Hello, this is Maj Soueidan with a very special Skull Session today. We're having a fireside chat here today with Kingstone Companies. Ticker symbol is KINS on the NASDAQ. Today we're going to be actually doing this new format, kind of experiment before where we have somebody else, third party, come on and like host a Skull session. And Scott's a big fan of Kins. The story is definitely very interesting. I had heard Meryl pitch her story at Samco Capital's event in Chicago earlier this year. By the way, if you're in Chicago or you're serious investors, you should definitely attend these events. They're really cool. Scott puts on once a year. Really highly suggest it. A lot of multi-baggers have come from those conferences. And so basically today, you know, they're a property casualty insurance company.
They have really, I think, you're in New York, Meryl. We're going to get into that a little bit and some of the opportunities you're embarking on. You had some really good string of good earnings reports. So before we get into it, oh, by the way, I should say this: we have a lot of new members at GEO. Just so you know what our fireside chats are, we have a lot of different Skull Sessions, but the fireside chat is how we introduce a company to our community. It's a deep dive into the business, opportunities, risks, history of management, these things, and afterwards, throughout time, we will bring management back on for what we call these management briefings, which are more update Skull Sessions to maybe once every few months or weeks, depending on the news flow out there. So that's it.
So let's get into the terms and conditions and Safe Harbors, and then we'll get into the presentation.
This discussion is for informational purposes only and is not an offer or solicitation of an offer to buy or sell securities. This is not a recommendation to trade, buy, or sell any companies discussed. We recommend you consult with a professional investment advisor before transacting in any securities mentioned in this discussion. By viewing or listening to this event, you agree to the terms and conditions, which you can view in full at geoinvesting.com. Premium members can also view our disclaimers at portal.geoinvesting.com. Please also be aware of the company's safe harbor, which explains that this chat may include forward-looking statements that currently represent the company's views, opinions, and statements, which may or may not materially be representative of future conditions and events. Thank you.
Hey, Scott, welcome.
Thanks. Appreciate you having us on.
Thanks for doing this. There's a lot of pressure here on you because you got to follow up with BKTI.
Yeah, yeah. I'm not too worried about it. I think we're in good shape.
With your last multi-bagger pitch, we'll see how this works out. Thanks again for being here, Meryl, again. Hope this goes well.
Thanks for having me.
Good attendance. Great, so Scott, Meryl, take it from here.
Before we start, I want to thank Maj and the team at GeoInvesting, and I also want to give him a bit of an advertisement, a plug. He does the best work in the microcap field on the markets. It's phenomenal, the stock picking and the research, so kudos to you, Maj, and keep up the good work.
Thanks, Scott.
Secondly, I want to thank Meryl and your team for taking the time today to do this. You're very busy, and we appreciate you. Excuse me. I want to give a snapshot of the company's financials before we get started. Stock price is around $13.90. It's a market cap of $194 million. There's 14 million shares outstanding, fully diluted. They have cash of $33 million, no debt, so an enterprise value of $160 million. They raised guidance in early August on the last quarterly call, and it's trading at 6.2 times the midpoint of the range, $2.15. They also raised their return on equity guidance from 27%-35% to 30%-38% range. They lowered their combined ratio from 81%-85% to 79%-83%. They seem to be executing pretty well.
Meanwhile, the stock price has traded down from a high of $22 a couple of months ago to $1.39. And that's despite the stellar quarter and consistent beats and raises over the last two years. So Meryl, you started roughly two years ago or so. Why don't you tell us a bit about your background, why you decided to join Kingstone, especially when the company was in such bad straits?
Sure, so first of all, I've been with the company six years. I've been the CEO for two years, almost not quite two years, so I spent my history in the insurance industry. My first foray, I was at Progressive Insurance and the former CEO and chairman of Kingstone, Barry Goldstein, at the time. He was the CEO of a large chain of insurance agencies. And that's how we met. We developed a professional relationship. And then when Kingstone ran into trouble, he reached out to me for advice, and I ended up joining the company as the COO at the end of 2019, so it's been quite a ride.
Okay. Did you want to make some introductory comments?
Yes. So let me start again by thanking you, Scott, for organizing this session. And then I am thrilled to introduce two people joining me here today. The first is our new CFO, Randy Patton. And today is Randy's first day, so don't ask him any difficult questions, but I'm very happy that he's here. And the second is Sarah Chen, our Chief Actuary. And Sarah's responsible for product and pricing, and she has been my partner for the last five years. And Kingstone would not have the results that we have today if not for the contributions of Sarah and her team. So happy to have them here today. So as Scott said, we just posted the most profitable quarter in Kingstone's history with $11.3 million in net income. And it was a 150% increase compared to the prior year quarter.
We delivered a stellar combined ratio of 71.5, exceptional underwriting results, and an annualized ROE of 50.8%. Despite that stellar performance, there's been this weakness in our stock. I've heard two plausible theories. One theory relates to the hurricane season and a sizable short position on some coastal property insurers, including Kingstone, whose results would be impacted by the weather. The other theory relates to our expansion strategy that we announced in conjunction with our Q2 earnings, given Kingstone's history. We introduced a five-year goal of $500 million in written premium, effectively doubling the size of the company in five years. That really equates to a 15%, roughly 15% growth rate per year, which we feel is quite attainable. For perspective, we grew our core New York business last year by 31% and close to 20% year to date.
And we are going to achieve our growth plan through a combination of organic initiatives, some inorganic initiatives, and state expansion. And the state expansion will be very measured. We will pursue the state expansion at a deliberate pace, and we will test and make sure we're doing everything right before we grow very quickly. And I know we'll discuss our growth strategy today, so I'll leave it at that. And I look forward to addressing any concerns you have. And then just an introduction for those new to Kingstone. We've been public since 2009. We've had incredible results until we didn't. And when we didn't is when I joined the company. We've had two key strategies: one to rebuild the infrastructure, the other to return the company to profitability despite very strong headwinds of inflation and a hard reinsurance market and rising interest rates.
Our first profitable quarter was fourth quarter of 2023. We've now had seven consecutive quarters of market-leading profitability. The timing of our return to profitability was fortuitous as three large competitors in New York received approval to withdraw from the market. So we've had explosive growth in addition to great profitability. We've significantly strengthened our balance sheet. We've gotten rid of the debt. We cannot control the market, but what we can do is drive our financial performance. And I can tell you that I have never been more optimistic about the trajectory of our business and feel confident that we will continue to deliver top-tier financial results, which over time will be reflected in the stock price. And with that, I just wanted to thank our current investors for their support and turn it over to you, Scott.
Okay, great. Thank you very much. So let's start with the markets in the top line. So it seems to me that over the last couple of years, you've benefited from, one, exiting non-core markets. And so can you talk a bit about that? And then in addition, do you have any more markets that you plan to exit? And secondly, the select product, which seems to really be the secret sauce behind the success of the company. And I'd really like to get a better understanding as to what drives the select product and the analysis behind that.
Sure. So for those that don't know, Kingstone, starting in 2017, expanded to four additional northeast geographies: New Jersey, Connecticut, Mass, and Rhode Island. And the expansion was done in a suboptimal way. The company, even though those four states were never more than 20% of our total premium, the company lost a lot of money in those states. So I think that might be some of the hesitation on our re-entering some of those states and others. So I'm happy to talk about that. So there is nothing else to exit. We have a small book left in those states. And believe it or not, so year to date, those states are making more money than New York. So maybe we overcorrected in those states. But we are very comfortable with our pricing everywhere. We have been growing in New York.
And so anyway, to answer your first question, we are not planning. There's no other exits. And then in terms of our Select product, I'm going to introduce Sarah and let her talk a little bit about our Select product. So take it away, Sarah.
Yep. Sure. Thank you, Meryl. My name is Sarah Chen, and I'm very happy to be here to share a little bit more details about our new product. We launched our new product called Select in New York about three years ago. Since its inception, Select has consistently delivered a very strong performance in the market. In terms of the development of Select, we have leveraged very modern data science techniques to better match rates to risk. This has allowed us to write more preferred segments, for example, individuals with better credit score profiles, higher value homes, and properties with newer roofs, for example. Those segments have a lower frequency, and eventually, this will lead to better loss performance for the entire portfolio. Besides the rating perspective, we also introduced an underwriting algorithm recently that ranks quotes by expected loss ratio.
We declined the quotes that are ranked at the bottom. So while only a very small percentage of the quotes are declined, our data has indicated that these declined segments will have a loss ratio of more than 50% compared to our portfolio average. So by proactively blocking those higher risk quotes, we are continuously widening our margin. So overall, with the disciplined approach to risk selections from both pricing and underwriting perspective, Select has outperformed our old legacy product. And now, as we are writing more and more new business in our new Select product, we believe that we are very well positioned for potential further improvement in our overall loss ratio going forward. The last thing I also want to touch base for Select is our growth efforts in the market.
So now, with a very strong track record of profitability and confidence in our bottom line, we are committed in investing in sustainable and profitable growth. We are very closely connected to the market and actively listen to our agents to understand the evolving consumer needs. Over the past year, we have expanded our underwriting eligibility to accept higher value homes up to $3.5 million. Recently, we also reopened our condos product. So those initiatives are just great examples of how we continuously unlock our growth opportunity in the market and also strengthen our position. Overall, we are very confident in the performance of our new Select product. And as mentioned before, we will continue to seek enhancement opportunity to ensure its ongoing success. And with the success in New York, we feel like it will be a great blueprint for us to use for other expansion efforts as well.
So with that said, I will turn back to you, Meryl, to see if we have additional things to add for Select.
Yes, I just wanted to make two additional comments about Select. One is that the frequency in Select is 30% lower than the frequency in our legacy product, which is, the legacy product makes money in New York. So it gives you some perspective of how great the Select product is performing. And the second is that only half of our book right now is on the Select product. So as time goes on and Select becomes a larger portion of our policies in force, we'll continue to see a benefit in terms of the loss ratio.
So regarding the Select, what inning do you think you are in in terms of the benefits to the company?
First of all, Scott, you're never satisfied with your product. You're always trying to find a key in insurance is rate segmentation. So we are continuously refining our rate segmentation. So where are we? I think we're like, I don't know that I could give an inning, but we will never be at the end because we will be continuously improving the product to better segment the marketplace.
So if Select is half the total book, any idea or guess what percentage it will be in, say, 12 months or 24 months?
I'm guessing 60, 65, maybe.
Okay. If anybody has a question out there, please raise your hand and I'll call on you in the chat.
Oh, lots of questions.
Oh, okay. One second, please. Sorry. Kate, I don't see the question.
Yeah, they raised their hand too. Who would you like to speak to first? We've got Greg, Maj, Keith.
Greg can go.
Okay, sure. Greg, you should be able to unmute.
I think an alternative is to put your question in the chat, and then Scott can just read the question. Up to you. Greg, you're still muted.
Hi, can you hear me now?
Yes.
Oh, good. So happy. I don't know what's going on, but I have two questions, Meryl. The first one is, I think one of the other concerns in the market that I've heard is that we've been lucky to have hard rates due to the competitors dropping out and inflation and some other things you've done to raise prices. Do you see that continuing? Do you see other people coming into the market? And how do you see that at this point?
Sure. So let me remind you, there are two different things that go into rates. One is inflation. So what we do is annually, we update the replacement cost of the home, and that is reflected in pricing. And then the second thing we do is file for rate changes with the department, and that considers loss cost and other trends that we want to account for. So it is true that the last couple of years have been very high rate increases, but I don't think the pricing power is going away. I would imagine that we will, between the combination of both a file rate change and inflation that we are continuing to see, and with tariffs, like a lot of building materials come from Canada, who knows? So Sarah and I are thinking that our average premium next year will likely be in the low teens.
So it's not the 20% of the past, but it's certainly still a hard market. We have not seen any new competitors enter the market. We have seen some existing competitors start to write business again, loosen some of their guidelines. On the other hand, just last week, we heard about two of those large competitors. One took a 20% rate increase, and another shut down for any home valued over a million dollars. So again, there's in and out. What I can tell you so far, the marketplace has been very responsible. No one is in there buying the business. Everyone has healthy rate level. And Kingstone, even at our healthy rate levels, is still very competitive.
Okay, one more question, which I'm not sure if you're going to answer, but so you've proven to be a very shareholder-friendly CEO. You took the debt down. You just initiated a dividend. And I'm happy that you have quite a large position in the stock and sort of board members and other parts of your staff. I think many people on the call would agree that the stock seems underpriced versus what you've done and how far you've come. How long will you and the board tolerate a stock price that, by all of our opinions and maybe your opinion mostly on the board, isn't up to where you think it should be?
You know, as I started off, Greg, by saying we have no control over the market. We are just going to keep putting up the numbers and executing on our strategy and feel confident that over the long term, the stock price will reflect the phenomenal company that Kingstone is.
Okay. Thanks, Meryl.
My pleasure.
Keith, go ahead.
Thanks so much. And thanks for doing this, Scott and Maj. Really appreciate it. I just wanted to level set quickly. Scott, you said that the company is trading at six times the midpoint of 2025 guidance. And I think that's accurate. And I think that if you looked at, there is a question here, I promise. I think if you look at the organic growth rate, getting to over $3 a share of EPS next year seems pretty reasonable. And that would put the company trading at a four-ish, four and a half-ish type PE, which sounds extremely cheap. And so my question to Meryl is, you just hired a CFO from a company that was just sold. What were the parameters that that P&C business was sold?
And as we look at your book value, which is obviously trying to catch up with your EPS, what do you think the right metric is to use for Kingstone? I mean, clearly, the PE is comically low. And so the question is, is there a default back to the book value? And I'm just curious, when you look at it and you have to make decisions about purchasing stock and other capital allocation decisions, what do you think the right metric is to use to value the company?
Randy, why don't we start with you, I guess, talking about Next, if you can?
Let me start by introducing myself. Hi, Randy Patton. I just joined this morning, so.
Welcome.
Yeah. Thank you. So next situation is a lot different than Kingstone's in many respects. It's an insurtech company. They were looking to go public, and we're going down that road. And the parent company, Munich Re and ERGO Group, was their largest investor and had a significant stake in the company. And they saw a tremendous opportunity to enter the U.S. market on a standard lines basis, which they had not been in that market. They had an E&S market in the U.S. and obviously a reinsurance market, but they saw Next as a vehicle to enter the U.S. market. And so a completely different situation than Kingstone. And that company was a startup insurtech looking to have an exit prior to 10 years, and they were at nine and a half years. So I think it was a good outcome for that company, so.
Then, Keith, I don't really know what the right metric is. I view our, I think we're a growing company. So I don't really know. I don't necessarily think it's book value because of how much of an unrealized loss we have in our investment portfolio because of rising interest rates. So I kind of focus more on EPS than book value.
Okay. And then on that, a natural follow-up. Do you think, given the lack of sponsorship that the company has, right? You have one analyst that covers you. Do you think it makes sense to give a range for 2026 earnings?
Yes. In fact, I'm thinking that when I announce third quarter results in November, that I would give guidance for 2026 at that time. Last year, I gave 2025 guidance with second quarter results. And so many things change in such a short period of time that I think it will be a better. That's why I waited this year, and I didn't give it at Q2. But I am committed to giving the 2026 guidance in November when we announce our Q3 results.
Great. Thanks, Meryl.
Meryl, a follow-up on that point. You gave guidance at the second quarter of 2024 for 2025. And I think the guidance for the top line at that time was 15%-25% revenue growth. Is that correct? And then you just adjusted it for the first time this last quarterly call, right? And it gives people the impression that you cut the guidance. And maybe I'm just thinking out loud, maybe that's one of the reasons out of many that the stock has sold off. So why don't you address that, please?
Sure. So when I put out that guidance, and again, it was like after second quarter, it was when these withdrawals from the market were just announced. And so there was just so much uncertainty about the New York market.
So when I put out the growth guidance, I made it intentionally a very wide range for this year because I just didn't know where other companies were going to withdraw, where companies were going to enter. I didn't know. So that is really why the guidance was very wide. And now that I have more data about our. We have two quarters of results, and we now have more data about AmGUARD and what that book will mean for us in 2025, I just reduced the top end of the range. I still think 15%-20% growth is much faster than most companies in this business. So I feel really good about it. I just wanted to give a more realistic range given that we now have more certainty.
Okay. I want to come back to that, but before we do, let's ask, let Maj ask his question.
Hey, thanks, guys. I have two questions, Meryl. The first really is understanding risk in this business. There's another insurance company that I follow, and FACO is a symbol on that one. And I asked them the same questions. I want to get your perspective. Not necessarily risk, actually, but more like your limitations to growth. So your balance sheet, I think, probably determines to some degree how much you're allowed to write from a regulatory point of view, right? I'm assuming. Can you dig into that a little bit and what that means and how can we interpret that? What is your capacity to write by looking at your balance sheet and these kinds of things?
Sure. So in insurance, there's statutory capital, and that is really what determines your ability to write. So we have something called the leverage ratio, which is net written premium to your statutory surplus. And we look at the trailing 12 months of net written premium to statutory surplus, and we're currently at about 2.1. And in general, the regulators get concerned at 3. So I'm not saying we would want to be that leveraged, but where we are today at 2.1, I think, is pretty conservative, and we are not limited at all by our surplus in order to grow today. The other thing that regulators look at is your risk-based capital. And again, they're concerned when you're at 300 or below. And we're currently at like 550 or 600, so we're very healthy. So again, our growth is not constrained by our capital at this point.
Excellent. So you have extra capacity to grow within your balance sheet already and your risk parameters.
Yep.
Regarding the exit part, does the growth story really got the legs with the whole competitors exiting New York? I don't know if you maybe I didn't hear it, so apologize if I ask it again if it was right out there. When I hear, okay, competitors leaving a market, especially in the insurance industry, I'm like, okay, why are they leaving? Is it either growth constraints or is it risk? Are you taking on some risk that they didn't want, or was it rate? Is it because it wasn't profitable on the rate side? I want to understand why you're so blessed to get this opportunity, right, to take on all that business. Is there a catch there that we don't understand?
Yes. So it's a good question, and again, to bring others up to speed, in 2024, two companies owned by Allstate, Adirondack, and Mountain Valley reached agreement with the insurance department to withdraw from the state, and all of their business was non-renewed or canceled in the last six months of the year, and Kingstone benefited by writing 6,000 of those policyholders and $29 million of business. I can tell you, I don't know why Allstate made this decision, but what I've heard, which sounds most plausible, is that Allstate manages its catastrophe exposure by being very diversified, and they were overrepresented in New York. It was a large state for them. They had purchased these books when they purchased National General, and the books were primarily monoline, and Allstate is a multi-line company. They like to start with auto and then get the home.
This was a lot of monoline home. I don't know if that was the case. It sounds plausible to me. What I can tell you is we are monitoring the results of that $29 million of business, and it is performing better than our Select book overall, so we had some tight guidelines on the business we were willing to write. We required everyone to have a 5% hurricane deductible and no prior losses, etc., but that book is like a gold mine for us. We'd like another Allstate company to go out of business. The other is AmGUARD, which is a subsidiary of Berkshire Hathaway. AmGUARD is a different situation where they made the decision to get out of homeowners nationally, and New York was a $70 million market for them. They signed an agreement with a subsidiary of Farmers to take their book nationally.
Farmers didn't have an appetite for downstate New York. So we replaced Farmers, and we just started quoting that business for policies effective September 1st. So we are optimistic because it's our Select product. It's our rate level. We don't have to quote all of the business, only the business that meets our underwriting appetite. So we feel confident that we'll be able to write that business profitably. And clearly, our rate level is much higher than AmGUARD. And so as it gets non-renewed over a three-year period, then we'll write that business.
Thanks, Meryl.
I hope that answers your question.
Perfect. Perfect. I didn't know some of that stuff. That's great. Thanks.
Regarding AmGUARD, Meryl, can you talk about the contribution that you're expecting in 2025, 2026 timeframe?
Sure. So originally, when I put out my estimate for AmGUARD, I really front-loaded the premium. So just so everyone knows, the policy term in New York is three years. So you write a policy, you're on it for three years. And so when the department approved the withdrawal plan for AmGUARD, they approved it over a three-year period. So what we decided to do was, even though only a third of the book was being non-renewed in the first year, we decided to quote the whole book, thinking that if our rate was competitive, the agent would move it. The customer would want to move because AmGUARD is telling them they're getting out of the business. We also pay higher commission. So we thought there was a lot of incentive for the agent to move the book.
I kind of front-loaded my estimate and said that we would write $25-$30 million in a 12-month period. That was without any data. That was just like a guess. Now we have the data for at least one or two months, and we can see that even though AmGUARD took a significant rate increase, our rates are still a lot higher. So we are still kind of guessing because it's not September 1st yet, so we don't really know what the conversion rate is going to be on those quotes. But we do think that we'll write between $10-$12 million in the first 12 months. So that's September 1st to August 30th of next year. And still $25-$35 million over the three-year period.
Okay. Are you seeing any other opportunities out there of companies, competitors exiting your market in New York?
We have not seen anyone exit the market, but we have seen companies stop writing business in downstate. And so again, it kind of ebbs and flows, and I think it's related to the pace with which the department acknowledges rate changes. So they're pretty slow. And some companies kind of shut down until they get rate approved, and then they reopen. So certainly, if we sense any opportunity, I am on it. I was the one who reached out to the CEO of AmGUARD and got them to replace Farmers with Kingstone. So we would love to take advantage of those opportunities to the extent they exist.
Okay. Let's move on to the Combined Ratio. So in Q2, you did 71% or so, which is pretty incredible and driven by the Select product. One concern I've heard is that is going to be as good as it gets. And going forward, the rate of change will reverse. And I know it's in line with your guidance of 79% plus, but can you just comment on that? And what are your thoughts on the Combined Ratio going forward, etc.?
Sure. So I've heard that issue as well. And I feel very confident that we can improve our EPS in future years. So let's first talk about the combined ratio. So as we mentioned, the Select product, currently only half our book on the Select product. So as more business comes on to Select, we'll certainly see a benefit on the loss side. But in terms of our bottom line, there are many other factors besides the combined ratio. So first is we're growing a lot. So as our earned premium grows, our net income is going to grow. Second is we still have a 16% quota share, which means we're giving away 16% of our premium, 16% of our profit. Last year, when we reduced the quota share from 27% to 16%, it was a $0.25 increase in our earnings per share.
So I'm not saying that we're going to reduce our quota share now, but certainly over time, as we reduce the quota share, that will improve the earnings potential. Fourth is our investment portfolio. So we're generating a ton of cash. We're putting it into our investment portfolio. We are investing in higher-yielding securities. We've seen year to date, our investment income is up over 30%. So I would anticipate that you will continue to see that. And then last, in terms of drivers of our bottom line, the biggest is the reinsurance market. So again, a lot of it depends on global catastrophes between now and the end of the year. But everything I'm hearing is that the market for reinsurance is softening. And to the extent rates go down, that will have a very material impact on our earnings.
So, again, the combined ratio is certainly underwriting results, critically important. I agree that our combined is low. There are these other factors as well that will drive our bottom line.
Your reinsurance rates are locked in until next July, right?
So we have various forms of reinsurance. The quota share is January 1st through December 31st. So we will be discussing that probably starting in October. The catastrophe reinsurance and the single risk. So Sarah, I forget if the XoL is annual. It is annual now. So we also have insurance called single risk, excess of loss. So for any individual property, what's the maximum loss? So that is also a calendar year negotiation. And then our catastrophe reinsurance is July 1st. That's the big bucks.
Right. Right. So let's talk about hurricane for a second. I think the weakness in the stock was exacerbated by Irma, which turned out to be a big nothing. And I don't know if there's any other hurricanes forming in the Atlantic, but what are you seeing out there with all the services that you subscribe to and what you're hearing?
Actually, I think Josh, who is on this call, turned me on to this blog called Eyewall, which is really great. I have Hurricane app and everything else. It looks like it's going to be calm through the first week in September. That's what I've seen. Everything has kind of gone back out to sea, and there's nothing out there of concern of late. Most of the big storms happen in September and October. Sandy was late October. You're not done till it's done. So far, the season has not lived up to its billing, fortunately.
Can you put some numbers around, say, a Cat 2 hurricane versus a Cat 5 hurricane and the impact to your bottom line if one or both of those happen?
I mean, you can't really do that, Scott, because it depends on where it hits and the type of storm it is. But what I can tell you is one of the things we do is a recast where we take our current exposure and we recast every major storm that has ever hit the Northeast to make sure that we have enough coverage. And what I can tell you is we have more than enough coverage for every storm except one, the Long Island Express of 1938. So the damage from that storm is a little bit higher than the coverage that we have purchased. But other than that, every storm, our coverage is way more than adequate.
Okay. Great. I'll reiterate. If anybody has any questions, please raise your hand. With regard to state expansion, so we've talked a little bit about this. You brought it up. Why are you better prepared for state expansion today than you were a few years back?
Sure. So let me just start off and say that it's been a bit surprising that investors, of all people, do not understand the benefit of diversification, right? So look, we are in New York and New York only. And there are risks to being in New York only. We have regulatory risk. The department could do something. The legislators could do something. We could have some competitor come in with really low rates. There's, of course, the hurricane exposure. So we need to diversify. If you think about it, let's just say that we were $300 million in New York, and we're $300 million in California or Washington or Oklahoma, some other state. I mean, those risks, it would really reduce the volatility of our results. So I know that investors understand the benefit of diversification.
So then why are we not going to make the same mistakes we made in the past? Well, the first is this is the perfect market for catastrophe-exposed property writers. So because of global warming and because the frequency and severity of these catastrophe events have increased and because the homeowners market has been unprofitable for many years, the large writers, the top 10 writers of homeowners insurance nationally, the name brand companies that you know, like Allstate and State Farm, they are not interested in growing their footprint in catastrophe-exposed markets. And in fact, many of them are trying to reduce their footprint in those same markets. So it's created this industry of companies like Kingstone that are focused on catastrophe-exposed property writings. And right now, there is more demand than there is supply.
So it allows for a high rate level and for the opportunity to make good returns. So diversification is important, perfect market conditions. Third is that in many of these states, we plan to enter as an excess and surplus lines writer. So for those that don't know what that means, we in New York today are an admitted writer, which means we are subject to regulation in the state. An E&S company, to a large extent, is not subject or subject to different regulation. So for example, you don't have to have your rates approved. You don't have to have your forms approved. You can get off business for any reason. So it's kind of a buyer beware type of carrier, if you will.
And right now, because there's such a strong need in the market for capacity, really customers are accepting an E&S paper because they have no choice. And so just to give you perspective, we were in New Jersey, if you recall, that was of all the states, that was the one where we lost the most money. In New Jersey, pretty much, if you write the risk, you can never get off of it. I mean, I'm exaggerating, but it's pretty much that. And so to get off of our New Jersey business, we literally had to withdraw from the state. We're still licensed, but we had to withdraw, and the state had to agree with some non-renewal plan over two years. If we were E&S, we could non-renew the business that was mispriced. It just would have been much less risky for Kingstone.
So that's a third factor is E&S. And then last, we are just such a different company than we were in 2017. So in 2017, we didn't have a product that was built on data science techniques. So we were selected against. So our frequency in the business we wrote outside New York was unbelievably high, like more than two times higher than the business in New York. So we were definitely selected against. We didn't manage our cost of reinsurance, so we had a very high expensive book based on indemnity as well as reinsurance. We have a Select product today. We have a completely new management team. We have a completely new claims organization. I hired two guys that I worked with at Progressive years ago. They are phenomenal.
We've hired all new property adjusters that have very deep experience, not just in New York, but in other jurisdictions as well. And last, we have low expenses. So we reduced our expense ratio by 10 points since 2021. So relative to some of our competitors, we're like a lean mean fighting machine. I would say we are super nimble, and everyone in the company operates like owners. It's just a different company than we were in 2017. So for those reasons, diversification is important, perfect market conditions, E&S, which gives you tons of flexibility, and really just a company that executes in a very different way. That's why I believe we can expand geographically and be very successful.
Okay. Great. I know you can't give much more information than that on the state expansion, but you've indicated you're going to have an investor day. Have you picked a day and a location as to when this will be held?
We have not yet because we are still finalizing our plan. And I know, given this investor set that I talk to all the time, I want to make sure we have answers to all of your questions. So my sense is it will be either close to the end of Q4 or in the beginning of Q1 next year.
Okay. You recently.
I thought there was one. Sorry.
You recently initiated a dividend. I don't know when the last time you had a dividend was, but do you plan to increase the dividend, and do you have a target payout ratio?
So we don't have a target payout ratio, but we definitely, well, first of all, I'm delighted that we did have the ability to reinstitute the dividend. Kingstone paid dividends consistently until 2022 when we were no longer able to do that because of our debt. So really very happy to reward our shareholders through the dividend. And we look at our cash flow. We look at how much capital we need with growth or leverage ratio, lots of other factors, as well as what our competitors and other companies are paying. And so we started with a conservative dividend to make sure that it was sustainable and that we would have the ability to increase it in the future.
Right. And I'm assuming that you're going to maintain you're going to use your cash not to buy back stock, but to look for acquisition. Is that a correct statement?
I mean, we want to do what's in the best interest of our shareholders at all times. But I would say right now, we have accretive uses of our capital beyond share buybacks.
Okay. So we have a question from Eric. Eric, you there?
Unmuted. Do you hear me now?
Yes.
We do.
Meryl, clearly tremendous operating performance so far this year. I think you just alluded to something, and I'm not sure. I jumped on a little late, so forgive me if this has been asked. But in the situation where you came in, Allstate was leaving, you supplanted State Farm. I would imagine that when these national competitors leave a region, they would rather leave it the opportunity to someone like yourselves rather than one of their other national competitors. Is that an advantage that you have in gaining new business when entering these markets?
So I want to be clear. Allstate did not leave New York. Allstate is a very large writer in New York. They just had two subsidiaries that they were able to get those subsidiaries left New York. So Allstate, I should know this. I think they're the second largest writer in New York property insurance still, even with Allstate, even with Adirondack and Mountain Valley leaving the state. But to your point, Eric, again, what we're seeing is that the national carriers do not want business in catastrophe-exposed areas. So they have large books of business. And if you have auto insurance with Allstate, they're probably keeping your policy if you're on Long Island because they're a multi-line company. But they are not open for new business on Long Island. And neither is State Farm. And neither is Travelers.
The large companies are not open for business in the catastrophe-exposed areas. That's not to say that they don't have books here, and then also, let's be clear. We have a pretty simple equation here, which is make money on homeowners insurance. If you have a customer that has auto and home and umbrella and other lines of business, then when you are deciding how much rate to take, you need to consider the collective, and auto insurance was really unprofitable until recently, so these customers were getting hit with a rate increase in auto and a rate increase in home, so that required them to kind of take less of a rate increase in home in general. We take the maximum we can because we want to make money, so again, I think it's a very different equation if you're a multi-line writer.
But to answer your question, the national carriers are not writing the business, period.
That's great. Thank you very much.
My pleasure.
Meryl, we have a question from the chat. The five-year goal that you set at $500 million in premiums, what percentage of that is organic versus acquisition?
See, these are the type of questions that this is why I'm delaying that investor call because I don't have the answers to all those questions. But I would say that the vast majority at this point will be organic because listen, if there's an opportunity to buy a book or buy a company in the markets that we're targeting, we are certainly open to that. But at this point, we are focused on creating de novo opportunities and organic growth other than the AmGUARD book in New York.
Okay. Great. At this point, I think we've covered all of the major issues. I don't have any more questions. Did I miss anything, Meryl? Is there anything that you wanted to say or address?
I just want to say, again, that we are putting up the numbers, and we believe that the future is very bright. I don't have any control. I'm certainly as disappointed as you are in terms of the stock, but know that we are doing all of the right things to continue to get the financial results that we've been getting and even improve them in the future. Again, I wanted to thank you for your support.
Any last questions from anybody in the audience? All right. Great. Meryl, thank you very much. I appreciate your time today.
I appreciate yours. Thank you again for organizing.
Thank you. My pleasure.
Thanks, Scott.
Thanks, Maj. Appreciate it.
Thank you.