Earnings call transcript: Kingstone Q3 2025 beats EPS expectations, stock dips

Kingstone Companies Inc. (KINS) reported its third-quarter 2025 earnings, showcasing a strong performance with an earnings per share (EPS) of $0.74, surpassing analyst expectations of $0.61. However, revenue fell short of forecasts, coming in at $55.65 million against the anticipated $76.3 million. Despite the EPS beat, Kingstone's stock saw a 1.2% decline in aftermarket trading, closing at $14.82.

Key Takeaways

• EPS of $0.74 exceeded expectations by 21.31%.
• Revenue of $55.65 million missed forecasts by 27.06%.
• Stock price decreased by 1.2% in aftermarket trading.
• Direct written premium growth of 14%.
• Eight consecutive quarters of profitability.

Company Performance

Kingstone reported a robust third-quarter performance, driven by a 14% increase in direct written premiums and a significant 52% rise in net investment income. The company's net income reached $10.9 million, contributing to a year-to-date net income of $26 million, more than double the previous year's figure. Kingstone's strategic focus on its Select homeowners program, which now accounts for 54% of policies, has been instrumental in its sustained profitability.

Financial Highlights

• Revenue: $55.65 million, down from forecasted $76.3 million.
• Earnings per share: $0.74, up from forecasted $0.61.
• GAAP combined ratio: 72.7%.
• Annualized return on equity: 43%.
• Policies in force increased by 4.2% year-over-year.

Earnings vs. Forecast

Kingstone delivered a substantial EPS surprise of 21.31%, with actual EPS at $0.74 compared to the forecast of $0.61. However, revenue fell short by 27.06%, with actual figures at $55.65 million versus the expected $76.3 million. This mixed result highlights the company's ability to manage costs effectively while facing challenges in revenue generation.

Market Reaction

Despite the positive EPS surprise, Kingstone's stock fell by 1.2% in aftermarket trading, closing at $14.82. This decline may reflect investor concerns over the revenue miss and broader market conditions. The stock remains within its 52-week range, with a high of $22.4 and a low of $10.52, indicating room for future volatility.

Outlook & Guidance

Kingstone updated its 2025 guidance, projecting net earned premiums of $187 million and a GAAP net combined ratio between 78-82%. The company anticipates a basic EPS of $2.30-$2.70 and a diluted EPS of $2.20-$2.60. Looking forward, Kingstone plans to expand geographically and introduce new products, aiming for steady returns akin to those achieved in New York.

Executive Commentary

CEO Meryl Golden emphasized the company's earnings durability, stating, "This quarter's results reinforce the durability of our earnings power." She also highlighted geographic expansion opportunities, saying, "We do have an opportunity to expand geographically and be opportunistic so that we can earn the same returns that we are in New York." CFO Randy Patton assured investors of the company's strong capital position.

Risks and Challenges

• Revenue shortfall may signal market challenges or competitive pressures.
• The hard market conditions in downstate New York could impact future growth.
• National challenges in the homeowners catastrophe market present ongoing risks.
• Geographic expansion poses execution risks and potential regulatory hurdles.
• Maintaining profitability amidst evolving market dynamics requires strategic agility.

Q&A

During the earnings call, analysts inquired about the maintenance of legacy products, the development of new E&S products, and the performance of the AmGuard book. Executives addressed these concerns, highlighting competitive strategies and market positioning in downstate New York.

Full transcript - Kingstone Companies Inc (KINS) Q3 2025:

Conference Operator: Greetings. Welcome to Kingstone Companies' Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. Joining us on today's call will be President and Chief Executive Officer Meryl Golden and Chief Financial Officer Randy Patton. On behalf of the company, I would like to note that this conference call may include forward-looking statements which involve known and unknown risks and uncertainties and other factors that may cause actual results to differ materially from projected results. Forward-looking statements speak only as of the day on which they are made, and Kingstone undertakes no obligation to update the information discussed.

For more information, please refer to the section entitled Risk Factors in Part 1, Item 1A of the company's latest Form 10-K. Additionally, today's remarks may include references to non-GAAP measures. For reconciliation of our non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available on the company's website at www.kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl Golden. Meryl.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Thank you. Good morning, everyone, and thanks for joining us. We delivered one of the strongest quarters in our history with net income of $10.9 million, diluted earnings per share of $0.74, a GAAP combined ratio of 72.7%, and an annualized return on equity of 43%. Direct written premium grew 14%, and net investment income increased 52%. This was our second most profitable quarter in history and our eighth consecutive quarter of profitability, underscoring the consistency and enduring competitive advantages we have created. I want to emphasize what sets Kingstone apart. First, our select product does a great job matching rate to risk and with risk selection, which reduces claim frequency over time. Second, our producer relationships support high retention and consistent new business flow. Third, our efficient operations and low-expense structure enhance margin durability. Last, our great team, all of whom act with an ownership mentality.

The hard market conditions in our downstate New York footprint have not changed materially. While we've seen some competitors broaden their underwriting appetite, our overall volume remains strong. New business this quarter has moderated compared to last year's surge when we benefited from the market exits of Adirondack and Mountain Valley. We've seen a month-over-month increase in new business since June, and that has continued into the fourth quarter. We've also begun writing policies under our renewal rights agreement with Guard, which will meaningfully add to new business policy counts going forward. Growth of 14% for the quarter was driven primarily by an average premium increase of 13% and improved retention. Looking ahead, we expect retention, which represents over 80% of our premium base, to continue trending higher as rate changes transition to high single digits from the high teens pace of the past three years.

Policies in force increased 4.2% year over year and 1.4% sequentially, underscoring the stability and loyalty of our agent and customer base. Net earned premium growth continues to be a powerful tailwind, exceeding 40% for the third consecutive quarter. The increase is primarily due to our reduced quota share, which allows us to retain a greater share of premiums and underwriting profits. Additionally, the surge in new business written in the second half of last year continues to earn in, further fueling the growth in earned premiums. On underwriting, our underlying loss ratio was 44.1%, an increase of 4.9 percentage points versus the prior year quarter, driven by higher claim severity. Claim frequency, especially for non-weather, water, and fire, our largest perils, declined versus last year, a trend we have shared previously. We believe this is driven by a mixture to more preferred risks in our select products.

The Select homeowners program now represents 54% of policies in force, and on an inception-to-date basis, Select homeowners' claim frequency is 31% lower than our legacy product. During the quarter, large losses were modestly higher than the prior year's unusually favorable experience but remained consistent with the prior three years otherwise. Year to date, our underlying loss ratio is up only 0.1 percentage points from the prior year. The variability in large losses is random and does not indicate a change in trend. Catastrophe losses contributed 0.2 percentage points to the loss ratio compared with 1.7 percentage points in the prior year quarter. While catastrophe activity was light, our strong results aren't solely driven by favorable weather. With a normalized third quarter catastrophe load, our combined ratio would have been in the low 80s.

Our state expansion initiative is progressing, and we intend to present Kingstone's multi-year roadmap to you in the first half of next year. With three quarters behind us, we've updated our 2025 guidance to reflect our outstanding performance. We are raising guidance for our net combined ratio, EPS, and ROE while reaffirming direct written premium growth for all states to range between 12% and 17%. With anticipated net earned premiums of $187 million, we expect a GAAP net combined ratio between 78-82%, basic earnings per share between $2.30-$2.70, diluted earnings per share between $2.20-$2.60, and return on equity between 35-39%.

Relative to our prior guidance and on the same net earned premium base, we have improved our GAAP combined ratio range by 100 basis points at the midpoint, raised both basic and diluted EPS ranges by 9% and 12% respectively, and increased our ROE target range by roughly 300 basis points at the midpoint. This increased guidance reflects strong underwriting performance, sustained investment income growth, and lower expenses while maintaining our disciplined posture on pricing and exposure management. With regard to fiscal 2026 guidance, our baseline assumes normal seasonality and catastrophe activity. In both 2024 and 2025, we have very mild winters and low cat losses overall. Weather is unpredictable, and we assumed more reversion to the mean for our 2026 guidance. We will refine our outlook as the year unfolds, and moving forward, we'll announce subsequent year's guidance in March along with fourth quarter results.

Now, I'll turn the call over to Randy Patton, our Chief Financial Officer, who joined Kingstone in late August. Randy brings three decades of insurance experience, most recently serving as Chief Accounting Officer and Treasurer at Next Insurance. Randy?

Randy Patton, Chief Financial Officer, Kingstone Companies: Thank you, Meryl, and good morning again, everyone. Q3 was our most profitable third quarter on record and our eighth consecutive quarter of profitability. We generated net income of $10.9 million, diluted earnings per share of $0.74, a 72.7% combined ratio, and an annualized return on equity of 43%. Year to date, net income was $26 million, more than double the prior year. Performance is driven by strong net earned premium growth as our reduced quota share in the second half of 2024 new business surge continued to earn in, combined with very low catastrophe losses, favorable frequency trends, and lower expenses aided by an adjustment to the sliding scale ceding commissions. Our net investment income for the quarter jumped 52% to $2.5 million, up from $1.7 million last year. Year to date, we've seen a 39% increase reaching $6.8 million.

The momentum is due to robust cash generation from operations, which has enabled us to grow our portfolio and benefit from higher fixed income yields. We capitalized on attractive new money yields of 5.2% in the third quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio's yield and duration. As of September 30, 2025, our fixed income yield is 4.03%, with an effective duration of 4.4 years, up from 3.39% and 3.7 years at September 30, 2024, an increase of 64 basis points and 0.7 years, respectively. During the quarter, we recognized an increase of $1.4 million in sliding scale contingent ceding commissions under our quota share treaty, reflecting low catastrophe losses, which contribute to the 4.6 percentage point decrease in the quarter's expense ratio.

2025 marks the first period in some time in which a significant portion of the quota share ceding commission is on a sliding scale basis. While sliding scale ceding commission for the attritional loss ratio is booked quarterly, sliding scale ceding commission for the catastrophe loss ratio could not be reasonably estimated until after the peak of the hurricane season, so it is recognized this quarter. As a result of this adjustment, our year-to-date expense ratio is down 1.1 percentage points to 30.8% versus the same period in 2024, and we anticipate ending the year with an expense ratio for the full year 2025 lower than the prior year. I will conclude my portion of the call today discussing our capital position. Our capital position remains strong. We have no debt at our holding company, Kins, and shareholders' equity exceeded $107 million, an increase of 80% year over year.

Year to date, return on equity is 39.8%, an increase of 3 percentage points from the same period last year. Given this foundation and our outlook, we already say that our quarterly dividend during the quarter and has ample capital to fund disciplined growth. With that, I'll open it up for questions. Operator?

Conference Operator: Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question is from Bob Farnham with Janney Montgomery Scott. Please proceed.

Bob Farnham, Analyst, Janney Montgomery Scott: Yeah. Hey there. Good morning.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Hey, Bob.

Bob Farnham, Analyst, Janney Montgomery Scott: On your New York admitted basis, it's the select product now is 54% of the policies in force. Will all accounts eventually move to select, or are some just renew on the legacy product indefinitely?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Yeah. We are maintaining our legacy book because it is profitable, so any policy written in legacy will stay there. Clearly, when it gets to be small enough, we will probably convert it to select, but we do not want our customers to experience that dislocation because it is profitable, so we do not have any plan to do that in the near term.

Bob Farnham, Analyst, Janney Montgomery Scott: Okay. All new business, is that put on the select platform?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Yes. All new business has been written in Select since the beginning of 2022.

Bob Farnham, Analyst, Janney Montgomery Scott: Right. Okay. So when you're getting into the new states on an excess and surplus lines basis, I'm assuming this is going to be a new product because it's E&S rather than admitted. So how is this product going to differ from Select, and how are you developing it?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Yeah. We are certainly going to benefit from the select product and the experience we've had. Depending on the states we enter, there may be new perils or new rating variables that we'll need to account for. We are currently deep in the development of that product as we speak, and we've been working with an outside actuarial consulting firm, the same firm that helped us develop the select product for New York. We are deep into it and feel really good about what the outcome will be.

Bob Farnham, Analyst, Janney Montgomery Scott: Has the new E&S carrier finally been approved yet?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: We have filed for a new company in Connecticut. It has not yet been approved, and we will be writing on an excess and surplus lines basis as in Kingstone Insurance Company as well in certain states.

Bob Farnham, Analyst, Janney Montgomery Scott: Okay. Okay. A little change in direction. I know it's only been two months, but the AmGuard book, you started writing that at the beginning of September. How has that performed thus far relative to expectations? Not performed in terms of profitability, but in terms of having policies move over to Kingstone?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Yeah. It's early on. We started writing business effective September 1, but so far, it's right within our expectations. I had indicated that we'd write between $25 million and $35 million of business over a three-year period, and we're right on track. We're writing about a little bit less than $1 million a month so far. What I can tell you is we're very happy with the mix that we're seeing. It's very similar to what we've achieved in select. However, we're writing a bit more business in the boroughs, and that is giving us some geographic diversification. We're happy with that. So far, everything is right on track.

Bob Farnham, Analyst, Janney Montgomery Scott: Okay. One of the bigger questions I always get is just the competition in downstate New York. You said that some companies are expanding their target areas. Can you give us any more color as to how competitors are going into that environment?

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Yeah. We compete with mostly MGAs in New York. Last year at this time, when there was this surge of business from Adirondack and Mountain Valley, a lot of companies stopped writing business. Throughout this year, they've just been opening up and writing more classes of business than they'd written in the past. It's not stopping us. Our growth is very healthy. As I mentioned, every month since June, we've seen a sequential increase in our new business. The way they're expanding is it's not always obvious to us, but our conversion rate remains really high, so we feel good about where we're at competitively.

Bob Farnham, Analyst, Janney Montgomery Scott: All right. Okay. Thanks for the color. That's it for me.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: My pleasure.

Conference Operator: As a reminder, the star one on your telephone keypad if you would like to ask a question. Our next question is from Gabriel McClure with Private Investor. Please proceed.

Gabriel McClure, Private Investor: Good morning, Meryl.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Hi, Gabe.

Gabriel McClure, Private Investor: Congrats on a great quarter. Also, please thank whoever put the PDF in place for us. That is very helpful.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Great.

Gabriel McClure, Private Investor: I had one question. Yeah. I had one question for you. I think maybe a couple of months ago at the Podoty Conference or somewhere, you mentioned that these states you're looking at expanding into. You kind of described it as there being more demand for our policies that we'd offer on a homeowners policy that we'd offer on an E&S basis than there was supply. Just my question is, it was a couple of months ago. Is the market still that way? Has it changed? Whatever you could offer up.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Sure. The homeowners' market, particularly catastrophe-exposed homeowners nationally, is in a bit of a crisis because companies are not making money. We do have an opportunity to expand geographically and be opportunistic so that we can earn the same returns that we are in New York. Nothing is really in a quarter, markets do not change much. We have not seen a material change in the market and believe the opportunity still exists for us to expand successfully.

Gabriel McClure, Private Investor: Okay. Great. Thank you.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: My pleasure.

Conference Operator: There are no further questions at this time. I would like to turn the conference back over to Meryl for closing remarks.

Meryl Golden, President and Chief Executive Officer, Kingstone Companies: Excellent. Thank you for joining today. As we wrap up, I'd like to reemphasize what continues to set Kingstone apart: our select product, our producer relationships, our low-expense structure, and our great team. This quarter's results reinforce the durability of our earnings power. We will continue to execute with discipline, advance our measured expansion roadmap, and allocate capital prudently to support profitable growth. We appreciate your continued support and remain focused on delivering long-term shareholder value. Have a great day.

Conference Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

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