KINGSTON, NY / ACCESSWIRE / November 9, 2023 / Kingstone Companies, Inc. (NASDAQ:KINS) (the "Company" or "Kingstone"), a Northeast regional property and casualty insurance holding company, today announced its financial results for the quarter ended September 30, 2023. The Company will host a conference call for analysts and investors on November 13, 2023, at 8:30 a.m. Eastern Time, as previously announced on October 18, 2023.

2023 Third Quarter and Nine Months Financial and Operational Highlights

(All results are compared to prior year periods unless otherwise noted; 000's omitted)

Core Results (New York Business)

• Direct written premiums¹ increased to $46,025 for Three Months (up 4.7%) and $129,663 for Nine Months (up 9.6%)
• Policies in Force declined by 4.5% as compared to September 30, 2022 (see Management Commentary for explanation)
• Net premiums earned increased to $24,388 for Three Months (up 2.1%) and to $73,607 for Nine Months (up 6.5%)
• Net loss ratio for Three Months of 72.1% and Nine Months of 69.8%. Net loss ratio excluding catastrophes for Three Months of 64.7% and Nine Months of 64.3%.

Non-Core Results

• Direct written premiums¹ declined $4,676 for Three Months (down 43.9%) and $11,451 for Nine Months (down 39.5%)
• Policies in Force declined by 38.9% as compared to September 30, 2022
• Net premiums earned decreased to $3,550 for Three Months (down 35.1%) and to $12,095 for Nine Months (down 18.5%)
• Net loss ratio for Three Months of 122.8% and for Nine Months of 125.6%. Net loss ratio excluding catastrophes for Three Months of 112.5% and Nine Months of 98.5%.

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¹ These measures are not based on accounting principles generally accepted in the United States ("GAAP") and are defined and reconciled below to the most directly comparable GAAP measures.

Management Commentary

Meryl Golden, Kingstone Chief Executive Officer, commented, "Continuing our desire to bring more transparency to our results, we have added additional information that has not been included in prior press releases. This will allow you to see how much progress the Kingstone team has made on our Kingstone 3.0 initiatives. I have laid out below the four main pillars to our 2023 strategy, and I note that we are on track or ahead of plan for each as follows:

1. Aggressively Reduce Non-Core Business--Losses incurred on the non-Core business were unacceptable, and we could no longer allow that to continue. While underwriting and pricing efforts were made to correct this over the prior few years, we were not successful and macro trends such as inflation and reinsurance pricing only made matters worse. We stopped writing all new business outside of New York and have been aggressively reducing policy count this year, subject to regulatory requirements. Our non-Core policy count is down by 35% year to date, and we expect this decline to accelerate to about 50% by year-end 2023 and to more than 80% by year-end 2024.
2. Adjust Pricing to Stay Ahead of Trends--Inflation has been a dominant headwind that we hope is receding. We have been cognizant that inflation's impact on loss costs places added pressure on premiums and, as such, we have been more frequent and aggressive with our rate change requests. Similarly, home replacement values reflect that same inflationary pressure. In September 2023, we completed our first cycle of valuation adjustments, making sure that all homes were insured to value. As a result, we have seen a rise in premiums attributable to the heightened replacement costs. Overall average written premium for our Legacy New York homeowners policies for the last 12 months, reflecting both rate and replacement cost changes, increased by 25.5%. Let me remind you that most of the added premiums have not yet been earned and will be reflected in future quarters.
3. Tightly Manage Reinsurance Requirements--We needed to contain our exposure to spiking reinsurance pricing. We did so and were able to reduce the required limit to be purchased while maintaining our same risk tolerance. We used all the tools available to us to limit new business that was deemed to be too expensive and at the same time re-underwrote the book to cull those risks which presented the greatest risk. The combination of stricter new business underwriting and increased non-renewals gave rise to the 4.5% decline in policy count for our Core book. We have now reverted most of our new business underwriting standards back to what they were previously so Core new business growth should increase going forward.
4. Reduce Expenses--We have been unrelenting in driving down our costs. We set a 2023 goal to achieve a 33% net underwriting expense ratio by year end. For this quarter, the net underwriting expense ratio was 31.7%, a reduction of 5.2 points in spite of the 4.8% decline in net earned premiums. For nine months, we have achieved our 33% goal. We remain fixated on reducing our costs and hope we can continue to improve on this very important metric.

Ms. Golden continued, "Increasing rates and getting ahead of loss costs including inflation has been a key theme and our pricing team has responded marvelously. While there is more work to be done, we are again comfortable expanding our Core new business writings and look forward to growing our Core business in 2024 while continuing to reduce the non-Core business. We believe that the small remaining non-Core policies, after repeated rate increases and re-underwriting, will no longer have the negative impact they once had.

Each of the changes called for in Kingstone 2.0 and Kingstone 3.0 have been made, are in place and at work. The financial effects are now flowing through to our income statement at an accelerating rate and that makes me confident that 2024 will be a great year for the Company and its shareholders. We are generating underwriting income in New York, and that will grow substantially in 2024 when the benefits of the increase in average premiums are earned. On an overall company basis, as we run off our non-Core business, the losses are shrinking and will be less and less of a factor in 2024. We are bullish about the future."

Jennifer Gravelle, Kingstone's Chief Financial Offer, continued, "We are making great progress on the Kingstone 3.0 initiatives that will return Kingstone to profitability. Our non-Core business is down markedly and our average Core premiums have increased materially. While my tenure with Kingstone began in January, my depth of experience was gained in Florida. I have been able to bring my knowledge of reinsurance and deploy many things I learned while working in Florida. Working closely with the underwriting and actuarial teams, we did a great job managing our reinsurance needs. Our expense ratio is down by more than 5 points this quarter. We are doing everything we can to return Kingstone to profitability. I feel confident that we'll continue to see the progress we've made increasingly reflected in our financial results."

See "Forward-Looking Statements"

Financial Highlights Table

(Components may not sum due to rounding)

1 These measures are not based on GAAP and are defined and reconciled below to the most directly comparable GAAP measures.

2 Net written premiums balances from prior year periods were reclassified to conform with current year presentation. The reclassification had no effect on the Company's previously reported financial condition, results of operations or cash flows.

The following tables contain policies in force, direct written premiums¹, net premiums earned, loss and loss adjustment expenses, and net loss ratio for our New York ("Core") and non-New York ("non-Core") business:

(Components may not sum due to rounding)

¹ These measures are not based on accounting principles generally accepted in the United States ("GAAP") and are defined and reconciled below to the most directly comparable GAAP measures.

The following table contains actual and projected policies in force for our non-Core business, and the actual and projected percentage roll off progression:

The following tables contain net premiums earned, loss and loss adjustment expenses excluding catastrophe losses, and net loss ratio excluding catastrophe for our New York ("Core") and non-New York ("non-Core") business:

(Components may not sum due to rounding)

2023 Third Quarter Financial Review

Net loss:

Net loss during the three-month period ended September 30, 2023 was $3.5 million as compared to a net loss of $4.0 million in the prior year period. The $0.5 million decrease in net loss in the latest three-month period is primarily attributable to a decrease in commissions and other underwriting expenses and an increase in ceding commissions, partially offset by an increase in interest expense and a decrease in net premiums earned primarily resulting from an increase in catastrophe premiums.

Earnings (Loss) per share ("EPS"):

Kingstone reported a loss of $(0.33) per diluted share for the three months ended September 30, 2023, compared to a loss of $(0.38) per diluted share for the three months ended September 30, 2022. EPS for the three-month periods ended September 30, 2023 and 2022 were based on 10.8 million and 10.6 million weighted average diluted shares outstanding, respectively.

Direct Written Premiums,¹ Net Written Premiums¹ and Net Premiums Earned

Direct written premiums¹ for the third quarter of 2023 were $52.0 million, a decrease of $2.6 million, or 4.8%, from $54.6 million in the prior year period. Most of the decrease was in Personal Lines, which decreased $2.8 million, or 5.5%, from actions taken to aggressively reduce the business in non-Core states.

Net written premiums¹ decreased $7.4 million, or 66.9%, to $3.7 million during the three-month period ended September 30, 2023 from $11.1 million in the prior year period. The decrease was primarily due to a decrease in direct written premiums and an increase in catastrophe premiums rates.

Net premiums earned for the quarter ended September 30, 2023 decreased 4.8% to $27.9 million, compared to $29.4 million for the quarter ended September 30, 2022. The $1.4 million decrease was primarily attributable to a decrease in Personal Lines of $2.1 million offset by an increase in Livery Physical Damage of $0.6 million.

Net Loss Ratio:

For the quarter ended September 30, 2023, the Company's net loss ratio was 78.5%, compared to 75.0% in the prior year period.

While the underlying loss ratio (i.e., net loss ratio excluding the impact of catastrophes and prior year loss development) was improved for the three months ended September 30, 2023 compared to the three months ended September 30, 2022, the catastrophe loss had a bigger impact for the 2023 period.

There were six wind events classified as catastrophes for the three months ended September 30, 2023. The total net catastrophe losses for the calendar quarter were $2.2 million, which contributed 7.7 points to the net loss ratio. This compares to a 1.1point impact from catastrophe events for the three months ended September 30, 2022.

The underlying loss ratio was 70.8% for the three months ended September 30, 2023, a decrease of 1.6 points from the 72.4% underlying loss ratio recorded for the three months ended September 30, 2022. The loss experience for the 2023 period was improved due to lower frequency, resulting from writing higher quality business in the new Select product as well as the reduction of the book in the non-Core states. The improvement in frequency was offset by increased severity due to inflation and large losses, similar to what was observed in the first six months of 2023.

Prior year development was stable for the three months ended September 30, 2023. There was an overall unfavorable development of $3,000, which had a marginal impact on the net loss ratio.

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1. These measures are not based on GAAP and are defined and reconciled below to the most directly comparable GAAP measures.

Net Underwriting Expense Ratio:

For the quarter ended September 30, 2023, the net underwriting expense ratio was 31.7% as compared to 36.9% in the prior year period, a decrease of 5.2 percentage points. The decrease in the quarter was primarily attributable to a reduction in commission and underwriting expenses as a percentage of net earned premium.

Balance Sheet / Investment Portfolio

Kingstone's cash and investment holdings were $172.1 million at September 30, 2023 compared to $192.2 million at September 30, 2022. The Company's investment holdings are comprised primarily of investment grade corporate, mortgage-backed and municipal securities, with fixed income investments representing approximately 89.1% of total investments at September 30, 2023 and 86.4% at September 30, 2022. The Company's effective duration on its fixed-income portfolio is 4.3 years.

Net investment income remained stable at $1.4 million for both the third quarter of 2023 and the prior year period.

Accumulated Other Comprehensive Income/Loss (AOCI), net of tax

As of September 30, 2023, AOCI was a loss of $(17.1) million compared to a loss of $(16.0) million at September 30, 2022. The decrease in AOCI at September 30, 2023 of $1.1 million as compared to September 30, 2022 is attributable to the increase in interest rates.

Share Repurchase Program

The Company did not repurchase any shares during the quarter.

Book Value

The Company's book value per share at September 30, 2023 was $2.47, a decline of 32.3% compared to $3.65 at September 30, 2022.

Conference Call Details

Management will discuss the Company's operations and financial results in a conference call on Monday, November 13, 2023, at 8:30 a.m. ET.

The dial-in numbers are:

(877) 407-3105 (U.S.)

(201) 493-6794 (International)

Accompanying Webcast

The call will be simultaneously webcast over the Internet via the Kingstone website or by clicking on the conference call link:

Kingstone Companies Third Quarter 2023 Financial Results Webcast

The webcast will be archived and accessible for approximately 30 days.

Definitions and Non-GAAP Measures

Direct written premiums represent the total premiums charged on policies issued by the Company during the respective fiscal period. Net premiums written are direct written premiums less premiums ceded to reinsurers. Net premiums earned, the GAAP measure most comparable to direct written premiums and net premiums written, are net premiums written that are pro-rata earned during the fiscal period presented. All of the Company's policies are written for a twelve-month period. Management uses direct written premiums and net premiums written, along with other measures, to gauge the Company's performance and evaluate results.

Net operating income (loss) - is net income (loss) exclusive of realized investment gains (losses), net of tax. Net income (loss) is the GAAP measure most closely comparable to net operating income (loss).

Management uses net operating income (loss) along with other measures to gauge the Company's performance and evaluate results, which can be skewed when including realized investment gains (losses), and may vary significantly between periods. Net operating income (loss) is provided as supplemental information, not as a substitute for net income (loss) and does not reflect the Company's overall profitability.

Operating EBITDA - is net income (loss) exclusive of interest expense, income tax expense (benefit), depreciation and amortization, and realized investment gains (losses). Net income (loss) is the GAAP measure most closely comparable to operating EBITDA.

Management uses operating EBITDA along with other measures to gauge the Company's performance and evaluate results, which can be skewed when including interest expense, income tax expense (benefit), depreciation and amortization, and realized investment gains (losses), and may vary significantly between periods. Operating EBITDA is provided as supplemental information, not as a substitute for net income (loss) and does not reflect the Company's overall profitability.

Book value per share excluding accumulated other comprehensive (loss) income - is book value per share excluding the impact of accumulated other comprehensive (loss) income or AOCI. Management uses book value per share excluding accumulated other comprehensive (loss) income to evaluate the results to exclude the impact of interest rate changes on our fixed income portfolio.

Net combined ratio excluding effect of catastrophes and prior year loss development - is a non-GAAP ratio, which is computed as the difference between GAAP net combined ratio and the effect of catastrophes and prior year loss development on the net combined ratio.

We believe that these ratios are useful to investors and they are used by management to reveal the trends in our business that may be obscured by catastrophe losses and prior year loss development. Catastrophe losses cause our loss ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the net loss ratio and net combined ratio. Prior year loss development can cause our loss ratio to vary significantly between periods and separating this information allows us to better compare the results for the current accident period over time. We believe these measures are useful for investors to evaluate these components separately and in the aggregate when reviewing our underwriting performance. We also provide them to facilitate a comparison to our outlook on the net combined ratio excluding the effect of catastrophes and prior year loss development. The most directly comparable GAAP measure is the net combined ratio. The net combined ratio excluding the effect of catastrophes and prior year loss development should not be considered a substitute for the net combined ratio and does not reflect the Company's net combined ratio.

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The table below reconciles direct written premiums and net written premiums to net premiums earned for the periods presented:

(Components may not sum due to rounding)

¹ Net written premiums balances from prior year periods were reclassified to conform with current year presentation. The reclassification had no effect on the Company's previously reported financial condition, results of operations or cash flows.

The following table reconciles net operating loss to net loss for the periods indicated:

(Components may not sum due to rounding)

The following table reconciles operating EBITDA to net loss for the periods indicated:

(Components may not sum due to rounding)

The following table reconciles book value per share excluding accumulated other comprehensive loss to book value per share as of the dates indicated:

(Components may not sum due to rounding)

The following table reconciles the net combined ratio excluding catastrophes and prior year loss development to the net combined ratio for the periods presented:

(Components may not sum due to rounding)

The following table reconciles the net combined ratio excluding catastrophes to the net combined ratio for the periods presented:

(Components may not sum due to rounding)

The following table reconciles the net loss ratio excluding catastrophes and prior year loss development to the net loss ratio for the periods presented:

(Components may not sum due to rounding)

The following table summarizes gross and net written premiums, net premiums earned, net loss and loss adjustment expenses and net loss ratio by major product type, which were determined based primarily on similar economic characteristics and risks of loss.

1. "Other" includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.
2. In July 2019, the Company decided that it will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.
3. See discussion with regard to "Direct Written Premiums, Net Written Premiums and Net Premiums Earned" above.
4. See discussions above with regard to "Net Loss Ratio".
5. Net written premiums balances from prior year periods were reclassified to conform with current year presentation. The reclassification had no effect on the Company's previously reported financial condition, results of operations or cash flows.