KBRA Assigns Insurance Financial Strength Rating to Trident Reciprocal Exchange
29 Aug 2024 | New York
KBRA assigns a BBB Insurance Financial Strength Rating (IFSR) to Trident Reciprocal Exchange. The Outlook for the rating is Stable.
Key Credit Considerations
Trident Reciprocal Exchange (“Trident” or “the Reciprocal”) is a de novo reciprocal exchange recently established to write homeowners’ insurance in Florida.
The rating reflects Trident’s low underwriting leverage and significant surplus relative to projected premiums written. The rating also reflects a favorable market opportunity due to the company entering a sector with improved pricing and lower litigation exposure following legislative reforms in recent years. Additionally, as a start-up insurer, Trident has no legacy liabilities. Trident will have manageable start-up expenses due to an organizational structure whereby the Attorney-in-Fact (AIF) will incur the majority of start-up costs. Further, KBRA views the company’s business plan as reasonable, with a management team that has considerable experience in the Florida homeowners’ insurance market.
Balancing these strengths is Trident's high financial leverage due to its entire surplus base consisting of a $27 million surplus note. Furthermore, as a Florida homeowners’ writer, the Reciprocal will have product and geographic concentration, natural catastrophe exposure due to hurricanes, and a high reliance on reinsurance that, depending on availability and affordability, could materially impact results. Lastly, as a de novo insurer, Trident’s future profitability is uncertain and dependent upon management executing its business plan.
Rating Sensitivities
Execution of the business plan above forecasts provided to KBRA, including organic surplus growth that reduces financial leverage faster than expected, improved financial flexibility and a favorable change in risk profile could result in positive rating action.
Results materially below forecasts provided to KBRA, significant weather events that materially impact earnings and capital, an inability to obtain reinsurance on acceptable terms and pricing and an unfavorable change in risk profile could result in negative rating action.
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