Greetings, and welcome to the Kingstone Companies Fourth Quarter 2020 Financial Results Conference Call and Webcast. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Amanda Goldstein, Investor Relations, Director. Please go ahead.

Thank you very much, Kevin, and good morning, everyone. Yesterday evening, the company issued a press release detailing Kingstone’s 2020 fourth 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.

Thanks, Amanda, and good morning, everyone. We are pleased you can join us on this, our year-end 2020 conference call. We’re going to mix it up a bit today. I recognize these calls are intended to lend color and perspective to our historical results, as well as to our future. Scott, our new CFO, will review the results with you, and Meryl will discuss our operations, and in particular, our Kingstone 2.0 initiative, which is ongoing and which will propel us forward. For me, I'm going to go in a bit of a different direction. I have many responsibilities at Kingstone, but none more important than guiding the allocation of capital to preserve and enhance the investment entrusted to us by our shareholders. Ultimately, our share price should reflect how well we've done and how well we are expected to do. But in short, in my opinion, it doesn't. We had a rough patch to get through when I returned to CEO in mid-2019. I made the difficult decision to exit the commercial liability lines that were requiring more and more of our capital, but which were doing poorly. I didn't make many friends by doing this, but this was 100% the correct action to take. Now, as we go forward, all of our surplus can be deployed in support of personal lines, with a life of the claim that is far shorter and the volatility is far less. Unfortunately, even though the lines we exited were never more than 15% of our business, the issues attendant to the exit brought much pain to our shareholders, as the stock price suffered greatly. I said then and I feel the same now that the share price decline was exaggerated. And by the way, no one felt the pain more than me, as the company's largest holder. I hope that the favorable results we are generating will now take over the spotlight. Last year, many important metrics improved. We ended the year with book value at an all-time high. We earned over $1 a share in operating profits, excluding catastrophe losses. But while our share price has recovered to a certain extent, we're still trading at a discount to book value and well below our intrinsic value.

Thanks, Barry. Before I go over the results, I just want to take a moment to share a little bit of my background. I've been working in the insurance industry for over 30 years, beginning my career at Crum & Forster as a staff accountant. I have worked for a variety of insurance companies, both public and private, most recently as the CFO of a direct-to-consumer home warranty company, and before that, as the CFO of Citibank's life reinsurance companies. I'm very happy that Meryl and Barry have invited me to join them at Kingstone, and I'm excited to be part of this team. Kingstone is a great niche company with an impressive track record of underwriting profits, and I look forward to helping them add to that success. Now onto the company items. Starting with two recent items of note. First, effective December 30, 2020, the company terminated the 25% personal lines quota share. By exiting the commercial liability line, the company has significantly derisked the business, and we are well-capitalized to support our core business. We do not need the balance sheet support the quota share provided. Second, earlier this week, management asked for and the Board approved a share buyback program of up to $10 million of outstanding stocks, running through March 31, 2023. We will execute on that plan judiciously, when the economics make sense, managing the proper capital to support the business and create value for the shareholders. We believe this makes sense, given the stock's underlying value.

Thanks, Scott. I'm very happy with the improvement in our financial results and the progress of Kingstone 2.0, our effort to modernize the company. This effort started when I joined the company about a year and a half ago, and will continue until the end of 2022. So, we're a bit less than halfway through.

Thank you. We'll now be conducting a question-and-answer session. Our first question today is coming from Paul Newsome from Piper Sandler. Your line is now live.

Good morning. Thank you for the call. I wanted to ask, maybe just to hit off the comments on the expense ratio reduction. Is that full point something that should be done gradually over the course of the year? Or will it hit pretty quickly? And what's the thought on the expense ratio beyond 2022, just over time? Is there a target or goals at this uncertain level in the long run?

Scott, why don't you take part of that, maybe Meryl could add some color as well.

Sure. While the effects of terminating the quota share that premium is going to start earning in right away. So, we'll see the course the entire year. The distortion for the quota share will go away. In terms of our expense ratio being a point higher, that should basically go away without that. And we don't have any specific targets other than a 1% reduction. So, Meryl, do you want to add some more color to specifics on it?

Sure. So, Paul, as part of Kingstone 2.0, we're really transforming the company and challenging everything we do. So, moving much more to automate versus some of the things we've historically done manually. And so, certainly, our expense ratio is high and we understand that that drives the competitiveness of our pricing. So, I would imagine you'll see throughout this year a continuous reduction in our expenses and throughout 2022 as well.

Great. It looks like there was a tad of reserve development in the fourth quarter, I apologize if I am confused. Maybe you could chat about just what exactly is going on there, and how it may or may affect the future?

Scott, why don't you take that question on the fourth-quarter development, please?

Sure. Well, first, we sit down and employ an outside actuarial firm. At present, we are just almost dead center of their midpoint. So, we are exactly where we want to be in the range. The noise that you see in there is just kind of normal fluctuations, if you will, between accident years. And I don't think that there's anything in there that's showing that we are not properly reserved. So, I think that the development that we've seen in the past is over and done with. Barry, do you want to add to that?

Yes. I would just add, it’s basically truing up the full-year and the fourth quarter, Paul. But, for the year, I think we ended up with something like $40,000 or thereabout. So, nothing material, but just making sure we stayed right on the midpoint of our outside actuary.

Fantastic. And then maybe finally, just some general comments on the competitive environment in New York and continued states. I think last time – last year, we saw sort of an uptick in competition. Has that continued into the early parts of this year? Or are things moderating a bit?

Meryl, do you want to take that one?

Sure. Yes, Paul, it has continued. All of our states are very competitive. So, we're very focused on profits and some of our competitors are very focused on growth, which makes for a challenging environment for us. But we're confident that we're at the right level, so - but many, many competitors in the space.

Fantastic. Thank you, folks.

Thank you. Our next question is coming from Bob Farnam from Boenning and Scattergood. Your line is now live.

Yes. Thank you, and good morning. So the core accident year loss ratio ticked up a bit. You mentioned there was some increase in kind of non-catastrophe weather losses. Can you just kind of maybe give us a bit more color on that?

Meryl, maybe you want to take this?

Sure. So, in particular, in December, there was a significant windstorm that affected the Northeast. So that was part of it. We also had several large fire losses, unfortunately, in the fourth quarter. So that's really the driver. Those are the drivers.

Okay. And, honestly, we're pretty much through the first quarter, how would you characterize the weather losses that you've seen over the last few months?

It's a good fourth quarter – excuse me, first quarter.

Okay. In terms of the effective tax rate, I was expecting to get so much of a benefit. Can you maybe explain some of the – what’s going behind the scenes there?

Let me start by saying that, because we generated a loss from our statutory operations, which differs, of course, from our GAAP, mostly because of how investment income or pieces of investment income gets categorized. We'll have a net operating loss for 2020 to carry back. And because of the CARES Act, we're able to carry back those losses to a prior year where the tax rates were at 34%. So, we're going to get a lot of benefits from that carry back. And I think that's probably the biggest single item that's driving the tax question you're asking.

Okay, great. And my last question is about Cosi. What is its current status? Is it still going to be operational, or are you planning to shut it down? I'm trying to understand what the future holds for Cosi.

So, I'll take that. Cosi continues to operate, we've generated quite a lot of premium that's sticking. Unfortunately, our two main sources of business required us to maintain that A- rating in order to write new business, but neither one of them is seeking to eliminate the business they have with Kingstone as a result. So, at least those two carriers, we are maintaining the book. And we're actively searching for new partners, and I hope we'll be able to announce something, if not in the first quarter, then maybe in the second quarter that will reinvigorate Cosi.

Right. Okay. Thanks for the answers.

My pleasure.

Thank you. Our next question today is coming from a private investor. Your line is now live.

Congratulations, Barry, first off, on getting the share repurchase authorization. And then my question is probably for Meryl. I guess, we talked earlier and earlier calls about getting a more systematic rate increase going in. And I just was wondering if you could give us a little bit of color on how that worked during the Q4? That's my question.

Sure. Well, my answer won't be just related to Q4, but to rate changes in general. So, I can tell you, we do have rate filings pending in most of our states, and we plan to increase rates by an average of 6.5% this year. And we've certainly our results in 2020 benefited from some of the rate changes we took then. So, I don't know if that answered your question or if you want to ask a further question.

Keep in mind that we started this increasing in rates in late 2019. So, it wasn't till the end of 2020, that all of that rolled, at least the New York portion, all of it rolled onto the book. And then it takes a good year for it to earn itself through. So, we've seen some of the positive benefits of the initial set of rate increases. And I think what Meryl is trying to say or what Meryl has said, is there's a continual process to continually update rates. And you'll see more of that as time goes on. Hope that answers your question.

Yes. Very good. That's helpful. Thanks.

Great.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Great. Well, thank you all for spending the time to hear us out today. We look forward to updating you in May for our first quarter's results. And of course, anything that occurs that's worthwhile stating, we'll be sure to send out press releases. So again, thank you all for your time. Stay healthy, please. Bye-bye.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.