Amid the influx of entrants into the frontage space over the past few years, Knight has operated somewhat under the radar, despite having a larger capital base than most of its peers at around $830 million and part of the Hankey group of companies, which has combined assets totaling $19.5 billion.
Last April, AM Best upgraded the financial strength ratings of the parent company and its transportation subsidiaries to A-, as it highlighted the “operational and process improvements” made by management over the past five recent years which have steadily improved operating performance while reducing adverse reserve development.
Leveraging Hankey Group’s technology company Nowcom, Knight has also tightened oversight and monitoring of its MGA partners and third-party adjusters in claims settlement, as well as tightened its underwriting guidelines.
And earlier this year, it solved the problem of the previous year with the execution of a loss portfolio transfer (LPT) for approximately 30 programs in run-off and adverse development coverage (ADC) to stand. protect against further deterioration.
Last year’s underwriting results included $70 million of unfavorable development – even though Knight generated record net income of $163.3 million and ended the year with a record high policyholder surplus.
Portfolio in transition
In an interview with Program managerShah said that with the key AM Best rating restored to A-, Knight is now able to transfer existing MGA programs that were previously presented by third parties to its own journal.
It is also tackling a strong pipeline of new opportunities as it seeks to diversify beyond its core commercial auto and general liability focused portfolio into other lines, including real estate.
“We receive a lot of unsolicited quotes from many brokers. We were first busy moving existing programs to our log, but we’ve made a few deals in the last month that are newer, and it’s on our log.
“But our pipeline is full right now and our team is reviewing submissions and going through the due diligence process. We are open to new business and we see that as our name has spread, everyone is looking at us now with the capital base we have,” Shah commented.
Last year, gross written premium (GWP) was just under $700m and Knight is on track to write around $800m on an annualized basis this year – although reported numbers are lower, skewed by ad hoc adjustments for LPT and ADC transactions.
The insurer has about 34 live programs with unaffiliated GAs in its portfolio and another 14 products written with affiliates, including sister company Westlake Financial Services.
Although Shah has not confirmed specific MGA partners, a recent report by ratings agency Kroll revealed that Knight’s biggest relationship by far last year was with Venture Underwriters, part of Allstar. , itself part of CRC’s Constellation Affiliated Partners, which accounted for $111 million of GWP. .
Other prominent programs included Tradesman, Transportation Specialty Underwriters, QuadScore and Brazos Trucking, as well as insurtech Cover Whale, said Kroll, who also recently confirmed the carrier.
Knight’s portfolio covers a range of lines of business, including commercial motor liability, general construction liability, credit products, guaranteed asset protection and product liability.
In his report, Kroll noted the reliance on front deals to write these programs, with nearly 70% of GWP written through State National, Clear Blue, Trisura Specialty, and Accredited—services Knight would typically have paid for. 5% frontage fee.
Although not all programs will transfer now that the insurer has its own A- rating, a significant amount will, including those where Knight wrote on a 100% net basis and only used media from facade for noted paper.
“That process is already in place, so frontage revenue will appear on our end now and then we will collect collateral which should also start to be released on these arrangements. This is our handy fruit,” Shah explained.
Where Knight shares its shares with other carriers on a reinsurance basis behind other fronts, it will seek to increase their return on equity in light of the rating upgrade.
More skin in the game
Shah believes that with his A- rating restored, Knight is advantaged by some of the recent front-end carriers due to his track record and desire to retain more risk. Historically, Knight has kept nearly 100% net.
Going forward, the carrier will typically seek to retain at the group level 30-40% of the risk on the programs it presents on its paper, and then cede the balance to reinsurers.
This contrasts with most hybrid fronts, which will typically retain no more than 10-20% of risk at most and, in practice, seek to retain less than 10%.
“That makes us a bit different from all the other front-end carriers. We are seeing more and more reinsurers exiting and asking fronts to take a significant position before entering,” he commented.
Knight has a Cayman-based vehicle that can provide “captive leasing” services to MGA partners, allowing them to retain risk and better align with their fronting partner and panel of reinsurers.
The insurer is also debt free and also debt free on the underwriting side with a net written premium to surplus ratio of less than 0.74:1, giving it room for potential growth.
Real estate appetite
One of the growth opportunities Knight sees is in real estate as it seeks to diversify its portfolio of accident-focused programs.
“Given where the real estate market is and how tight the capacity is, now may be the time to tackle it. So we’re looking to diversify a bit and get into the real estate market where it makes sense and the rates are high,” Shah said.
He said the carrier was working with reinsurers, including Swiss Re, to better understand property exposures and ensure it had the right data and modeling processes.
“We’re not going to come with a lot of capacity, we’ll start slow and see how things go,” the executive said.