Kinsale upgrade opens doors for new business

The upgrade of Kinsale Insurance Company to A by AM Best is likely to be seen as a well-timed boost for the specialty insurer that could open it up to new business opportunities at a time when the E&S market is booming.

The ratings agency said the upgrade was based on the carrier’s consistent and continued strong operating performance.

AM Best first revised Kinsale’s outlook to positive from stable back in May 2018. At the time, AM Best highlighted Kinsale’s favourable underwriting and operating performance, citing the insurer’s ability to balance growth and profit since its founding in 2010.

With AM Best having now upgraded Kinsale’s financial strength to A the company now finds itself in a position to access a broader book of business with the higher rating making it a potentially more attractive counterparty for cedants looking to insure longer-tail exposures.

At a time when capacity has been restricted in several segments of the E&S market, that is likely to be seen as a positive by brokers.

The company opened for business just over a decade ago via the purchase of American Healthcare Specialty Insurance Company from its parent The Doctors Company. At that point, AM Best assigned the business, which was renamed Kinsale Insurance Company six days after the acquisition completed, a financial strength rating of A- (Excellent) and issuer credit rating (ICR) of “a-“.

The E&S segment has been growing steadily through the last decade, with CRC’s CEO Dave Obenauer noting during a panel discussion at The Insurer’s New York Insurance Forum in late February, that it grew by 60 percent between 2011 and 2018 to become roughly a $50bn market.

The last 15 months have seen that growth intensify further, as evidenced by the revenue numbers posted by wholesalers such as CRC, AmWINS and Ryan Specialty.

Since opening, the company, which has been led by CEO Michael Kehoe since its inception, grew conservatively in its first few years before it went public in an IPO in 2016.

From that point on, Richmond, Virginia-headquartered parent Kinsale Capital Group has seen its share price go on a steady rise which has only been checked by wider market turmoil such as that seen this year in the Covid-19 fallout.

The company has itself undergone more consistent growth since the IPO.

Profitable growth

Net written premiums amounted to just over $84mn in 2015, but that has steadily increased in the years since, with the business generating $235.6mn in 2018 before a significant jump to $342.1mn last year in an accelerating E&S market.

That momentum has carried into 2020, with Kinsale’s first quarter 2020 net written premiums increasing by 47.9 percent year on year to $108.1mn. That increase came about even though the company, like its peers, saw submissions take a hit in the final few weeks of the quarter due to the Covid-19 lockdown.

The growth in the company’s top line has not come at the cost of its underwriting profitability though. As AM Best highlighted in its note to accompany the announcement of the ratings upgrade, Kinsale’s operating performance has been strong and compares favourably to that of the industry and its surplus lines competitors “with remarkable consistency”.

Kinsale’s combined ratio for the past five years stands at 60.6 percent for 2015, 74.3 in 2016, 84 for 2017, 85.3 in 2018 and 83.6 last year.

In its most recent first quarter results, Kinsale posted net operating earnings of $17.2mn, up 24.5 percent year on year. Underwriting profit of $14.4mn for the period was an increase of $2.3mn compared with 2019’s first quarter. A combined ratio of 83.9 percent for 2020’s first quarter was an increase of 3.6 points year on year.

An advantage in underwriting expenses

This combined ratio is also kept low by what AM Best termed “an advantage” in Kinsale’s underwriting expenses.

“Underwriting results benefit from an advantage in underwriting expenses backed by line of business knowledge and technological advancements,” AM Best said in its credit report on Kinsale.

While the increase in Kinsale’s underwriting risk on its balance sheet exceeds the rating agency’s expectations, this growth is supported by an advancement in the company’s policyholders’ surplus, AM Best said.

“Efficiency in underwriting performance is credited to proven underwriting fundamentals, seasoned leadership, and an ERM programme aligned to the risks that distinguish the surplus lines market,” the ratings agency added in its analysis of Kinsale.

The insurer’s ERM is “appropriate”, said AM Best. Kinsale has established a clearly defined risk appetite and tolerance levels that incorporate a wide variety of factors across functional areas, said AM Best.

In its most recent announcement, AM Best said Kinsale’s ratings also reflect its strong balance sheet strength and neutral business profile.

Further positive rating moves may be on the horizon should Kinsale expand the depth and breadth of its risk-adjusted capital measurements. However, negative rating actions could occur if Kinsale suffers a deterioration in its operating performance that brings its results in line with the wider industry or surplus lines trends.