Kingstone Companies, Inc

Greetings. Welcome to Kingstone Company's third quarter 2024 earnings conference 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Karen Daly, Vice President of the Equity Group and Kingstone's Investor Relations Representative. Karen, you may begin.

Thank you, Sherry. Good morning, everyone. Joining us on the call today will be Chief Executive Officer Merrill Golden and Chief Financial Officer Jennifer Gravel. On behalf of the company, I would like to note that this conference call may contain forward-looking statements which involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. Forward-looking statements speak only as of the date on which they are made, and Kingston undertakes no obligation to update the information discussed. 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 latest Form 10-K. Additionally, today's remarks may include references to non-GAAP measures. For reconciliation of these non-GAAP measures to GAAP figures, please see the tables in the latest earnings release. With that, it's my pleasure to turn the call over to Meryl Golden. Meryl?

Thanks, Karen. Good morning, everyone, and thanks for joining our call. This quarter, we had the highest income we have ever had in any quarter since Kingstone Insurance Company was acquired by Kingstone Companies in 2009. We also achieved record-setting premiums written. It's a huge feat to achieve the operating margins we realized this quarter, and it's another significant accomplishment to attain a 40% growth rate as we're experiencing in our core personal lines business. But to do them simultaneously is nothing short of remarkable. This is undisputably the best quarter that Kingston has ever had. I want to thank my great team and all of our employees who work so hard to make these results possible. I could not be prouder of what we've been able to accomplish. Let me start by talking about our growth. As discussed last quarter, our current growth is being driven by the exit of two competitors who reached an agreement with the New York Department of Financial Services to non-renew or cancel their entire books by the end of this year. Their combined policies and force in downstate New York are roughly the size that Kingston is today. There's also a third company that's exiting the homeowner's market nationally and has more than 20,000 policies in our New York footprint, and it's expected to be a growth opportunity in 2025. Our objective is profitable growth, not growth for growth's sake, and we've been thoughtful about how we are taking advantage of this opportunity so as not to compromise our profitability. Let me remind you that carriers typically lose money on new business and only make a profit over the policy's lifetime as margins expand when business renews. However, we feel confident that we're making an underwriting profit on the new business that we're writing from this market dislocation, which bodes extremely well for the future. There are many reasons for this confidence. First, we're priced right. Second, we're only quoting and writing those risks that meet our underwriting standards and profit margin objectives. We've also tightened our hurricane deductible requirements to better manage our catastrophe exposure. Third, we're growing in the segments that have historically been the most profitable for us. We've been monitoring our business mix closely, and the new business we are writing is almost identical to our Enforce book in downstate New York. Finally, and most importantly, the select product continues to outperform our expectations. Our reported frequency in select for the quarter and for each quarter this year has been more than 20% lower than the reported frequency in our legacy product. As the business has grown, the frequency difference with legacy has increased. This gives us great confidence in our risk selection. as the legacy product is 100% renewal business, while 43% of select exposures are new business, which typically has a higher frequency. Select only represents 34% of our in-person personal lines policies today, which makes us super optimistic about the outlook for our business in 2025 and beyond. Jen will share more about our select product and our financial results this quarter. Core personal lines direct written premium was up 43% this quarter versus the prior year quarter driven by an increase in average premium of 23% and a surge in new business policy count up almost four times the new business counts in the prior year quarter. New business premium was 27% of total core personal lines direct written premium this quarter and 20% for year to date. We expect a similar dynamic in Q4 with an acceleration of new business as the cancellations from this market dislocation will be sent to policyholders in December. Our current estimate is that we will write between 25 and 30 million in incremental premium in 2024 from this market opportunity and write approximately 8,000 to 10,000 new policies from these two carriers. Before I touch on guidance, I want to share an update on the at-the-market offering. For those that don't know, an at-the-market offering or ATM is a way for a public company to raise capital by selling shares of its common stock into the secondary market at the current market price. We sold almost 1.1 million shares via the ATM this quarter and an average share price of $8.48. We used the ATM as a vehicle to build a cash balance at the holding company and used most, excuse me, used part of the proceeds to make an additional principal payment of 3 million on the debt at the end of September and fund upcoming interest payments and other holding company expenses. We made an additional 2 million principal payments this week, so we now have 10 million of debt outstanding. As a reminder, the holding company does not have an independent source of income and has historically relied on dividends from the insurance company for liquidity. We learned over the past few years that we cannot rely just on dividends from the insurance company as the ability to pay dividends is subject to regulation and we were restricted until this quarter from paying dividends due to losses over the last few years. We didn't appreciate just how much of a threat having debt at the holding company could be to Kingstone until we did not have the cash to service our debt or pay other expenses. To clarify, I am not opposed to the company carrying debt. However, I believe it should be managed in a more strategic and thoughtful manner. It's incredibly important not to repeat the mistakes of the past and we're focused on paying off the debt as quickly as possible. The balance of debt will be repaid partially with intercompany dividends and partially sorry about that, through the additional sale of stock via the ATM. Given the need for statutory surplus to support our growth, we will be judicious in the use of our surplus so we can continue to grow at an accelerated pace. We also intend to reduce the amount of our quota share for 2025 to retain more of our premiums and profit, which reduces surplus as well. We are in the market now for next year's quota share and the amount of the quota share will largely be determined based on the seating commission that is offered. Our objective is to find the right balance between quota share, stock issuance, and the use of dividends to pay down our debt as expeditiously as possible while maximizing earnings. When the debt is fully retired, hopefully by the end of 2025, and we no longer have high interest costs, We can then focus on the most rational capital and reinsurance structure for the benefit of our shareholders. And finally, turning to guidance, we've updated our guidance for both 24 and 25. For 2024, we are reaffirming core business direct premium as written growth between 25% and 35%. And based on approximately 128 million of net premium is earned, we're raising our guidance and expect to achieve a gap combined ratio between 79 and 83%, earnings per share between $1.40 and $1.70, and return on equity between 32 and 36%. For 2025, we're reaffirming core business direct written premium growth between 15 and 25%, and based on approximately $165 million of net premiums earned, we are raising our guidance and expect to achieve a gap combined ratio between 82 and 86, earnings per share between $1.60 and $2, and return on equity between 24 and 32%. Our guidance now reflects the competitive changes in the New York marketplace, another exceptional quarter, an expected increase to the cost for catastrophe reinsurance, for the 25-26 treaty year, driven by exposure growth and a hardening market for catastrophe reinsurance generally, an increase in reinsurance costs from the recent purchase of winter storm coverage, which reduces our first event retention to approximately $5 million, and lower interest expense, among other changes. Don't forget that 2024 was an exceptionally light year for catastrophes, and we have assumed an average year for 2025. Before I turn the call over to Jen, I want to emphasize what a great position the company is in, perhaps the best position it's ever been in. The drag from the non-core states is all but behind us. We now have the right team, a great product, and a competitive expense structure as our foundation. We already fixed what is broken, And now we are solely focused on the future, improving our processes and products, adopting new technologies, and refining our strategy to continue delivering spectacular results and increased value to our shareholders for years to come. With that, I'd like to turn the call over to Jen for a more detailed review of our quarterly financial results. Jen?