Kingstone Companies, Inc. Small-Cap Virtual Conference

Thank you. Thanks everyone for joining us this morning. Kingstone is a regional property and casualty insurer focused on catastrophe-exposed property. Believe it or not, we have been in business for 140 years, and we have been a public company since 2009. Almost all of our business today is in downstate New York, and we are the 11th largest writer of homeowners insurance in New York at year-end 2025. When I say catastrophe exposed, what I mean is that the home has a risk of hurricane or wildfire. This exposure makes it harder for homeowners to get insurance coverage. The large national carriers that you know, like State Farm and Allstate, they write 70% of all homeowners insurance today, but they are not interested in growing in this catastrophe-exposed segment. It means there is less competition for us and the opportunity to earn greater margins in this niche.

We have completely reinvented the company over the last seven years, and I will share some of the highlights from our turnaround with you today. In 2025, it was Kingstone's most profitable year in our history, with diluted EPS nearly doubling to $2.88, return on equity of 43%, and our book value per diluted share increased 75% to $8.28. We closed 2025 with nine consecutive quarters of profitability. Now we are on a path to doubling the size of the company, and we have a goal of achieving $500 million in premium by the end of 2029 through continuing to grow in New York State, both organically and inorganically, as well as through geographic expansion. This year we expanded to California and Connecticut, and we plan to add additional states next year.

The chart I have up on the screen shows our Q2 2026 results, and it was our most profitable quarter in the history of the company. We grew premiums 19%, made almost a 30-point underwriting profit, and had a return on equity of 50.8%. I wish that every quarter could be like Q2. I do want you to know that we do have seasonality in our business, and Q2 is typically the most profitable quarter of the year. What sets us apart is clear. First is that we are master executors. As I mentioned, we have rebuilt every aspect of the company, the leadership team, the product, the claims organization, risk management protocols, our cost structure, everything. We now have a multi-year track record of disciplined growth and profitability, but really exceptional results relative to the industry.

I would like to say we've had 11 consecutive quarters of profitability, but the first quarter in the Northeast was a really difficult winter with 11 catastrophe events. It broke our profit streak. We have 10 of the last 11 quarters were profitable. Pricing sophistication is absolutely key to insurance, because what you want to do is match rate to the underlying exposure. We developed a product we call Select that I am going to talk a lot about today. Select does a great job of that matching rate to risk. What we have seen is that we have a much lower frequency of loss in our Select product than in the previous product we had on the street that we call Legacy. Select is only 62% of our policies in force today.

We still have a lot of headroom for the Select product to grow and our frequency to continue declining. Operating efficiency. We have an expense advantage relative to our competition. As part of our turnaround, we have been able to reduce our expenses as a percent of premium from 41% at the end of 2021 to 30% today. This allows us to have more competitive prices or to have greater margins. Operating efficiency is really key in insurance. Distribution. We have very deep and broad relationships with producers across our footprint, and that enables us to generate strong retention of our business and strong new business flow. We are committed to agent distribution. Last, we have a healthy balance sheet, the healthiest balance sheet we have ever had. We have no debt, and we have very conservative reinsurance.

That means catastrophe events are earnings events and not a capital event. As an example, most people are familiar with Superstorm Sandy. If Superstorm Sandy were to hit today with Kingstone's current exposures in N.Y., it would cost us about $100 million, but $95 million of that would be paid by our reinsurance partners, and it would cost Kingstone about $5 million pre-tax, which is roughly $0.27 per diluted share. When I joined Kingstone, it was an underperforming business. That was seven years ago on Friday. Can't believe how the time has flown by. We had an underwriting loss for a five-year period from 2019 to 2023, and 2022 was the year that we really hit bottom.

We had a $2.19 loss per share and $30 million of holding company debt that matured at the end of the year and had to be refinanced in an incredibly difficult credit market. I give you that perspective just so you can see how monumental our turnaround has been. We have rebuilt every aspect of the company, the team, the product, the claims organization, technology, risk management, our cost structure, and our balance sheet. One of the key items in the turnaround was reducing our footprint in unprofitable states that materially impacted the bottom line of the company. We had expanded geographically, and it was really unsuccessful. Those new states never represented more than 20% of our premium, but the losses almost brought the company down.

A big part of the turnaround was working with regulators to get off the business quickly, and today those states represent less than 2% of our policies in force. What I do want to say is it really wasn't the states as much as Kingstone at the time, we didn't have a product that matched rate to risk or some of the other items in place that are driving our profitability. I mentioned our Select product, and I do want to reiterate how much of a game changer it has been for the company. Again, Select was built using an abundance of data, both ours as well as third-party data, and advanced data science techniques. One key to profitability in insurance, which is really key, is matching rate to risk. You understand when you're insuring that underlying exposure, what it's going to cost you.

The Select product does a great job in that regard. What we've seen since the introduction of Select in the beginning of 2022 is a shift in our mix of business to more preferred customers who are financially responsible, maintain their homes, have newer and higher value homes, and higher deductibles. The result has been, as you can see on this chart, a significant reduction in our frequency of loss for customers in the Select product relative to the Legacy product, which is the product we offered prior to 2022. The Select product, again, is only 62% of our homeowner policies in force and continuing to grow. As it grows, we'll continue to see this terrific frequency benefit. I mentioned the turnaround. Our first profitable quarter was the fourth quarter of 2023, and the timing of our turnaround was really fortuitous as in 2024, two large competitors, Adirondack and Mountain Valley, received regulatory approval to withdraw from the state of N.Y.

All of their business was non-renewed in the second half of 2024. Since we had completed the turnaround, we were priced right and we had capacity, and that enabled us to take advantage of these market withdrawals, and we were fortunate to write $29 million of policies that were previously insured with Adirondack and Mountain Valley. It was very fortuitous for us and has been a really profitable growth engine.

At the same time, another company, GUARD, that is owned by Berkshire Hathaway, announced it wanted to get out of homeowners nationally, so they had signed a renewal rights agreement with a company called Foremost, which is owned by Farmers. Foremost didn't want to grow in downstate N.Y. We were ultimately able to sign a renewal rights agreement with GUARD. What that means is when GUARD non-renews the business over a three-year period, because N.Y. requires a three-year policy term, when they non-renew their business, we offer a quote to our producers, and then the producers can decide to place the business with us or to place the business with another company. We do anticipate from this renewal rights agreement that we will write between $25 million and $30 million of business over a three-year period. That three-year period started September of 2025.

Kingstone is in a great position, and we're now focused on profitable growth. Our guidance for 2026 is that we will grow between 16% and 20%. As you can see on this chart, most of our growth is organic in the state of New York. We did reaffirm this guidance at the end of Q2. Last year, we announced a plan to grow to $500 million, so effectively doubling the size of the company by year-end 2029, and continuing to grow. We're going to achieve that $500 million by continuing to grow organically and inorganically through that GUARD renewal rights agreement that I just mentioned, as well as expanding geographically. New York, even in 2029, New York remains our primary growth and earnings engine, and our current market share leaves meaningful room for expansion.

In 2026, we did enter two new states, both in the third quarter, California and Connecticut, and we do plan to enter some additional states in 2027 and beyond. Let me tell you about California and Connecticut. First, California is a $15 billion market, and New York is an $8 billion market. Just to give you perspective on the size of the homeowners market. It triples our addressable market, and it's one of the most diversifying states in the country for Kingstone, given our Northeast footprint. The premise for entering California was that the market is severely capacity constrained, primarily due to state regulation and wildfire exposure. We entered California early in the quarter on what is called an excess and surplus lines basis.