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Kingstone Companies completes reinsurance treaties under improved terms

12th July 2017 - Author: Luke Gallin

Property and casualty insurance holding company, Kingstone Companies, Inc., has announced that its subsidiary, Kingstone Insurance Company (KICO), has completed various reinsurance agreements for the treaty year commencing July 1st, 2017.

Kingstone Companies logoAccording to a statement released by the company it secured increased reinsurance protection under improved terms, and also managed to further reduce its exposure-adjusted reinsurance costs for the July 1st, 2017 treaty year.

The company secured $315 million in coverage from a panel of 43 reinsurers, each rated A- Excellent or higher by ratings agency A.M. Best. This represents growth of 27.5% from the $247 million purchased under the expired treaty, and is a result of expansion, as well as rating agency requirements.

After the $5 million direct retention, the firm says it is now covered for up to a $320 million ground-up loss event.

When compared with the expired treaty, KICO secured a 13.6% exposure-adjusted rate reduction for the new reinsurance treaty, and the firm also acquired Reinstatement Premium Protection (RPP) for the $145 million limit, attributable to the 100-year return period. Kingstone explains that this is someway above the prior treaty when RPP was purchased on the first $20 million limit.

The reinsurance protection obtained provides KICO with coverage up to a 1-in-278 year event. Furthermore, KICO’s maximum pre-tax retained loss in the event of a catastrophe event increased by $1 million to $4 million, owing to a reduction in Personal Lines Quota Share ceding percentage, explains the company.

Benjamin Walden, Executive Vice President and Chief Actuary, said; “We are very happy with the increased coverage and terms for catastrophe reinsurance obtained in the new treaty. Due to favorable reinsurance market conditions and our continued strong financial condition, we secured increased protection, covering us to more than a 1-in-250 year event, at rates substantially lower than we paid last year.

“We have increased our net retention after quota share to $4 million, in line with our surplus growth. We further increased our reinstatement premium protection to cover up to a 1-in-100 year event. This means that even a storm significantly larger in scale than Superstorm Sandy would not seriously impact our financial strength. Such a storm would have an after tax effect approximately equal to just one quarter’s worth of average net income.”

The firm offers some insight into both its personal lines quota share treaty and its per-risk excess of loss treaties.

Regarding the former, the firm has reduced its ceding percentage from 40% to 20% for the July 1st, 2017 treaty. The treaty covers two years, from July 1st, 2017 to June 30th, 2019, and the minimum ceding commission and sliding scale commissions have both improved from the previous treaty.

For its per-risk excess of loss treaties, the company increased its maximum single risk retention on any one loss (pre-tax) for personal lines from $833,000 to $1 million, and from $500,000 to $750,000 for commercial lines. The firm secured total protection up to a $4.5 million single loss, and which covers the maximum policy limits the firm offers. It also established an automatic facultative facility, which allows KICO to purchase homeowners single risk protection up to $10 million in total insured value.

Chairman and Chief Executive Officer (CEO) of Kingstone, Barry Goldstein, said; “Working with our long time reinsurance intermediary, Aon, we achieved the two major goals we set out when the process began in April. First, to secure catastrophe coverage in an amount required of a carrier with an “A- Excellent” rating from A.M. Best. This required us to secure 27.5% more coverage than last year.

“Second, we did so with a mandate of maintaining our core risk sharing principles. We limit our after-tax impact from a single loss to no more than 1% of our surplus, and with a catastrophe, to no more than 5% of our surplus. Following the surplus addition in March, we were able to reduce our reliance upon quota share reinsurance by half, going to 20% as opposed to the 40% of the previous treaty. With no plans to raise equity in the foreseeable future, we have adequate surplus to keep our leverage at or below historic levels.

“The reinsurers warmly greeted our program following the ratings upgrade from A.M. Best. This, coupled with our proven ability to handle a catastrophic event, led to a very substantial reduction in premium rates. In spite of the expanded limits and enhanced coverage requirements attendant to an A- rating, the premium rate reduction allow us to maintain almost the same percentage of ceded to direct written premium relating to catastrophe reinsurance. Rather than seeking to absorb the rate reduction into earnings, we continue our long term goal of protecting the balance sheet we’ve worked so hard to build.”

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