductibles, visual risk inspections, distance-from-shore restrictions and surcharges. In addition, the company has been expanding its operating territory to regions beyond the New York metropolitan area.The potential for rating upgrades exists if Kingstone maintains the favorable operating performance that it has demonstrated in recent years and maintains its risk-adjusted capitalization. There could be negative pressure on Kingstone’s ratings going forward if its favorable operating performance were to deteriorate or its risk-adjusted capitalization were to materially weaken. The methodology used in determining these ratings is Best’s Credit Rating Methodology , which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.