Kingstone Companies, Inc

Greetings. Welcome to Kingstone Company's first quarter 2022 financial results conference call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. At this time, I'll turn the conference over to Rich Schwartz, Chief Accounting Officer. Mr. Schwartz, you may begin. Thank you.

Thank you very much, Rob. And good morning, everyone. Yesterday afternoon, the company issued a press release detailing Kingstone's 2022 first quarter results. On this call, Kingstone 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 Kingstone. 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 31st, 2021, along with the 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, For a reconciliation of our non-GAAP measures to the 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.

And thanks, Rich, and good morning, everyone. We're pleased that you can join us for this, our first quarter 2022 conference call. To begin, let me address the elephant in the room. Last Friday, we issued a press release acknowledging that our board received a preliminary non-binding indication of interest from a sophisticated private equity firm as to a potential acquisition of our company. What I can tell you is that our board is fully engaged as it always has been. In that regard, we have retained Tiger Risk Capital Markets and Advisory as our financial advisor to assist us in exploring strategic alternatives, and our board is working to fulfill its obligations on behalf of the company's shareholders. I've received many emails from shareholders, some of whom I've known for many years. All had questions. I could not then, and I cannot at this time, reply to these questions. While I take great pride in being forthright and transparent, I cannot comment at this time. We do not intend to disclose further developments unless and until we determine that further disclosure is appropriate or necessary. At the end of this call, I will take a limited number of questions and only from the analysts that follow Kingstone Companies. I've said it many times in the past that a company and its stock price did not necessarily go hand in hand. For many years, we put up excellent numbers with double-digit growth, double-digit returns on equity. And our share price reflected those positive attributes. Company and stock were in alignment. But our results declined. Our share price followed suit. In my opinion, this was due in large part to a loss of earnings power. Shareholders have been frustrated. Our board demanded that we become hyper-focused on profitability and restore the earnings power to its historic norms. We set out with a plan to become a more modern company and needed to invest in our future to restore that profitability. The ultimate goal is to drive these profitability changes, increasing them, and allow the numbers to speak for themselves. showing increasing profits and high returns with the expectation that doing so will encourage investors to become more interested in Kingstone and lead to stock price improvement. Yes, there are macro issues to contend with, no doubt, but we must focus only on what we can change and not going around moaning about things outside of our control. And that's what we're doing and that's what we have been doing. But right now, there is this big disconnect. As we've done so much to improve the profitability of our company already, you just don't see it yet. We started Kingston 2.0 to focus on profitability about two and a half years ago. It began in July 2019 when I returned as CEO. We first exited the struggling commercial multi-parallel line of business to focus on homeowners' coverages. This cost us greatly, both in terms of dollars and reputation. But we needed to stop that bleeding. At the same time, our premium rates hadn't kept pace with lost costs, and we took rate for the first time in many years. And we hired Meryl. Meryl to prepare and execute on a plan to modernize our company. And to put that plan in place, she rebuilt our management teams. She addressed the problems and corrected where needed. She stopped our ever-increasing need for more and more catastrophe reinsurance. And while our business in New York has been in good shape, she needed to take great actions and tighten underwriting outside of New York. And while doing this, she has instilled a culture of profitability, collaboration, and responsiveness throughout the company. We've spent these last two-plus years acting on that plan. We've built a new suite of products which we call Kingstone Select, products that take advantage of modern analytics, products that allow us to match rate with risk on an individual property by property basis, and products designed to lead us to greater efficiency, a reduction to our costs, and a decline in our expense ratio, and we are now seeing that. We began selling Select in New York during the first quarter. And just last week, we began the expansion of Select to Connecticut. Through the rest of the year, we will, with the approval of the various state regulators, bring Select to all of the states in which we operate. One product across all of our states with a producer experience second to none. But know this, I'm aware that there hasn't been a positive market reaction to the work we've put in. This is a business where profitability results lag well after the time actions are taken. I do understand it is a matter of show me, and we are working as hard as we can to do just that. The first quarter was a typical first quarter for Kingston. Our Northeast business is seasonal, and we again posted an underwriting loss due to winter weather. This winter was worse than the prior year with four catastrophe events and high winter water losses. I'll let Merrill discuss the quarterly results in detail. But I've already told you about many of the things we're doing to return Kingston to profitability. Now I want to share some of the results that we're starting to see from these initiatives. Let's talk about margin expansion. In the first quarter, we continued to see the impact of the rate increases we've taken to keep up with trend. During the quarter, our written premium increased by 12.7%, while our policies in force grew by only 3.5%. Please consider that we've added premium at almost four times the rate that we added risk. We expect this premium growth to continue and the delta between premium revenues and expected losses to widen throughout the year. And with our focus on expenses, keeping costs in check while increasing revenue will further help increase our profits. Again, not so easy to see what we've already accomplished. During the quarter, our quote activity increased materially for personal lines. And in spite of the higher premium prices and strict underwriting standards, New business production was up by 15% overall. And what we've seen as rates have increased is kind of counterintuitive. But we've also seen our retention increase. Retention is up in every major line of business that we write. This, along with the increased quote activity, gives you a sense of the favorable competitive environment we are operating in. Some of the drivers of last year's unprofitability seem to have abated, at least for this quarter. The number of severe fires in the first quarter was lower than in prior years. Liability loss frequency declined. If only we can control the weather. Now, let me talk a bit about our expense ratio, which, as you'll be able to see, is down 3.5 points from the prior year. Now, this is driven in part by the quota share and the correspondent seating commission, but also by multiple expense reduction initiatives we have taken. As the quota share makes our expenses very difficult to understand, let me share some interesting facts with you. I said we're starting to see the benefit of our actions. Take a look at these underwriting expenses, but look at the dollars. Underwriting expenses were up over last year by $349,000, an increase of 5.4%. Commission expense, too, take a look at that. In the first quarter, it was up $127,000. It's just a one and a half point increase over the prior year. Now, compare that to the increase in our direct earned premiums, which were up $3,459,000. Look at it this way. We spent less than 15 cents of every incremental dollar of earned premium on expenses. Make no mistake, our expense ratio is coming down. With our catastrophe reinsurance renewal coming up very shortly, we are pleased to report there is not a need to increase the amount of coverage we ought to purchase. In fact, it will be down by about 5% from last year. So excluding changes in rate, none of these incremental premium dollars that I just referred to will be spent on catastrophe coverage. Let me turn the call over to Meryl now to review our first quarter financial results. Meryl?