Greetings, and welcome to the Kingstone Reports Second Quarter 2015 Financial Results. 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. I will now like to turn the conference over to your host today, Mr. Adam Prior of The Equity Group. Please go ahead sir.

Thank you very much, and good morning everyone. Yesterday afternoon, the company issued the announcement of Kingstone's 2015 second quarter results. We will be utilizing a slide show presentation as an accompaniment to this call. This presentation is available on Kingstone Companies’ website 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 you to review this 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, forecast, or similar words are used to identify such forward-looking information. 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 the companies, including risk regarding the insurance industry, economic factors, and the equity markets generally, and the risk factors 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 of the date on which they are made, and the company and its subsidiaries undertake no obligation to publicly update or revise 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 our, 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’d like to turn the call over to Mr. Barry Goldstein, the Chairman and CEO of Kingstone. Please go ahead, Barry.

Great, good morning everyone. I’m joined today by Victor Brodsky, Kingstone's Chief Financial Officer, as well as Ben Walden, our Senior Vice President and Chief Actuary. I’ll begin today’s call with a discussion of our financial results, our growth, and the competitive elements within our target markets and also discuss changes in our reinsurance program. Ben will then discuss our underwriting performance and describe the reinsurance structure in greater detail. Victor will review some specifics of our financial results. And then finally I’ll return for a few closing remarks. To begin, Kingstone generated excellent financial results in the second quarter; it’s a milestone for us as we achieved our 20, 20, 20 targets. We were able to deliver 21% premium growth in our continuing lines of business, our combined ratio was 68.5% resulting in an underwriting margin of 31.5%, and quarterly results translate to an annualized return on equity of 22.9%. Ding, ding, and ding. Diluted earnings per share were $0.32, an increase of 78% over the last year’s second quarter. Our combined ratio for Q2 excluding catastrophes was an excellent 65.4%, more than 5 points better than the second quarter of last year. For the six month period, the ex-cat combined ratio was 67.4% or 3.4 percentage points better than that of the first six months of last year. Over the past 12 months, we’ve increased our policies in force count by 18% and after excluding the commercial auto book runoff, the increase was 20%. The demand for our personal lines products, homeowners dwelling in the like remain high. As we mentioned in our last conference call, we have seen additional competition in our markets but feel that we were well equipped to grow due to the excellent relationships we enjoy with our selected producers. These are relationships that…

Thanks, Barry. Before moving to a discussion of our loss ratio, I will provide additional details on our new reinsurance structure. In the accompanying slide presentation, we provide highlights of the new agreements and a comparison to the structures of the prior two treaty years. As Barry noted, we are very pleased with the coverage and terms we obtained this year. First, I’ll start with the personalized quota share treaty. This treaty has the largest impact on our business since personal lines make up 73% of direct written premiums. As planned, this year, we reduced our ceding percentage from 55% to 40%. In addition, the new treaty is on net of catastrophe reinsurance basis as opposed to the gross arrangement that existed in prior years. As Barry referenced, under our net arrangements, all cap reinsurance coverage is now purchased directly by the Company instead of sharing in this purchase with quota share reinsurers. This new structure reduces the adverse impact that a cat event can have on ceding commissions, while improving the minimum commissions to be earned on the ceded premiums. In the new catastrophe reinsurance program, we have purchased protection for a single cat event up to a limit of $176 million as compared to $137 million for the expired treaty. As a result of continued growth, we needed to purchase a higher limit of cat reinsurance to keep the same level of protection. Based on the blended results of the two most commonly used cat forecasting models, this ensures that we’re again protected up to a one in 145 years storm event. When comparing the coverage purchased this year on an apples-to-apples basis to that purchase last year, the pricing change for our program was a 10.8% decrease. However, as Barry noted, we also purchased reinstatement premium protection…

Thanks, Ben. I’d like to start off talking about our combined ratio. As Ben mentioned, our net combined ratio for the quarter was 68.5%. The components of the combined ratio are the net loss ratio and net underwriting expense ratio. Ben has already discussed our losses for the quarter and our 43.9% net loss ratio, which includes the effects of severe winter weather. Our net underwriting expense ratio was 24.6% this quarter compared to 24% in the second quarter of 2014. The comparison of the net underwriting expense ratio between quarters is impacted by the reduction of our quota share ceding rates for the prior year's treaty on July 1, 2014. The reduction in quota share ceding rates increased on net earned premiums which impacts net underwriting expense ratio by increasing the denominator of the ratio. The three components of the net underwriting expense ratio are; first, commissions paid to our select producers; second, other underwriting expenses, which is the overhead required to run our business; and last, the ceding commissions we receive from our quota share reinsurance partners. Commission expense as a percentage of premiums written remains fairly constant except the additional commissions we paid to our select producers as a bonus. This quarter we increased the estimated bonus compared to the second quarter of last year. Other underwriting expenses include the costs related to the writing of insurance policies, regulatory fees and the overhead costs of running our business. Other underwriting expenses as a percentage of direct written premiums increased to 12.8% this quarter from 12.5% in 2014. The increase stems from employment costs and rate increases in state assessments and premium taxes. I would like to address employment costs. During the quarter, our salaries and net employment cost increased by 16.8% compared to the second quarter of…

Thanks, Victor. As previously discussed, Kingstone governs itself by adhering to a narrow set of core values. One of these is remembering our obligations to policyholders is paramount. We never lose sight of that fact and we maintain a conservative operating leverage, a conservative ratio of net premiums written to surplus to make sure that we have with what to fund our obligations. We will continue to utilize quota share reinsurance to allow us to take on the business and share the risks of doing so with others, but we will continue to reduce the ceding percentage and ultimately eliminate it by July 2017. We continue to point to our 20-20-20 targets which were not [ph] formal measures or expectations of the metrics that I used to gauge who we are doing and how I motivate my staff. One of our long-term goals is to have a simple to understand and transparent business model delivering consistent underwriting profits, all the while building a conservative investment portfolio. By diversifying in products and geographies, we are pointing ourselves towards another of our long-term goals that is to achieve an A rating from A.M. Best. To conclude, our growth rates continue to be strong. We're retaining more of the business we write at favorable terms and we are doing so without straying from the core underwriting principles or philosophies that we have been practicing for decades. With that, operator, let's open it up for questions.

Thank you. [Operator Instructions] Our first question comes from John Barnidge with Sandler O'Neill. Please proceed with your question.

Congrats on the results. I had a few questions. Other than the P&C companies like Lyft and Uber, where are you seeing the largest drivers of premium growth coming from?

That's really what’s driving all of the physical damage business. So if you're looking outside of that line of business, our homeowners and dwelling products continue to grow, but not nearly at the rate that the Uber and Lyft policies are. We are looking at a year-over-year doubling in the volume of business we are writing there.

Absolutely. What is behind the material improvement in the personal lines loss ratio in the quarter?

I'm going to let Ben answer that one.

Yeah. So, first of all, for personal lines, this was one of the first quarters where we had significant favorable loss development, so that did help. Also, we did not have any significant lingering impact from the winter weather in the first quarter. And overall frequency and severity was a little bit better than what we saw last year. So personal line was trending well for us.

John, you will recall that Ben joined us right at the end of the fourth quarter of 2013 and he is the first staff in-house actuary, our first – and Ben took – I didn’t take a lot of time to get things in order, but I think what you’re seeing now and you probably would have seen in the first quarter as well, if it wasn’t for the how severe the weather impacted our results. But we’re not being dinged by last year or the year before or five years before under-reserving. We feel like we are adequately reserved on all lines of business and we hope to be able to deliver a yield without any adverse development.

Okay. And then on the flip side, the commercial lines’ loss ratio seem to have deteriorated quite a bit, what drove that?

On the flip side, we did have a little bit of upward development on the commercial line side, some larger claims developed during the quarter that affected the calendar quarter loss ratio. However, business is still running profitably, although at a little bit higher loss ratio than we originally expected.

Okay, great. My last question, AllState, as you’ve probably read has been – seen increased severity and frequency, are you seeing much of that? I know, you briefly touched on it when talking about the personal lines loss ratio, but are you seeing any of that in any of your auto lines?

No, and not. I mean, it’s in – and you’re right, AllState reported one quarter with increased severity and frequency and the reaction wasn’t very kind from the investing community. But then it wasn’t just AllState. GEICO chimed in with similar type of results and maybe Progressive hasn’t said they have found those as of yet. But the – I think the basic reason for that increase at least the way I’ve read it is an increase in miles driven, particularly due to the decline in gasoline prices. So the cars are on the road more than they had been giving rise to these things. The business that we write and remember we’re getting -- we’re just about out of the commercial auto line, but the lines of business that we write aren’t gasoline price dependent, they are demand dependent. And while we have cut back on the number of vehicles that are covered under our commercial auto, we should see a decline at least in total dollars of incurred losses. But the Uber cars, the Lyft cars, that really shouldn’t change much and while there had been talk to limit the total number of Uber and Lyft cars in New York City, that might have given rise to an increase if there was increasing demand, but not an increasing amount of cars. But that didn’t happen, the Mayor has decided to not move forward on his proposal and we continue to see a growth in the number of vehicles that matches the demand hopefully. So, I hope that answers your question.

It does, thank you very much.

My pleasure.

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

Hi, good morning. I wanted to ask a question on the net premiums earn pattern and with commercial side shrinking on purpose, was there any return of premiums there or is this just being run-off as the policy would expire?

On the commercial auto side, the premiums are just being run-off. We are down to the point – what we have, about 300 cars?

Yeah, just over 300 cars.

Yeah, it’s become – it’s more conversation than it’s worth at this point. The bottom line is we try to fix the thing finally. Maybe I waited too long, but I raised my hand and said, that’s enough. It doesn’t do me any good, but when I watch the other companies out there, finding themselves falling into the same problems in writing commercial auto, I am glad I will be adequate by this time next year, let’s put it that way. But I don’t think I had a material effect on the change in the pattern. I think what you’re seeing for the premiums earned is the fact that the return premium we received last July, when cutting back on the quota share from 75% to 55%, those premiums are earned through really at a little bit different rate than a normal premium would be earned. It still takes 12 months, but because we are taking in mid-term premiums, keep in mind, when we do the cut off, the carriers returning to us the percentage of unearned premium that they’re no longer entitled to, but some of those policies could have been written 11 months before, to some five months before and what not, and it has to do with a month’s old [ph] or month’s growth rate that makes – it makes the computation hard to follow. And really a question like this is one of the reasons I think that getting our story clarified, getting rid of the quota share, making this totally transparent will let the investing public see the true value of our book of business.

Okay. So the pattern should naturally normalize maybe in the next – in what way at least we would expect it to normalize in the next few quarters?

Yeah, but we’re going to have the same thing happen again, Ken, because we had another cut off in this time back from 55% to 40%, so you will see – I think you’ll see a similar pattern. The percentage of the cut back is very similar, the percentage of returned premiums is pretty much similar, the dollar value is going to be much hard because of the book of business growth.

Okay.

And I am sure, if you want to go over the mathematical details of this offline, we will be more than happy to help you.

Great. On the reinsurance side, I understand that you talked about the positives on the reinsurance business and the restructuring, can you talk about just specifically what you gave up, what is the main thing that maybe has impacted in the short run operationally to make that transition, and on the numbers basis mainly, is it one percentage point on the return on equity or is it from an EPS standpoint, if there is a way to quantify kind of what did you give up on a yearly basis to counter the big losses that are experienced if there is a major storm in the future?

Yeah. Maybe, I wasn't clear. What we traded off, we could have increased our margins if we re-upped a program in the 2015-16 in the same way we had it for the prior year. On the catastrophe side of it, when you put it on an apples-to-apples basis as Ben said, it was almost 11% decline in cost, but what did we do? We didn't take that decline in premium and bring it into our earnings. What we chose to do was to better product downside. For example, we have a $4 million retention on our quota share and a $4 million for a CAT event with the same $4 million a year before. So if in 2016’s winter the winter storm losses equal or actually exceed $4 million, we have the equivalent of a CAT claim. If we had not chosen to be more protective, that $4 million layer would have gone significantly higher. We purchased reinsurance premium protection for the first time and used up some of that savings we otherwise could have just put in our pockets. But on an overall basis, I think it’s reasonable for you to assume that our actual cost, if you want to equate it to $1 of premium, it hasn't changed in a material way at all. It wouldn't have a material impact, it wouldn't have a penny impact on our earnings or any percentage change to our ROE. We just got more conservative and frankly met with, we were able to get better results, negotiating with the reinsurers by giving ourselves better protection and allowing them to earn the premiums that we were willing to pay. We just asked more for those premiums. I hope that explains what you're looking for.

It does. You were talking about you are looking to get an A rating from A.M. Best, what premium surplus level are you comfortable with and what else would you really need to do at least in your opinion to get?

I think it's going to be a matter of time, I don't think this is the -- at who we are today, it’s not a one and done type of thing. We started out with no rating. We've gotten ourselves to be one notch below an A rating from Best. The next notch is going to take us some time. We need to continue our diversification strategy. We need to continue, I think, our net written premiums to surplus ratio out of the low 1.5 to 1 is fine. We've diversified our product mix, albeit, sometimes things grow out of proportion and while the growth rate in personal lines has stayed in an elevated level, running back on the commercial auto premiums makes the personal lines a higher percentage of our total kind of by definition. But I would say for us to move forward to an A rating, it's going to take time, it's going to take scale and it's going to take geographic diversification and those are all things that we approached on already. I hope that answers your question.

Our next question comes from Steve Covington with Stieven Capital. Please proceed with your question.

Good morning. Actually this is Joe Stieven. Listen, all my fundamental questions have been answered, but I will ask you this. With the strength in your results, and I know you guys are growing rapidly, but how much room do you now have to expand the dividend or do you sort of just keep dividend level the same and just keep growing the amount of business that you end up putting on your balance sheet. So that's my question. Thank you and great quarter.

Thanks so much. And we had a board meeting the other day, probably the longest topic of discussion was the dividend. And I do get questions from people of, you’re limiting your leverage, why are you paying a dividend in the first place? The other side of the table is well, you’ve grown your investment income so dramatically, the amount of dividend you are paying at least as it relates to the amount of investments has declined, don’t you have a lot of room left? Ultimately, what we decided was to continue the discussion and not do anything, keep our fingers crossed that the next season of weather we go through will be a clean one and will address the dividend level at the next meeting. I hope that gives you a little bit of color as to that we do think about it, but we’re not making any change currently.

Okay. Well, just keep up the results. That’s great. Thank you.

Thank you.

With that, we’d now like to turn the call back over to management for closing comments.

Great and thanks, everyone. We look forward to meeting each of you again and we look forward to any feedback you may have. Thank you.