KINGSTONE COMPANIES, INC. (KINS) stock intrinsic value fair value estimate & owner earnings analysis

Kingstone Companies is a small New York property and casualty insurer. Almost all of its business is homeowners, dwelling fire and umbrella coverage for houses in downstate New York (Long Island, New York City and Westchester), sold through independent agents. It makes money in two ways: collecting more in premiums than it pays in claims and expenses, and earning interest on the premiums it holds before claims are paid. Its biggest risks are storms along the New York coast, its reinsurance costs and the insurance pricing cycle. What the record shows. Owner earnings are cash earnings after all non-cash items and the capital spending needed to keep the business running. Stock compensation is counted as a cost, and gains or losses on selling or revaluing investments are left out. Per share, they were $1.20 (2016), $0.89 (2017), $0.53 (2018), -$1.18 (2019), $0.26 (2020), -$1.84 (2021), -$1.46 (2022), -$0.64 (2023), $1.93 (2024) and $2.84 (2025). From 2019 to 2023, combined ratios ran between 100% and 113%. Over that stretch the company had a loss-making commercial book, reinsurance costs spiked, reserves had to be strengthened, and it pulled back from states outside New York. Since then it has changed the business: higher rates, a new homeowners product, New Jersey business non-renewed in 2025, and much less of each policy handed to reinsurers (a 27% quota share in 2024, 16% in 2025, 5% from January 1, 2026). The combined ratio fell to 80.0% in 2024 and 75.0% in 2025. Accounting judgements. Because the business changed so much, we measure it only from 2024. However, 2024 and 2025 were unusually light storm years: catastrophes added just 1.9 and 1.2 points to the combined ratio. From 2018 to 2023 they added 6 to 11 points, and in the first quarter of 2026 eleven winter storms added 26 points. We therefore restated both years at a normal storm load of about 7 points. We also removed a one-time $4.9 million deferred-tax benefit from 2024, when old tax losses were used up. On that basis the two post-reform years earned about $1.12 and $2.23 per share, a midpoint of about $1.68. That is our starting level, not the storm-free $2.84 from 2025. Growth we credit, and why. Last year owner earnings per share grew 47%. Our base case has 2026 at $2.40, 43% above the $1.68 normalized level, so year one grows more slowly than the trailing year. The increase rests on facts already locked in, not on hopes. First, the reinsurance treaty signed for January 1, 2026 lets Kingstone keep 95% of its premium instead of 84%. Second, in April 2025 a competitor with about $70 million of downstate homeowners premium left the market under a plan approved by New York regulators, and Kingstone was allowed to quote replacement policies. That premium is already written and sitting in unearned premium. Third, the actual results so far: first-half 2026 net income was $9.7 million despite the heavy first-quarter storms, and the underlying combined ratio improved 1.3 points year over year. We credit no growth from management's goal of $500 million in premium by 2029 or from the new California excess and surplus lines venture launched in 2026, because neither has been proven. Management's 2026 guidance of $2.20 to $2.90 per share was checked against our own figure, not used to set it. Base case ($28.21 per share). Owner earnings of $2.40 in 2026 and $2.85 in 2027, as the higher retention and replacement premium are earned in a full year of normal storms. Then the pricing cycle turns, as Kingstone's own history shows: 2016-2018 were profitable, 2019-2023 were not. In this case margins drift back: $2.55 in 2028, $2.20 in 2029 and $1.85 in 2030. From 2031 earnings settle at $1.36 per share, which is a 95% combined ratio on today's roughly $265 million of net earned premium plus about $14 million of investment income. That is between the reformed book's normalized 82% and the roughly 99% the company averaged from 2018 to 2025. After 2035 we keep it at that level, because the float income and a New York homeowners franchise with its agency network have held up through the full cycle. The base case credits no premium growth after 2027. Bear case ($7.98 per share). This is a named repeat of the company's own 2019-2023 experience. Another heavy storm year is absorbed within the $5 million catastrophe retention ($2.00 in 2026, $1.80 in 2027). Then competitors return, prior-year reserves develop badly and reinsurance costs jump, as they did in 2023. The result is $0.60 in 2028, losses of $0.80 and $0.60 per share in 2029-2030, $0.20 in 2031 and about a 99% combined ratio ($0.70) through 2035. That level lasts ten more years and then ends, because in this case nothing shows the business earning more than its cost of capital through a cycle. We do not model a storm larger than the reinsurance tower. The tower was $440 million, which the company describes as a 1-in-100-year event, and rose to $500 million in mid-2026. A loss beyond it is a real tail risk that could consume much of the roughly $129 million of equity. Bull case ($44.77 per share). The company's own levers work: the 5% retention holds, the replacement premium renews, rate increases keep pace with claim costs as they have since 2023, and investment income rises as the bond portfolio rolls into yields near 4.3%. Owner earnings reach $2.70 in 2026, $3.30 in 2027 and $3.45 in 2028-2029. They then ease to $2.60 by 2034-2035 as the cycle softens, and run long-term at $2.20, about an 89% combined ratio, a level the reformed book has beaten every year since 2024. Debt and how it was treated. Kingstone is an insurer. Money owed to policyholders is its raw material, so all three cases are valued on earnings after interest and no borrowing is deducted. In 2025 the company paid off its 13.75% senior notes in full, so the only borrowing left is about $3.8 million of equipment financing (roughly $0.26 per share), whose payments already run through earnings. In each case, what the business is worth per share is also what shareholders own: $7.98 (bear), $28.21 (base) and $44.77 (bull), with nothing further owed ahead of them. Our previous estimate added about $0.53 per share of holding-company cash net of the notes. We no longer do that, because an insurer's cash and investments back its claims. That estimate also used discount rates of 8.5% to 12% and assumed earnings would grow forever. We now use one 6% rate for every case and put the risk in the case stories instead, including a pricing cycle that the earlier work left out. The net effect is a higher near-term earnings level, lower long-run earnings and a lower bull case. What would make this wrong. Nearly all the business is concentrated in downstate New York, so one major hurricane or a run of bad winters can erase a year's profit. The good 2024-2025 record is short and was helped by mild weather and favorable reserve releases (1.4 and 0.6 points). A.M. Best withdrew its rating at the company's request in 2023. The California expansion adds wildfire exposure, although 30% of it is reinsured. On the other side, if the reformed book keeps running at a 75% underlying combined ratio through a soft market, the base case is too low.