Greetings and welcome to the Kingstone Companies 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. As a reminder, this conference is being recorded. It's now my pleasure to introduce Karin Daly, Vice President, The Equity Group and Kingstone's Investor Relations representative. Karin. You may begin.

Thank you, Melissa, and good morning, everyone. Joining us on the call today will be President and Chief Executive Officer, Meryl Golden. 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 Kingstone 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 a 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, Karin. Good morning, everyone, and thanks for joining our call. I am delighted to share the results of our sixth consecutive quarter of profitability with 18% direct written premium growth overall, including 23% growth in our quarter 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 subsidiary. AmGUARD's withdrawal plan was never approved by the New York regulator 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. AmGUARD'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 AmGUARD 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 Kingstone. As policies are written from the AmGUARD book, we are confident that they will contribute to Kingstone'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 risks with well-maintained homes, better insurance scores and higher deductibles, which is driving our frequency improvement. Select represents only 48% of policies in force 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 AmGUARD 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 million 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 type. 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 count 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 withdrawal 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 properly match 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 net catastrophe 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 increased 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 ceding 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 2026. 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 2025 guidance. There is still too much uncertainty with the AmGUARD 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 a 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.

Thank you. Our first question comes from the line of Bob Farnam with Janney Montgomery Scott. Please proceed with your question.

Hi, there. Good morning.

Hi, Bob.

I wanted to start off with the fire losses. Thanks for the details. So it sounds like the fire losses were 3.3 points higher than you had anticipated for a typical first quarter and that was offset by lower catastrophe loss by 3.5 points. Do I have that right?

Yes, we're not worried about the fire losses. First, these losses are a small number, exceeding what we experienced on average over the past three years, and most were for policyholders in our legacy product. We stopped writing new business for that product at the start of 2022. These policyholders have been with us for several quarters, and we've never observed an increase in fire frequency before. It appears to be a random occurrence. We reviewed the fire losses and found nothing consistent among them; they vary by geography, cause, and producers. Therefore, it's simply a random spike for this quarter.

Right. Okay. Good. And that was why since the cat losses and the fire losses offset each other that was why you didn't feel a need to update any combined ratio guidance even though cat losses were lighter than you expected? Is that…

Yes. That's exactly the reason.

Okay. Now that you have reduced your expensive debt, your opportunities for capital management have increased. I recognize that you have significant growth ahead, which will be your main focus. However, I wanted to discuss your capital management priorities, particularly regarding dividends, share repurchases, and non-organic growth.

Yeah. So relative to the dividend and share repurchases, the Board actively discusses and considers the opportunities to return capital to shareholders all the time including restoring the dividend. So it's definitely something that is being discussed. And there's lots of opportunity to deploy our capital given our growth. So I don't envision any share buyback in the near future. We currently are pretty confident that we have adequate surplus, adequate capital to support our growth including the growth from the AmGUARD transaction.

Right. Okay. Regarding that transaction the AmGUARD transaction, I think I asked before, do you have any idea of the price differential between you and AmGUARD? As you look at these policies, are they going to be sticker shock as they get into the Kingstone pricing range?

AmGUARD exited the homeowners market because they weren't profitable. Our pricing is certainly higher, depending on the risk involved. My understanding is that AmGUARD is seeking a rate increase in New York, which may help bridge the gap, but we'll have to wait and see. There is significant uncertainty about what this transaction will mean for the company. However, I have factored that into my estimate of $25 million to $35 million over the next 12 months.

Right. Okay. And thanks for that guesstimate as well. And last question for me, any update on CFO search?

Yeah. So we're in the process. We have hired a retained search firm and we are actively in the interview process. I can assure you that Victor Brodsky, our Chief Accounting Officer, who was our former CFO and myself we're covering the gap in the short-term. But we do look forward to adding another great person to our team in the near future.

Okay. Great. Thanks again.

Thanks, Bob.

Thank you. Our next question comes from the line of Gabriel McClure, Private Investor. Please proceed with your question.

Good morning, Meryl.

Hi, Gabe.

Hi. So I had a couple of questions and I would like to at the risk of sounding like a broken record, also congratulate you on another great quarter.

Thank you.

Yes. So we had a nice jump in net investment income. It looks like it's accelerating. And I was just going to see, if you could give me a little color on why that happened? And then maybe how I should think about that number in the quarters throughout the year?

Sure. So the primary reason for the jump in our investment income is that we're generating a lot of cash from the profitability of the insurance company, and we're putting that to work in our investment portfolio. So as our investment portfolio grows, our investment income will grow. And then as I mentioned, we're also moving duration a bit. We're moving up the curve to take advantage of higher interest-bearing fixed income securities. So that will also have a positive impact on the investment income over time.

Thank you for your insights. I have another question for you. There are several well-known insurance executives who discuss their concept of value for their companies, referring to it as intrinsic value. I'm curious if you take the time to consider your own perspective on the intrinsic value of Kingstone compared to market value or book value. If so, I would appreciate it if you could share your thoughts.

So I don't really have anything to share. I mean, we certainly think about the value of Kingstone relative to the stock price and what we can do to increase our value, but I don't really have anything to share with you, Gabe.

Okay. Very good. Thanks again.

My pleasure.

Thank you. Our next question comes from the line of Jon Old with Long Meadow Investors. Please proceed with your question.

Hi, Meryl. Thanks again for everything. Great start to the 2025 year. So, Bob asked about the CFO search, and you provided an answer to that. One of my questions was regarding your past discussions about potentially exploring other jurisdictions or states. What is the current status on that process? Are you still primarily focused on New York at this time?

Our strategy for 2025 is to maintain our focus on downstate New York and take advantage of the current hard market to drive profitable growth, while ensuring we effectively execute the AmGUARD transaction. I believe this is an opportune time for Kingstone to evaluate expansion into other geographies, as we have a product that aligns well with risk rates and a strong, adaptable team. There are numerous states nationwide that require additional capacity in a challenging homeowners market. I understand some investors may be worried about our expansion given our past, but I want to reassure you that we are not the same company we were in 2017. We have learned from previous mistakes, particularly our product's misalignment of risk and rate, which led to adverse selection. We have confidence in our current product and will approach any expansion cautiously and thoughtfully. As we reach final decisions, I will keep you informed. This strategy will be for 2026 and onwards, with no anticipated impact this calendar year.

Got it. Thank you very much. Appreciate it.

My pleasure.

Thank you. Ladies and gentlemen, there are no other questions in the queue. I'll turn the floor back to Ms. Golden for any final comments.

Great. Well, thanks for joining the call today and we appreciate your continued support. Have a great day.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.