Kingstone Companies, Inc. (Nasdaq: KINS) Presentation to New York Society of Security Analysts Corporate Headquarters in Kingston, NY
Safe Harbor Statements in this presentation, including the information set forth as to the future financial or operating performance of Kingstone Companies, Inc. ( Kingstone ), that are not current or historical factual statements may constitute forward-looking information within the meaning of securities laws. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Kingstone, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this presentation, such statements may include, among other terms, such words as may, will, expect, believe, plan, anticipate, intend, estimate, project, target and other similar terminology. These statements reflect current expectations, estimates and projections regarding future events and operating performance and speak only as to the date of this presentation. Readers should not place undue importance on forward-looking statements and should not rely upon this information as of any other date. These forward-looking statements may not be realized due to a variety of factors, including without limitation: (i) the risk of significant losses from catastrophes and severe weather events; (ii) the inability to obtain an upgrade to the financial strength rating of Kingstone Insurance Company ( KICO ), Kingstone s wholly-owned subsidiary, from A.M. Best or a downgrade in KICO s rating; (iii) adverse capital, credit and financial market conditions; (iv) the unavailability of reinsurance at current levels and prices; (v) the exposure to greater net insurance losses in the event of reduced reliance on reinsurance; (vi) the credit risk of KICO s reinsurers; (vii) the inability to maintain the requisite amount of risk-based capital needed to grow KICO s business; (viii) the effects of climate change on the frequency or severity of weather events and wildfires; (ix) risks related to the limited market area of KICO s business; (x) risks related to a concentration of business in a limited number of producers; (xi) legislative and regulatory changes, including changes in insurance laws and regulations and their application by KICO s regulators; (xii) limitations with regard to KICO s ability to pay dividends to Kingstone and consequently Kingstone s ability to pay dividends to its shareholders; (xiii) the effects of competition in KICO s market areas; (xiv) reliance on certain key personnel; (xv) reliance on information technology and information systems; (xvi) the significant voting influence of Kingstone s management and directors; (xvii) future sales of common stock; (xviii) public company challenges; and (xix) further sales or other dilution of Kingstone s equity, which may adversely affect the market price of Kingstone s common stock. The foregoing list of factors is not exhaustive. See also Factors That May Affect Future Results and Financial Condition in Kingstone s most recent annual report filed with the SEC. Many of these issues can affect Kingstone s actual results and could cause the actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, Kingstone. Readers are cautioned that forward-looking statements are not guarantees of future performance, and should not place undue reliance on them. In formulating the forward-looking statements contained in this presentation, it has been assumed that business and economic conditions affecting Kingstone will continue substantially in the ordinary course. These assumptions, although considered reasonable at the time of preparation, may prove to be incorrect. Ticker (NASDAQ: KINS) Stock Price* $8.00 Shares Outstanding** Market Cap* 7.33 million $58.6 million Fiscal Year December 31 Cash & Investments** Total Assets** Total Shareholders Equity** Book Value Per Common Share** At a Glance $67.3 million $128.9 million $39.0 million $5.35 *As of 3/6/2015 ** As of 9/30/2014 1
Who We Are: New York State domiciled P & C underwriter Established in 1886-Demutualized July 1, 2009 ~95% of all policies in downstate New York (NYC / Long Island) Primarily homeowners and dwelling coverages-almost ¾ of total policies in force Distribution solely through selected independent agencies We succeed due to a consistent approach based on long term relationships 2
Driving Shareholder Value Track record of strong growth and attractive shareholder returns Key Financial Metrics 2011 2012 2013 YTD 9/30/14 Gross Premium Written Growth 22.5% 20.9% 22.8% 27.0% Combined Ratio (ex. Sandy) (1) 74.7% 76.1% 80.2% 77.4% Book Value per Share $4.07 $4.24 $4.91 $5.35 Dividend per Share $0.06 $0.14 $0.16 $0.20 FY Consistent and Sustainable premium growth - Multiple lines of business - Attractive market dynamics - Achievable without rate increases, new producer appointments, new products or a rating upgrade Embedded revenue opportunity through reduced reliance on quota share reinsurance Improved operating efficiency with additional premium growth Strong premium growth and underwriting profitability expected to deliver attractive earnings and returns on equity (1) Financial metrics shown excluding the effects of Superstorm Sandy for the 2012 and 2013 years. 3
Our History-KINS and Kingstone Insurance Company Originally an owner/franchisor of retail insurance agencies (fka DCAP Group) Acquired ownership of Commercial Mutual in 2009 upon its demutualization Sold distribution business-sole focus now as an underwriter 1886 Commercial Mutual Insurance Company (CMIC) formed; predecessor to Kingstone Insurance Company 2006 Kingstone purchased outstanding surplus notes and acquired control of CMIC 2009 CMIC demutualized and renamed Kingstone Insurance Company Holding company name changed to Kingstone Companies, Inc. 2011 Obtained authority to write in Pennsylvania A.M. Best rating upgraded to B+ (Good) Declared first quarterly dividend of $0.03 per share 2013 Public Offering of 3,450,000 shares at a price of $5.95 per share, Net proceeds of $18.8 million. 2014 A.M. Best revises outlook to positive from stable and affirms financial strength rating of B+ / / / / 2004 Kingstone (formerly DCAP Group, Inc.), largest chain of independent storefront insurance agencies in Northeast, listed on NASDAQ 2010 Received B rating from A.M. Best 2012 Increased quarterly dividend to $0.04 per share in August 2014 Renegotiation of Reinsurance Treaties, reduced quota share on Personal Lines to 55% and eliminated quota share on Commercial Lines 4
How Did We Get Here-Alignment of interests Our Selected Producers Our Staff Our Reinsurers Sharing a Consistent, Personal and Thoughtful Approach to Business 5
Selected Producer Relationships Highly rated by the Professional Insurance Agents of NY and NJ - Ranked #1 insurance company in 2010 & 2012 - Ranked #6 in 2014 out of 55 carriers Differentiated from competition - Multiple product lines geared toward our producers needs - Consistent market presence and rate levels - Transparent and uniform commission structure - Clear distribution focus and messaging: i.e. Never Direct Careful selection and continuous monitoring of producers - Producers with relevant product and market knowledge - Ongoing reviews of volumes and profitability - Termination of unprofitable agents 6
Dedicated Employees / Efficient Operations Based in Kingston, NY - Lower-cost employment location - Company-owned office building with room for expansion - Reduced exposure to cat events affecting business Experienced and dedicated employees - Managers average 12 years of experience with Kingstone - Extensive experience in New York market Hudson Valley Employee profit sharing plan (Other Underwriting Expense as % of GPW) Operating Efficiency Scalable operations 18.1% 15.9% 14.9% 15.1% 13.5% 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 7
Reinsurance Partners Reinsurance principles consistent and conservative approach - Quota Share-Net underwriting leverage of less than 1.5x (NWP to Surplus ratio) - Excess of Loss-Single loss limit, net of tax ~1.0% of surplus with coverage to policy limits - Catastrophe-Retention for catastrophes, net of tax approximates ~5% of surplus Treaties expiring June 30, 2015 - In-force catastrophe coverage - $141 million in excess of the first $4 million for losses associated with a single event - Approximately 1 in 140 year storm or Category 3+ hurricane - Catastrophe coverage includes a winter storm aggregate - By deploying additional surplus from December 2013 follow-on offering - Eliminated commercial lines quota share - Reduced personal lines quota share from 75% to 55% New treaties July 1, 2015- Maintain our principles Take advantage of favorable pricing environment for all reinsurance Will consider multi-year treaties and enhanced coverage as well as pricing Will continue to reduce personal lines quota share 8
Personal Lines Homeowners, dwelling fire, 3-4 family dwelling and condo/co-op - Average insured value ~ $600K - Average premium of ~$1,625-73% of gross written premium YTD at 9/30/2014-2013-Ranked 29 th in New York State market by SNL with a market share of 0.6% Selective underwriting and pricing - Credit scoring and other third party apps are incorporated into on line rating - Mandatory hurricane deductibles - Coastal premium surcharges: South Shore Nassau & Suffolk Counties Gross Premiums Written ($ in millions) $43.7 $41.5 $33.8 $31.7 $26.9 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 Net Premiums Earned ($ in millions) $9.1 $10.9 $6.9 $6.1 $5.4 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 Net Loss Ratio (1)(2) 38.0% 48.6% 45.2% 43.5% 38.8% 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 (1) 2012 loss ratio ex. Sandy adjusted for net losses of $750,000. Year-to-date 6/30/13 loss ratio ex. Sandy adjusted for reinstatement premiums of $464,000. (2) Includes losses resulting from severe winter weather, which occurred in January and February 2014. 9
Commercial Lines-Commenced 2009 Small businesses and contractors - Artisan s liability - Business owners policy ( BOP ) and special multi-peril ( SMP ) - Maximum liability limit: $2.0M ($ in millions) $5.8 Gross Premiums Written $9.1 $8.0 $7.1 $8.9 16% of gross premiums written at YTD at 9/30/2014 2011 2012 2013 Net Premiums Earned YTD 9/30/13 YTD 9/30/14 Smaller premium policies that larger carriers cannot service efficiently ($ in millions) $3.1 $5.7 $3.8 $5.7 Complements personal lines products at our Selected Producers $1.4 2011 2012 2013 Net Loss Ratio YTD 9/30/13 YTD 9/30/14 37.1% 40.2% 28.0% 19.7% 50.4% 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 10
Other Lines of Business Livery-Physical Damage and Other Niche specialty products - Livery-physical damage only - newer livery and car service vehicles and taxi cabs - Canine legal liability policies 6% of gross premium written YTD 2014 Substantial growth opportunity - Livery Physical damage only - fastest growing line of business - Uber, Lyft increasing demand - Short tailed with no liability component - Standalone canine legal liability is a unique product offering Gross Premiums Written Commercial Auto Less than 5% of gross premium written YTD at 9/30/2014 No new business effective October 1. - Future profitability is uncertain and limited - Capital will be re-allocated to support other more profitable lines of business Gross Premiums Written ($ in millions) $2.9 $3.3 $6.3 $5.7 ($ in millions) $4.0 $1.7 $1.8 $1.7 $4.8 $2.8 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 2011 2012 2013 YTD 9/30/13 YTD 9/30/14 11
Investment Highlights-20/20/20 Targets Multiple Lines of Business with Sustainable, Organic Growth A true partner with its producers, staff and reinsurers Nimble and opportunistic in a large market state Direct Written Premium / Policy Growth-Targeting 20% Growth Direct written premiums in Q3 2014 increased 26.4% to $20.1 million led by agent originated business Policies in force in Q3 2014 increased 24.0% to 42,921 Strong Underwriting-Targeting a 20% margin (less than 80% Combined Ratio) GAAP Combined ratio in Q3 2014 of 70.9% Net income in Q3 2014 increased by 13.3% to $1.9 million, or $0.26 per diluted share Returns to Shareholders-Targeting an ROE of 20% Q3 Annualized return on average common equity of 19.6%** Company paid dividend of $0.05 per share; 15 th consecutive quarter of dividend distributions 12
Appendix: Management Financial Highlights Financial Summary 2014-2015 Reinsurance Structure Contact Us For Additional Information At The Company Barry Goldstein Chief Executive Officer bgoldstein@kingstonecompanies.com Investor Relations The Equity Group Adam Prior Senior Vice President aprior@equityny.com Forrest Hunt Associate fhunt@equityny.com
Experienced Management Team - Aligned with Shareholders Directors and senior management own approximately 29% of shares outstanding Barry Goldstein John Reiersen Benjamin Walden Victor Brodsky Chairman, President & Chief Executive Officer Executive Vice President Senior Vice President & Chief Actuary Chief Financial Officer Chairman and Chief Executive Officer since 2001 15+ years of experience in the P&C insurance industry Kingstone s largest shareholder Former CEO Retired from NYS DFS as Chief Examiner Joined Kingstone Insurance Company in 2013 25+ Years of Actuary Experience Joined Kingstone in 2007 as Chief Accounting Officer Chief Financial Officer since 2009 14
Financial Highlights Gross Premiums Written Net Premiums Earned ($ in thousands) $60,495 $56,768 ($ in thousands) $22,225 $22,251 $40,746 $49,276 $14,869 $17,217 $33,260 $11,136 2010 2011 2012 2013 YTD 9/30/14 2010 2011 2012 2013 YTD 9/30/14 Reported Diluted Earnings Per Share $0.64 Reported Book Value Per Share $5.35 $0.29 Impacted by Superstorm Sandy $0.50 $0.48 $4.07 $4.24 $4.91 $0.20 $3.37 2010 2011 2012 2013 YTD 9/30/14 12/31/10 12/31/11 12/31/12 12/31/13 9/30/14 15
Financial Details Three Months Ended Sept 30, % Nine Months Ended Sept 30, % 2014 2013 Change 2014 2013 Change Income Statement Gross Premiums Written $ 20,154 $ 15,943 26.4% $ 56,768 $ 44,689 27.0% Net Premiums Written 17,668 7,156 146.9% 32,754 18,121 80.8% Net Premiums Earned 9,895 6,126 61.5% 22,251 15,425 44.3% Ceding Commission revenue 3,278 3,612-9.2% 10,366 8,240 25.8% Net income 1,884 1,662 13.3% 3,565 1,921 85.6% Underwriting Ratios % pts % pts Loss and LAE Ratio 45.9% 39.8% 6.1 53.4% 52.8% 0.6 Expense Ratio 25.0% 23.2% 1.8 24.0% 31.5% -7.5 Combined Ratio 70.9% 63.0% 7.9 77.4% 84.3% -6.9 Per Share Metrics Diluted Earnings Per Share $ 0.26 $ 0.43 $ 0.48 $ 0.49 Dividends Paid Per Share $ 0.05 $ 0.04 $ 0.13 $ 0.12 ($ in thousands, except ratios and per share amounts) 16
Balance Sheet / Investment Portfolio Cash 7% U.S. Treasuries 1% Common Stocks and Closed-End Funds 9% Munipical Bonds 23% Preferred Stocks 5% Corporate Bonds 55% Balance Sheet Highlights September30, 2014 December 31, 2013 Total Investments $62.3 $37.6 Cash and Equivalents $5.0 $19.9 Total Cash and Investments $67.3 $57.6 Total Assets $128.9 $116.8 Loss and Loss Adjustment Expense Reserves $36.9 $34.5 Unearned Premiums $39.7 $32.3 Total Liabilities $89.9 $81.1 Total Stockholders Equity $39.0 $35.7 Seek to generate attractive after-tax investment income while protecting capital (in millions) Portfolio composition as of September 30, 2014 - Investment grade fixed income portfolio: 85.3% - Preferred stocks / common stocks: 13.6% - Duration: 6.0 years - Weighted average effective maturity: 6.8 - Taxable equivalent investment yield, excluding cash, was 4.69% 17
2014-2015 Reinsurance Structure 18