Kingstone Companies, Inc

Greetings and welcome to Kingstone Companies, Inc., third quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Rich Sporks, Chief Accounting Officer. Thank you, sir. You may begin.

Thank you very much, Maria, and good morning, everyone. Yesterday afternoon, the company issued a press release detailing Kingstone's 2022 third 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 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 Kingstone CEO, Mr. Barry Goldstein. Please go ahead, Mr. Goldstein.

Thanks, Rich, and good morning, everyone, and thank you for joining us on our third quarter 2022 conference call. Before we get into a discussion on our financial and operational results, I want to provide you an update on a few matters that I know are top of mind for you all. First, As we've said, our board and management team regularly review Kingston's strategic, operational, and financial priorities with the objective of driving stockholder value. As it relates to our ongoing discussions with Griffin Highline specifically, as you'll recall, in August, Griffin Highline submitted a final non-binding indication of interest to the board, proposing to acquire all of the outstanding equity of the company. We agreed to extend the period of exclusivity with Griffin Highline to further pursue that proposal, and that period of exclusivity has since expired. At this time, our discussions are focused on a potential strategic transaction with them rather than an outright acquisition of Kingstones. While no assurances can be given that a transaction of any kind will be consummated with Griffin Highline or any third party, our board is committed to acting in the best interest of the company and our stockholders. We will continue to take actions consistent with that objective. Our goal remains to be as transparent as possible and I'm personally committed to providing updates as appropriate. That said, I am limited in this regard given the confidentiality agreement in place and and must stay within the bounds of what we're legally able to say. Today, as in our prior calls, we will only accept questions from the analysts that cover the stock. Second, as the board considers all value-creating opportunities, as a management team, we are not sitting still. We've made significant progress executing on our operational plan, which I'll touch on in a moment. This transformation to a stronger Kingstone has continued in the midst of a challenging inflationary environment, one which is heightened for companies like ours, which are highly regulated. As you know, Kingstone sets its premium rates annually in advance, and when we took our round of rate changes in the summer and fall of 2021, inflation was in the 4% range. Today, significant uncertainty remains despite the more favorable inflation data released at the end of last week, which showed the annual inflation rate for the U.S. at 7.7% for the 12 months ended October 2022. The reality of our business is such that we cannot adjust our prices like most others in real time in order to flow through to the consumer the higher loss costs we incur. We recognize this is putting pressure on our stock price, but I want you to know that I'm confident in our foundation and believe that the changes we have invested in will put us back on the path to profitability. As you know, this return to profitability has been the single biggest focus of our Kingston 2.0 plan. I am pleased to report that 2.0 is now complete. It's taken us almost three years of hard work and significant capital investment to provide a product to better select our risks, to better underwrite and price our risks, and better manage them on a single efficient platform. While it's still in its early days, we are already seeing positive results. We began writing our new select product in New York, our home state and a state that accounts for about 80% of our total premium. Let me share some very exciting details. Total new business premium is up about 9%, driven by an increase in average new business premium per policy of 8%. That is, it's 8% higher than the average premium than we generated in 2021 from the legacy product. As a reminder, average premium being up has very little to do with the sale of more policies. What's important is that we're able to charge a higher price for the policies we are selling. That's one part of the story, higher average premiums on new business. But another important piece is our better matching of rate to risk. Most importantly, our select new business claims frequency is almost 20% lower than what we experienced for new business in our legacy product for the same period last year. Combining higher premiums with reduced risk is translating into wider margins and higher underwriting profits. We're delighted with the enhanced risk selection tools built into Select, reflecting the elevated quality of our new policyholders, as most qualify for our lowest-priced tiers, even with our stringent underwriting standards. In short, since completing Kingston 2.0, we are already reporting higher average premiums, lower claims frequency, and a far better mix of business. These are all great signs for the future, and while our work is never done, what we have seen is better than what we had anticipated, and we could not be more optimistic about Select. Recall that premiums are earned over the life of a policy, so the expected benefits of higher earned premium and lower loss cost will be earned in over time. Beyond our home state of New York, we continue to take rate in all states to account for the trends in our business, including inflation, which I said has an outside impact on us as a regulated company. We are adding to premium not only through rate filings, which are averaging 9%, but by annual adjustments to coverage to properly reflect a home's increased replacement costs, again, driven by inflation. All new homes underwritten by Kingston are insured to 100% of their replacement cost, and all renewing policies are updated to reflect their then-current replacement costs. The combination of these actions, which vary by state, will be very material. Importantly, we continue to manage our portfolio to grow only in states and segments where we are earning an acceptable return. we are re-underwriting our entire book, taking actions subject to regulatory constraints to increase our returns and eliminate the underperformers. As we've worked towards completing Kingstone 2.0, we remain focused on operating with financial discipline and look to reduce our expenses across the business. As a result, expenses were down 2.4 points for the quarter, and almost four points on a year-to-date basis. We're pleased to see these cost-cutting measures take hold, and we are actively working to drive further expense reduction, including through the retirement of our legacy systems. We've also taken important steps towards refinancing certain senior unsecured notes that will become due on December 30th, 2022. We explored a number of financing and other options that were available to us. We are working diligently with our bankers and attorneys on a solution that, if finalized as I hope, will result in a reduction to our outstanding indebtedness by utilizing the liquidity now on hand at our holding company. Note that subject to regulatory requirements, Kingston can also receive dividends or loans from our insurance subsidiary, Kingston Insurance Company, that could be used to repay a portion of the notes. In light of the upcoming refinancing and our desire to maintain financial flexibility, we announced yesterday that the Kingstone Board has determined to suspend the company's quarterly dividend effective immediately. We believe this is the prudent decision at this time in order to preserve capital to potentially help fund this refinancing and the resulting debt service requirements, as any refinancing will result in borrowing costs at a higher interest rate than for those of the maturing notes. and we anticipate cash savings of $1.7 million annually as a result of the dividend suspension. The Board will continue to evaluate the company's dividend policy on a regular basis, including based on any contractual restrictions imposed in connection with any debt refinancing. In summary, we are continuing to work diligently to fully realize the benefits of our transformation. While our net earnings and book value declined primarily due to the continuing impacts of inflation, our adjusted book value per share for the quarter was $5.15. As a reminder, this is a non-GAAP measure and excludes the impact that interest rate changes have had on our fixed income portfolio. As I turn the page. All right. I am all out of order here. Before I turn the call over to Merrill, I want to reiterate three things. One, our board is open to all options to enhance stockholder value. Two, we are not sitting still and are taking every action to best position Kingstone for the future, including with respect to the upcoming refinancing. And three, we are optimistic that the changes we have invested in through our recently completed Kingstone 2.0 will result in our return to profitability. I'm going to turn the call over to Meryl to continue. Meryl, please go ahead.