KBRA Affirms Rating for Orange Insurance Exchange
13 Nov 2024 | New York
KBRA affirms the BBB insurance financial strength rating for Orange Insurance Exchange ("Orange" or "the Reciprocal"). The Outlook is Stable.
Key Credit Considerations
The rating reflects a favorable market opportunity due to Orange entering a sector with somewhat limited private market capacity, improved pricing, and lower litigation exposure following legislative reforms in recent years. Additionally, as recent entrant to the Florida homeowners' market, Orange currently has no legacy liabilities and has benefited from an organizational structure whereby the Attorney-in-Fact incurred the majority of start-up costs. Expenses have increased within expectations as Orange initiated premium writings in 2023 and 2024. Further, KBRA views the Reciprocal's business plan as reasonable, with a management team that has considerable experience in the Florida homeowners’ insurance market.
Balancing these strengths is the Reciprocal’s high financial leverage due to the majority of its surplus base currently consisting of a $25 million surplus note. Furthermore, as a Florida homeowners’ writer, Orange has product and geographic concentration, natural catastrophe exposure due to hurricanes, and high reinsurance dependence that, depending on availability and affordability, could materially impact results. Lastly, Orange’s future profitability is uncertain and dependent upon management executing its business plan.
Rating Sensitivities
Factors that could lead to an upgrade include execution of the Reciprocal's business plan above management projections provided to KBRA, significant and sustained organic surplus growth, improved financial flexibility and access to capital, a favorable change in risk profile, and reduced financial leverage.
Factors that could lead to a downgrade include execution of the Reciprocal's business plan below projections provided to KBRA, significant weather events that materially impact earnings and capital, an inability to obtain reinsurance on acceptable terms and pricing, causing an increase in loss exposure, a reduction in the Orange’s ability to underwrite policies or a drag on earnings, an unfavorable change in risk profile, and the departure of key members of the management team and/or an inability to build out an appropriate infrastructure.
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