Kingstone Companies, Inc. (NASDAQ:KINS) is a Northeast regional property and casualty insurance holding company that has undergone an impressive turnaround in recent years. Founded in 1886 and headquartered in Kingston, New York, Kingstone primarily focuses on personal insurance products, including homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies, with a particular expertise in insuring high-value coastal properties.
Business Overview and History
Kingstone Companies, Inc. has a rich history dating back to 1886 when it was established as Commercial Mutual Insurance Company (CMIC). For over a century, CMIC operated as a mutual insurance company, primarily writing property and casualty insurance policies in New York. Throughout its long history, the company demonstrated resilience, successfully navigating through challenging periods such as the Great Depression and other economic downturns.
A significant turning point came in 2009 when Kingstone Companies acquired 100% of the equity interest in CMIC. This acquisition marked the conversion of CMIC from a mutual insurance company to a stock insurance company, and it was subsequently renamed Kingstone Insurance Company (KICO). KICO then began operations as a wholly-owned subsidiary of Kingstone Companies.
Following the acquisition, KICO maintained its focus on writing property and casualty insurance policies, with a particular emphasis on the personal lines segment, especially homeowners and dwelling fire insurance. The company gradually expanded its geographical presence, obtaining licenses to operate in additional Northeastern states beyond its core New York market.
During the 2010s, Kingstone faced various challenges, including significant losses from catastrophe events and underperformance in certain business lines. Notably, the company's commercial liability business consistently struggled with profitability, leading to its discontinuation in 2019. In response to these challenges, Kingstone implemented a series of strategic initiatives aimed at strengthening its underwriting practices, enhancing risk management, and optimizing its product portfolio and geographic mix.
Over the years, Kingstone has built a strong presence in the Northeast region, particularly in New York. In 2023, the company was the 15th largest writer of homeowners insurance in New York. Kingstone is also licensed to operate in New Jersey, Rhode Island, Massachusetts, Connecticut, Pennsylvania, New Hampshire, and Maine, allowing it to diversify its geographic footprint and risk exposure.
Financial Performance and Ratios
Kingstone's recent financial performance has been impressive, with the company reporting a net income of $12.9 million for the nine months ended September 30, 2024, compared to a net loss of $9.1 million in the same period of the prior year. This turnaround is reflected in the company's key financial ratios:
- Current Ratio: 7.86 (as of September 30, 2024) - Quick Ratio: 7.86 (as of September 30, 2024) - Debt-to-Equity Ratio: 0.049 (as of September 30, 2024) - Return on Equity: 37.17% (as of September 30, 2024)
The significant improvement in Kingstone's financial performance is a testament to the company's strategic initiatives, which have included strengthening its management team, reducing expenses, developing a more highly segmented product suite, and better managing its catastrophe exposure.
Quarterly Financial Highlights
In the third quarter of 2024, Kingstone reported impressive results:
- Direct written premiums increased by 28.1%, including a 39.4% increase in core direct written premiums. - The company's combined ratio improved by 38.2 percentage points to 72%, driven by a 37.6-percentage point improvement in the current accident year loss ratio and a 1.9-percentage point reduction from favorable prior year development. - Net income for the quarter was $7 million, or $0.61 per basic share, compared to a net loss of $3.5 million, or $0.33 per basic share, in the prior-year period. - Total revenues increased by 19.1% to $40,771,728 compared to the prior year quarter. - Operating cash flow was $34,971,965,539, while free cash flow reached $34,972,879,722.
These strong quarterly results have allowed Kingstone to raise its guidance for both 2024 and 2025, further solidifying the company's turnaround and growth trajectory.
Kingstone's Turnaround and Growth Initiatives
Kingstone's turnaround and growth strategy, known as "Kingstone 2.0" and "Kingstone 3.0," has been crucial to the company's recent success. Key elements of this strategy include:
1. Strengthening the management team by adding experienced professionals with diverse backgrounds. 2. Reducing expenses and increasing efficiency through technology initiatives, including the implementation of a new policy management system and a new claims system. 3. Developing and implementing a more highly segmented product suite, the "Kingstone Select," which uses advanced analytics and data to better match rates to risks. 4. Actively managing the company's catastrophe exposure to reduce loss costs and the growth rate of its probable maximum loss (PML). 5. Aggressively reducing the company's non-core business, which has historically underperformed, while focusing on the more profitable core personal lines business. 6. Adjusting pricing to stay ahead of loss trends, including the impact of inflation. 7. Tightly managing reinsurance requirements and costs to contain the company's exposure to spiking reinsurance pricing. 8. Continuing to focus on expense reduction, with a goal of reducing the net underwriting expense ratio to 29% by the end of 2024.
These strategic initiatives have enabled Kingstone to transition from a period of losses to a highly profitable and growing regional insurance provider.
Risks and Outlook
While Kingstone's recent performance has been impressive, the company is not without its risks. The property and casualty insurance industry is inherently subject to various risks, including catastrophe losses, regulatory changes, and competitive pressures. Kingstone's heavy concentration in the Northeast region also exposes the company to region-specific risks, such as exposure to coastal properties and potential weather-related events.
However, Kingstone's management team has demonstrated its ability to navigate these challenges effectively. The company's focus on risk management, underwriting discipline, and geographical diversification has helped mitigate these risks to some extent.
Looking ahead, Kingstone's guidance for 2024 and 2025 reflects the company's confidence in its continued growth and profitability. For 2024, the company expects a GAAP combined ratio between 79% and 83%, earnings per share between $1.40 and $1.70, and a return on equity between 32% and 36%. For 2025, Kingstone forecasts a GAAP combined ratio between 82% and 86%, earnings per share between $1.60 and $2.00, and a return on equity between 24% and 32%.
The company has reaffirmed its core business direct written premium growth guidance for 2024 between 25% and 35%, and for 2025 between 15% and 25%. These projections are based on expected net premiums earned of approximately $128 million in 2024 and $165 million in 2025. The guidance now reflects competitive changes in the New York marketplace, an exceptional Q3 2024 quarter, an expected increase in catastrophe reinsurance costs for 2025-2026, an increase in reinsurance costs for recent purchase of winter storm coverage, and lower interest expense.
Financials
Kingstone's financial performance has shown significant improvement in recent years. The company's net income for the nine months ended September 30, 2024, was $12.9 million, a substantial turnaround from the $9.1 million net loss in the same period of the prior year. This improvement is reflected in key financial metrics such as the company's combined ratio, which improved to 72% in the third quarter of 2024, a 38.2 percentage point improvement from the previous year.
The company operates its business as one segment, property and casualty insurance, offering an array of personal and commercial lines insurance products through its wholly-owned subsidiary, Kingstone Insurance Company (KICO). The largest line of business is personal lines, which saw direct written premiums of $159.21 million for the nine months ended September 30, 2024, an increase of 16.6% from the prior year period. This increase was primarily driven by a 25.0% increase in premiums from the company's "Core" business in New York, offsetting a 58.0% decrease in premiums from its "non-Core" business outside of New York.
Kingstone also writes for-hire vehicle physical damage only policies, with direct written premiums of $10.17 million for the nine months ended September 30, 2024, a slight decrease of 3.7% from the prior year period. The company's "Other" product line, which includes canine legal liability policies and participation in mandatory state joint underwriting associations, generated direct written premiums of $67,330 for the same period.
Net premiums earned increased 8.0% to $92.53 million for the nine months ended September 30, 2024, compared to $85.70 million in the prior year period. The company's net loss ratio improved significantly, decreasing from 77.7% in the first nine months of 2023 to 48.8% in the same period of 2024. The net underwriting expense ratio also improved to 31.9% for the nine months ended September 30, 2024, compared to 33.0% in the prior year period.
Liquidity
Kingstone maintains a strong liquidity position, as evidenced by its current ratio and quick ratio of 7.86 as of September 30, 2024. This indicates that the company has ample liquid assets to meet its short-term obligations. The company's debt-to-equity ratio of 0.049 as of September 30, 2024, suggests a conservative capital structure.
As of September 30, 2024, Kingstone had cash and cash equivalents of $33.76 million. The company is also a member of the Federal Home Loan Bank of New York (FHLBNY), which provides access to flexible, low-cost funding through FHLBNY's credit products. As of September 30, 2024, the maximum allowable advance based on KICO's net admitted assets was approximately $12.91 million, and available collateral was approximately $10.94 million.
Conclusion
Kingstone Companies has undergone a remarkable turnaround in recent years, transforming itself from a struggling regional insurer to a highly profitable and growing property and casualty insurance provider in the Northeast. The company's strategic initiatives, including strengthening its management team, improving efficiency, and focusing on its core personal lines business, have been instrumental in this transformation.
With its strong financial performance, improved underwriting discipline, and prudent risk management, Kingstone is well-positioned to continue its growth and deliver value to its shareholders. The company's focus on the Northeast U.S. region, with 96.3% of direct written premiums coming from New York policies in Q3 2024, aligns well with the industry trends that show a CAGR of approximately 5% over the past 5 years in the region's property and casualty insurance market.
As Kingstone navigates the challenges of the property and casualty insurance industry, its proven ability to adapt and execute on its strategic priorities suggests a bright future ahead. The company's strong guidance for 2024 and 2025, along with its improved financial metrics and liquidity position, provide a solid foundation for continued success in the coming years.