Noting in part its unfavorable calendar-year loss reserve development based on past lead paint claims, A.M. Best has assigned ratings to Kingstone Insurance Co.

The rating service assigned a financial strength rating of “B” (Fair) and issuer credit rating of “b+” to the Kingston, N.Y.-based company and also assigned an issuer credit rating of “b+” to its publicly traded holding company, Kingstone Companies Inc. The outlook for all ratings is “stable.”

A.M. Best said the ratings and outlook also reflect Kingstone’s elevated ceded leverage ratio and single-state concentration of risk, which exposes it to weather-related events as well as to market, regulatory and judicial issues.

Past lead paint claims originated from earlier accident years related to the company’s participation in the New York Mutual Underwriters Pool, which has now ceased with outstanding claims adequately reserved, according to A.M. Best.

Accident-year development in more recent years, however, has been favorable, the ratings service noted. Although Kingstone’s ceded leverage ratio historically has been elevated, this measure has been decreasing in recent years, and while its single-state concentration exposes it to weather-related events, catastrophe exposure is partially mitigated through the use of hurricane deductibles, visual risk inspections and distance-from-shore restrictions, according to A.M. Best.

Partially offsetting these negative rating factors are Kingstone’s adequate capitalization, favorable operating performance, low net underwriting and investment leverage ratios and its local market knowledge in the state of New York, the ratings service noted.

The company’s favorable operating performance is reflected in its five-year average, double-digit, pre-tax returns on revenue and surplus, generated by positive net underwriting income and favorable investment income.

Despite significant premium growth prior to 2009, Kingstone’s net written premium leverage ratio has decreased somewhat since 2007, as has its net leverage ratio, said A.M. Best. Last year, surplus again grew by double digits, while net written premium declined due primarily to a decrease in the company’s for-hire vehicle physical damage premiums. Kingstone’s ceded leverage ratio, however, exceeds that of the commercial automobile composite, due primarily to its use of quota share reinsurance.

The company discontinued its commercial automobile quota share reinsurance this year, resulting in a lower ceded leverage ratio, A.M. Best noted.