Reinsurance News

Kingstone reports improved net income; higher reinsurance costs in 2020

7th July 2020 - Author: Luke Gallin

Property and casualty (P&C) insurer Kingstone Companies, Inc. has reported net income of $0.6 million for the first six months of the year, while the firm purchased a lower level of catastrophe reinsurance at a higher cost than the previous year as rate rises continued for reinsurers.

At $0.6 million, the insurer’s net income for H1 2020 increased from the $5.7 million net loss reported a year earlier, and was supported by net income of $6.1 million in the second-quarter of the year, against net income of $1.6 million in the second-quarter of 2019.

Looking at Q2 2020, and the firm’s net operating income increased from $1.1 million in 2019 to $2.3 million in 2020, as the combined ratio improved by 6.4 percentage points to 87.7%.

Net premiums earned from personal lines fell by 5.3% reflecting the 25% quota share in effect Q2 2020 against 10% quota share in effect in Q2 2019. Net premiums earned, including commercial liability lines that are in run-off, fell by 15% to $26.5 million in Q2 2020. The net loss ratio, including commercial liability lines that are in run-off, reached 48.1% in Q2 2020 against 56.6% a year earlier.

For the six-month period, Kingstone’s net operating income increased significantly to $2 million, compared with a net loss of $7.8 million a year earlier. The combined ratio improved by 12 percentage points year-on-year to 94% in H1 2020.

In H1 2020, net premiums earned from personal lines declined by 4.4%, again reflecting the 25% quota share in effect for six months ended June 30, 2020 against 10% quota share in effect for six months ended June 30, 2019. Net premiums earned, including commercial liability lines in run-off, fell by 12% to $53.5 million.

For the six month period, the net loss ratio, including commercial liability lines that are in run-off, totalled 54.5%, against 77% a year earlier.

Commenting on the firm’s preliminary results for the second-quarter and first six months of the year, the company’s Chief Executive Officer (CEO), Barry Goldstein, said: “I am delighted with our preliminary second quarter results and the significant improvement over the prior year. We are starting to see the benefit of the rate and other underwriting actions that were taken starting last year.”

In addition to its results, Kingstone has also provided an update on its 2020-2021 catastrophe reinsurance renewal, which the firm has now finalised.

When compared with last year’s program, Kingstone decided to reduce the amount of catastrophe limit purchased as a result of “significant increases in the cost of catastrophe reinsurance and changes to our risk profile”. Despite the reduction, the firm says that its 2020-2021 programme, while smaller, “more than adequately protects our policyholders and Kingstone’s balance sheet.”

After consecutive heavy loss years and also the impacts of the COVID-19 pandemic, reinsurance prices have been trending upwards as the market continues to firm, most notably in loss-affected areas such as Florida, which have endured inadequate rates for some time.

As a result, the total cost of Kingstone’s smaller reinsurance program, including reinstatement premium protection, actually increased by 19% when compared with the previous year.

“Effective July 1, 2020 Kingstone will be purchasing catastrophe reinsurance limits that are more in line with the carriers we compete with in our coastal Northeast markets. Kingstone is purchasing to a 1:130 year event, a level that protects up to the average of the three worst storms ever recorded in the northeast, including Superstorm Sandy, if those events were to occur today,” explained Goldstein.

In recent years, Kingstone had been purchasing more reinsurance protection on an annual basis, culminating in the $602.5 million of protection secured last year.

However, and as noted by the company’s CEO, market conditions meant that the firm was unable to secure the purchase of sufficient limit in order to maintain its A.M. Best rating of “A- Excellent”, leading Kingstone to expect a review of its Financial Strength Rating by A.M. Best owing to the lower limit purchased this year.

“Unfortunately, the reduction in capacity and heightened rate levels also applied to our July 1st renewal, in spite of the fact that our catastrophe excess of loss experience over the past six treaties resulted in a ceded reinsurance loss ratio of only 4%.

“We will maintain our long held goal of an “A- Excellent” or greater rating, and will pursue opportunities for achieving such rating in the future. Management’s obligation is to provide a highly reliable product for policyholders while preserving and enhancing the long-term stability of our Company. While the result of the catastrophe reinsurance purchase was not what was initially intended, we feel even more confident in our ability to meet these obligations and to continue to achieve profitable growth,” said Goldstein.

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