Kingstone Companies, Inc

Greetings and welcome to the Kingstone Company's first quarter 2025 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 during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Karen Daly, Vice President, the Equity Group, and Kingstone's Investor Relations Representative. Karen, you may begin.

Thank you, Melissa, and good morning, everyone. Joining us on the call today will be President and Chief Executive Officer, Merrill Golden. On behalf of the company, I would like to note that this conference call may include 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 Risk Factors 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. I'm delighted to share the results of our sixth consecutive quarter of profitability with 18% direct written premium growth overall, including 23% growth in our core business and net income of $3.9 million, or $0.27 per diluted share. As a Northeast writer, the first quarter is typically the least profitable quarter for the company, and we were fortunate to have experienced another mild winter this quarter, which contributed to these terrific results. As always, I want to thank the great Kingstone team for their hard work and our select producers for their commitment to the company. I'd like to start by providing more insight into the renewal rights transaction we announced a few weeks ago with AmGuard, a subsidiary of Berkshire Hathaway. You might recall that last year, around the same time that the withdrawal of Adirondack and Mountain Valley from New York was announced, we mentioned that a third company had also announced their intention to withdraw from the admitted homeowners market nationally and had signed a renewal rights deal with Foremost, a farmer's subsidiary. Amgard's withdrawal plan was never approved by the New York regulators, as Foremost's underwriting appetite in downstate New York was too restrictive. This created the opportunity for Kingstone to replace Foremost and execute a renewal rights agreement for the business in downstate New York. Amgard's withdrawal plan with Kingstone as the replacement carrier has now been approved by the New York regulators, and we expect to start quoting the business in late third quarter. This transaction gains us access to the data from Amgarth across all agents that opt into the program, providing several competitive advantages. First, we get to underwrite the business upfront to make sure that we're only quoting those risks that meet our profitability standards. Second, by providing a quote for the business we want to write to the producer, we anticipate a higher overall conversion rate as it will take less effort for them to move the business to us. And last, we'll be able to expand our footprint through the introduction to high potential producers who had not previously represented Kingston. As policies are written from the AMGARD book, we are confident that they will contribute to Kingston's profitability, as the business will be written in our select product, which continues to outperform our expectations. The select homeowners program's cumulative frequency has now decreased for 13 straight quarters. For this quarter, our select homeowners frequency was 1.6% compared to 2.3% for our legacy product. As mentioned previously, our select pricing and underwriting has shifted our mix to more preferred risk with well-maintained homes, better insurance scores, and higher deductibles which is driving our frequency improvement. Select represents only 48% of policies enforced today, and we expect it to grow to close to 60% by the end of the year, which bodes well for our continued profitability. Our plan for 2025 is to continue our focus on our core state of New York, capitalize on hard market conditions, and maximize our profitable growth in the state we know best. We expect the AMGARD premium to help to accelerate our growth starting in late third quarter. While it's very early to have confidence around the level of growth we'll see from this renewal rights transaction, our current estimate is 25 to 35 million in premiums over a 12-month period. The hard market conditions in our downstate New York footprint have not changed materially although companies are starting to increase their underwriting appetite. Our consolidated direct written premium growth at 18% for the quarter was materially higher than the prior year quarter, with 23% growth in our core business, offset by a 64% reduction in non-core, as planned. The growth in our core business premium was driven by a 68% increase in new business policy counts and a 19% higher renewal average premium for the property lines of business. The new business growth early in the quarter included policies from the Adirondack and Mountain Valley withdrawals, and these withdrawals have now been completed. Core policies in force are up 10% from the prior year quarter, led by homeowners, our largest product, with a 19% increase. offset by declines in our smaller product lines, particularly dwelling fire. In April, we implemented rate segmentation changes in our dwelling fire product, which should address this decline. Our strategy remains consistent to focus on properly matching rate to risk by improving rate segmentation. This enables us to be more competitive for the risk we want to write. Growth in net premiums earned exceeded 50% for the quarter as a result of earnings from the $11 million in premium that was returned from the reduction in our quota share, along with the significant increase in growth we achieved in the second half of 2024, which is now being earned. This substantial increase in net earned premium will be a driver of our higher operating income throughout the balance of the year. For the quarter, our non-CAT loss ratio was up 0.4 percentage points, driven by a reduction in property frequency but an increase in severity due to a few large fire losses. For homeowners, all perils combined but excluding catastrophes, our frequency was down over 35% for the quarter. For non-catastrophe water losses, our largest peril we experienced the lowest level of frequency in recent years, offset by an increase in fire frequency, which is typical during the first quarter. Severity increased markedly during the quarter as fire losses are very costly, resulting in a 3.3 percentage point increase in attritional losses, offset by a 3.5 percentage point reduction in catastrophe losses, from a light quarter for catastrophe events. During the quarter, we recognized 600,000 of favorable prior year development, improving our loss ratio by 1.4 percentage points. Relative to severity, we are monitoring the cost of building materials and acknowledge that tariff-related inflation is a moving target. If costs increase as expected, we will need to increase rates more than currently planned. Replacement costs are already updated annually to account for inflation. We don't anticipate that an increase in inflation would have a material impact on our results. Our expense ratio was flat with the prior year at 31.3%, even with the significant reduction in seating commission, as growth in expenses continues to be lower than the growth in earned premiums. While our combined ratio of 93.7 was close, to the 93.3 combined ratio in the first quarter last year, our operating income nearly tripled from the prior year period, up 1.6 million to 2.4 million. During the quarter, we finalized the sale of our headquarters building and adjacent property, resulting in a one-time after-tax gain of 1.5 million. We also fully paid off our remaining holding company debt, which will save us over $800,000 in interest annually. Bond issue costs of $175,000 were written off this quarter and are included in other operating expenses. In this uncertain time, it's a relief to have no debt at the holding company, a healthy balance sheet, and sufficient statutory surplus to support our core growth. Our net investment income for the quarter increased 36% to $2 million, up from $1.5 million in the same period last year. Strong cash generation from operations continues to support our investment portfolio growth. During this quarter, we invested $16 million in highly rated mortgage-backed pass-through securities, collateralized mortgage obligations, and other asset-backed securities with a book yield of 5.41% and effective duration of 5.53 years. We have extended duration to take advantage of higher yields further out on the yield curve. Approximately 10 million of our fixed income portfolio will mature by the end of the year and another 34 million by the end of 26. These securities have relatively low book yields of 3.1% and 3.6% respectively. As these assets mature, we plan to invest them at higher market rates, which will further enhance our future investment income. Our non-cash invested yield average of 3.7% with an effective duration of 4.5 years and a weighted average maturity of 9.7 years. With the drop in interest rates, we saw a 2.2 million net increase in the value of our bond portfolio this quarter. The unrealized gain is reflected in our balance sheet as an increase in other comprehensive income adding to our overall financial strength. Before I turn the call over for questions, and as shared in yesterday's earnings release, we are reaffirming our calendar year 25 guidance. There is still too much uncertainty with the AmGard transaction to determine the benefit, and we plan to include it in our updated guidance next quarter. Overall, we delivered another strong quarter with 23% direct written premium growth in our core business and 172% increase in net income. Our performance reflects the discipline of our underwriting strategy in a challenging environment. As we look forward, we are highly optimistic about the trajectory of our business. We are confident in our ability to generate long-term value for our shareholders through thoughtful execution and the fundamental building blocks we have put in place over the last few years. With that, I'll open it up to questions. Operator?