Kingstone Companies, a small property and casualty insurer focused on the Northeast, just delivered a jaw-dropping first quarter. It wasn't just the double-digit growth or the significant improvement in underwriting results; it was the sheer magnitude of the turnaround and what it reveals about Kingstone's long-term potential. Hidden within the transcript lies a clue that most analysts seem to have missed – Kingstone's Select product is on track to become a major profit driver, possibly catapulting the company into a league occupied by giants like Progressive.

Kingstone's CEO, Meryl Golden, has a history steeped in success. Her tenures at both Progressive and Bridgewater, known for their data-driven approaches and innovative strategies, have clearly influenced Kingstone's transformation. During the Q1 earnings call, Golden unveiled her "playbook," a set of principles driving Kingstone's strategic shift. One of these principles – the imperative of rate segmentation and matching rate to risk – shines a spotlight on the Select product.

Select, launched in early 2022, represents Kingstone's foray into highly segmented underwriting, a move that has already yielded impressive results. The product boasts a materially lower frequency of claims compared to the legacy product, exceeding initial expectations. While Golden attributed this success to factors like new business growth and the by-peril rating plan, the implication is clear: Select is not merely a good product; it's a potential game-changer.

"Here's the overlooked detail: Select currently represents less than 30% of Kingstone's book. Imagine the impact on profitability as this percentage increases in the coming quarters. If Select continues to deliver lower frequency and higher profitability, it could become the dominant force within Kingstone's portfolio, driving sustained growth and significantly expanding margins."

Let's look at the numbers. Golden highlighted a 10% reduction in frequency for Select compared to the legacy product. While she didn't disclose specific loss ratios, a 10% reduction in claims frequency could translate to a substantial improvement in profitability, especially when combined with Kingstone's ongoing efforts to reduce expenses.

Hypothetical Impact of Select Product Growth

This chart illustrates the potential impact on Kingstone's combined ratio as the Select product gains a larger share of the company's book. The assumption is a 5-point improvement in the loss ratio for every 25% increase in Select's share.

Furthermore, Kingstone plans to further enhance Select by adding new rating variables and refining rate segmentation. This suggests that the product's current success is just the beginning. As Kingstone leverages its growing data set and refines its underwriting algorithms, Select's profitability could further improve, exceeding even the most optimistic projections.

This brings us back to the comparison with Progressive. Progressive, known for its sophisticated segmentation and pricing models, consistently achieves industry-leading profitability. If Kingstone's Select product continues to deliver on its promise, the company could replicate this success, carving out a dominant position in the Northeast coastal market and potentially attracting interest from larger players seeking to acquire Kingstone's valuable technology and expertise.

Of course, this is a hypothetical scenario. The success of Select hinges on several factors, including market competition, regulatory approvals for rate changes, and the accuracy of Kingstone's underwriting models. However, the early results are promising, and Golden's strategic playbook, honed during her time at industry leaders, suggests that Kingstone is well-positioned to execute on this vision. The next few quarters will be crucial in determining whether Select truly lives up to its potential, but the first-quarter results provide a compelling reason to believe that Kingstone is a company on the cusp of something truly remarkable.

"Fun Fact: Kingstone, founded in 1886, is one of the oldest property and casualty insurers in New York, having weathered countless storms and economic cycles. This historical resilience, coupled with its current embrace of innovation, suggests that Kingstone might be poised for a new era of growth and profitability."