Kingstone at 15th Annual LD Micro: Strategic Turnaround Success

On Thursday, 10 April 2025, Kingstone Companies Inc. (NASDAQ: KINS) presented at the 15th Annual LD Micro Invitational 2025. Merrill Golden, the company's President and CEO, highlighted Kingstone's impressive turnaround and financial performance in 2024. The company, specializing in catastrophe-exposed property insurance in New York, faced challenges but has since implemented successful strategic initiatives. Despite previous hurdles, Kingstone is now seeing significant growth and profitability.

Key Takeaways

• Kingstone achieved a 21% growth in 2024, with a combined ratio improvement to 80.
• Strategic initiatives "Kingstone Two O" and "Kingstone Three O" were crucial in the turnaround.
• The company reported a net income of $18.4 million, reversing a prior-year loss.
• Kingstone expects to grow its core New York business by 15-25% in 2025.
• The company anticipates an EPS of $1.90-$2.30 on a basic basis for 2025.

Financial Results

Kingstone's financial performance in 2024 marked a significant turnaround:

• Overall growth reached 21%.
• The combined ratio improved from 105 to 80, reflecting a 20% margin.
• The loss ratio improved by nearly 24 points to 48.7%, while the expense ratio decreased by 1.6 points to 31%.
• The investment portfolio earned $6.8 million, up almost 14%.
• Net income was $18.4 million, compared to a $6.2 million loss the previous year.
• Basic EPS was $1.60, a significant improvement from a loss of $0.57.
• Return on Equity (ROE) was nearly 36%, up from a negative 22%.
• Premium growth in New York was up 31%.

Operational Updates

Kingstone's strategic initiatives drove the company's successful turnaround:

• Implemented "Kingstone Two O" and "Kingstone Three O" initiatives, focusing on hiring talent and upgrading systems.
• Reduced expenses by 25% from 2021 to the end of 2024.
• Shifted focus to the core New York market, reducing business in non-core states.
• Re-underwrote policies to address underinsurance and managed reinsurance costs effectively.
• Policies enforced in New York increased by 9%.

Future Outlook

Kingstone's guidance for 2025 reflects continued optimism:

• Expects to grow its core New York business by 15-25%.
• Projects an underwriting margin of 15-19 points.
• Anticipates an EPS of $1.90-$2.30 on a basic basis and $1.75-$2.50 on a fully diluted basis.
• Plans to focus on renewal business to sustain growth.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - 15th Annual LD Micro Invitational 2025:

Merrill Golden, President and Chief Executive Officer, Kingstone: Insurance? I knew that there would be no seats available in the room this morning. So nice to meet you all, and thank you for taking the time to learn about Kingstone. So my name is Merrill Golden. I'm the president and chief executive officer of Kingstone.

I've been with the company about five and a half years, but I've spent my almost my entire career in the insurance industry other than a small stint where I left to work for a hedge fund. So spent my time at Progressive about Kingstone. We are a regional property and casualty insurer, but most of our business is property insurance in Downstate New York. So if you think about, for example, Long Island where, you know, surrounded by water, there's not many companies that really wanna write that type of business. So that is our niche.

We're a catastrophe exposed property writer. So the New York market is non core, and we call New York core. And the reason being that we lost a lot of money in those states, and we retrenched. And I'm gonna talk about that today. So I know I forgot to say that.

What I'm gonna talk about today is Kingstone's. When I joined the company, I was hired to modernize the company and turn the company around, and we have done that in a really traumatic way. So that's what I'm gonna talk about today is tell you a Eastern states, but withdrew pretty much from those states. We just reduced our business in those states. And for my of my five years at Kingstone, the first four were really rebuilding the company.

I'm gonna talk about that. And we lost month. We came out of this tailspin in the fourth quarter of twenty three, and we have made incredible profits since then. So 2024 was the year where all of the hard work over the prior round company really showed into Kingstone's financial results. So for the year of 2024, we improved on just about every metric.

So for perspective, our premium in our New York state our core state of New York was up 31%. Our profit improved from about 25,000,000 over the prior year, and our stock price increased from $2 to $15 in 2024. So it was really a banner year, and I'm gonna take you on the journey to how we got to those fantastic results. So just a little history of the company. Believe it or not, we've been in business since 1886.

Like, how many companies can say that? We weren't called Kingstone. The company And after we became public, for the first, I don't know, eight or nine years, we had this is before I was in a company. We had incredible results. So 20% growth, 20% ROE consistently every year until we didn't.

And what happened is that competitors entered into our niche market space. And we, unfortunately, during that period of twenty twenty twenty, have not really made requisite investments in the company and people or systems or product. So when the competitors entered the space, we didn't know how to respond. So, again, that was one of the reasons that I was hired was to help the company change path. But the other thing to know is about Kingstone and also the property insurance market generally is that our results are very impacted by macroeconomic factors.

So when you think about, let's say, 2223, there were headwinds that took it you know, headwinds that impacted our results. It was one it took us a bit longer to turn the company around because of those headwinds. So three that I'll mention, one is inflation. So when, you know, there's inflation, it costs more to settle claims. So and, typically, there's a lag.

You have to pay the claims before you can file a rate increase to price for the claims. So inflation is typically a headwind that affects property insurer results. Or right now, with the tariffs, if you think about it for auto insurance, for example, there's the cost of new car. The cars aren't available. Costs are going up.

It's taking longer to repair. Auto parts are coming internationally. All of those things, all of that inflation will impact the auto will impact car insurance industry as well, and they will have to raise prices to consumers. So, again, inflation is a headwind. A second is the reinsurance market.

It was hard. So what a hard market means is rates are going up. And for particularly a catastrophe exposed property insurer, reinsurance costs are the largest cost. So if rates are going up, that really has an impact on our bottom line. And then the third is interest rates going up.

So most insurers have a large part of their investment portfolio in bonds. And so if interest rates go up, you know, bond values go down. So those headwinds were impacting us during this turnaround period. Some of those headwinds have now become tailwinds for us in terms of our result. But I would be remiss if I didn't also mention global warming.

So I guarantee you, like, maybe five out of seven nights you've found the news, and what do you see? Another catastrophe event around the world. And so what's happened in the marketplace is companies you've heard of, like State Farm, Allstate, Travelers, they have taken a die like, they don't wanna write as much catastrophe exposed property insurance because of the volatility in their results. Global warming has created more frequent and more significant catastrophe events than ever before. So as these very large carriers are withdrawing or writing less of this business, it's created a whole industry of insurance companies who are focused on and specialists in catastrophe exposed property insurance.

So that's what Kingstone is. So in terms of the turnaround, there's a busy slide, but there's a bunch of things that we did. We have kind of two strategies to turn the company around. So the first we call kingstone two areas So we had a lot we hired a lot of great people.

We got off our legacy systems. I'm sure you heard that across lots of different industries, the need to do that. We developed a new product that better matches rates or risk. So, you know, key in insurance is understanding how to price and having a product that can match the price to the cost of paying claims is really important. So we developed and rolled out a new product using advanced data science that does a better job of that.

And then last, we just kind of challenge everything we do and put some processes in place to improve our results. So as an example, you know, a lot of costs in property insurance is for roofing. So if someone's home has a roof that is old, chances are when there's a big storm, there's gonna be water into the house, and that's a claim. So we started to use aerial imagery as an example to and to look at the quality of fruits, which previously were difficult to look at. Those things, the company's results started to improve, but then we had our next initiative we called Kingstone three o.

I knew you would guess that. And so that was really the turning point for the company. So there were four key things that we did in Kingstone three o. The first was we got out of those other states in the Northeast. So I mentioned we had to expand it to New Jersey, Mass, Connecticut, Rhode Island.

We didn't really get out of them. We just reduced the amount of business we had in those states because the way we entered the state with those states was not effective, and we lost a lot of money. The second was we took a lot of rates. So, you know, we talked about inflation. Well, when you insure your home, you need to make sure that you're insuring it for what it would cost to rebuild.

What we did was with inflation was we reunderwrote every policy to make sure that no one was underinsured. And that is really important for our policyholders and our producers to make sure that we're keeping up on that. That drove prices up a lot. But, and our policyholders understood that it's more coverage. We also took rate because, as I mentioned, with inflation, costs more to rebuild a home, so we wanted to make sure that we were priced adequately.

The third was given that hard and insurance market that I mentioned, we did a lot to manage the cost of reinsurance. So for example, everyone almost all of our policies have a hurricane deductible. So what that means is that the policyholder shares in the cost of rebuilding their home after a loss. So something like that helps you manage the cost of reinsurance. So we, you know, we kinda run our portfolio through different models that determine how much reinsurance will cost, and then we make underwriting changes to manage the cost of reinsurance.

And last but not least is we were relentless about reducing our expenses. So the way insurance works is if you have high expenses, you have to have high prices. And if you have low expenses, then you can become more competitive in the marketplace, or you can expand your margin. So in our particular case, we we reduced our expenses by 25% from '21 to the end of twenty four. So it was a really dramatic improvement in our companies withdrawing from the marketplace.

The second green bar shows how much of our growth was from renewals. And then, you know, we are getting reducing the business outside New York, as I said, and those are the lighter green bars. If you look at 25, even though we're not giving you numbers, we do put out guidance that I'll cover, and we are anticipating growing between 1525%. So it's still a hard market in New York, meaning we don't have many competitors, and companies are still restricting their business. And we are, again, the recipient of those hard market conditions because we think we're priced right in making money, so we're open for business.

So what you can see in the chart for 2025 is we're not gonna write as much new business, but we're gonna write more renewal business. And that is from the new business we wrote last year. So insurance is kinda like a annuity or if you think about, like, a technology company where you talk about recurring revenue. I mean, that's what insurance is like because you have very high retention rates. So if we write a lot of new business and then it renews and renews in future years, it it enables us to grow faster.

So this just shows that mostly our business in New York is growing a lot. And in last year, we were up 9% in terms of our policies enforced in our core state of New York, and we reduced our business in those four other Northeastern states materially. So for the full year of '24, I'm gonna just go over our results, and then I'm gonna cover our guidance for '25 and open it up to any questions you have. So first of all, overall, we grew 21%, which is you know, insurance, you might not know this. It's easy to grow fast.

All you have to do is price wrong. It's hard to grow fast and be profitable. That's what we did in 2024. We grew 21%. In insurance, there's something called a combined ratio, and it includes your losses and your expenses, and then you add them together to get your combined ratio, think of it this way.

You have a dollar. How much did you spend on losses? How much did you spend on expenses? And how much is left as your margin? So if you're under a hundred combined ratio, you're making money insurance.

So we spent 48.7¢ out of every dollar on losses. And what's great about that is we improved that from the prior year by almost 24 points. So that amount of improvement is just unheard of. Our expenses, we spent 31¢ on every dollar on expenses, and that was an improvement of 1.6 points from the prior year. So we ended the year at an 80 combined ratio, meaning we had a 20 margin on the business of insurance, and that was a 25 improvement from the prior year, which means in the prior year, we were at a one zero five.

So we lost 5¢ on every dollar of insurance we wrote in the previous year versus making 20¢ in 2024. And then the business of insurance, there's make money on insurance, and you make money on your investment portfolio. In 2024, we made $6,800,000 on our investment portfolio, which was up almost 14%. The good news for this year and subsequent years is because we're making money, we can contribute more to our investment portfolio. We're cash positive, so our investment returns will improve.

So overall for 2024, our net income was 18,400,000.0, which was a versus 6.2 loss, 6,200,000.0 loss in the prior year. Our basic EPS was a dollar 60. Prior year, we had lost 57¢, and then our return on equity was almost 36%. The prior year was a negative 22%. So our intention for 2025 is to keep party going.

So it's still a hard market. All these changes is that we made to improve our results. So we have put out guidance every quarter for 2024 and now for 2025. We update the guidance quarterly so to you can track our progress. So what we expect for 2025 is to grow in our core business of New York between '25 1525% to make between a fifteen and nineteen point underwriting margin.

So, again, think about the combined ratio as out of a hundred, how much are you spending on losses and expenses, and the rest is your underwriting margin. We expect to have an EPS on a basic basis between a dollar 90 and $2.30, on a fully diluted basis between a dollar 75 and $2.50. Thank you for listening to our story. We're a great company, and I'm hoping that I get the opportunity to talk to you further today. So on that, I'll open it up for any questions that you might have.

I guess I did a really great job since there aren't any questions. But okay. Well, in that case, again, I look forward to talking to you at the conference, and have a great day.

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