KINS Q3 2024: Select product cuts claim frequency to 1.6%
- Strong Capital & Expense Management: Management is focused on reducing debt while targeting a lower expense ratio (around 28% for next year), which can enhance margins and profitability going forward.
- Superior Underwriting with the Select Product: The shift to the Select product has led to significantly lower reported frequency (1.6% vs. 2.2% for legacy), reflecting better risk selection and pricing discipline that can drive improved loss ratios.
- Proactive Pricing Adjustments: The company implemented rate increases of 5% for its Select homeowners product and 10% for its dwelling fire product, signaling confidence in its pricing strategies and the potential to boost future earnings.
- Dilution risk: Management could not provide a specific share issuance range to reduce debt, leaving uncertainty over potential dilution from ATM offerings, which could negatively affect shareholder value.
- Reinsurance cost risk: The company’s guidance assumes a roughly 6% catastrophe load, based on an exceptionally light 2024; if reinsurance costs increase unexpectedly, margins could be pressured.
- Uncertain growth and pricing clarity: Executives noted that growth isn’t clearly “according to plan” and lacked insight into the pricing being offered to new customers, raising concerns about future competitiveness and revenue predictability.
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Capital Allocation
Q: What are the share dilution projections?
A: Management stated they cannot provide an exact dilution figure but plan to reduce debt swiftly using a mix of dividends, quota share adjustments, and ATM share sales to balance earnings with debt reduction. -
Rate Increases
Q: What are the pricing rate changes?
A: They raised rates by 5% on the Select homeowners product and by 10% on dwelling fire, with legacy rate changes in the low single digits, noting no impact from recent hurricanes. -
Expense & Cat Load
Q: What are the expected cat load and expense ratio?
A: Management expects a 6% catastrophe load and is targeting an expense ratio of roughly 28% next year. -
Guidance Basis
Q: Why use basic rather than diluted guidance?
A: They mentioned the change was simply due to past reporting practices, with no specific rationale, and noted that they can adjust to diluted figures if necessary. -
Product Mix
Q: How do Select and legacy products differ?
A: The Select book shows a lower claims frequency at 1.6% versus 2.2% for the legacy book, aided by by-peril rating and insurance scores in underwriting. -
Growth Performance
Q: Is growth meeting expectations?
A: While management finds it challenging to benchmark this new growth environment, they expressed confidence in underwriting and conversion rates amid unprecedented market conditions. -
Third Withdrawal
Q: What are details on the third market withdrawal?
A: They noted the third company, a Berkshire Hathaway firm, is exiting the market without providing specific premium information, leaving future opportunities open to market response.
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