Kingstone Companies, Inc. — FY2023 Form 10-K
Reporting period: Year ended December 31, 2023; comparative figures are for FY2022. Kingstone is a property and casualty insurer operating primarily through Kingstone Insurance Company (KICO), with most business in New York.
Business context and results
- Personal lines represented 92.6% of gross written premiums; livery physical damage represented 7.3%. New York accounted for 88.3% of KICO direct written premiums, up from 80.6% in 2022.
- Management’s “Kingstone 3.0” strategy prioritizes reducing non-Core business, repricing for loss trends, managing catastrophe exposure and costs, and reducing expenses.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $144.2 million | $130.2 million |
| Net premiums earned | $114.4 million | $114.4 million |
| Net loss | $6.2 million | $22.5 million |
| Loss per diluted share | $0.57 | $2.12 |
| Net loss ratio | 72.4% | 77.3% |
| Net underwriting expense ratio | 32.9% | 36.0% |
| Net combined ratio | 105.3% | 113.3% |
| Net cash used in operating activities | $11.3 million | $0.9 million |
- Total revenue rose 10.8%, mainly reflecting a $11.5 million improvement in investment gains and losses. Net investment income increased 21.7% to $6.0 million. Despite the smaller net loss, underwriting remained unprofitable: underwriting loss was $6.1 million, and the combined ratio remained above 100%.
- Gross written premiums declined 0.5% to $200.2 million. Core direct written premiums increased 8.9% to $176.7 million, while non-Core premiums fell 39.8% to $23.5 million. Net written premiums decreased 12.5% to $93.6 million, reflecting higher ceded premiums, including catastrophe reinsurance costs.
- Net catastrophe losses were $8.2 million and added 7.1 percentage points to the net loss ratio, compared with $7.6 million and 6.7 points in 2022. Underlying loss ratio improved to 65.3% from 68.2%; management cited lower frequency offset by higher severity and large losses.
- At year-end, assets were $317.6 million, liabilities $283.1 million, and stockholders’ equity $34.5 million. Cash and cash equivalents were $9.0 million; investments were $174.6 million. Cash and invested assets together totaled $183.6 million, down from $191.0 million.
- Total debt carrying value was $25.2 million, including $18.4 million net carrying value of the 12% senior notes and $6.8 million of equipment financing. The notes’ $19.95 million principal is due December 30, 2024.
Material changes, outlook and risks
- Non-Core policies in force fell 47.7% during 2023; Core policies in force fell 5.3%. Average written premium for legacy Core homeowners policies rose 24.4% over the last 12 months, reflecting rate and replacement-cost changes. Management said Core new-business growth should increase after most underwriting standards were restored.
- The net underwriting expense ratio of 32.9% met management’s target of 33% by year-end 2024 ahead of schedule. Management stated that its actions are intended to support a return to annual profitability; the filing does not provide earnings guidance.
- Management plans to refinance the 2022 Notes through an offering of equity and/or debt securities, subject to market conditions, and may seek distributions from KICO subject to regulatory approval. The company says successful execution is necessary to meet the 2024 debt obligation. At December 31, 2023, holding-company invested assets and cash available for this purpose were approximately $2.0 million.
- Operating cash outflow increased to $11.3 million. KICO paid a $1.25 million dividend to the parent in 2023 and received regulatory approval for paid-in-capital distributions, including $2.3 million intended for payment in 2024. KICO’s negative unassigned surplus of approximately $7.7 million means it cannot pay dividends without regulatory approval. Its statutory capital-to-authorized-control-level ratio was 4.45.
- Catastrophe reinsurance coverage was reduced to a $325 million top limit in 2023. Current excess-of-loss and catastrophe treaties were due to expire June 30, 2024; the filing describes coverage after that date as limited to the 2024/2025 quota-share and underlying excess-of-loss treaties, pending renewal. Availability and cost of future reinsurance are risks.
- KICO requested withdrawal of its A.M. Best ratings in July 2023; it reports a Demotech rating of A. The withdrawal also limits KICO’s Federal Home Loan Bank borrowing to overnight advances. No borrowings were outstanding at year-end.
- Kingstone is withdrawing from New Jersey over a two-year period beginning January 1, 2024. Other key risks include catastrophe exposure, inflation and claim severity, reserve-estimation uncertainty, reinsurer collectability, New York market concentration, and dependence on a relatively small number of brokers. Loss and LAE reserves of $121.8 million were identified as a critical audit matter; the independent auditor issued an unqualified opinion on the financial statements.
Most important facts for investors to verify
- Progress and financing terms for refinancing the $19.95 million notes due December 30, 2024, including covenant compliance and available parent-company liquidity.
- Renewal terms, cost, limits and effective dates for catastrophe and excess-of-loss reinsurance after June 30, 2024.
- Whether underwriting profitability improves: the 2023 combined ratio was 105.3% despite improvement year over year.
- Development of claims reserves and catastrophe losses, given reserve-estimation uncertainty and continuing loss-severity pressures.
- KICO’s statutory capital, regulatory dividend permissions, and the timing of the approved $2.3 million distribution.