Kingstone Announces 2022 Third Quarter Financial Results

Provides Business Update; Announces Suspension of Dividend

KINGSTON, NY / ACCESSWIRE / November 14, 2022 / 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, 2022. The Company will host a conference call for analysts and investors on November 15, 2022, at 8:30 a.m. Eastern Time, as previously announced on October 17, 2022.

2022 Third Quarter Financial and Operational Highlights

(All results are compared to prior year quarterly period unless otherwise noted)

• Operating loss per share ¹ of $(0.35) compared to $(1.02)
• Unrealized losses on equity securities and other investments, net of tax of $(0.13) per share compared to $(0.06) per share
• Realized gains on investments, net of tax of $0.10 per share compared to $0.08 per share
• Accumulated Other Comprehensive Loss increased by $3.9 million or $0.37 per share for the three months ended September 30, 2022
• Net loss per share of $(0.38) compared to $(1.01)
• Book value per share of $3.65 compared to $7.43 at September 30, 2021
• Adjusted book value per share ¹ of $5.15 compared to $6.85 at September 30, 2021
• Direct written premiums ¹ grew by 11.7% to $54.6 million
• Net premiums earned decreased 20.2% to $29.4 million due to the inception of a 30% personal lines quota share treaty on December 30, 2021
• Net loss ratio of 75.0% compared to 97.1% due to reduced catastrophe events
• Net underwriting expense ratio decreased to 36.9% from 39.3%
• Net combined ratio decreased to 111.9% from 136.4% driven by the decrease in the loss ratio.

¹ These measures are not based on accounting principles generally accepted in the United States ("GAAP") and are defined and reconciled below to the most directly comparable GAAP measures.

Management Commentary

Barry Goldstein, Kingstone's Chairman and Chief Executive Officer, elaborated on the Company's results:

"While our financial results were impacted by the ongoing inflationary environment, which has been especially challenging for highly regulated companies like Kingstone, this quarter marked an important milestone in our Company's transformation journey as we successfully completed our Kingstone 2.0 plan. It is a testament to the dedication of our team that after three years of hard work and significant investments, we are now well-positioned to provide a product to better select, better underwrite and price, and better manage our risks on an efficient single platform. In our new Select business, early signs are already exceeding our expectations as claim frequencies are almost 20% lower than what we experienced for new business in our legacy product for the same period last year. While our net earnings and book value declined primarily due to the continuing impact of inflation, our adjusted book value per share ¹ for the quarter was $5.15. We recognize that our transformation is not yet reflected in our financial results; however, these early indications that our strategy is working make us optimistic that the changes we have invested in will put us back on the path to profitability and drive enhanced value for our stockholders."

Meryl Golden, Kingstone's Chief Operating Officer, continued:

"In the midst of a challenging macro environment, we remained focused on operating with financial discipline, reducing expenses across the business by 2.4 points in the quarter and almost 4 points on a year-to-date basis. We are pleased that our cost cutting measures are taking hold and are actively working to drive further expense reduction, including through the retirement of our legacy systems."

Business Update

With the assistance of outside financial advisors, management has been and continues to explore a number of financing and other options to refinance certain senior unsecured Notes that will become due on December 30, 2022. Subject to regulatory requirements, Kingstone can also receive dividends or loans from its insurance subsidiary, Kingstone Insurance Company, that could be utilized to repay a portion of the Notes.

In order to preserve capital to potentially help fund this refinancing and the resulting debt service requirements, the Kingstone Board of Directors has determined to suspend the Company's quarterly common stock dividend effective immediately. Any refinancing will result in borrowing costs at a higher interest rate than for the maturing notes. The Company anticipates cash savings of $1.7 million on an annual basis from the dividend suspension. The Board of Directors will continue to evaluate the Company's dividend policy on a regular basis, including based on any contractual restrictions imposed in connection with any debt refinancing.

Mr. Goldstein continued, "While we are continuing to work diligently to fully realize the benefits of our transformation and return the Company to profitability, the upcoming refinancing and our desire to maintain financial flexibility has led the Board of Directors to conclude that suspension of the quarterly dividend is prudent at this time. We are taking every action to best position Kingstone for the future and will continue to evaluate all options available to us in this regard."

As previously announced on May 6, 2022, the Company received a preliminary non-binding indication of interest from Griffin Highline Capital LLC ("Griffin Highline") with regard to an acquisition of all of the outstanding equity of the Company. On August 5, 2022, Kingstone received a final non-binding indication of interest from Griffin Highline and agreed to extend the previously executed exclusivity agreement to further pursue the proposal. That period of exclusivity has expired.

At this time, discussions with Griffin Highline are focused on a potential strategic transaction, rather than an outright acquisition of all outstanding equity of Kingstone. While no assurances can be given that a transaction of any kind will be consummated with Griffin Highline or any third party, the Kingstone Board of Directors is committed to acting in the best interests of the Company and all stockholders.

See "Forward-Looking Statements"

Financial Highlights Table

¹ These measures are not based on GAAP and are defined and reconciled below to the most directly comparable GAAP measures.

2022 Third Quarter Financial Review

Net income (loss):

The loss during the three-month period ended September 30, 2022 was $4.0 million as compared to $10.6 million in the prior year period. The decrease in net loss in the latest three-month period is attributed to reduced catastrophe events compared to the prior year period, offset by $1.8 million of net unrealized losses on equity and other investments compared to $0.8 million in the prior year period.

Earnings (Loss) per share ("EPS"):

Kingstone reported a loss of $(0.38) per diluted share for the three months ended September 30, 2022, compared to $(1.01) per diluted share for the three months ended September 30, 2021. EPS for the three-month periods ended September 30, 2022 and 2021 was based on 10.6 million and 10.5 million weighted average diluted shares outstanding, respectively.

Direct Written Premiums, ¹ Net Written Premiums ¹ and Net Premiums Earned

Direct written premiums ¹ for the third quarter of 2022 were $54.6 million, an increase of $5.7 million or 11.7% from $48.9 million in the prior year period. The increase is primarily attributable to a $5.3 million increase in premiums from our personal lines business and a $0.5 million increase in livery physical damage.

Net written premiums ¹ decreased $7.9 million, or 19.2%, to $33.7 million during the three-month period ended September 30, 2022 from $41.6 million in the prior year period. The decrease was attributable to the inception of the 30% personal lines quota share on December 30, 2021 offset by growth in direct written premiums.

Net premiums earned for the quarter ended September 30, 2022 decreased 20.2% to $29.4 million, compared to $36.8 million for the quarter ended September 30, 2021. The decrease was attributable to the inception of the 30% personal lines quota share treaty on December 30, 2021.

Net Loss Ratio :

For the quarter ended September 30, 2022, the Company's net loss ratio was 75.0%, compared to 97.1% in the prior year period. The net loss ratio decrease from the prior year period was primarily due to a lower impact of catastrophe losses. There were only two minor wind events classified as catastrophes during the three months ended September 30, 2022. The catastrophe losses contributed 1.1 points to the loss ratio. This compares to a 33.1-point impact from catastrophe events from the prior year period, which had more significant named storms including Ida. Prior year development added 1.5 points to the current quarter's loss ratio compared to -0- points in the prior year quarter, driven by the volatility of liability claim settlements from the discontinued Commercial Liability line. The underlying loss ratio (loss ratio excluding the impact of catastrophe and prior year development) was 72.4% for the quarter, an increase of 8.4 points from the 64.0% in prior quarter period. The higher 2022 loss ratio was primarily due to a general increase in property claims severity, which is likely a result of recent climbing inflation.

Net Underwriting Expense Ratio :

For the quarter ended September 30, 2022, the net underwriting expense ratio was 36.9% as compared to 39.3% in the prior year period, a decrease of 2.4 percentage points. The decrease in the quarter was attributable to the inception of the 30% personal lines quota share treaty as well as only a modest increase in underwriting expenses.

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¹ These measures are not based on GAAP and are defined and reconciled below to the most directly comparable GAAP measures.

Balance Sheet / Investment Portfolio

Kingstone's cash and investment holdings were $192.2 million at September 30, 2022 compared to $246.0 million at September 30, 2021. The Company's investment holdings are comprised primarily of investment grade corporate, mortgage-backed and municipal securities, with fixed income investments representing approximately 86.4% of total investments at September 30, 2022 and 77.3% at September 30, 2021. The Company's effective duration on its fixed-income portfolio is 4.8 years.

Net investment income decreased to $1.4 million for the third quarter of 2022 from $1.7 million in the prior year period following the fixed income realignment designed to improve credit quality in the 3 ^rd and 4 ^th quarters of 2021 and higher manager and custodial investment expenses.

Accumulated Other Comprehensive Income/Loss (AOCI), net of tax

As of September 30, 2022, AOCI was a loss of $(16.0) million compared to income of $6.2 million at September 30, 2021. The decrease in AOCI at September 30, 2022 of $22.2 million as compared to September 30, 2021 is attributable to the increase in interest rates most notably occurring in Q1 through Q3 2022.

Share Repurchase Program

The Company announced a share repurchase program in March 2021. During the three months ended September 30, 2022, the Company did not repurchase any shares.

Book Value

The Company's book value per share at September 30, 2022 was $3.65, a decline of 50.9% compared to $7.43 at September 30, 2021.

Adjusted Book Value Per Share ¹

The Company's adjusted book value per share at September 30, 2022 was $5.15, a decline of 24.8% compared to $6.85 at September 30, 2021.

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¹ This measure is not based on GAAP and is defined and reconciled below to the most directly comparable GAAP measure.

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 15, 2022, 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 Third Quarter Financial Results 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.

Net operating income (loss) - is net income (loss) exclusive of realized investment gains (losses), net of tax. Net income (loss) is the GAAP measure most closely comparable to net operating income (loss).

Management uses net operating income (loss) along with other measures to gauge the Company's performance and evaluate results, which can be skewed when including realized investment gains (losses), and may vary significantly between periods. Net operating income (loss) is provided as supplemental information, not as a substitute for net income (loss) and does not reflect the Company's overall profitability.

Adjusted book value per share - is book value per share excluding the impact of accumulated other comprehensive income (loss) AOCI. Management uses adjusted book value per share to evaluate the results to exclude the impact of interest rate changes on our fixed income portfolio.

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 net combined ratio excluding the effect of catastrophes and prior year loss development. The most directly comparable GAAP measure is the net combined ratio. The net combined ratio excluding the effect of catastrophes and prior year loss development should not be considered a substitute for the net combined ratio and does not reflect the Company's net combined ratio.

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The table below reconciles direct written premiums and net written premiums to net premiums earned for the periods presented:

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The following table reconciles net operating loss to net loss for the periods indicated:

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The following table reconciles adjusted book value to book value as of the dates indicated:

The following table reconciles the net combined ratio excluding catastrophes and prior year loss development to the net combined ratio for the periods presented:

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The following table reconciles the net combined ratio excluding catastrophes to the net combined ratio for the periods presented:

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The following table summarizes gross and net written premiums, net premiums earned, net loss and loss adjustment expenses and net loss ratio by major product type, which were determined based primarily on similar economic characteristics and risks of loss.

1. "Other" includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.
2. In July 2019, the Company decided that it will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.
3. See discussion with regard to "Direct Written Premiums, Net Written Premiums and Net Premiums Earned" above.
4. See discussions above with regard to "Net Loss Ratio".

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

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 New York domiciled carrier writing business through retail and wholesale agents and brokers. KICO offers primarily personal lines insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Kingstone is also licensed in Pennsylvania, New Hampshire and Maine.

Forward-Looking Statements

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, 2021 filed with the Securities and Exchange Commission under "Factors That May Affect Future Results and Financial Condition" and Part I, Item 2 and Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended September 30, 2022 to be filed with the Securities and Exchange Commission. These risks and uncertainties include, without limitation, the following:

• As a property and casualty insurer, we may face significant losses from catastrophes and severe weather events.
• Unanticipated increases in the severity or frequency of claims may adversely affect our operating results and financial condition.
• We are exposed to significant financial and capital markets risk which may adversely affect our results of operations, financial condition and liquidity, and our net investment income can vary from period to period.
• The insurance industry is subject to extensive regulation that may affect our operating costs and limit the growth of our business, and changes within this regulatory environment may adversely affect our operating costs and limit the growth of our business.
• Changing climate conditions may adversely affect our financial condition, profitability or cash flows.
• Because a significant portion of our revenue is currently derived from sources located in New York, our business may be adversely affected by conditions in such state.
• We are highly dependent on a relatively small number of insurance brokers for a large portion of our revenues.
• Actual claims incurred may exceed current reserves established for claims, which may adversely affect our operating results and financial condition.
• We rely on our information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business.
• We will need to refinance the $30 million 5.5% senior unsecured notes that become due on December 30, 2022, either through (a) new debt or equity financing that will provide the funds necessary, together with available cash, to pay the notes in full at maturity, (b) our entering into arrangements with holders of the notes to exchange their notes for new debt and/or equity securities of Kingstone or (c) a combination of (a) and (b). No assurance can be given that we will be successful in this regard.

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.
Richard Swartz
Investor Relations Contact
(813) 838-0703

SOURCE: Kingstone Companies, Inc.