Kingstone Companies, Inc. (Nasdaq:KINS) (the "Company" or
"Kingstone"), a Northeast regional property and casualty insurance
holding company, today issued the following open letter to
stockholders from the independent members of its Board of Directors
regarding the actions taken and work underway to enhance value:
December 22, 2022
Dear Stockholders,
As 2022 comes to a close and Kingstone enters
the new year ahead, we – the independent members of the Kingstone
Board – want to update you on our progress in positioning the
Company for the future and share more detail around our commitment
to exploring all possible avenues to deliver enhanced value for our
stockholders.
Over the past year, Kingstone’s Board and
management team have taken decisive actions to make our business
more efficient, deliver more value to our policyholders and drive
towards profitability:
- We completed our three-year Kingstone 2.0 plan to modernize our
business;
- We began writing our new “Kingstone Select” product, which
better matches rate to risk, in New York, Connecticut and New
Jersey;
- We reduced expenses across the business through the retirement
of legacy systems and other ongoing cost cutting initiatives;
and
- We strengthened our balance sheet and reduced our debt by a
third after completing the refinancing of our $30.0 million of
outstanding 5.50% Senior Notes due on December 30, 2022.
We have been transparent about the
opportunities and challenges we’ve faced this year, particularly as
we navigate the macro-environment and shifting competitive
insurance landscape. As a highly regulated company, we continue to
feel the impact of inflation given that we cannot adjust our prices
in real time like others outside of our industry can. Accordingly,
we are working hard to keep pace, including by increasing the
replacement cost assigned to the homes we insure as well as
increasing the premiums that our customers pay to account for
rising claims costs. And, in light of the “hard” catastrophe
reinsurance market, we have planned for potential future pricing
increases ahead of this year’s renewal period to help us manage any
further rise in costs.
Building on Kingstone 2.0 Returning
Kingstone to profitability has been our primary objective driven by
our Kingstone 2.0 transformation. Among the modernization
initiatives we’ve focused on, we have implemented advanced rate
segmentation with Kingstone Select, updated replacement costs to
address inflation and executed several expense reduction
initiatives including a planned reduction in agent commissions for
2023. We have also optimized our agent base, re-underwritten the
portfolio and raised rates for all our products across the states
in which we operate. These actions are already beginning to result
in higher premiums, which will ultimately lead to wider margins,
higher underwriting profits, and a decrease in frequency that will
drive down loss costs. Importantly, we are now focusing the
Company’s growth in New York, where we are earning a meaningful
return, and reducing our legacy product footprint in Connecticut,
Massachusetts, New Jersey and Rhode Island in the short-term. While
we are still committed to these markets, we are actively reducing
our exposures and costs until we see meaningful improvement in
order for the Company to achieve profitability sooner than rate
changes only would allow.
Successful Debt Refinancing in Highly
Challenging Debt Market Beyond operational progress, we
successfully refinanced our $30.0 million of outstanding 5.50%
Senior Notes due on December 30, 2022 (the “2022 Notes”). As
previously announced, Kingstone issued to the exchanging
noteholders new 12.0% Senior Notes due December 30, 2024 in the
aggregate principal amount of $19.95 million, along with cash and
warrants. We were pleased to have completed this exchange offer,
particularly in the highly challenging debt market. This
refinancing, which retired a third of our debt, strengthens our
balance sheet and provides us with a bridge to the future, allowing
the business improvements made through Kingstone 2.0 to take hold.
In addition, it represents an important vote of confidence in
Kingstone’s strategic plan from the investment community.
Consistent Focus on Value Creation As
previously disclosed, the Kingstone Board of Directors and
management team regularly review Kingstone's strategic, operational
and financial priorities in the context of the macro- and company-
specific operating environments with the objective of driving
enhanced stockholder value. Consistent with this, following the
Company's third quarter 2021 operational review, the Board of
Directors engaged TigerRisk Capital Markets & Advisory
(“TigerRisk”) as its financial advisor to aid in the exploration of
a range of alternatives that might enhance stockholder value,
including a potential sale of the Company.
As part of this process, which began in
January 2022, TigerRisk reached out to potential acquirers and
Kingstone management met with multiple parties, including Griffin
Highline Capital (“Griffin Highline”), an existing stockholder of
the Company. In May, as part of this process, Griffin Highline
submitted a preliminary non-binding indication of interest with
regard to an acquisition of all of the outstanding equity of the
Company. In consultation with our financial and legal advisors and
following negotiation with Griffin Highline, we executed an
exclusivity agreement to further pursue the proposal and
participated in an extensive due diligence process.
In August, Griffin Highline submitted a
final, non-binding indication of interest, subject to the
successful refinancing of the Company’s debt, and we agreed to
extend the previously executed exclusivity agreement for a limited
time period in order to consider the updated proposal. Negotiations
with Griffin Highline continued; however, given that our debt
refinancing was imperative to the future of the Company, and there
was added complexity in concluding a debt refinancing at the same
time that we were engaged in a potential sale process, we paused
further discussions with Griffin Highline to focus our efforts on
refinancing our debt. Griffin Highline subsequently submitted an
updated term sheet for a potential strategic transaction, which was
not an acquisition of all outstanding equity of Kingstone, but
ultimately the Board determined that it was not in the best
interest of our stockholders. As a result, we are not currently
under exclusivity with or considering any proposals from Griffin
Highline. We remain open to engagement on any transaction that will
enhance stockholder value, and continue to work with TigerRisk in
this regard.
The Kingstone Board is active and engaged,
including with respect to this process, meeting over 20 times to
evaluate all potential opportunities to drive enhanced value
creation while simultaneously overseeing the execution of the
Company’s strategic plan. We remain committed to acting in the best
interests of the Company and all stockholders as we move
forward.
The Path Ahead Today, as a result of
our strategic investments and actions, Kingstone is better
positioned to create sustainable, long-term value for you, our
stockholders. We are optimistic that the changes we delivered with
the completion of Kingstone 2.0, including our efforts to
consolidate our footprint, will result in our return to
profitability. However, we know our work is far from done.
2023 marks the beginning of the next chapter
for Kingstone and we look forward to sharing more on our progress
as we move forward. Thank you for your investment in Kingstone.
Sincerely,
Carla A. D’Andre, Timothy P. McFadden, Floyd
R. Tupper and William L. Yankus
The Independent Members of the Kingstone
Companies Board of Directors
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.
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.
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Arielle Rothstein / Kaitlin Kikalo Joele Frank, Wilkinson
Brimmer Katcher (212) 355-4449
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