All right. Welcome everybody, and thank you for joining us today at the Sidoti September Small-Cap Virtual Conference. My name is Brendan McCarthy. I am an Analyst here at Sidoti, and I am very pleased to welcome Kingstone Companies. The ticker is KINS. Joining us from Kingstone will be CEO Meryl Golden, as well as CFO Randy Patten. Before I hand it over, a quick reminder that the Q&A tab is located at the bottom of your screen. Feel free to type in any questions throughout the presentation and we can save time for Q&A at the end. With that said, I will hand it over to Meryl.
Thank you. Thanks everyone for joining us this morning. Kingstone is a regional property and casualty insurer focused on catastrophe-exposed property. Believe it or not, we have been in business for 140 years, and we have been a public company since 2009. Almost all of our business today is in downstate New York, and we are the 11th largest writer of homeowners insurance in New York at year-end 2025. When I say catastrophe exposed, what I mean is that the home has a risk of hurricane or wildfire. This exposure makes it harder for homeowners to get insurance coverage. The large national carriers that you know, like State Farm and Allstate, they write 70% of all homeowners insurance today, but they are not interested in growing in this catastrophe-exposed segment. It means there is less competition for us and the opportunity to earn greater margins in this niche.
We have completely reinvented the company over the last seven years, and I will share some of the highlights from our turnaround with you today. In 2025, it was Kingstone's most profitable year in our history, with diluted EPS nearly doubling to $2.88, return on equity of 43%, and our book value per diluted share increased 75% to $8.28. We closed 2025 with nine consecutive quarters of profitability. Now we are on a path to doubling the size of the company, and we have a goal of achieving $500 million in premium by the end of 2029 through continuing to grow in New York State, both organically and inorganically, as well as through geographic expansion. This year we expanded to California and Connecticut, and we plan to add additional states next year.
The chart I have up on the screen shows our Q2 2026 results, and it was our most profitable quarter in the history of the company. We grew premiums 19%, made almost a 30-point underwriting profit, and had a return on equity of 50.8%. I wish that every quarter could be like Q2. I do want you to know that we do have seasonality in our business, and Q2 is typically the most profitable quarter of the year. What sets us apart is clear. First is that we are master executors. As I mentioned, we have rebuilt every aspect of the company, the leadership team, the product, the claims organization, risk management protocols, our cost structure, everything. We now have a multi-year track record of disciplined growth and profitability, but really exceptional results relative to the industry.
I would like to say we've had 11 consecutive quarters of profitability, but the first quarter in the Northeast was a really difficult winter with 11 catastrophe events. It broke our profit streak. We have 10 of the last 11 quarters were profitable. Pricing sophistication is absolutely key to insurance, because what you want to do is match rate to the underlying exposure. We developed a product we call Select that I am going to talk a lot about today. Select does a great job of that matching rate to risk. What we have seen is that we have a much lower frequency of loss in our Select product than in the previous product we had on the street that we call Legacy. Select is only 62% of our policies in force today.
We still have a lot of headroom for the Select product to grow and our frequency to continue declining. Operating efficiency. We have an expense advantage relative to our competition. As part of our turnaround, we have been able to reduce our expenses as a percent of premium from 41% at the end of 2021 to 30% today. This allows us to have more competitive prices or to have greater margins. Operating efficiency is really key in insurance. Distribution. We have very deep and broad relationships with producers across our footprint, and that enables us to generate strong retention of our business and strong new business flow. We are committed to agent distribution. Last, we have a healthy balance sheet, the healthiest balance sheet we have ever had. We have no debt, and we have very conservative reinsurance.
That means catastrophe events are earnings events and not a capital event. As an example, most people are familiar with Superstorm Sandy. If Superstorm Sandy were to hit today with Kingstone's current exposures in N.Y., it would cost us about $100 million, but $95 million of that would be paid by our reinsurance partners, and it would cost Kingstone about $5 million pre-tax, which is roughly $0.27 per diluted share. When I joined Kingstone, it was an underperforming business. That was seven years ago on Friday. Can't believe how the time has flown by. We had an underwriting loss for a five-year period from 2019- 2023, and 2022 was the year that we really hit bottom.
We had a $2.19 loss per share and $30 million of holding company debt that matured at the end of the year and had to be refinanced in an incredibly difficult credit market. I give you that perspective just so you can see how monumental our turnaround has been. We have rebuilt every aspect of the company, the team, the product, the claims organization, technology, risk management, our cost structure, and our balance sheet. One of the key items in the turnaround was reducing our footprint in unprofitable states that materially impacted the bottom line of the company. We had expanded geographically, and it was really unsuccessful. Those new states never represented more than 20% of our premium, but the losses almost brought the company down.
A big part of the turnaround was working with regulators to get off the business quickly, and today those states represent less than 2% of our policies in force. What I do want to say is it really wasn't the states as much as Kingstone at the time, we didn't have a product that matched rate to risk or some of the other items in place that are driving our profitability. I mentioned our Select product, and I do want to reiterate how much of a game changer it has been for the company. Again, Select was built using an abundance of data, both ours as well as third-party data, and advanced data science techniques. One key to profitability in insurance, which is really key, is matching rate to risk. You understand when you're insuring that underlying exposure, what it's going to cost you.
The Select product does a great job in that regard. What we've seen since the introduction of Select in the beginning of 2022 is a shift in our mix of business to more preferred customers who are financially responsible, maintain their homes, have newer and higher value homes, and higher deductibles. The result has been, as you can see on this chart, a significant reduction in our frequency of loss for customers in the Select product relative to the Legacy product, which is the product we offered prior to 2022. The Select product, again, is only 62% of our homeowner policies in force and continuing to grow. As it grows, we'll continue to see this terrific frequency benefit. I mentioned the turnaround.
Our first profitable quarter was the fourth quarter of 2023, and the timing of our turnaround was really fortuitous as in 2024, two large competitors, Adirondack and Mountain Valley, received regulatory approval to withdraw from the state of N.Y. All of their business was non-renewed in the second half of 2024. Since we had completed the turnaround, we were priced right and we had capacity, and that enabled us to take advantage of these market withdrawals, and we were fortunate to write $29 million of policies that were previously insured with Adirondack and Mountain Valley. It was very fortuitous for us and has been a really profitable growth engine.
At the same time, another company, GUARD, that is owned by Berkshire Hathaway, announced it wanted to get out of homeowners nationally, so they had signed a renewal rights agreement with a company called Foremost, which is owned by Farmers. Foremost didn't want to grow in downstate N.Y. We were ultimately able to sign a renewal rights agreement with GUARD. What that means is when GUARD non-renews the business over a three-year period, because N.Y. requires a three-year policy term, when they non-renew their business, we offer a quote to our producers, and then the producers can decide to place the business with us or to place the business with another company. We do anticipate from this renewal rights agreement that we will write between $25 million and $30 million of business over a three-year period. That three-year period started September of 2025.
Kingstone is in a great position, and we're now focused on profitable growth. Our guidance for 2026 is that we will grow between 16% and 20%. As you can see on this chart, most of our growth is organic in the state of New York. We did reaffirm this guidance at the end of Q2. Last year, we announced a plan to grow to $500 million, so effectively doubling the size of the company by year-end 2029, and continuing to grow. We're going to achieve that $500 million by continuing to grow organically and inorganically through that GUARD renewal rights agreement that I just mentioned, as well as expanding geographically. New York, even in 2029, New York remains our primary growth and earnings engine, and our current market share leaves meaningful room for expansion.
In 2026, we did enter two new states, both in the third quarter, California and Connecticut, and we do plan to enter some additional states in 2027 and beyond. Let me tell you about California and Connecticut. First, California is a $15 billion market, and New York is an $8 billion market. Just to give you perspective on the size of the homeowners market. It triples our addressable market, and it's one of the most diversifying states in the country for Kingstone, given our Northeast footprint. The premise for entering California was that the market is severely capacity constrained, primarily due to state regulation and wildfire exposure. We entered California early in the quarter on what is called an excess and surplus lines basis.
What that means is that rates and forms don't have to be filed with the regulators in California. Unlike admitted insurers, we can match rate to risk, we can set prices to achieve our desired underwriting margin, and we can adjust rates quickly. I think California is one of the markets where it takes the longest for regulators to consider rate approvals, I think roughly about a year from when a rate change is filed. Operating on an E&S basis is really an advantage. In our short time in California, though, we have seen the market change dramatically with many of those admitted carriers reopening for business, as well as many new market entrants in the excess and surplus lines space. This has made the near-term economics more challenging than we had inspected.
But we intentionally entered California in a very conservative way and planned only for a small amount of premium in the first couple of years. We're still committed to California, and we're learning a lot, and our strategy is evolving as we learn more. We also went live in Connecticut just last week. Connecticut is a $3 billion market for homeowners, and unlike California, there are few competitors focused on the coastal areas of the state. Connecticut is very similar to New York, which gives us even more confidence that we will be successful there. But as I said, it's one week in, but so far, a thumbs up on Connecticut. Reinsurance coverage is critically important to our business, and we utilize three different forms of reinsurance coverage.
The most important coverage and the most expensive coverage is what's called catastrophe reinsurance, and we purchase $500 million of catastrophe coverage, and we've been increasing the buy 2 limit every year for the past few. This year, we increased our buy 2 limit by 14%. Fortunately, because it's a soft reinsurance market, which means there's lots of capacity, we were able to buy that coverage at a lower price. It was really great. Equally important, we've been able to retain a low first event retention across all perils. I mentioned to you previously that if Superstorm Sandy were to hit today with Kingstone's current footprint, it would cost us about $5 million pre-tax or $0.27 per diluted share, and that's because our first event retention, meaning the amount that Kingstone keeps of the exposure, is $4.75 million for a named storm.
For a wildfire, it's even lower. It's $3.5 million pre-tax. For winter storm, it's $6 million pre-tax. Again, this is for the first event. Then we buy additional cover to reduce volatility. We also buy a per risk excess of loss, so that caps the amount we'll pay for any individual claim at $825,000. We do write homes with values up to replacement costs up to $5 million, so having the per risk helps reduce the volatility of our earnings. We also have a quota share in place, 5% for New York and 30% for California, just out of conservatism. On that note, Randy.
All right. Thanks, Meryl. I will cover our strong capital position and capital allocation priorities. As of 6/30, our stockholders' equity was $129 million, up 5% year to date. As a reminder, and as Meryl mentioned, we have zero debt at the holding company. Our statutory surplus was $109 million, with a leverage ratio of 2.26, and an RBC, risk-based capital calculation greater than 600%. Our book value per share as of 6/30 was $8.69, up 35% year-over-year, and $9.27 on an ex AOCI basis, which is up 32% year-over-year.
Our investment portfolio was $334 million at 6/30, up 8% year to date and up 39% year-over-year, which primarily drove the 49% increase in net investment income year-over-year, along with increasing investment yields. We also raised our quarterly dividend 20% in July of 2026 to $0.06 per share, and that's one year after restating our quarterly dividend. To summarize our capital allocation priorities and what we believe is our best use of capital is to first fund our profitable growth initiatives, grow our quarterly dividend, and then third, repurchase shares in that order. Next slide. Just a reminder of our full year 2026 guidance, which we reaffirmed in August of this year. We expect direct written premium growth of 16%-20% with a net combined ratio of 81%-86%.
We also expect an underlying combined ratio, which we define as excluding catastrophe losses and prior reserve development in the 74%-76% range. Cat losses of 7%-10%, which is slightly higher than our historical annual average of 7.1%. Again, that is due to the elevated winter storm losses in Q1, which Meryl mentioned. Net income of $2.20-$2.90 per share, with a return on equity of 24%-30%. With that, I will turn it back over to Meryl. Meryl?
Sure. It is a great time to take a look at Kingstone, and we really appreciate your time. Since I was appointed CEO in October of 2023, the stock is up almost tenfold. We have a compelling story. The turnaround is complete, the results are structural, the balance sheet is pristine, the growth potential is enormous, and at our current stock price, our P/E of 6.7 is well below the personal lines peer average of about 9. I have never been more optimistic about the trajectory of our business, and I am confident that we can continue to deliver strong, consistent results. Over time, we believe that type of performance is what builds shareholder value. Again, thanks for your time today and your interest in Kingstone, and we are happy to open up to any questions you might have.
Fantastic. Well, thank you, Meryl and Randy, for the overview. We can open the floor for Q&A here. Why do not we start off just talking about the competitive dynamics of the different markets you are in. In New York, you mentioned certain competitors stepped out of the market that really seems like it benefited Kingstone immensely. When you look at your entrance into Connecticut, are you seeing a similar dynamic there with competitors stepping away from that market? Do you kind of see a similar growth runway for that market?
Sure. What I will say, Brendan, is that every market is very different. In New York, while we did. First of all, in insurance, there is something called an underwriting cycle, and you can chart it. It looks kind of like a roller coaster. Basically, companies make money, so they loosen their guidelines, take their rates down. So they start to lose money, so they tighten their guidelines, take the rates up. It is kind of a continuous cycle, and it is the same in reinsurance. As I mentioned, we are in a soft cycle. In general, in personal lines, the market was very hard, meaning companies were raising rates and they were tightening their guidelines to improve their profitability. Now we have started to see more softening in the market.
Rates in homeowners are not going down, but they are not going up at the same pace that they were previously. In New York, similar to many markets around the country, I mentioned California as well, we are seeing that companies are looking now to grow for the first time in a long time. Connecticut is a bit unique, because what we have seen so far is there are fewer companies that are looking to write a coastal exposure. For those not familiar with geography, the lower part of Connecticut is all along the water, and so there is hurricane risk. We are not seeing that there are as many competitors in Connecticut as we see in the other geographies. That will help us with our growth there.
Understood. When you look at your distribution strategy, we have a question from our attendees on distribution. When you enter a new market like Connecticut, how do you build the agent network, and what is your pitch to those agents? Maybe you can kind of tie in your commission model.
Sure. In Connecticut, we actually—Connecticut was one of the states I mentioned that Kingstone had expanded geographically previously, and Connecticut was one of the states where we had expanded, I think in the 2022, something like that, 2021, 2022 timeframe, and it unfortunately did not work out. So we had preexisting relationships with producers in Connecticut, and they have seen the monumental turnaround of Kingstone. Of course, our specialty as a coastal writer in New York, many of them also write—it is a small geography, so many of them also write in New York. We have a sales team on the ground in Connecticut. We certainly went back to agents that represented us previously. We have also been expanding our distribution in the state. Because there are not many companies focused on the coastal geography, we are getting a great reception in the state.
I want to be clear, we are not the highest paying—we do not pay the highest commission, but we really value our relationships with our agents. We have great technology. We are kind of old school, where we have a dedicated underwriter, so the agent can call and talk to the underwriter about the given risk. We have never gone direct. We have always been a company that is vested in our independent agents. All of those things are important, but the most important thing is price competitiveness. With our Select product, we are seeing that we are competitive on the risks we want to write, and so the agents are happy to have another company in their portfolio.
That's great. When you look at your entrance into California, how does that change the overall risk profile of the company? Are you targeting specific areas in the state, whether it be Northern or Southern California?
Yes. So it has a dramatic, over time, if California grew to a significant size, it really reduces the volatility of Kingstone's earnings. Because if you think about a storm profile, like a storm that hits the Northeast U.S. is not going to hit the West Coast of the U.S. So it definitely creates a more diverse profile for Kingstone, which would be a great thing. So in California, because of wildfire risk, what we're really looking to do is write statewide and not have any areas of particular concentration, because one of the ways to manage wildfire exposure is not to be concentrated in any given area. So you can imagine if all of our business was written where the unfortunate Eaton and Palisades wildfires happened, all of our policies would burn.
So one of the keys in managing a state like California is to have a very broad distribution of risk, and we're really looking for the low to moderate wildfire risk rather than the high wildfire risk in the state.
That makes sense. Last question on New York. When you look at organic growth outlook for Kingstone, what's the rate environment like there, or the regulatory environment around rate increases, and what's your outlook for organic growth?
Yeah. New York is a very tough regulatory environment, but I think they're fair. They're just slow. Fortunately, we're in a place where we don't really need a lot of rate. Just for those that don't know, there's two ways you get rate. One is that you put a filing together and you file it with state regulators, and they approve it. The second is increases in coverage due to increase in the replacement cost of your home. With inflation, it costs more to rebuild homes, labor costs more, materials cost more. So we update the replacement cost on your home every year to make sure that if, God forbid, your house is destroyed, you're adequately insured. When we raise that coverage, it is like a rate increase. So we're seeing in New York about an 8% increase now just from the increase in replacement cost.
Given our profitability in New York, we're really not in a need of filing a rate increase with the department. So it's been great for consumers, and we're seeing the benefit in our retention, which is going up. To quickly answer your question, because I know we're out of time, we do have guidance between 16% and 20%. That is driven by New York organic growth, so we're continuing to improve the product, appoint new producers, the GUARD book role in organic growth. Some of this is rate increase, as I mentioned, 8%, the rest is increase in policy count.
That's great. Well, Meryl and Randy, we really appreciate the information and the overview. We'll conclude there.
Excellent. Thank you so much, and thank you everyone for learning more about Kingstone Companies this morning.
Thank you.
Thanks, everybody, for joining us. Take care.