Kingstone Companies, Inc

Greetings and welcome to the Kingstone Company's third quarter 2023 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, Jennifer Gravel. Thank you, Ms. Gravel. You may begin.

Thank you, and good morning, everyone. Thursday afternoon, the company issued a press release detailing Kingston's third quarter 2023 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, 2022, along with commentary on the forward-looking statements at the end of the company's earnings release issued on Thursday. In addition, our remarks today include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to GAAP figures, please see the tables on our earnings release. And with that, I'd like to turn the call over to Kingston CEO and President Merrill Golden. Please go ahead, Meryl.

Thanks, Jen, and thanks for joining us this morning. First, let me again thank the board for giving me the opportunity to lead Kingston as its CEO. I think it's important that we share more information with our investors and become more transparent to give you greater visibility as to the future. Our business is complicated. And I thought it could be explained better. So we've made further changes to our press release and 10Q this quarter. Your positive feedback on the changes so far is much appreciated. As you know, Kingstone is in the midst of a transformation. Our strategy for the near term is to return to our roots as the premier writer of coastal property insurance in downstate New York, our core business. and we have been working hard to reduce our footprint outside of New York, our non-core business. As such, we've broken down our results between core and non-core so that you can better understand the results of each segment. Please take your time going through the details contained in the press release and the 10-Q as you will see that the underlying core business is profitable with a combined ratio of 96.4 for the quarter. Core premiums are growing up just under 10% year to date. Core margins are expanding as average premiums are increasing and cost savings and efficiencies are taking hold. Non-core is shrinking and by this time next year, the drag in our financials will be immaterial if not gone. Kingston is poised for a profitable 2024. For four years, I have talked about Kingstone 2.0 and Kingstone 3.0. Our employees have worked tirelessly to implement these strategies. They are now in place and at work. While I'll never say we are done, we have accomplished an incredible amount. I believe deeply in our strategy, the team that we've built, and our progress so far. I am so proud of the company that we have become. We are smaller, highly efficient, nimble, and focused on expanding the benefits that Kingstone 2.0 and Kingstone 3.0 have enabled. These benefits are now flowing through our income statement at an accelerating rate, and as the non-core business declines further, will become even more apparent in our overall results. That makes me confident that 2024 will be a great year for the company and its shareholders. Late last year, we also laid out a plan to return the company to profitability, and I'm going to highlight our progress on those key initiatives. In Q3, we were successful in reducing our non-core policies enforced by 17% from the prior quarter, and non-core policies enforced are now down 35% from year-end 2022. Our estimate is that the non-core book will decline by close to 50% by the end of this year and by more than 80% by the end of next year. Combine that with the additional rate we've been able to take and I hope to be able to report this time next year that the standalone non-core business is running at or near break even. The non-core business added 6.4 points to our combined ratio for the quarter and 7.9 points on a year-to-date basis. So you can see how important it is that we're accelerating this decline. Our pricing team has done a fantastic job with rate filing to manage our overall rate level in the face of loss trends that we and the industry have been seeing. As mentioned previously, we are addressing loss trends, including inflation, in two ways. The most significant for this year has been our effort to update replacement costs on every policy. This effort commenced in September of last year, so all policies have now been through this process once. We will continue to update replacement costs annually so that our customers are always insured to value. Don't forget that this update to replacement costs brings with it higher premiums, and those are in addition to those that come from our rate filings. Let me point out that for the trailing 12 months, we have realized a 25.5% increase in average premium for our legacy homeowner product in New York as a result of the combination of rate and replacement cost updates. Let me also remind you that most of the added premiums have not yet been earned and will be reflected in future quarters. It takes about 18 months for rate increases to be fully reflected in earned premium, and it will be reflected on an ever accelerating basis over time. This increase in earned premium will, by definition, drive down the loss ratio and lead to further declines in our expense ratio. We did an excellent job managing our catastrophe reinsurance renewal, which resulted in a much lower increase than anticipated. We were fortunate that Jen joined us earlier in the year and brought with her the reinsurance experience she's gained from her time in Florida. We had seen two years of dramatic pricing increases in catastrophe reinsurance costs and expected this year to be even worse. We needed to be prepared. One strategy we deployed to reduce cost was to slow core new business writings of the highest cost policies, those contributing the most to our PML. This strategy was successful and this allowed us to buy to a lower limit while maintaining the same risk tolerance, and as such, the increase to seeded premiums was minimized. I also want to mention our relentless focus on improving our cost structure. I am delighted that we have made such great progress in this area. We have achieved our goal for the year, a net expense ratio of 33, a 4.2 percentage point reduction from the prior year. but our focus will not wane. We will recognize the benefits of having, we all recognize the benefits of having low expenses, and we will have a new stretch goal for 2024 to reduce expenses below 30%. With that, I'll now pass the call over to Jen to review our third quarter results. Jen?