Kingstone Companies, Inc. 2026 Q2 Earnings Call

Good morning, everyone. Joining us today are President and Chief Executive Officer, Meryl Golden, and Vice President and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note that this conference call may contain forward-looking statements, which involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from projected results. Forward-looking statements speak only as of the date on which they are made. Kingstone undertakes no obligation to update the information discussed. For more information, please refer to the section entitled Risk Factors in Part One, Item 1A of the company's latest Form 10-K. Additionally, today's remarks may include references to non-GAAP measures. For definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, please see the tables in our latest earnings release available at kingstonecompanies.com.

With that, it is my pleasure to turn the call over to Meryl Golden.

Meryl? Thanks, Stefan. Good morning, everyone.

Thanks for joining our call. Kingstone delivered the most profitable quarter in our history. Net income reached a record $15.5 million, net income per diluted share increased 35% to $1.5, Our GAAP net combined ratio improved 1.3 points to 70.2. That performance produced an annualized return on equity of 50.8%. Diluted book value per share reached $8.69, up 35% year-over-year, reflecting the value we are creating for shareholders. The earnings contribution was broad-based, driven by premium growth, underwriting profitability, operating efficiency, and higher investment income. Turning to growth, direct premiums written increased 19% to $72.5 million, led by continued strength in N.Y. Personal Line. Relative to the prior year quarter, new business policy count increased 35%, retention improved by two percentage points, Average renewal premium increased 8%.

Net premiums earned grew 31% to $60.5 million as prior period growth continued to earn in. Our lower quota share cession allowed us to retain more premium. While growth was robust this quarter, we are seeing signs of a softening market and an increasingly competitive environment. The pressure so far is most visible in the Dwelling Fire line. Demand across the broader franchise remains healthy as our new business and retention results show. Competition has entered and exited this market over time, while Kingstone's broad and long-standing producer relationships have supported our performance throughout market cycles. Select has proven effective at risk selection and matching rate to risk, which matters even more in this environment. We will not chase volume at the expense of underwriting discipline. As competition increases, New York growth will moderate from first half levels.

Our 16%-20% full year guidance growth outlook already reflects the likelihood of increased competition. Turning to underwriting, attritional claim frequency remains very low overall, flat for non-weather water losses, our largest peril, and up modestly from the prior year quarter for fire losses. Attritional severity for the non-weather water and fire perils combined increased, consistent with inflation and offset by the increase in average premium. Against an exceptionally strong prior year quarter, the underlying loss ratio was 4.4 points higher. Year to date, though, it's up only 0.2 points. The catastrophe loss ratio was negative as favorable development on first quarter catastrophe losses exceeded second quarter catastrophe losses. We also recognized $1.6 million or 2.7 points of favorable prior year development. The Select product continues to perform well.

On an inception-to-date basis, our Select Homeowners claim frequency is more than 34% lower than our legacy product, while Select Dwelling Fire frequency is 19% lower. Select now represents 62% of our homeowner policies in force and 40% of our Dwelling Fire policies in force, extending our runway for continued mix improvement. Our expense ratio improved by 2.1 points to 30.6%, reflecting continued operating leverage as we scale. Underwriting expense dollars are growing more slowly than net earned premium. The net combined ratio for the quarter was 70.2%, down 1.3 points from the prior year quarter. Randy will provide a more detailed review of our financial results. We were pleased with our July 1st catastrophe reinsurance placement. We increased total catastrophe protection by 14% to $500 million, added wildfire protection, and lowered the risk-adjusted cost of our core catastrophe excess of loss coverage by more than 15%.

We also maintained low first event retention across all perils, including wildfire. This program is built for quarters unlike this one. It protects the balance sheet against adverse catastrophe scenarios, reduces earnings volatility, and supports continued profitable growth. We entered California in the last week of the quarter through only a handful of agencies, so it is too early to draw conclusions from the initial activity. Our California business leader knows the market well and has strong producer relationships, which are helping us understand how conditions are evolving. We expected new carriers and MGAs to enter California on an E&S basis. Competition is building faster than we anticipated. That's why we started small. We're using that early feedback to refine our approach before adding meaningful volume.

Our E&S structure and platform allow us to remain nimble, adjusting pricing and appetite as market conditions evolve. We will scale only as the business meets our underwriting and return requirements. We are also on track to enter Connecticut on an admitted basis late in the third quarter. The Department of Insurance has been moving quickly on our filings, and we are preparing to begin writing business once our approvals are received. New York remains our primary growth and earnings engine. California and Connecticut are measured steps toward a more geographically diversified company and, over time, a less concentrated catastrophe footprint. These initiatives support our goal of reaching $500 million in direct premiums written by year-end 2029. We will pursue that goal at a pace consistent with our return requirements, reinsurance protection, and capital capacity. Turning to our outlook, we are reaffirming all elements of our full year 2026 guidance.

We continue to expect direct premiums written growth of 16%-20%, a GAAP net combined ratio of 81%-86%, an underlying combined ratio of 74%-76%, and a catastrophe loss ratio of 7%-10%. The catastrophe range reflects the elevated winter storm activity in the first quarter. We also continue to expect diluted net income per share of $2.20-$2.90 and return on equity of 24%-30%. Our modeling assumptions continue to include an effective tax rate of 21% and weighted average diluted shares outstanding of 14.8 million. The operating drivers we control are on track. With the most active months of hurricane season ahead and competitive conditions evolving, we believe maintaining our current ranges is appropriate. We remain confident in our full-year outlook. The second quarter demonstrates the earning power of the business we have built.

Our New York franchise is growing, our operating platform is converting that growth into earnings, and our reinsurance and capital position support disciplined expansion. Our second-half priorities are clear. Grow New York while protecting rate adequacy, build California deliberately, launch Connecticut on schedule, and continue translating profitable growth into earnings and book value per share. I remain confident in Kingstone's trajectory because the drivers are clear. Disciplined pricing and risk selection, strong producer relationships, expense control, and prudent capital management. I want to thank the entire Kingstone team for their execution and our select producers for their continued partnership. With that, I'll turn the call over to Randy for a more detailed review of our financial results.

Randy? Thank you, Marilyn. Good morning again, everyone.

From a net income and EPS standpoint, the second quarter was our most profitable quarter in company history, with net income of $15.5 million and EPS of $1.05 per diluted share, compared with $11.3 million or $0.78 per diluted share in the same quarter prior year. Operating net income increased 41% to $15.3 million, and diluted operating net income per share was $1.04 in the second quarter of 2026, compared with $0.75 in the prior year quarter. Annualized GAAP return on equity was 50.8% during the second quarter of 2026. As a reminder, the second quarter is typically our most profitable quarter. Net premiums earned increased 31% to $60.5 million in the second quarter of 2026, primarily reflecting continued growth in direct premiums written along with the reduced quota share cession.