Kingstone (KINS) Q4 2025 Earnings Call Transcript
The decision to reduce our quota share reflects our confidence in the quality of our book and that our underwriting results warrant retaining more premium. As such, we have reduced our quota share even further for 2026, and net earned premium growth will continue to be a tailwind. On underwriting, our fourth quarter net combined ratio of 64.2% reflects exceptional performance across the board. The underlying loss ratio was 34.7%, an improvement of over 14 points from the prior-year quarter, driven by meaningfully lower claim frequency. The improvement in frequency, particularly for non-weather water, our largest peril, is a trend we have shared throughout the year, and we attribute it to the effectiveness of risk selection in our Select product.
During the quarter, we also recognized the benefit from continuing improvements in our claims operations, with faster cycle times and providing earlier visibility into ultimate property claims cost. For the full year, our underlying loss ratio improved nearly 4 points to 44.4%, and our catastrophe loss ratio was just 1.2 points. I want to be direct. While we benefited from very low catastrophe activity in 2025, our underlying performance improved materially. Even with a normalized catastrophe load, our full-year combined ratio would have been in the low 80s, reflecting the differentiated platform we have built.
As we shared in the second quarter, we have set a five-year goal of $500 million in direct premiums written by year-end 2029, approximately doubling the size of the company through continued growth in New York, measured expansion into new markets, and strategic inorganic opportunities. I am pleased to share that our first new market will be California, which we will be entering in 2026 on an excess and surplus (E&S) lines basis. California is one of the largest homeowners markets with $15 billion in written premium, almost double the size of New York, and the largest E&S homeowners market in the country, where the supply-demand imbalance for homeowners coverage continues to grow.
The E&S approach gives us the flexibility to price wildfire risk using forward-looking models to set prices to achieve our margin requirements and to apply strict underwriting standards, including rigorous property-level risk selection and real-time accumulation management. We will start small, consistent with our disciplined approach, and scale as we gain confidence in our pricing and product. The initial contribution from California will be modest, less than 5% of our 2026 premium, with the vast majority of our volume continuing to come from New York. But the opportunity is enormous, and California will become a large contributor to our growth over time.
Turning to our outlook for 2026, I want to explain an important change in how we are reframing our outlook for this year because we think it will help investors better understand our business. Starting this year, we are introducing the underlying combined ratio, which excludes catastrophe losses and prior-year reserve development, as our primary operating lens. We define it as the underlying loss ratio plus the net expense ratio. This metric isolates the performance we control, including pricing, risk selection, claims management, and operating efficiency, from the inherent volatility of catastrophe events. In 2025, our underlying combined ratio was 74.4%, an improvement of 5.1 points from 79.5% in 2024. That improvement is structural.
It reflects Select product penetration, earned rate adequacy, and operating leverage, and is independent of catastrophic weather events. At the same time, our record combined ratio of 75% benefited from an outlier low catastrophe loss ratio of just 1.2 points. To put that in context, the six-year average cat loss ratio from 2019 through 2024 is 7.1 points. Both 2024 and 2025 were well below the average, including two consecutive mild winters. So when you look at our 2026 guidance, I want to be very clear about the bridge.
The headline year-over-year change in earnings per share and return on equity is driven almost entirely by our assumption of a higher-than-normal catastrophe load, not by any deterioration in our underlying business. In fact, our underlying combined ratio guidance of 74% to 76% is comparable to 2025. The headline story is straightforward: the controllable business is healthy and growing; the year-over-year change reflects cat normalization.
Here is our updated guidance for fiscal year 2026: direct premiums written growth of 16% to 20%; an underlying combined ratio, excluding catastrophes and prior-year reserve development, of 74% to 76%; a catastrophe loss assumption of 7 to 10 points, which is at or above the six-year historical average and reflects the elevated winter storm activity we experienced in 2026; and a net combined ratio of 81% to 86%. Diluted earnings per share of $2.20 to $2.90, with a midpoint of $2.55, reflects an increase at the midpoint relative to our initial outlook and the benefit of a lower quota share cession for 2026.
The 16% to 20% direct premium growth target helps keep us on pace toward our five-year goal of $500 million in direct premiums written by year-end 2029. I want to give investors the tools to model different catastrophe scenarios. On an illustrative basis, and this is not guidance, each one point of catastrophe loss ratio has approximately a $0.13 impact on diluted earnings per share. So if you want to see what our earnings power looks like at fiscal year 2025 cat levels of 1.2 points, the illustrative answer is approximately $3.53 per diluted share, which represents 23% growth year over year. That is the underlying trajectory of this business.
I want to emphasize that weather is unpredictable, and our 2026 guidance assumes a higher-than-average catastrophe year given the winter weather in 2026. As a reminder, our catastrophe reinsurance program limits our maximum first event loss to $5 million pretax, or approximately $0.27 per share after tax, whether from a hurricane or a winter storm. We will refine our outlook as the year unfolds. Before I hand it to Randy, I want to briefly address the regulatory proposals in New York regarding homeowner insurer profitability. We share the goal of affordability for consumers, and we are monitoring these proposals closely and engaging constructively through industry bodies.
We believe any final legislation will need to account for the inherent volatility of catastrophe-exposed property insurance and the importance of maintaining carrier capacity and availability for New York homeowners. We will continue to execute with discipline, advance our measured expansion roadmap, and allocate capital prudently to drive sustained profitable growth. I remain highly confident in Kingstone Companies, Inc.’s strategic direction and fully committed to creating long-term shareholder value. With that, I will turn the call over to Randy Patten, our Chief Financial Officer, for a more detailed review of our results. Randy?
Randy Patten: Thank you, Meryl, good morning again, everyone. The fourth quarter was our most profitable quarter in the company's history and our ninth consecutive quarter of profitability. During the quarter, we reported net income of $14.8 million, diluted earnings per share of $1.03, a 64.2% combined ratio, and an annualized return on equity of 51%. For the full year, net income was $40.8 million, more than doubling the prior year and the most profitable in company history. Performance is driven by strong net earned premium growth as our reduced quota share and our 2024 new business surge continue to earn in.
This was combined with very low catastrophe losses, favorable frequency trends, and lower expenses, aided by adjustments to the sliding-scale ceding commissions due to both an improvement in the attritional loss ratio and low catastrophe losses. As a reminder, the quota share reduction from 27% to 16% for the 2025 treaty year reflected the improved quality of our book and increased our projected earnings per share by approximately $0.25 for 2025. For the 2026 treaty year, we have further reduced our quota share cession from 16% to 5%, reflecting continued confidence in the quality of our underwriting portfolio and capital position to support our growth.
This reduction is expected to increase projected earnings per share by approximately $0.20 for 2026, as incorporated in our updated guidance ranges. Our net investment income for the quarter increased 55% to $3.0 million, up from $1.9 million last year. For the full year, we achieved a 44% increase, reaching $9.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our investment portfolio to $309.7 million and benefit from higher fixed income yields. We also continue to reposition a portion of the portfolio to capitalize on attractive new money yields of 4.7% in the fourth quarter.
While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio yield and duration. As of 12/31/2025, our fixed income yield is 4.3% with an effective duration of 4.4 years, up from 3.7% and 3.9 years at 12/31/2024, an increase of 60 basis points and a half year, respectively. During the quarter, we recognized an additional $1.0 million in sliding-scale contingent ceding commissions under our quota share treaty, with about half coming from lower attritional losses and half from lower catastrophe losses, which contributed a 1.9 percentage point decrease in the 27.9% expense ratio reported in the fourth quarter.
For the full year of 2025, we reported an expense ratio of 30%, an improvement of 1.3 percentage points from the prior year. Reaching 30% for the expense ratio is an important milestone for the company. As a reminder, the company's expense ratio was 41% in 2021, and in four years we have successfully lowered the expense ratio by 11 points through several expense initiatives. I would now like to provide some detail on the guidance framework Meryl introduced. For the full year 2025, our underlying combined ratio was 74.4%, comprised of a 44.4% underlying loss ratio and a 30% expense ratio. This was a 5.1 point improvement from 79.5% in the prior year.
For the full year of 2026, we are guiding to an underlying combined ratio of 74% to 76%, reflecting continued benefits from our Select product and operating leverage. Our full-year 2025 catastrophe loss ratio of 1.2 points was well below the six-year historical average of 7.1 points for the 2019 through 2024 period. Our full-year 2026 guidance includes 7 to 10 catastrophe loss points, which is above our historical average and incorporates the elevated winter storm activity experienced during 2026. The difference between our full-year 2025 reported combined ratio of 75% and our full-year 2026 guided range of 81% to 86% is mostly attributable to the inclusion of above-average catastrophe losses and minimal change to our underlying combined ratio.
I will conclude my portion of the call today discussing our capital position. We have no debt at the holding company. Shareholder equity ended the year at $122.7 million, an increase of 84% during the year. Book value per diluted share increased 75% to $8.28, and book value excluding accumulated other comprehensive income increased 56% to $8.69. For 2025, return on equity is 43%, an increase of nearly seven percentage points from the prior year. Given this foundation and our outlook, we declared our third consecutive quarterly dividend during 2026 and have ample capital to fund the disciplined growth initiatives that Meryl outlined. With that, I will now turn the call back to Meryl for closing remarks.
Meryl Golden: Thanks, Randy. I just want to underscore one thing. The results we are sharing today reflect the durable competitive advantages we have built in underwriting, in our producer relationships, and in our operating model. We are entering 2026 with a strong foundation, a clear roadmap for profitable growth, and the financial flexibility to execute. We look forward to updating you as the year progresses. Operator, we are ready for questions.
Operator: Thank you. We will now open for questions. Our first question today is coming from Robert Farnam of Brean Capital. Please go ahead.
Robert Farnam: Hey there and good morning. I have a couple of questions. One, let us just talk about California first, because obviously California risks are not quite the same as Downstate New York risks. So I kind of wanted to know, and I think this is going to be your first foray into kind of the excess and surplus lines basis of writing things. So I just want to know, how do you see the differences in the risks? How do you expect performance-wise? I am just trying to get a little bit more color as to how California may be different from New York.
Meryl Golden: Sure. So we hired an actuarial consulting firm earlier this year to look at the landscape of all the catastrophe-exposed property markets for Kingstone Companies, Inc. to expand, and California came out on top because it is a very large market, it is dislocated, and it is completely diversifying for Kingstone Companies, Inc. relative to New York. So our plan is to enter with the same differentiators as we have in New York. We are going to be using our Select product, and that same firm that helped us build the Select product is helping us modify it to be appropriate for the California market.
We are entering E&S so we can have a highly segmented product and use best-in-class models for underwriting and rating of wildfire risk and for risk aggregation. And we are fortunate that we have some underwriters and some claims employees that have experience in California, so that will be really helpful to us. But mostly, the point I want to make about our entry into California is that we will be disciplined. Our plan is to enter small, less than 5% of our premium for 2026, make sure we understand the market and we are doing everything right before we expand.
Robert Farnam: And if I read right in the presentation, you have a 30% quota share on the California business. Is that right?
Meryl Golden: That is correct. Out of an abundance of caution, we have a 30% quota share for California initially.
Robert Farnam: Okay. And are you looking to write all across California, or are you looking, like, Northern California, Southern California? Or coastal California? You know, where the wildfires could possibly be? I am just kind of curious. Obviously, in New York, you have a specific targeted area, so I did not know if California would be similar.
Meryl Golden: Yes. So in California, we are going to write all across the state. It is really important to manage our concentration in any area of California to manage the wildfire exposure, and we will be doing that in real time. And we are focused on low to moderate wildfire risk.
Robert Farnam: Okay. Same kind of target size value for homes as in New York? Or something?
Meryl Golden: Same as New York.
Robert Farnam: Okay. Just to change tack a little bit here. So your expense ratio—obviously, you have had a lot of progress getting it down to 30%. Do you see, like, where do you see a happy run rate as to where that expense ratio can get to? Are you pretty much where you should be, or do you think you could still squeak some improvement out of that?
Meryl Golden: Randy, do you want to take that?
Randy Patten: Sure. Hey, Bob. Good morning.
Robert Farnam: Hey.
Randy Patten: Yes. So reaching a 30% expense ratio is a huge milestone for the company. As you know, if you look back to 2021, we were at 41%. I think with some economies of scale, we can get that expense ratio down possibly another half to a full point. But it is kind of where we expect it to be—kind of in the 29% to 30% range is where ultimately we will be comfortable with that expense range.
Meryl Golden: Great. I just want to add, Bob, that most of the expense to enter California has already been incurred in terms of developing the product and programming the product, and we will likely need to add some staff, but a modest amount of staff as we continue to grow in California. So I think we are going to get scale economies, as the platform we have built is scalable.
Robert Farnam: Yes. Right. Yes. I saw that in the presentation. You are talking about your ability to scale up is not going to have a whole lot of impact on the expenses at this point. So that is great. Last question for me—I probably ask you every quarter—but obviously, with such profitable business, has there been a change in competition at this point in New York? It is just something that baffles me that you do not have a whole bunch of other companies trying to get into the same market to try to capture the same profitability.
Meryl Golden: Yes. I mean, we have been hearing lately about different companies planning to enter the state, but let us not forget that competition has come and gone in New York, and Kingstone Companies, Inc. has been able to execute regardless of the competitive environment. We are in a really good place in Downstate New York. We have our Select product that properly matches rate to risk, low expenses, we are providing great service to our producers and our policyholders, and we have very deep and broad producer relations. So I feel confident we can compete successfully with whoever is entering New York State.
Robert Farnam: Okay. Good. Good answer. Congrats on a great year. That is it for me.
Meryl Golden: Thanks, Bob.
Operator: Thank you. Next question is coming from Gabriel McClure, a Private Investor. Please go ahead.
Gabriel McClure: Good morning and congrats on an outstanding quarter.
Meryl Golden: Thanks, Gabe. Yes. So—
Gabriel McClure: I think Bob asked most of the questions that I had for you. Just wanted to circle back on the exposure limits on the policies in California. Can you remind us again what our exposure limits are on our New York policies?
Meryl Golden: Sure. We just, in New York, increased the available Coverage A, or value of the home, to $5 million. So we had been operating with a max of $3.5 million for all of last year, and we have just increased to $5 million. And that would be our plan for California as well. We are going to start off with a cap that is a bit lower, and as we gain confidence in our product, we will open up to $5 million as well.
Gabriel McClure: Okay. Got it. And then I think in your prepared remarks, you made a little bit of reference to the winter storm that you all had a couple of weeks ago. Did we have some noticeable claim activity from that storm? It looked pretty bad from out here in Arizona.
Meryl Golden: Yes, Gabe, it is obvious you are not in the Northeast because it has been a bad winter. We have not just had one winter storm. There have actually been seven catastrophe events that have been declared since January 23. So the one thing I want to say is our claims department has been working so hard. I am so proud of the way they have managed this catastrophe event and the service that they have been able to provide to our policyholders. And our estimates for the winter storm losses have been included in our guidance for 2026.
So we have mentioned that we are planning for an at or above average catastrophe loss year of 7 to 10 points, and that includes the catastrophe activity from Q1. Hopefully, the winter is over, and there will not be any more catastrophes declared.
Gabriel McClure: Okay. Yes. I hope so. Got it. Okay. And then just last thing, the California opportunity is super exciting and interesting. I know Bob asked most of my questions already, but is there anything interesting or anecdotal that you have about the California market that you might want to share?
Meryl Golden: I think what is really important to understand is that the market is in need of capacity, and many people think that is because of wildfire. And certainly, wildfire is a major risk for California, but the primary issue in California is the regulatory environment, which precludes companies from charging adequate prices for the underlying exposure. So as an E&S writer, we are not subject to that same regulation, so it gives us a real advantage, and that is why you are seeing in California the E&S market for homeowners is growing faster than any other place in the United States.
So I think it is a terrific opportunity to highlight the differentiators that Kingstone Companies, Inc. brings to the market, particularly relative to pricing sophistication and producer relationships, and I am really excited to start writing business there in Q2.
Gabriel McClure: Sounds really good. That is all for me. Thanks, Meryl.
Operator: Thanks, Gabe. We are showing no additional questions in queue at this time. I would like to turn the floor back over to Ms. Golden for closing comments.
Meryl Golden: Great. Thank you, everyone, for joining us today. It is a really exciting time for Kingstone Companies, Inc., and we appreciate your support. Have a wonderful day.
Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.
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Kingstone (KINS) Q4 2025 Earnings Call Transcript was originally published by The Motley Fool
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