KBRA Affirms Ratings for First Protective Insurance Company and Frontline Insurance Unlimited Company
23 Aug 2024 | New York
KBRA affirms the BBB+ insurance financial strength ratings (IFSR) for First Protective Insurance Company ("FPIC") and Frontline Insurance Unlimited Company ("FIUC"; together with FPIC, "the Company"). The Outlook for both ratings is Stable.
Key Credit Considerations
The ratings for both entities reflect an experienced management team with a focused strategy, financial flexibility through its holding company/managing general agent structure, strong local market presence with a well-established distribution network, and adequate reinsurance program. The Company benefits from an experienced management team with deep market knowledge of the personal and commercial lines’ catastrophe exposed property market within Florida and other niche Southeastern coastal areas and continues to execute on a clearly defined growth strategy. Given its organizational structure with trends of favorable holding company financial results, financial flexibility outside of the statutory entities is a favorable credit consideration. The Company maintains favorable relationships with its independent agency network and as of year-end 2023, ranked within the top five homeowners' writers in Florida based on direct written premium. Distribution efforts are enhanced by the launch of the Company’s digital InsurTech platform, as well as expansion of commercial lines to FPIC. FPIC's catastrophe reinsurance program, the larger of the two programs, is adequate though KBRA notes that both programs provide robust coverage when viewed against projected losses from modelled historical events. Retention is favorably low relative to surplus. While the majority of each program is placed with General Reinsurance Corp., concentration risk is mitigated to an extent by the demonstrated long-term nature of the relationship. While underwriting losses have been reported in two of the last five years, near term operational and financial performance has been favorable though earnings remain exposed to potential volatility from natural catastrophe events as well as adverse reserve development.
Balancing these credit strengths are significant reserve development related to Hurricane Ian, moderately weak risk-adjusted capitalization, elevated premium leverage, geographic and earnings concentration, dependence on reinsurance, and exposure to event risk. The Company experienced significant reserve development for the 12-month period ending December 2023 attributed to Hurricane Ian though trends of favorable underwriting performance and surplus growth in line with plans partially offset the impact on balance sheet losses. Risk-adjusted capitalization and premium leverage metrics are moderately unfavorable compared to peers though largely in line with management’s targets. The Company is predominantly a writer of catastrophe exposed property insurance within Florida and other Southeastern coastal areas which exposes its earnings profile to potential volatility. Geographic and earnings concentration necessitates a dependence on reinsurance and exposes the company to event risk from natural catastrophes and severe weather events.
FPIC is a property/casualty insurer focused on writing personal homeowners coverage primarily in Florida as well as four other coastal states in the Southeast. FIUC is a property/casualty insurer focused on writing predominantly commercial multi-peril as well as allied lines primarily in Florida as well as four other coastal states in the Southeast. The Company writes policies under its Frontline Insurance brand.
Rating Sensitivities
A favorable change in risk profile, including purchase of higher reinsurance limit, improved underwriting leverage and strengthened risk-adjusted capitalization, favorable execution of planned geographic expansion, and financial performance which exceeds projections provided to KBRA could result in positive rating action.
An unfavorable change in risk profile, specifically an inability to obtain reinsurance on acceptable terms and pricing, a decline in credit quality of the reinsurance panel, an inability to collect on reinsurance, or exceedance of reinsurance program limits, deterioration in risk-adjusted capitalization and underwriting leverage, or material adverse reserve development could result in negative rating action.
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