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KBRA Assigns BBB- Rating to Senior Unsecured Notes to be Issued by Kingstone Companies, Inc.
[December 13, 2017]

KBRA Assigns BBB- Rating to Senior Unsecured Notes to be Issued by Kingstone Companies, Inc.


Kroll Bond Rating Agency (KBRA) has assigned a rating of BBB- with a Stable Outlook to the proposed senior unsecured notes to be issued by Kingstone Companies, Inc. (Kingstone) (NASDAQ: KINS). The issuance will be a drawdown from Kingstone's recently filed shelf registration. Kingstone Insurance Company (KICO), the organization's lead operating company, has a KBRA insurance financial strength rating (IFSR) of A- with a Stable Outlook.

KBRA expects Kingstone to issue $30 million of fixed rate notes with a maturity not to exceed ten years. The company intends to use the net proceeds from the offering to support organic growth, mainly in the form of a contribution to KICO prior to year-end. Over the last few quarters, Kingstone has been successful in attracting several new independent agents and expanding its customer base. These favorable sales trends are causing premium leverage to accelerate; hence, the need for additional capital. This is Kingstone's first public debt offering, which will result in a debt-to-capital ratio of roughly 24% at year-end. Management plans to maintain Kingstone's financial leverage in the range of 20-25%, which KBRA views as prudent.

As KICO is domiciled in New York, the ability to upstream dividends is limited to the lesser of 10% of statutory surplus or 100% of investment income for the trailing thirty-six months, net of dividends paid by KICO during such period. With greater earnings capabilities and the additional invested assets resulting from the debt issuance, KBRA expects KICO's dividend capacity to increase steadily and be sufficient to cover holding company obligations. Additionally, pro forma earnings coverage should be in the range of 8-10 times interest expense.

Kingstone's ratings reflect the organization's favorable underwriting results, experienced management team, sound capitalization, and comprehensive reinsurance program. KICO continues to report strong operating trends, with no adverse development the last few years and combined ratios that consistently outperform the property/casualty industry. Balancing these strengths are KICO's heightened premium leverage,geographic risk concentration, reliance on reinsurance and reduced financial flexibility. A substantial portion of the company's property exposure is concentrated on Long Island and New York City. However, this risk is significantly mitigated by Kingstone's high-quality and comprehensive reinsurance program. KBRA notes that adding intermediate-term debt to the organization's balance sheet will reduce Kingstone's overall financial flexibility. Kingstone plans to maintain a minimum of two years of interest payments at the holding company.



To achieve positive momentum in the rating, KICO would require sustained operating profitability along with organic surplus growth to support its premium increases. KBRA believes this is achievable through continued favorable underwriting selection with profitable loss ratios. Continued geographic diversification could also be beneficial, but not a necessity. At Kingstone, solid interest coverage and a conservative debt-to-capital ratio should also be maintained. A negative rating action could result from a change in risk profile, significant impactful weather events outside current stress tests, and if the availability or affordability of reinsurance on acceptable terms becomes a drag on earnings. If premium growth significantly outpaces surplus growth, there could also be downward rating pressure.

The ratings are based on KBRA's Global Insurer & Insurance Holding Company Rating Methodology published on October 10, 2017.


An updated report will soon be available on www.kbra.com.

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About KBRA and KBRA Europe

KBRA is a full service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and a certified Credit Rating Agency (CRA) by the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA.


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