Kingstone Companies announced that the company’s wholly-owned subsidiary, Kingstone Insurance Company, entered into various reinsurance agreements with multiple reinsurers for the treaty year beginning July 1, 2015.
The new agreements include improved coverage terms providing for better downside protection, increased coverage, and a significant reduction in exposure-adjusted reinsurance costs. The new treaties are highlighted by the following features:
Catastrophe Reinsurance Treaty
$176 million in coverage was purchased from a panel of 34 individual reinsurers. This is an increase from the $137 million purchased in the expired term, of which $54 million was included in the quota share treaty. After the $4 million direct retention (of which our net share is $2.4 million), the Company is now covered for up to a $180 million ground-up loss event.
The Company obtained a 10.3% exposure-adjusted rate reduction compared to the corresponding premium paid for catastrophe coverage on the expired treaty.
The Company purchased Reinstatement Premium Protection on the first $16 million layer of catastrophe coverage above the $4 million direct retention. This coverage was not purchased in prior years, and protects the Company from additional premium charges in the event of a catastrophe event. Such an event is more likely this year than in the expiring treaty due to additional growth and the fact that the $4 million direct retention remained unchanged.
As in the expired treaty, the Company has purchased coverage protecting up to a 1-in-145 year event, based on blended expected outcomes from two commonly used catastrophe models.
The Company’s maximum pre-tax retained loss in a catastrophe event increased from $1,800,000 to $2,400,000. This is due to the increase in net loss retention after quota share reinsurance from 45% to 60%.
The new treaty includes the same terms for the winter storm aggregate cover as in the expired treaty. Aggregate winter losses exceeding $4 million over any consecutive 28 day period attach to the treaty and are included as a single catastrophe occurrence.
The hours clause has been expanded to 120 hours, up from the 96 hours included in the expired treaty.
Personal Lines Quota Share Treaty
The Company has reduced its ceding percentage from 55% to 40%, as planned.
The new treaty is on a "net" of catastrophe reinsurance basis, as opposed to the "gross" arrangement that existed in prior years.
Under a "net" arrangement, all catastrophe reinsurance coverage is now purchased directly by the Company (see below).
The new structure drastically reduces the adverse impact that a catastrophic event can have on ceding commissions, while improving the minimum commissions to be earned on the ceded premiums.
In most scenarios, the Company expects to earn more under the new "net" treaty terms as compared to the expiring "gross" treaty terms. Specifically, the benefit of the new "net" terms compared to the expiring "gross" terms increases under higher loss ratio scenarios or if a catastrophe event occurs.
Maiden Re and Swiss Re continue as treaty participants, each with a 50% share of the treaty
Per-risk Excess of Loss Treaties
The maximum retention on any one policy loss (pre-tax) changed as follows:
Personal lines- $450,000 up from $360,000 in prior term
Commercial lines- $425,000 up from $400,000 in prior term
Commercial auto- $300,000 remains as in prior term
Total protection up to a $4.5 million single loss, up from $4 million in the prior treaty, and covering the maximum policy limits currently offered by the Company.
Mr. Barry Goldstein, Chairman and CEO of Kingstone, stated, "For this renewal, we set out two major goals. First, to continue to reduce Kingstone’s reliance on quota share reinsurance. We are well on our way."