Exhibit 99.1
FOR IMMEDIATE RELEASE
Kingstone Announces 2019 Third Quarter Financial
Results
New Management Team Shifts Focus from Growth to Profitability
Improvements
Company to Host Conference Call on November 12, 2019 at 8:30 a.m.
ET
Kingston, NY —
November 11, 2019 – Kingstone Companies, Inc.
(Nasdaq: KINS) (the
“Company” or “Kingstone”), a Northeast
regional property and casualty insurance holding company, today
announced its financial results for the quarter ended September 30,
2019.
Financial and Operational Highlights
2019 Third Quarter
(All results are compared to prior year period unless otherwise
noted)
●
Direct written premiums1
increased 18.7%; personal lines grew
by 26.0%
●
Net
premiums earned increased 24.3% to $34.2 million
●
Net
investment income increased 15.9% to $1.9 million
●
Underlying Net loss ratio excluding Commercial
Lines1
of 51.4% compared to
45.9%
●
Net
combined ratio of 109.9% compared to 86.0%.
●
Net
loss of $1.7 million or $0.16 per diluted share
●
Net operating loss1
of $2.5 million or $0.23 per diluted
share
●
Book
value per share of $8.04
____________________
1 These measures are not based on accounting principles
generally accepted in the United States (“GAAP”) and
are defined and reconciled to the most directly comparable GAAP
measures in Form 8-K Exhibit 99.2 “Additional Financial
Information for Q3 2019” (also available at
www.kingstonecompanies.com).
Quarterly Dividend of $0.0625 per share
The Company announced that its Board of Directors declared a
quarterly dividend of $0.0625 per share payable on December 13,
2019 to stockholders of record at the close of business on November
29, 2019.
Management Commentary
Barry Goldstein, Kingstone’s Chief Executive Officer,
elaborated on the results for the quarter:
“Our third quarter financial outcome was disappointing,
driven by a comprehensive internal and external reserve review
process and making the necessary adjustments to address those
reviews. During Q3, we announced our exit from commercial lines and
the runoff is well underway, with the last commercial liability
policies scheduled to come off our books by September 30,
2020.
We’ve added highly experienced professionals to our claims
team and are reducing our reliance on outsourcing of key claims
processes by instead bringing key functions in house. Bill
O’Brien, our new VP of Claims, along with his team, has now
reviewed every open claim and re-set all commercial liability case
reserves as needed. We called in a leading outside actuarial
consulting firm, to get an independent mid-year assessment of our
reserve position. As a result, we raised our reserves, primarily in
commercial liability. Ben Walden, our in-house Chief Actuary, also
raised his current year loss picks to take into account our exit
from commercial lines and our re-stated view of ultimate liability
claim severity.
Investor confidence has been shaken, and it is my job in returning
as CEO to optimize allocation of capital in order to deliver the
profitable results that have long been our trademark. We will then
let the numbers speak for themselves. Only when we do that will we
earn back the confidence of investors, but this will take time.
When I was asked to return as CEO, I asked that my employment
agreement be extended. This was done and my current contract ends
December 31, 2022. I am confident that before that agreement is
concluded we will again be viewed as one of the industry’s
top performers.
The Board gave me the support I asked for, which resulted in the
hiring of Meryl Golden as Chief Operating Officer. I’ve known
Meryl for twenty years and she is the perfect person to shape
Kingstone’s future. She began work in late September. At the
outset, she and I agreed that the focus for the Company must be
squarely on profitability, not growth. We’ve already started
the process of seeking to improve Kingstone’s profitability.
Effective as of November 1st,
new Homeowners policies in New York are being written at higher
rate levels. They reflect a recently approved territorial base rate
increase amounting to an overall 8.9% change. Policies renewing on
or after December 15th
will see the rate increase then. It
will take a full year for this change to flow through and affect
all policies. Since premiums then earn out over a 12 month policy
term, it will take time for the higher rates to fully impact our
income statement. Thus, while we’ll see some green shoots in
the next few quarters, the real benefits will take more time to
show themselves, having larger impacts in late 2020 and early 2021.
We have several other rate changes in various stages of
implementation that should further improve
profitability.
We’ve already begun to tighten our underwriting standards and
to eliminate those types of risks that don’t warrant
deploying capital to support. We are expanding mandatory hurricane
deductibles to all states where we offer coverage, and this will
help to reduce our catastrophe reinsurance
costs.”
Ben Walden, EVP and Chief Actuary, detailed the reserving actions
for the quarter:
“This quarter, our financial results were significantly
affected by further adjustments to commercial liability claim
reserves. During the quarter, an outside actuarial review of
reserve levels and liability claims handling was completed. We have
taken immediate actions as a direct result of that review. This
review was the culmination of several quarters of detailed internal
and external reviews that also affected results for the first two
quarters of the year. In the third quarter, we increased ultimate
loss projections for prior years by another $5 million, bringing
the year-to-date prior year loss development to just over $11
million. Insurance
loss reserving is an inherently judgmental process. It is dependent
on individual opinions regarding specific information available at
a given point in time. Recent reviews of our claims reserving
process by multiple parties have led to the additional increase in
reserves taken this quarter. As noted, we have taken
several key actions to address the emerging claims issues. We are
confident that the actions we’ve taken place us in a stronger
position to move forward and focus on continued profitable growth.
When viewed over a five year period, prior year loss development
including the adjustments made this year averages less than 3
points annually. Excluding the commercial lines business now in
runoff, prior year loss development over the last five years
remains favorable, with no impact on the combined ratio over that
period.”
Financial Highlights Table
|
|
Three Months
Ended
|
Nine Months
Ended
|
||||
|
|
September 30,
|
September 30,
|
||||
|
($ in thousands except per share
data)
|
2019
|
2018
|
% Change
|
2019
|
2018
|
% Change
|
|
Direct written premiums1
|
$46,023
|
$38,785
|
18.7%
|
$128,333
|
$107,175
|
19.7%
|
|
Net written premiums1
|
$40,438
|
$36,102
|
12.0%
|
$107,420
|
$87,767
|
22.4%
|
|
Net premiums
earned
|
$34,220
|
$27,534
|
24.3%
|
$95,017
|
$74,476
|
27.6%
|
|
Total ceding commission
revenue
|
$1,030
|
$1,045
|
-1.4%
|
$2,983
|
$4,431
|
-32.7%
|
|
Net investment
income
|
$1,857
|
$1,602
|
15.9%
|
$5,200
|
$4,543
|
14.5%
|
|
|
|
|
|
|
|
|
|
U.S. GAAP Net income
(loss)
|
$(1,725)
|
$3,934
|
-143.9%
|
$(7,421)
|
$3,973
|
-286.8%
|
|
U.S. GAAP Diluted earnings (loss)
per share
|
$(0.16)
|
$0.36
|
-144.4%
|
$(0.69)
|
$0.37
|
-286.5%
|
|
|
|
|
|
|
|
|
|
Comprehensive income
(loss)
|
$(642)
|
$3,836
|
-116.7%
|
$(95)
|
$692
|
-113.7%
|
|
Net operating income
(loss)1
|
$(2,513)
|
$3,656
|
-168.7%
|
$(10,353)
|
$4,193
|
-346.9%
|
|
Net operating
income (loss) diluted earnings
|
|
|
|
|
|
|
|
(loss)1 per
share
|
$(0.23)
|
$0.34
|
-167.6%
|
$(0.96)
|
$0.39
|
-346.2%
|
|
|
|
|
|
|
|
|
|
Return on average equity
(annualized)
|
-7.9%
|
12.5%
|
-20.4 pts
|
-11.3%
|
0.1%
|
-11.4 pts
|
|
|
|
|
|
|
|
|
|
Net loss ratio
|
72.4%
|
48.3%
|
24.1 pts
|
75.3%
|
56.0%
|
19.3 pts
|
|
Net underwriting expense
ratio
|
37.5%
|
37.7%
|
-0.2 pts
|
37.8%
|
38.1%
|
-0.3 pts
|
|
Net combined
ratio
|
109.9%
|
86.0%
|
23.9 pts
|
113.1%
|
94.1%
|
19.0 pts
|
|
|
|
|
|
|
|
|
|
Effect of catastrophes and prior
year loss development on net combined ratio1
|
16 pts
|
1 pts
|
15 pts
|
19.1 pts
|
9 pts
|
10.1 pts
|
|
Net combined ratio excluding effect
of catastrophes and prior year loss development1
|
93.9%
|
85.0%
|
8.9 pts
|
94.0%
|
85.1%
|
8.9 pts
|
1 These
measures are not based on GAAP and are defined and reconciled to
the most directly comparable GAAP measures in Form 8-K Exhibit 99.2
“Additional Financial Information for Q3 2019” (also
available at www.kingstonecompanies.com).
2019 Third Quarter Financial Review
Net Income (Loss):
There was a net loss of $1.73 million during the three-month period
ended September 30, 2019, compared to net income of $3.93 million
in the prior year period. The decrease in net income can be
attributed primarily to a 24.1 point increase in net loss ratio
driven by adverse prior year development in our Commercial Lines
business, which also led to higher loss ratios for the current year
on liability lines. The increased loss ratios were also impacted by
higher claim severity in our Personal Lines business as described
in the Net Loss Ratio section below.
Earnings per share (“EPS”):
Kingstone reported a (loss) of $(0.16) per diluted share for the
three months ended September 30, 2019, compared to EPS of $0.36 per
diluted share for the three months ended September 30, 2018. EPS
for the three-month periods ended September 30, 2019 and 2018 was
based on 10.78 million and 10.79 million weighted average diluted
shares outstanding, respectively.
Direct Written Premiums, Net Written Premiums and Net Premiums
Earned (See Definitions and Non-GAAP Measures below):
Direct written premiums for the third quarter of 2019 were $46.0
million, an increase of 18.7% from $38.8 million in the prior year
period. The increase is primarily attributable to a 17.7% increase
in the total number of policies in-force as of September 30, 2019
as compared to September 30, 2018.
Net written premiums increased 12.0% to $40.4 million during the
three-month period ended September 30, 2019 from $36.1 million in
the prior year period. The increase was due to continued growth in
policies in force.
Net premiums earned for the quarter ended September 30, 2019
increased 24.3% to $34.2 million, compared to $27.5 million for the
quarter ended September 30, 2018. The increase was also
attributable to growth in policies in force.
Net Loss Ratio and Underlying Net Loss Ratio excluding Commercial
Lines1:
For the quarter ended September 30, 2019, the Company’s net
loss ratio was 72.4%, compared to 48.3% in the prior period. The
24.1 point increase in the third quarter 2019 net loss ratio was
primarily driven by additional prior year loss development related
to commercial liability claims as detailed below, as well as
increased fire claim activity and higher overall claim severity for
personal lines business.
Prior year loss development for the quarter impacted the loss ratio
by 14.7 points, compared to 0.4 points of favorable impact in the
prior period. During the quarter, a detailed actuarial review of
reserve levels was completed by a leading outside actuarial
consulting firm. This review included an analysis of
individual case reserves for a sampling of liability claims open at
June 2019, as well as a full review of overall loss development
through that point. As a result of this review, it was
determined that further adjustments to ultimate loss projections
for prior accident years were required, particularly for commercial
liability business. During the quarter, $5.1 million of
additional prior year loss development was recorded, with $4.4
million of that amount attributable to commercial lines
business. In July 2019, the Company announced that it will
exit commercial lines, and all policies are expected to be off the
books by the end of September 2020. Excluding commercial
lines, the impact of prior year development for the quarter was 2.0
points. In addition, the overall impact from
catastrophe losses during the third quarter was 1.3 points.
Excluding the impact of prior year loss development and catastrophe
losses, the underlying net loss ratio excluding commercial lines
was 51.4%, compared to 45.9% for the prior period. The
underlying net loss ratio1 increased due to the
re-estimation of current accident year loss ratios for other
liability lines, and due to increased fire claim activity and
higher overall claim severity for personal lines
business.
Net Other Underwriting Expense Ratio:
For the quarter ended September 30, 2019, the net underwriting
expense ratio was 37.5% as compared to 37.7% in the prior year
period, a decrease of 0.2 percentage points.
Net Combined Ratio:
Kingstone’s net combined ratio was 109.9% for the three-month
period ended September 30, 2019, compared to 86.0% for the prior
year period. The increase was driven by the increase in loss ratio
as outlined above.
____________________
1 These measures are not based on GAAP and are defined and
reconciled to the most directly comparable GAAP measures in Form
8-K Exhibit 99.2 “Additional Financial Information for Q2
2019” (also available at
www.kingstonecompanies.com).
Balance Sheet / Investment Portfolio
Kingstone’s cash and investment holdings were $221.6 million
at September 30, 2019 compared to $196.6 million at September 30,
2018. The Company’s investment holdings are comprised
primarily of investment grade corporate, mortgage-backed and
municipal securities, with fixed income investments representing
approximately 86.8% of total investments at September 30, 2019 and
87.3% at September 30, 2018. The Company’s effective duration
on its fixed-income portfolio is 4.3 years.
Net investment income increased 15.9% to $1.86 million for the
third quarter of 2019 from $1.60 million in the prior year period.
The increase was largely due to an increase in invested
assets.
Accumulated Other Comprehensive Income/Loss (AOCI), net of
tax
As of September 30, 2019, AOCI was $4.44 million compared to
$(2.59) million at September 30, 2018.
Book Value
The Company’s book value per share at September 30, 2019 was
$8.04, a decrease of 5.9% compared to $8.54 at September 30,
2018.
Material
Weakness
While the Company is still completing its assessment of the
effectiveness of its internal control over financial reporting as
of September 30, 2019, in its upcoming Quarterly Report on Form
10-Q for the period ended September 30, 2019, it expects to report
a material weakness in internal control. The weakness relates to
the establishment of case reserve levels. As of the date of this
release, there have been no misstatements identified in the
financial statements as a result of this weakness, and the Company
expects to timely file its Form 10-Q tomorrow.
Remediation
efforts have begun; the material weakness will not be considered
remediated until the applicable controls operate for a sufficient
period of time and management has concluded, through testing, that
these controls are operating effectively. The Company will seek to
complete the remediation of this material weakness by December 31,
2019.
FOR ADDITIONAL INFORMATION PLEASE VISIT OUR WEBSITE AT
WWW.KINGSTONECOMPANIES.COM.
Conference Call Details
Management will discuss the Company’s operations and
financial results in a conference call on Tuesday, November 12,
2019, at 8:30 a.m. ET.
The dial-in numbers are:
(877) 407-3105 (U.S.)
(201) 493-6794 (International)
Accompanying Webcast
The
call will be simultaneously webcast over the Internet via the
Kingstone website or by clicking on the conference call
link:
Kingstone Companies Q3 2019 Earnings Call Webcast
The
webcast will be archived and accessible for approximately 30
days.
Definitions and Non-GAAP Measures
Direct written premiums represent the total premiums charged on policies
issued by the Company during the respective fiscal period.
Net
premiums written are direct
written premiums less premiums ceded to reinsurers. Net premiums
earned, the GAAP measure most comparable to direct written premiums
and net premiums written, are net premiums written that are
pro-rata earned during the fiscal period presented. All of the
Company’s policies are written for a twelve-month period.
Management uses direct written premiums and net premiums written,
along with other measures, to gauge the Company’s performance
and evaluate results.
Core
direct written premiums - represents the total premiums charged on
policies issued by the Company during the respective fiscal period
from its business located in New
York.
Expansion direct written premiums - represents the total premiums charged on
policies issued by the Company during the respective fiscal period
from its business located in other states (i.e., outside New
York).
Net operating income (loss) - is net income (loss)
exclusive of realized investment gains, net of tax. Net income
(loss) is the GAAP measure most closely comparable to net operating
income.
Management
uses net operating income along with other measures to gauge the
Company’s performance and evaluate results, which can be
skewed when including realized investment gains, and may vary
significantly between periods. Net operating income is provided as
supplemental information, not as a substitute for net income and
does not reflect the Company’s overall
profitability.
Underlying net loss
ratio - is a non-GAAP
ratio, which is computed as the difference between GAAP net loss
ratio and the effect of catastrophes and prior year loss
development on the net loss ratio.
Underlying net loss ratio excluding Commercial Lines
- is a non-GAAP ratio, which
is computed as the difference between GAAP net loss ratio excluding
commercial lines and the effect of catastrophes and prior year loss
development on the net loss ratio excluding commercial
lines.
Net combined ratio excluding effect of catastrophes and prior year
loss development - is a non-GAAP ratio, which is computed as
the difference between GAAP net combined ratio and the effect of
catastrophes and prior year loss development on the net combined
ratio.
We
believe that these ratios are useful to investors and they are used
by management to reveal the trends in our business that may be
obscured by catastrophe losses and prior year loss development.
Catastrophe losses cause our loss ratios to vary significantly
between periods as a result of their incidence of occurrence and
magnitude, and can have a significant impact on the net loss ratio
and net combined ratio. Prior year loss development can cause our
loss ratio to vary significantly between periods and separating
this information allows us to better compare the results for the
current accident period over time. We believe these measures are
useful for investors to evaluate these components separately and in
the aggregate when reviewing our underwriting performance. We also
provide them to facilitate a comparison to our outlook on the
underlying net loss ratio excluding commercial lines and net
combined ratio excluding the effect of catastrophes and prior year
loss development. The most directly comparable GAAP measures are
the net loss ratio and net combined ratio. The underlying net loss
ratio excluding commercial lines and net combined ratio excluding
the effect of catastrophes and prior year loss development should
not be considered a substitute for the net loss ratio and net
combined ratio and do not reflect the Company’s net loss
ratio and net combined ratio.
About Kingstone Companies, Inc.
Kingstone
is a northeast regional property and casualty insurance holding
company whose principal operating subsidiary is Kingstone Insurance
Company (“KICO”). KICO is a multi-line carrier writing
business through retail and wholesale agents and brokers. KICO
offers primarily personal lines insurance products, as well as
Physical Damage Only coverage to taxi, limousine, and
transportation network vehicle owners in New York State. Actively
writing in New York, New Jersey, Rhode Island, Massachusetts, and
Connecticut, Kingstone is also licensed in Pennsylvania, New
Hampshire and Maine.
Forward-Looking Statement
Statements
in this press release may contain “forward-looking
statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than
statements of historical facts, may be forward-looking statements.
These statements are based on management’s current
expectations and are subject to uncertainty and changes in
circumstances. These statements involve risks and uncertainties
that could cause actual results to differ materially from those
included in forward-looking statements due to a variety of factors.
For more details on factors that could affect expectations, see
Part I, Item 1A of our Annual Report on Form 10-K for the year
ended December 31, 2018 under “Factors That May Affect Future
Results and Financial Condition.” Kingstone undertakes no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required by law.
CONTACT:
Kingstone Companies, Inc.
Amanda
M. Goldstein
Investor
Relations Director
(516)
960-1319