KINS Q2 2024: New business premium jumps 9x despite 31% expense ratio
- Selective Underwriting Expansion: Executives highlighted that they are intentionally expanding their underwriting appetite into new segments—such as increasing coverage limits up to $2.5 million—to capture high-quality risks and profitably grow their core business.
- Capital and Reinsurance Flexibility: Management noted their ability to adjust quota share percentages midstream and engage additional quota share partners, ensuring robust support for growth while maintaining disciplined risk management.
- Proven Product Performance: The company’s new “Select” product has demonstrated a 10% lower claim frequency compared to the legacy product, validating their superior risk selection and pricing strategy that fuels profitable growth.
- Rapid Expansion Risk: The Q&A highlights that Kingstone’s new business policies increased 3x (and even 5x in July) with new business premium up 9x compared to the prior period. Such rapid underwriting expansion raises concerns about whether the quality of these policies will support long-term profitability and risk management.
- Elevated Expense Pressure: During the Q&A, executives acknowledged that their expense ratio remained at 31%, above the targeted 29%, due to higher employee bonuses and contingent commissions. This sustained elevated cost level could pressure margins if premium growth does not keep pace.
- Reinsurance and Catastrophe Exposure: The discussion around reinsurance modifications—such as reducing the reinsurance attachment level from $10 million to $5 million and the modeled net cost of a catastrophic event (like a Sandy-like event estimated at $4.75 million)—suggests that the company remains exposed to significant net losses during extreme events, which can hurt profitability.
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Underwriting Expansion
Q: How will underwriting changes drive profitable growth?
A: Management explained that they are restoring their underwriting appetite—expanding into new geographies and increasing limits up to $2.5 million—while remaining selective to ensure quality and profitability, reflecting lessons learned from previous rapid growth. -
Quota Share Flexibility
Q: Can quota share terms adjust midstream?
A: They confirmed the ability to adjust quota share percentages midstream and add partners as needed, ensuring sufficient capital support to sustain growth. -
Reinsurance Cost
Q: What’s the net cost in a Sandy-like event?
A: Under their new reinsurance structure, a Sandy event would result in about $4.75 million in net cost, demonstrating careful risk layering in their reinsurance tower. -
Expense Ratio
Q: Will expenses meet a 29% target?
A: Despite front-loaded costs like higher employee bonuses and commissions, management expects the expense ratio to improve in the later half even though it is unlikely to hit the 29% goal exactly. -
Growth Metrics
Q: Why is new business premium 9x higher?
A: Management clarified that following competitors’ exit, their July new business premium was 9x higher than the prior year, underscoring the significant market opportunity they are capturing.
Research analysts covering KINGSTONE COMPANIES.