管理層發言
Good morning, and welcome to Kingstone Companies' Second Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. I'll now turn the call over to your host, Stefan Norbom, Kingstone's Investor Relations representative. Stefan, you may begin.
Thank you, and 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, 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 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, and 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 $1.05, and 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 New York personal lines. Relative to the prior year quarter, new business policy count increased 35%, retention improved by 2 percentage points and average renewal premium increased 8%. Net premiums earned grew 31% to $60.5 million as prior period growth continued to earn in and 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% to 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 a year-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 1 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's 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. What has changed is that admitted carriers are also beginning to selectively reopen for new business and 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 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 '26 guidance. We continue to expect direct premiums written growth of 16% to 20%, a GAAP net combined ratio of 81% to 86% and an underlying combined ratio of 74% to 76% and a catastrophe loss ratio of 7% to 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 to $2.90 and return on equity of 24% to 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, Meryl, and 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. Our New York quota share cession is 5% for the 2026 treaty year, a decrease of 11 percentage points from 16% in the 2025 treaty year, allowing us to retain more premium and underwriting profit. Direct premiums written increased 19% to $72.5 million and policies in force increased 9.9% to 84,570. Net investment income increased 49% to $3.4 million in the second quarter of 2026 compared with the same quarter prior year, driven by an increase in invested assets and higher average yields that increased to 4.4%. Total investments were $334.1 million at June 30, up $24.4 million from year-end. Turning to underwriting. The GAAP net loss ratio was 39.6% compared with 38.8% in the prior year quarter. The catastrophe loss ratio was negative 0.8% compared with 0.6% in the prior year quarter. Favorable development on our first-quarter 2026 catastrophe losses exceeded the low catastrophe losses experienced during the second quarter of 2026, reducing the negative ratio. Separately, we recognized 2.7 points of favorable prior-year reserve development related to accident years before 2026. Excluding both catastrophe losses and favorable prior-year reserve development, the underlying performance of the book was strong in the second quarter of 2026, with an underlying loss ratio of 43.1%. This compares with a 38.7% underlying loss ratio in the second quarter of 2025, a quarter when the underlying performance of the book was also exceptionally strong. The net underwriting expense ratio improved 2.1 points to 30.6% as net premiums earned grew faster than our expense base. Together, the GAAP net combined ratio improved 1.3 points to 70.2%. The underlying combined ratio was 73.7% compared with 71.4% in the prior year quarter. The absolute level of profitability remains strong and the expense ratio improvement demonstrates the scalability of the business. For the first six months of 2026, direct premiums written increased 19% to $142.1 million and net premiums earned increased 30% to $116.3 million. Despite elevated winter catastrophe activity in the first quarter of 2026, costing about $14 million in losses, we generated net income of $9.7 million or $0.66 per diluted share and operating net income of $10.3 million or $0.70 per diluted share in the first half of 2026. The first half of 2026 GAAP net combined ratio was 90.2% compared with 82.3% in the prior year period and included 12 points of catastrophe losses compared with 1.2 points in the first half last year. The underlying combined ratio improved 1.3 points to 80.7% and the underwriting expense ratio improved 1.5 points to 30.5% in the first half of 2026 compared with the first half of 2025, reflecting the strength in the performance of the underlying book of business. At June 30, diluted book value per share was $8.69, up 35% from $6.44 a year ago. Diluted book value per share, excluding accumulated other comprehensive income, was $9.27, up 32% from $7.04 a year ago. With no holding company debt, our capital position continues to be strong, supporting both profitable expansion and measured shareholder returns. During the quarter, we repurchased approximately 19,500 shares at an average price of $14.98 per share under the program our Board authorized in May. Following quarter end, our Board increased the quarterly dividend by 20% to $0.06 per share just one year after reinstating it. We will continue to allocate capital to support our strategic growth plans while maximizing long-term shareholder value. With that, operator, we are ready for questions.
分析師問答
Our first question is from the line of Bob Farnam with Brean Capital.
I've got a couple of quick questions and one broader question. First, your expense ratio improved to 30.6%, and you're talking about how it's going to improve as the company scales. Do you have any idea of where that expense ratio could fall when you reach full operational scale over the next few years?
Sure. We think we could take about one point out of the expense ratio. Our interim goal is roughly 29%.
Okay, 29%. And when you're looking to write business, it has to meet your profitability expectations. Can you describe what you are looking for when you write business — what your profitability targets are?
We're pricing for an 85% combined ratio. That's our profitability expectation.
And on competition — I know you discussed this earlier — I'm assuming there's a difference between California competition and New York competition because California is mostly E&S and New York is admitted. But it sounds like admitted carriers are getting into California as well. Are those the same admitted carriers you face in New York, or are they a different group of admitted carriers entering California now?
Perhaps I wasn't clear earlier. In California, many admitted carriers had largely stopped writing new homeowners business over the past few years because of the regulatory environment, so there was a surge in volume on the E&S side. We expected new carriers in the E&S space. What we had not anticipated was that admitted carriers would selectively reopen for new business. That's what we're starting to see. The difference with New York is that the top admitted carriers there generally avoid catastrophe-exposed property; our competition in New York are companies that focus on catastrophe-exposed property. In New York, there are maybe one or two E&S writers, but most competitors are admitted carriers. In California, competition now includes both admitted and E&S carriers. Does that answer your question, Bob?
Yes. So when you say admitted carriers in California are reopening, are you referring to very large companies like State Farm or Farmers? Are they not avoiding catastrophe-exposed areas the way admitted carriers avoid coastal areas in New York? In other words, are they writing wildfire-exposed areas now?
First, it's not State Farm specifically that I'm referring to. In California, there is a program called the sustainable insurance plan. Companies that file under that plan will write some additional wildfire business and, in return, get access to forward-looking wildfire models and the ability to include reinsurance in their pricing. We're still seeing that many admitted carriers have limited appetite for wildfire-exposed business, but we had not anticipated that they would begin writing new business again because many were very restrictive until recently.
Okay. And on New York growth moderating in the second half because of increased competition, is that new competition entering the market, or are existing carriers that had pulled back now dipping their toes back in?
It's really both. We all knew a soft market was coming, but in July we saw a tick down in new business for dwelling fire. Agents are now talking more about a softer market. There have been a few new entrants and existing competitors have loosened some of their guidelines. There's one company priced in a very irrational way, and we hope they correct that. Kingstone has a unique position in the downstate New York market with broad and deep distribution; agencies have stuck with us through cycles. Our Select product helps with risk selection and matching rate to risk, which matters even more in a soft market. We have low expenses, so I feel confident we'll continue to grow, though perhaps modestly slower than we have been.
The next question is from the line of Cam Bianchi with Piper Sandler.
This is Cam on for Paul. Considering the expense ratio improvement you saw in the quarter, does the 30% quota share on the California book create any near-term expense ratio drag if that state ramps, which could offset New York-driven efficiency gains? You mentioned a target around 29%; I'm just curious if the California book would offset that.
Right now, California is a very small part of our business. Even by the end of this year it will be well under 5% of total business. The 30% quota share was intended for risk aversion; we wanted to ensure we didn't materially impact profitability. To answer your question, it really has no meaningful impact on the expense ratio at this stage.
Got it. Understood. And looking forward as the California book ramps, how are you prioritizing capital deployment between California and Connecticut expansion, increasing the dividend and opportunistic repurchases?
I'll let Randy take that.
Our capital allocation priorities remain the same as we enter California. First, we will fund profitable growth; we have rebuilt surplus over the last couple of years. Second, we are focused on growing the quarterly dividend; the Board increased the dividend by 20% to $0.06 per share in the past quarter. Third, when opportunities present themselves, we will repurchase shares, but in that order of priority.
The next question is from the line of Greg Fortuner, private investor.
Great number. It sounds like the market is getting a little soft. When you put your numbers together earlier in the year, did you consider that? Or is that something that could affect what you're thinking going forward?
If you're talking about our guidance on growth, we did anticipate a softer market in the second half. Our range is 16% to 20%, and year-to-date we're at 19%, so we'll see how it goes. Right now, we're comfortable reaffirming our guidance.
Is it reasonable to think this earnings result sets a new run rate for the company, assuming no major catastrophes in the next quarter? The second quarter is usually the best, but if Q3 is normal, should we expect this level of earnings going forward?
I would say the underlying combined ratio — when you take out catastrophe losses and the favorable prior-year development — is the run rate we're expecting. In our guidance, we separate the underlying combined ratio, which we control, and the catastrophe loss expectation. The underlying combined ratio range is 74% to 76%, so that is consistent with the guidance we put out in March.
If you make $1.05 this quarter and then $1.05 next quarter, you'd be near the low end of the annual guidance, with Q4 determining the upside. Are you being conservative with guidance?
We want our guidance to be accurate and durable. While we feel positive about our outlook, we're still in the early part of hurricane season and Q3 is typically where we see sizable catastrophe losses. With competitive changes evolving, it seemed prudent to maintain our guidance until we have better visibility into the rest of the year. I hope you're right that we end up at the high end, and we'll consider updating guidance next quarter if appropriate.
When competition increases, it takes time for policies to roll off — customers don't usually switch mid-term. When should we expect to see the effects of increased competition on your business?
Typically in a soft market, consumers are more price-sensitive in new business than at renewal. So what we're most likely to see initially is a decline in new business writings rather than an immediate impact on renewal retention. Time will tell; it depends on how aggressive competitors are.
Okay. One last question: In the past you've said what your maximum loss would be in an event like Superstorm Sandy. Has that changed with the new reinsurance program? I think you previously said the company would take roughly $5 million in that scenario.
We had a very successful reinsurance placement this year and maintained our low first-event retentions across perils. Our first-event retention is $3.5 million for wildfire, $4.75 million for named storms like Sandy, and $6.0 million for winter storm and severe convective storm. In the past we've said if a storm like Sandy hit us today with our current footprint, it would cost roughly $4.7 million pretax, $4.0 million after tax, and about $0.27 per diluted share. That remains consistent — it's an earnings event for Kingstone, not a capital event. We have maintained conservative first-event retentions to protect our surplus.
The next question is from the line of Gabriel McClure, Private Investor.
Congrats on another record quarter. When you were talking about policies in force growth, I wanted to confirm the number. The press release said a 9.9% increase. Could you repeat that?
I believe I noted that new business for the quarter was up 35%, retention was up two percentage points, and our average premium was up 8%. We are delighted that policies in force growth was up almost 10% quarter-over-quarter, so the press release is correct.
At this time, I'll turn the floor back to Meryl for closing comments.
Terrific. Thank you so much for your interest in Kingstone, and thanks for joining us today. Have a wonderful day.
This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.