Greetings, and welcome to the Kingstone Companies' Fourth Quarter and Year End 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Forrest Hunt, of The Equity Group. Thank you, sir. You may begin.

Thank you very much Christine, and good morning everyone. Yesterday afternoon, the company issued the announcement of Kingstone's fiscal 2014 fourth quarter and year end results. We will be utilizing a slide show presentation as an accompaniment to this call. The presentation is available on Kingstone Companies' Web site at www.kingstonecompanies.com. While we will not be referring to the entire presentation slide by slide, the structure of the discussion will mirror that of the slide show. We welcome each of you to review the presentation, and follow along. On this call, Kingstone may make forward-looking statements regarding the company, its subsidiaries, and businesses. Such statements are based on the current expectations of the management of each entity. The words; anticipate, expect, believe, may, should, estimate, project, outlook, and forecast, or similar words are used to identify such forward-looking information. The forward-looking events and circumstances discussed in this call may not occur, and could differ materially as a result of known and unknown risk factors, and uncertainties inspecting [ph] the company, including risks regarding the insurance industry, economic factors, and the equity markets just generally. The risk factors are discussed in the Risk Factors section of its Form 10-K for the year ended December 31, 2014. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as to the date on which they are made, and the company and its subsidiaries undertake no obligation to publicly update or provide any forward-looking statements, whether as a result of new information, future events, or otherwise. When discussing our business operations, we may use certain terms of ours [ph], which are not defined under U.S. GAAP. In the event of any unintentional difference between the presentation materials and our GAAP results, investors should rely on the financial information in our public filings. With that, I would like to turn the call over to Barry Goldstein, the Chairman and CEO of Kingstone. Please go ahead, Barry.

Thanks, Forrest, and welcome everyone. Joining me today is Victor Brodsky, Kingstone's Chief Financial Officer, as well as Ben Walden, our Senior Vice President and Chief Actuary. We're very pleased to have reported very strong results for the fourth quarter, completing what was an exceptional year for Kingstone. During the fourth quarter, Kingstone's policies in force increased, premiums grew, and we continued to benefit from the changes to our quota share treaties that went into effect in July of last year. This is a very large opportunity that exists for us in our home market of downstate New York. According to metrics just recently published by SNL Financial, Kingstone was ranked the 71st largest property and casualty insurer in New York State in 2014 based upon direct premiums written. In 2013, we were ranked number 84. When looking at homeowners, dwelling fire and the like, our biggest product group, Kingstone is now number 25 in New York, with a market share of just 0.75%, that's three-quarters of 1%, which sounds like a very small amount of changes when you consider that in our core business of homeowners we are now more than half the size of the Hartford in New York State, an icon in our industry. It's apparent that New York is an extremely large market, giving us plenty of room to continue to grow. We're using our larger capital structure and deploying the added surplus gains from the 2013 follow-on offering to take advantage of this opportunity. Our strengthened financial position has enabled us to retain more of the profitable business that we originate, while sticking to our conservative nature and not stretching our net written premium to surplus ratio beyond 1.5 to 1. The financial benefits of the added retention are reflected in our earnings as posted…

Thank you, Barry. Let me take a few moments to discuss the loss ratio for both the quarter, and the year. The fourth quarter 2014 overall loss, and loss to expense ratio was 49.7%, which was affected by a single loss of 1.4 million before reinsurance arising from the Christmas Eve house fire that Barry mentioned earlier. This event alone had an impact of 3.5% on the quarterly loss ratio, and contributed to our GAAP combined ratio of 76.4%. Even with this loss we achieved a strong underwriting profit for the quarter, and again reached our stated goal of a 20% underwriting margin. For the year, our overall loss and loss expense ratio was 52.2%, which drove the GAAP combined ratio of 77.1%. This was an exceptional combined ratio when considering that the first quarter of the year was adversely impacted by severe winter weather. The year end loss and loss to expense ratio for personal lines, by far our largest line of business, was an outstanding 38%. Within personal lines, the homeowners loss and loss to expense ratio was the best we've recorded in the last 10 years. The low loss ratio was driven by the absence of severe storm events, and below average large loss activity over the course of the year. The personal lines loss ratio includes both the impact of the house fire, mentioned previously, and the severe winter weather in the first quarter. Those two items affected the 2014 loss ratio for personal lines by 7.8 points. The 2014 loss and loss to expense ratio for commercial auto was 87.5%. As Barry discussed, last fall we made the decision to cease all new commercial auto production starting October 1st, and in February of 2015 the company decided it will not renew policies, starting with those affective May 1. Finally, I would like to describe for you the impact we see weather having on the first quarter 2015. Kingstone's preliminary results for the first quarter 2015 are affected by another unusually active winter season. Average temperatures this winter were far below average, and even colder than what was observed in 2014. Several cold weather events in February have increased pipe freeze and ice dam claim frequency compared to the first quarter of 2014. Although overall snow totals in the New York Metro area were slightly lower this year, there were several larger storms, in March, and associated losses will not be fully known until the end of this quarter. As such, we expect our results for the first quarter 2015 to be similar to what was reported in 2014 for the weather-sensitive lines such as homeowners and dwelling fire. At this point, I will turn it over to Victor Brodsky, our CFO to go through the financials.

Thanks, Ben. I'll briefly go through the highlights of both the fourth quarter, and the year. I welcome each of you to review our press release and filings if you have any further questions. First, I'd like to talk about our combined ratio. Our net combined ratio for the quarter was 76%. The components of the combined ratio are the net loss ratio, and net underwriting expense ratio. Ben has already discussed our losses to the fourth quarter, and our healthy 49.7% loss ratio. Our net underwriting expense ratio was 26.7% in the fourth quarter. For the year, our net combined ratio was 77%, an improvement of 12 percentage points from 2013. As Ben mentioned before, our loss ratio for the year was 52%. The net underwriting expense ratio was 24.9%. Let me now take a moment to discuss the three components of our net underwriting expenses which contribute to the net underwriting expense ratio. These components are, first, commissions paid to our select producers; second, other underwriting expenses which are the overhead required to run our business; and finally the ceding commissions we received from our quota share reinsurance partners. Commission expense as a percentage of premiums written remains fairly constant except for the additional commissions we paid to our select producers as a bonus. As the premiums written increased, commission expense increases have a similar rate. As Barry has noted in the past, maintaining a consistent and trusting relationship with agents is one of our core principles at Kingstone. Our other underwriting expenses include the costs related to the writing of insurance policies, regulatory fees, and the overhead cost of running our business. I'd like to point out that other underwriting expenses as a percentage of direct written premiums were 14% in 2014, a decrease from 14.9%, in…

Thanks, Victor. As we've discussed in the past, we keep a very simple set of goals here at Kingstone, which is what we call 20-20-20. That is, we point to a 20% growth rate or better, a 20% operating margin or wider, and hope for a 20% return on equity. During the fourth quarter we achieved the first two of these three, with premium growth at just under 24%, and an operating margin of just under 24% as well. Our return on equity unfortunately did not make the 20%. But I think 17.7% was a heck of a number to put up. Again, these are not our formal estimates. They are metrics I used to lead the company, and to guide, and gauge how we're doing. Our healthy growth rate continues. We're retaining more of the business we write, we're doing so without straying from the core conservative principles that we have practiced for so long. Operator, let's open it up for questions.

Thank you. [Operator Instructions] Thank you. Our first question comesfrom the line of John Barnidge with Sandler O'Neill. Please proceed with your question.

Good morning. I have two questions. One, could you talk about the competitive environment in the quarter as well as what you anticipate going forward? And two, could you discuss your expansion efforts outside of the State of New York, how are they progressing?

Okay. Two good questions; I'll take them in the order that you mentioned them. First, with respect to competition, we have seen one or two new competitors entering the marketplace in a very small, not very deliberate manner. But to be fair, the volume of business that they're booking at this point is far less than some of the incumbents have decided to give up. So, on a competitive basis I think we're probably better off at the end of Q4 than we were at the beginning. And we have not seen any real resurgence at all by the national carriers, and that continues until today. With respect to expansion outside of New York, we're still waiting to finalize our admission to the four states. The application is still in process. So I don't feel comfortable in releasing the names of the states that we're talking about. But I can say that they are four states that have a similar exposure to catastrophe, be it wind or wind and water, and we feel comfortable in using the expertise that we've gained in New York and expand out our core lines of business to those states as well. I hope that answers your question, John. Let me just embellish on something. We're also in the midst of an [inspection] [ph] effort into really where our home is here in the Hudson Valley. There’s four or five surrounding counties where we have a very low penetration. We've hired a marketing director for this area, and have begun signing up agents. We hope to have updated rules and rates some time in Q2 or maybe Q3 at the very latest. So I think you'll see more of a geographic expansion within New York State as well. That about cover it, John?

Yes, it does. Thanks a lot.

Okay, great.

[Operator Instructions] Our next question comes from the line of Ken Billingsley with Compass Point. Please proceed with your question.

Good morning. I just wanted to follow-up on a couple of things that you mentioned, just to clarify; the quota share plan and to reduce the amount of quota share you're using -- that will occur you say by the middle of this year, 40% to 45%, is that correct?

Yes. So, our treaty comes up for renewal as of July 1st.

And based on the quota share dropping to 40-45, what type of underwriting leverage does that target? I believe you're at 1.26 times on a stat basis now. Where do you see that moving you to?

Well, I think initially it may be somewhat above that, but on an overall basis we feel comfortable that we'll be within our guidelines. We'll be staying less than 1.5 to 1. I think -- if I were to look back, when we negotiated the treaty that governs us now, which was really July 1, 2013, and we put in there the opportunity for us to reduce the quota share to 55% as of July 1, 2014, we anticipated growth in our writings, we anticipated the fact that we would be able to do it had we raised the capital that we did. But I don't think -- we underestimated our growth, and that's why our leverage is probably a little bit less than I'd like it to be. I think we could take on a little bit more risk than I think on a stat basis with something like 1.2 to 1 or a little bit on the GAAP basis, a little bit less than that now. So I feel comfortable in saying about 40% to 45%, but that could get refined a little bit better over the next month or two.

Okay. And just to clarify on the ceding commissions that you received, do the ceding commissions exceed your net expense to write the business? So essentially when you transition to writing it on your own paper -- if you were to write everything on your own paper, how would your expense ratio look versus what you're getting with the ceding commission?

Well, in the answer to the first part of your question, our minimum ceding commission is about five or more points more than what our expense ratio is. So I mean it's a nominal profit that we would get regardless of what our -- the loss ratio we put up is. This was something we were able to negotiate into the agreement after Superstorm Sandy, when our actual ceding commission was in effect below what our expenses were. On a going-forward basis, let me let Victor try to answer that.

Well, as of now our ceding commissions exceed the other underwriting expenses. So, of course we're going to expect the other underwriting expenses to go up somewhat, as the premiums go up, and the ceding commissions will go down if we reduce the quota share. At some point there's going to be a tip where it's going to reverse itself. So what that percentage is, that's something we're going to have to analyze and take into consideration.

And so as you bring -- I mean, if you were to bring all of the business on to your books and not use quota share, which I believe you stated is your ultimate goal, essentially how do you make up that 5% difference? I know some of that would be with a higher investment income, but is higher investment income enough to offset the gain that you're getting from the ceding commissions right now?

I think you maybe want to look at it from the other perspective. By eliminating the quota share -- I mean the quota share partners, they're very nice people and all, but I think they're doing this to make a living and not friends. What we'd accomplish is to clawback if you would from them that part of our profit that we're turning over in exchange for our use of their balance sheet. By eliminating the need for surplus relief, as they call it, or our need to lean on someone else to handle the amount of growth we have, we'll be able to earn an additional amount, which is essentially what they were earning, plus the amount of investment income will go up because we'll no longer - will be in control of a 100% of our cash flow as opposed to where it is now, where we essentially cede over to them $0.55 of every dollar. I think if you looked and you’ll find that maybe one of the key notions for 2014 is the fact that our EBITDA, I mean we did have the best year we ever had as a company, the single most profitable year we ever enjoyed, but our EBITDA was $8.7 million, and a lot of that has to do with the change in the quota share. I think what you can look forward to, I can't speak to what the incremental margins will be on the amount of reduced cede, but I can say we'll make more. I just can't say effectively how much at this point. I think a lot of that's going to depend upon interest rates as well.

Moving on to the weather that you guys touched on, I believe you said that this looks -- going to look a little bit like I believe the first quarter of 2014?

Correct.

Is that correct?

Yes.

And looking at '14, that looks like a little bit worse than '11 and the reason I ask that is I've heard a few other insurers mention that this looks a lot like 2011; was there some differences in maybe '11 versus '14, because it looks like '14 might have been a little bit worse.

I would prefer to compare '14 to '13, and quite frankly, I felt a little bit peculiar whining around about weather, I mean it's just the business that we're in. I can't take credit for good weather, and I sure don't like any criticize for the bad weather. But the fact is that from what we've seen to this point in March the claims frequency is about is about the same as it was last year. The severity really hasn't changed at all. And what you'll probably see as the growth in our losses during the first quarter that mirrors our explosive growth rate. So I guess what I'm trying to tell you is well, I think Ben and Victor and myself shutdown and try to internally budget out what we thought the first quarter would look like some months ago, and we anticipated a bad winter. But we didn't think it would be quite as bad as last year. Needless to say we were wrong. And this is three years in a row of bad winter weather.

On the 10-K, you're looking like you reserved -- it looks like you released about 1.2 million from the 2013 accident year. Typically you guys haven't released a lot of reserves after one year of season, and can you talk about what drove that?

Actually most of that release was related to commercial auto. Commercial auto has initially been set at a fairly conservative number for 2013 itself. The years prior to that however did have some significant adverse developments. We think we have the reserves now to the point where they are adequate, and we will not have further development going forward. But that 2013 year for commercial auto did worked a little bit favorable [indiscernible] to where it was initially projected [ph].

Let me add at this point that while Ben joined us in December of 2013, he came in and made as quick as he could the changes he thought were necessary. And during the year, he basically helped us to -- year 2014 we built an entirely self-sufficient claims department to handle liability claims only. So we've added complete new staff and additional staff to our regular staff. We've gone through and examined each of the open claim files. What you'll probably see if you go through the detail of our annual statement on a statutory basis is our number of cases declining -- open cases declining coupled with a higher average reserve per open case. So I think we've kind of caught [ph] up to where we -- and you could have said where we should have been before, but we've added skills. We've done it in a conservative way, and we're quite comfortable in where our reserves stand today.

Very good; and just to clarify with Ben, when you talked about '11 and '12, was that commercial auto increases?

That was, yes. It was during the year as Barry said we did a complete review of open claims. We took actions to strengthen our case reserves as well as IBNR reserves and that required us to strengthen the years prior to '13. '13 itself was already initially being set at more conservative levels last year. So we were able to take down that year a little bit, but the prior years continued to need strengthening.

Okay. Just wanted to -- so the delivery business that you're doing, that has made a lot of -- it's been hitting the headlines a lot recently to new players that announced agreements I believe with Uber to be their provider. I believe you guys are targeting the individual that's driving the car in the ride sharing part of the process. Can you talk about how this -- what Uber and Lyft are doing? Is there kind of risk of them going direct to these drivers to offer insurance through some of the big partnered up with [ph]? Or is that an opportunity for you to expand your business that way? Can you talk about the exposure and opportunities there?

Okay. So first, again, we participate only on the physical damage side. Comp in collision coverage is [indiscernible]. We've done that for many years. So we were really the beneficiary of the increase in volume that Uber had Lyft brought into the marketplace, where New York is very strict and I don't think -- I can't pretend to be familiar with what's going on in other states. But from a regulatory standpoint, Uber drivers, Lyft drivers are still regulated by the PLC in New York as of the Yellow cab and the Green cab drivers and owners. So there is a requirement for them to obtain commercial auto liability insurance. That's a line of business that we don't now write. And again, we provide just the physical damage. So, while cars associated -- must be associated with a base in New York City, there are requirements as to the [indiscernible] of the vehicle, I mean people don't drive around in 10-year-old taxi cabs, but what's happened is just many, many more vehicles being used, I think there was an article in the paper within the last week that the number of Uber vehicles now exceeds the number of Yellow cars. It's an industry and a tremendous amount of flocks right now. We've been to beneficiary of it, and we're happy to be the incumbent doing it. As far as Uber itself becoming a competitor of ours, I've heard nothing of the like. I don't anticipate that at all. We do have four carriers riding the required liability insurance in New York, and I've heard nothing at all with respect to any new or pending applications by other carriers.

Okay. And I was thinking more [indiscernible] relationship whether directed towards a particular insurer as opposed to Uber actually riding that specifically.

I mean, outside of New York, Uber handles things with another carrier differently, but I don't think the -- New York has its own rules that they must follow. They don't -- I don't think Uber likes to follow anybody else' rules, mind you. Besides I think when they get to the -- they say the buildings get really tall when you cross the Hudson. And I think that's what they have to deal with and are learning to deal with now.

Well, I appreciate you taking my questions. I just have one more, and I hope this will leave on a good note. It is regarding Sandy reviews, and you faced all the 60 minutes episode, and I know that's targeting more [indiscernible] and other -- some of the brokers and engineering firms, but I know a longtime ago you've had a lot of claims that for -- Sandy [ph] issues that essentially ended up being closed without any real issue at the time. Has that been settled with New York? Had DFS the initial review? And the second part of that question is with them looking at the broker's side of the business and their actions, does this just open the door, whether they're going to come knocking on the door just to kind of look through your files again?

Well, let me handle that in two ways. First, I would refer you to the footnote disclosure we have in our Form 10-K, but I'll summarize it. That Sandy occurred in October 2012, some time after in early February we received a request from the DFS for information concerning the Sandy claims we encountered which I think totaled somewhere between 3400 and 3500 individual claims. Let me say that all of those claims except those that are in suit which is about I think 20 have been settled. Since the time that the claims were presented to us and we reached out for and ultimately met with the DFS in May of 2013, presented them with a response to the query they had with regard to the complaints that were made against Kingstone. There were a total -- at that point of 61 individual complaints that were made and we provided them with documentation showing that 60 of the 61 complaints were invalid. And if I say "Invalid," I'm saying that this is Jones who paid us our homeowners' premiums 15 years without fail, suffered a major loss due to flood and she got nothing from Kingstone. And as you know, our homeowners' policy does not cover flood losses.

Right.

So, it was an unfortunate circumstance Mrs. Jones, it's just -- that's not our job, but we met with the department in May of 2013, and at least today at the end of March of 2015, we have not heard one word since. So with respect to the document request, we feel as though we've been responsive. I think we were prudent in how we handled that. We didn't go around swinging like some of our competitors did. We handle business like [indiscernible], and we'll always handle things like that. With respect to the 60 minutes piece, and how some of the "Write Your Own Flood Companies" were targeted, and the engineer that was associated with some of those clients; thankfully that we've nothing to do with that. I have no knowledge of it. Certainly it is something that caught the department attention and they have asked for additional information of all carriers at this point. But again, since we don't cover flood, we have no issue there with respect to the use of engineers. We do use engineers, but we do not ever touch an engineer's report or ask or even discuss with an engineer having construct his report. I mean to me, that's not so much being ensured to insurers. It is a fraud issue, and that's obviously outside the things, outside of the conduct of a company that's a 128 years old and wanting to stay around for another 128 years.

I understand. Well, I know obviously the fire was -- the fire is for the quarter, but outside of that, congratulations on following through on your business plan for this year.

Great. Thank you, John.

[Operator Instructions] Thank you. It appears we have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Okay, great. Well, Ken, thank you for your kind words at the end. 2014 was an outstanding year. We did continue with the game plan we set out. We stay on that same path, and we're happy to do so. We thank you for all your comments, and should anybody have any further questions, or want to provide any further feedback, please get in touch with me. I'll be happy to take your calls.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.