Kingstone Companies, Inc. Q2 FY2025 earnings call

• Recent announcements: Randy Patten joining as CFO, board changes with new members, reinstatement of quarterly dividend.
• Quarterly results: Direct written premium up 14%, core business up 17%, noncore down 42%; net premiums earned up 52%; non-cat loss ratio improved; expense ratio up but expected to improve with better loss ratio; catastrophe reinsurance purchase with increased limit and lower cost per dollar of earned premium; net investment income up 30% to $2.3 million.
• Long-term strategy: 5-year goal of $0.5 billion in written premium, expansion into new states using E&S products, leveraging Select product and data analytics, strengthened team.

Kingstone had the most profitable quarter in its history with $11.3 million in net income, a 150% increase from the prior year quarter. Net premiums earned increased 52% over last year. The combined ratio was 71.5%. Diluted earnings per share were $0.78, and annualized return on equity was 50.8%. Core business had 17% growth in direct written premium, offset by a 42% reduction in noncore business. Non-cat loss ratio improved by 8.4 percentage points to 38.7%. Expense ratio was 32.7% for the quarter, up 1.5 percentage points.

• Reduced first 12-month premium estimate from AmGuard transaction to $12M.
• Core business direct written premium growth range 15%-20%.
• GAAP net combined ratio expected to be between 79% and 83%.
• Basic earnings per share expected to be between $2.10 and $2.50; diluted earnings per share between $1.95 and $2.35.
• Return on equity expected to be between 30% and 38%.

• Geographic concentration risk; market dynamics with Homeowners market distress; regulatory changes affecting product offerings and rate setting.

Q: What happens if a second event occurs in Kingstone's territory?

A: Our second event retention is $9 million, with roughly $7 million after tax. We have a reinstatement premium for the first layer of our cat tower.

Q: What impact will state expansion have on the expense ratio in the near term?

A: It will not have much of an impact. Expenses relative to expansion will be very small compared to earned premium growth, so no significant uptick in expense ratio expected.

Q: Regarding the AmGuard transaction, why is the premium estimate lower than expected?

A: Originally thought to be more front-loaded, but now rates are higher, so policyholders will wait until nonrenewed, spreading the premium benefit more proportionately over 3 years.

Q: How does Kingstone think about capital allocation and share buybacks?

A: No plans for share buybacks currently. Sufficient capital to fund growth in near and midterm, having paid off debt, replenished surplus, bought reinsurance, reduced quota share, and reinstated dividend.