Kingstone Companies, Inc

Greetings and welcome to Kingston Company's Q1 2020 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Amanda Goldstein, Kingston Company's Investor Relations.

Thank you very much, Brock, and good morning, everyone. Yesterday afternoon, the company issued a press release detailing Kingston's 2020 first quarter results. On this call, Kingston may make forward-looking statements regarding itself and its business. The forward-looking events and circumstances discussed on this call may not occur and could differ materially as a result of known and unknown risk factors and uncertainties affecting Kingston. For more information, please refer to the section entitled Factors that May Affect Future Results and Financial Condition in Part 1, Item 1A of the Company's Form 10-K for the year ended December 31, 2019, along with a commentary on forward-looking statements at the end of the Company's earnings release issued yesterday. In addition, our remarks today include references to non-GAAP measures. As a reconciliation of our non-GAAP measures to our GAAP figures, please see the tables in our earnings release. With that, I'd like to turn the call over to Kingston CEO, Mr. Barry Goldstein. Please go ahead, Mr. Goldstein.

Thanks, Amanda, and good morning. We're pleased that you can join us on this, our first quarter 2020 conference call, the first one ever where I wasn't wearing a suit and tie. Our last call took place on March the 12th. Thank you for joining us. to the New York Department for their foresight and their leadership. From an operating standpoint, we didn't miss a beat. We're in regular contact with our producers, and while most are trying to work from home, the business has slowed materially. Our first quarter was most notable by what it didn't feature. No bad weather to speak of, no adverse development to record. This is our second quarter without any adverse development, and we're confident that that issue is behind us. Together these items contributed to a terrible start to last year and without them we're off to a great start this year. On top of that I'm very pleased to report that this year we saw our first quarter underlying loss ratio improved by more than five points versus last year. Total improvement amounts to a total of over 37 points. Ben will give more color on that in a few minutes. While losses were down materially, we also had a quarterly decline in net earned premiums of 9%. This is the direct result of actions that we chose to take. We chose to reduce the volatility of our earnings from weather catastrophes. We chose to exit from the commercial liability lines of business, where we determined that a capital allocation was no longer warranted. This is our focusing on profitability, which will slow growth and which has led to the planned decline in net earned premium. So please take time to go through the schedules attached to yesterday's press release as that will allow for a better understanding of much of what we are discussing today. I hope you'll recall from our last call that we entered into a 25% personal lines quota share treaty in the fourth quarter of last year. Previous to that, we had a 10% treaty in force. The benefits of this new quota share treaty were a reduction in our premium leverage, maintaining a sensible level of risk-taking, a reduction of catastrophe retention, and all of which led to an improvement in our AM Best Because score. The increase in personal lines premiums that get ceded to our reinsurance partners results in a decrease to our net written premiums and the 3.5% reductions to net earned premiums from personal lines or about $800,000. The decision to exit the volatile commercial liability lines of business last August resulted in a decline of net earned premiums of $1.9 million. We expect that we will enter the fourth quarter of this year with no remaining active commercial liability policies. Ben will soon discuss how this exit is going and how well the 2019 reserve strengthening is holding up. In addition, we are now seeing the impact on new business from the rate increases we took and the underwriting actions taken, all of which were done to improve profitability. Most particularly, our New York homeowner rate increases began in November for new business and on December 15th of last year for renewal business. We've raised our rates outside of New York as well. These actions will take some time to be fully reflected in our financial statements, and they have slowed down our growth. With the reduction to net earned premiums as discussed before, our net expense ratio was also impacted. While we do receive seeding commissions from reinsurers, which serves to offset our underwriting expenses, the decline in net earned premium Outpaced the decline in underwriting expenses and thus increased the expense ratio. We had an operating loss in the first quarter of 2019 of almost $8.9 million and an operating loss in the first quarter of 2018 of $2.3 million. This year, we all but broke even with an operating loss of about $300,000. A break-even winter quarter in our Northeast business is very satisfying. What I would normally say is this sets us up very nicely for the rest of the year, and it does. But the pandemic has filled our lives with uncertainty. It seems like most every morning we're taking a step forward in conquering or better dealing with the disease, but by the end of the day, there's something new and nasty to consider. What I know is that at Kingston, because of where we do business, each and every employee, agent, and insured is at the epicenter of the disaster. Thank you very much. all first responders who are putting themselves at risk to keep us safe. I've got a few additional points to go through which I think are of interest. First, with regard to the dividend, the board has decided to reduce the quarterly dividend from six and a quarter cents to four cents beginning in the June quarter. This puts us in line with our peer group at about a 3% yield. Preserving capital and improving holding company liquidity makes sense at this time. We did buy back some shares in the first quarter, and building cash at the holding company will allow for us to act opportunistically when the situations present themselves. Every day I see our shares trading so materially below book value, and with confidence in the future I see the buyback as a great tool to increase shareholder value, because I firmly believe that Kingston 2.0 is on track to bring us to a higher level of profitability. and as we put up those more profitable numbers quarter after quarter, our share price will be reflective and no longer be in the bargain basement. Next item is investments. The quarterly decline in book value was entirely due to the payment of the dividend coupled with the decline in market value of securities that had not yet been sold. As mentioned in yesterday's press release, we've already recovered More than half of that decline. Next item relates to COVID-19. And you may have heard a lot about business interruption claims and conversations around the country about that. Again, we chose to exit writing business owners policies last year, and we haven't written a new one over a year. But there is proposed legislation in New York that could require Kingston to provide this business interruption coverage. in spite of the fact that our policies first require that there be a loss to covered property, which there is not. The passage of a law would effectively be retroactive coverage. The U.S. Constitution specifically precludes the passage of any ex post facto legislation. Common sense says carriers never price the typical business policy to include this as a covered cause of loss. Needless to say, we are closely monitoring and have faith in the law. We do not have cause to reserve for this possibility at this time, but we are closely monitoring the situation. At this point, let me turn the call over to Ben to review the first quarter's loss and reserve results. Please go ahead, Ben.