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Best’s News & Research Service - December 18, 2014 01:26 PM (EST)

A.M. Best Assigns Ratings to Knight Specialty Insurance Company

  • December 18, 2014 01:26 PM (EST)
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Oldwick //BestWire// - A.M. Best has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of "a-" to Knight Specialty Insurance Company (KSIC) (Wilmington, DE). The outlook assigned to these ratings is negative. KSIC is a wholly owned subsidiary of Knight Insurance Company Ltd. (KIC) (Grand Cayman, Cayman Island).

The assigned ratings reflect KSIC's sound business plan, supportive risk-based capitalization and its strong reinsurance protection. Reinsurance protection in the form of a 100% quota share agreement with the parent, KIC, allows KSIC to obtain the same ratings as KIC. The ratings also reflect A.M. Best's expectation of a modest operating performance, as KSIC is a start-up company. Also supporting the ratings is a favorable business plan that is used as a basis for the rating's profitability and liquidity metrics.

Partially offsetting these positive rating factors are the start-up nature of KSIC, its limited market scope and business profile, execution risk associated with the implementation of the company's business plan, the potential impact of continued soft market conditions and the fierce competition on the business in which the company plans to participate. Additional offsetting factors are 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. 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, KSIC and its parent, KIC are well- capitalized for currently known exposures.

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 entities' financial flexibility. Partially offsetting these positive rating attributes are KIC's 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 KSIC could be revised upward if KIC's 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.

KSIC's ratings could be downgraded if there were 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

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

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

  • Rating Members of Insurance Groups

  • Rating New Company Formations

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for Property/Casualty Insurers

  • Understanding Universal BCAR

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .

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

Financial Strength Press Release Captive Insurers Cayman Islands Insurance Caribbean Issuer Credit Rating Best's Credit Rating Action

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