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Best’s News & Research Service - November 20, 2014 10:31 AM (EST)

A.M. Best Removes Ratings of Knight Insurance Company Ltd. from Under Review and Assigns Negative Outlook

  • November 20, 2014 10:31 AM (EST)
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Oldwick //BestWire// - A.M. Best has removed from under review with negative implications and affirmed the financial strength rating of A- (Excellent) and the issuer credit rating of "a-" of Knight Insurance Company Ltd. (KIC) (Grand Cayman, Cayman Island). The outlook assigned to both ratings is negative.

The ratings were placed under review with negative implications in July 2014 following concerns of KIC's heightened execution risk due to significant business growth in 2013, and the uncertainty regarding loss-reserve and premium adequacy from this new business. These concerns were amplified by sizable adverse loss development experienced in the first quarter of 2014.

The rating actions reflect discussions with management and additional information provided to A.M. Best, relating to KIC's growth. KIC's business model calls for organic growth resulting in a material increase of its books of businesses within relatively volatile and competitive markets.

The negative outlook reflects A.M. Best's continuing concerns of execution risk and uncertainty regarding loss-reserve and premium adequacy from this new business. As a result, the ratings will be driven by evidence of measurable expected performance in these areas. At this point, KIC is well capitalized for currently known exposures.

The affirmation of the ratings reflects KIC's excellent capitalization, historically favorable earnings, conservative investment philosophy and diversified product offerings. In addition, the ratings acknowledge the strategic role of KIC within the Hankey Group, a group of companies that operates in the retail automotive business, and the group's commitment to support the entity's financial flexibility. Partially offsetting these positive rating attributes are high operating expense ratios driven by high commissions from the company's transactions with associated companies, moderate stock investment leverage and current dependence on a fronting arrangement.

Positive rating actions are unlikely in the near term. However, the rating outlook for KIC could be revised upward if operating results continue to perform well for a sustained period in conjunction with evidence of measurable improvements in executing its new business, while maintaining supportive capitalization.

KIC's ratings could be downgraded if there is deterioration in operating results, adverse underwriting performance, such as a decline in premium revenue, elevated loss costs due to claim severity and/or inadequate loss reserves. Additional factors that could place downward pressure on the ratings are an altered view of management's capability or a material decline in KIC's risk-adjusted capitalization.

A.M. Best remains the leading rating agency of alternative risk transfer entities, with more than 200 such vehicles rated in the United States and throughout the world. For current Best's Credit Ratings and independent data on the captive and alternative risk transfer insurance market, please visit www.ambest.com/captive.

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.

Key insurance criteria reports utilized:


  • Alternative Risk Transfer (ART)

  • Catastrophe Analysis in A.M. Best Ratings

  • Evaluating Country Risk

  • Insurance Holding Company and Debt Ratings

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding Universal BCAR


A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.



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