Kingstone Companies, Inc. — 2021 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2021, Kingstone reported as a regional property and casualty insurer, primarily through Kingstone Insurance Company (KICO). Its business is concentrated in personal lines, especially homeowners insurance, and is distributed through agents and brokers. New York generated 79.5% of KICO’s direct written premiums. The filing compares 2021 with 2020; it is an annual report, not a standalone fourth-quarter filing.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $161.2 million | $131.4 million |
| Net premiums earned | $143.9 million | $108.1 million |
| Net income (loss) | $(7.4) million | $1.0 million |
| Basic and diluted EPS | $(0.70) | $0.09 |
| Net loss ratio | 70.9% | 61.5% |
| Net underwriting expense ratio | 40.6% | 38.9% |
| Net combined ratio | 111.5% | 100.4% |
| Cash from (used in) operating activities | $24.3 million | $(10.2) million |
Gross written premiums increased 7.3% to $181.7 million. Net premiums earned rose 33.1%, primarily because the prior quota-share reinsurance arrangements expired during 2020, reducing ceded earned premiums in 2021. Ceding commission revenue consequently fell from $14.2 million to $0.1 million.
Net investment income was $6.6 million, while net investment gains were $9.8 million, compared with $1.6 million in 2020. The 2021 gains included $7.3 million of realized gains. Investment results therefore helped offset underwriting weakness, but do not represent recurring underwriting performance.
At year-end, total assets were $331.3 million, total investments $213.6 million, and cash and cash equivalents $24.3 million. Stockholders’ equity was $75.7 million, down from $92.8 million, reflecting the net loss, lower accumulated other comprehensive income, dividends, and treasury-stock purchases. Loss and LAE reserves increased to $94.9 million from $82.8 million.
Debt, net of discount and issuance costs, was $29.8 million. The $30 million of 5.50% senior unsecured notes mature December 30, 2022. The filing does not provide a conventional current ratio or a separate standalone liquidity ratio.
Material changes versus 2020
- The combined ratio rose to 111.5% from 100.4%, indicating a larger underwriting loss before investment income. Underwriting loss was $16.5 million versus $0.4 million.
- Net loss and LAE increased to $102.0 million from $66.4 million. Management cited higher liability-claim frequency, large fire losses, water damage claims, and catastrophe losses.
- Catastrophes increased the 2021 net loss ratio by 10.3 percentage points; the remnants of Hurricane Ida alone had an estimated net impact of $10.3 million, or 7.1 points. Catastrophes contributed 10.7 points in 2020.
- Net investment gains increased substantially, but total net income moved from a $1.0 million profit to a $7.4 million loss. Other comprehensive loss was $8.1 million, versus $5.1 million of income in 2020.
- Cash from operations improved to $24.3 million, but cash used in investing activities was $15.9 million, mainly reflecting investment purchases and property and equipment spending.
Outlook, risks, and unusual items
Management gave no specific earnings or premium-growth guidance. It said COVID-19 effects remain uncertain and that underwriting changes emphasizing profitability over growth may slow premium growth, particularly in new business. The company reported that pandemic effects on livery premiums had become less severe in 2021.
KICO entered a 30% personal-lines quota-share treaty effective December 31, 2021 through January 1, 2023. Its catastrophe program provided coverage up to $500 million, with terms and retentions subject to treaty provisions; the filing describes exclusions and limits, including restrictions affecting named-storm coverage under certain arrangements. Reinsurance does not remove KICO’s obligations to policyholders, and collection depends on reinsurer performance.
A.M. Best downgraded KICO’s financial strength rating to B+ (Good) in August 2021, citing underwriting volatility related to weather losses and reserve strengthening; the outlook was stable. Management said the downgrade materially reduced Cosi’s business with partners requiring an A- rating.
Management plans to refinance or otherwise fund repayment of the notes due in December 2022, including through a proposed securities offering of at least $30 million, permitted KICO dividends, and available parent-company cash and investments. At December 31, 2021, KICO’s permitted dividend without prior regulatory approval was approximately $3.45 million, while the parent company reported only about $1.11 million of invested assets and cash. Management believed its plan was probable, but repayment depends on successful execution and the filing identifies substantial doubt considerations related to the maturity.
Additional risks include catastrophe exposure, reserve-estimation uncertainty, investment-market and interest-rate risk, dependence on New York and a limited number of brokers, regulatory restrictions on rates and dividends, and cyber and operational risks. The independent auditor issued an unqualified opinion on the financial statements and identified loss and LAE reserves as a critical audit matter. Management concluded internal control over financial reporting was effective, while the filing text also refers to remediation of a material weakness without clearly describing it in the supplied text.
Most important facts for investors to verify
- Whether the company refinanced or otherwise satisfied the $30 million notes at maturity, and on what terms.
- Whether the 2021 deterioration in loss frequency, severity, and catastrophe experience continued, and how reserve estimates developed after year-end.
- The adequacy, cost, exclusions, and renewal terms of catastrophe and quota-share reinsurance, including the company’s net exposure to named storms.
- Whether KICO’s B+ rating and Cosi’s reduced partner business affected premium growth, distribution, or access to markets.
- How much of earnings depended on realized and unrealized investment gains, and how investment values and yields changed after year-end.
- The material weakness referenced in the controls disclosure and the status of any remediation; the provided filing text does not clearly identify the weakness.
Note: The filing’s audited financial statements report 2020 net income of $0.97 million; an MD&A passage contains a conflicting figure. This summary uses the audited statements.