Greetings, and welcome to Kingstone Companies’ Q1 2021 Financial Results and Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Amanda Goldstein, Investor Relations, Director. Please go ahead.

Thank you very much, Brock, and good morning, everyone. Yesterday afternoon, the Company issued a press release detailing Kingstone’s 2021 first 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. For more information, please refer to the section entitled factors that may affect future results and financial condition in Part 1 Item 1A of the Company’s Form 10-K for the year ended December 31, 2020, along with the commentary on forward-looking statements at the end of the Company’s earnings release issued yesterday. In addition, our remarks today include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to the GAAP figures, please see the tables in our earnings release. With that, I’d like to turn the call over to Kingstone’s CEO, Mr. Barry Goldstein. Please go ahead, Mr. Goldstein.

Yes. Thanks, Amanda, and good morning, everyone. We are pleased you can join us on this our first quarter of 2021 conference call. In preparing for this call, I was reminded of what was going on last year at this time. And I can only say how thankful I am that we are now in so much of a better place. I want to again share my appreciation to all those that enabled the U.S. to be in this position, and to our producers and employees who continue to put the needs of their clients and our policyholders first during these most difficult of times. One thing that I love about running an insurance company is that it’s really two businesses. It’s a business of underwriting, charging premiums to all so that the claims of the few can be covered. Second is the business of investing the premiums generated by those underwriting operations. We think about our ability to deliver a return on equity, and here we get two shots at the target. This quarter’s results are a perfect example of that. As a Northeast property writer, winter is almost never a profitable season, and the first quarter reflects that. It wasn’t too bad, losing $0.25 a share in operating EPS. But our solid investment results offset almost all of the first quarter underwriting loss, leaving us with a small $0.03 per share overall loss per share. Today, I’ll focus my remarks on our investment results and I’ll let Scott and Meryl talk about our overall financial and underwriting results. And – sorry, okay. I’d like to – okay, I’m sorry. I’m losing my place here. We had a terrific investment returns in the first quarter, especially when contrasted with the prior year when the markets fell due to the…

Thanks, Barry. The company posted a first quarter net loss of $300,000 compared to a $5.4 million net loss for the same period last year. The improvement is primarily attributable to the gain on our investments this year and the dramatic decline in the financial markets last year as Barry just went through. For the last three months, the company had an operating loss of $2.7 million offset by an after-tax gain on investments of $2.4 million. For the prior year quarter, the company had an operating loss of $0.3 million and an after-tax loss on investments of $5.1 million. Kingstone reported a loss of $0.03 per diluted share for the three months ended March 31, 2021 compared to a loss of $0.50 per diluted share for the three months ended March 31, 2020. Direct written premiums for the quarter were $38.1 million, an increase of $1.4 million or 3.9% from the $36.7 million in the prior year period. The increase is primarily attributable to a $1.7 million increase in premiums from our personal lines business, offset by a $0.4 million decrease in the livery physical damage premiums triggered by the COVID-19 pandemic. The 32.8% increase in net written premium and the 28.4% increase in net earned premiums for the quarter were primarily attributable to the exit from the 25% personal lines quota share on December 30, 2020. Relative to a loss ratio comparison, the story is more about how great the first quarter of 2020 was compared to 2021, which was a more typical winter from a non-cat perspective. The net loss ratio for the quarter was 65.2% or 4.4 points higher than the 60.8% posted in the first quarter of 2020. Catastrophe losses were low 0.7 points in both quarters. The loss ratio increase in the quarter was…

Great. Thanks, Scott. I’m happy to report that our efforts to transform and modernize the company, coined Kingstone 2.0, continue in earnest. While I would like everything to move faster, the reality is that the initiatives we have underway like core system conversion and new product filings, just take a long time. That said, we are still on track to complete this phase by the end of 2022. As we have reported previously in these calls, we have been squarely focused on improving profitability. We have taken many rate increases and underwriting actions starting almost two years ago. This has slowed our growth. It’s always hard when you are one of the first companies to raise rates and the sales force and producers constantly share examples that demonstrate your lack of competitiveness, even though you know that you needed to increase rate to hit profitability targets. And then time passes and competitors start to raise their rates and tighten their guidelines as well. That’s the situation that we are now in. We expect that the changes we’ve been making to improve our profitability will start to show in our results post this winter quarter and our growth should tick up a bit as well. It’s been a while since Kingstone gave earnings guidance, but we’re feeling confident. So I wanted to share some projections with you. As communicated previously, we expect direct written premium growth for the full year in the 5% to 7% range. While I want to reiterate that we priced to achieve a return, some of our competitors have acknowledged that their previous focus on growth has led them to change course by raising rates and tightening guidelines. Our growth estimate does not anticipate the perceived favorable change to the competitive landscape. And we will adjust the range if needed as the year plays out. Further, we expect that 2021 full year combined ratio to be in the range of 88% to 92% absent a major landfall storm. This should allow us to achieve a return on equity for 2021 of 10% to 12%. Actions already taken are producing the anticipated results. We are in a good place. Now, I’ll turn the call back over to the operator to pull for and reply to the questions you may have. Operator, please pause for questions.

Thank you. At this time, we’ll be conducting a question-and-answer session. [Operator Instructions] Our first question today comes from Bob Farnam of Boenning & Scattergood. Please proceed with your question.

Yes, hi there. Good morning. So Meryl, I just wanted to go farther into the competitive landscape. So one of these things I always consider is when you’re raising rates, what happens to your retention ratios. But it sounds like your competitors may be raising rates as well. So have you started to see any improvement in retention yet?

Good morning, Bob. Thanks for your question. So our retention is pretty much flat versus last year. So the changes that we are seeing from our competitors have just started. So, but those wouldn’t impact our retention anyway. It’s really our rates that affect retention. So what – it will be impacted as our new business growth and we look forward to that.

Let me just add a little color there because, Bob, I don’t know if you remember, but in previous calls when we started to take rate, we mentioned that we didn’t see any appreciable change to the retention. I mean that was – to me, that was the – gave us the impetus to keep going forward and taking rate, because we weren’t losing customers. Kingstone has a great reputation in the marketplace, and we hadn’t raised rates in a long time, people understood and they stayed with us.

Great. Okay. So it sounds like if you’re going to go – if you’re going to grow more than you expect this year between the 5% and 7%, it’s going to come from new business rather than rate increases on your retained business?

Yes. I think that’s correct.

Okay. In terms of the investment income, Barry, so the $1.8 million was higher than expected and I appreciate the comments about the preferreds and the alternatives. Is this – should we use this more as a run rate going forward, this level?

Yes. I mean, I was trying to allude to the fact that we still have quite a bit of dry powder, and it was increased by the cash we received after cutting off the quota share. The reinsurers had to return to us the premium we had already paid over to them, but that they hadn’t yet earned. So that money needs to be put to work. So there should be a moderate increase in the amount of assets that are invested, but I couldn’t give you any more guidance other than that. I think it’s pretty fair to look at the current quarter and anticipate something very similar moving forward.

Okay. And actually the last question I have is something in a similar basis, the expense ratio of 42%, is that a good run rate to go – work off from this point based on the fact that you don’t have the ceding commissions coming back?

Meryl, you want to handle that? So, who’s going to handle that?

Sure. I can handle it. So I do think that you’ll see our expense ratio come down as time goes on. Of course, the – we’re going to feel the impact of the reduced ceding commission throughout the year, but we – all of these efforts that we’re making on Kingstone 2.0 will be gaining more and more efficiency. And so, I do think you’ll see our expense ratio coming down throughout the year.

Coming down from the – kind of the 42% level at this point?

Correct.

So that’s – I just wanted to confirm that. Okay, thank you.

Okay.

[Operator Instructions] The next question is from Andrew Balcom of Candy Capital [ph]. Please proceed with your question.

Hey, good morning. I hope you all are doing well. I know at the end of last quarter, you announced an ambitious buyback plan, and I was wondering if you had any updates on that or guidance on what you expect to – how that – how you expected that to play out over the next year or so.

Sure. Hey, Andrew. How are you doing?

I’m fine.

Been a while. Yes, so we did announce a buyback plan and as we haven’t yet filed the Q, but you’ll see in there that during the first quarter, we bought back a modest amount of stock, something less than 10,000 shares. But that process and that two-year anticipation of buybacks is in place and we’ll be reporting on that each quarter as we go forward. Hope that answers your question.

Yes, I think that’ll be something I’ll look out for sure. Thanks.

My pleasure.

The next question is from Paul Newsome of Piper Sandler. Please proceed with your question.

Good morning, and thanks for the call. I was hoping maybe you can just give us an update or refresher on the steps that Kingstone 2.0 will take over the next two years. And are there any couple of milestones that we should be expecting to see in that process that we should take note of over the next several quarters?

Sure, Paul. Thanks for asking about Kingstone 2.0, I kind of felt like no one ever ask about it. So I’m delighted that to talk about it, because that’s what I live every day. So in terms of the next two years. So, first of all, Kingstone 2.0 there is really a multiple things that we’re doing. One was adding a lot of new senior leadership to the company. So that’s in place. The second is, we need to get off of our legacy systems and that has started. Last December, we started that conversion to a company called WaterStreet, and that will continue throughout this year and into next year. And as we’re able to retire those legacy system, we will have a greater expense reduction. And so the next product that will be converted is our umbrella product and then our dwelling fire product later this year. So there is a rollout schedule that continues into next year. And then third major piece is introducing new products, all of our products reconfigure to be more sophisticated from analytics perspective and where we are on that is we’re hoping to launch New York homeowners later this year, and hopefully dwelling fire before the end of this year as well, but it depends on regulation and systems. And as I said in my remarks, it just goes slower than I would want it to go. And then our plan is to introduce all of those products to all of our states next year. So it’s homeowners, condo, renter and dwelling fire, new products in all the states. And so, as we have these calls, we’ll keep you posted on our progress there and those I think are key milestones for the company that will result in more profitable growth. Did that answer your question, Paul?

It did. Is there a long-term, post 2022 kind of expense ratio target that you think you can achieve after all of the – the benefits of 2.0 are in place?

Well, I can tell you, I think that Kingstone 2.0 will save us at least a point this year and maybe an additional point next year, of course, we’re aiming to lower our expenses more than that, but I – that’s our most recent estimate of the benefits from Kingstone 2.0.

Got it. A couple of points is [indiscernible] thank you. Appreciate it. And good luck for the rest of the quarter.

My pleasure. Thank you.

The next question is from David Adelman of Adelman Capital. Please proceed with your question.

Thank you. Hi, Meryl and Barry. My question is the 10% to 12% ROE that you’re talking about this year, that’s good, going into the right direction, I wonder just if given the cost cuts in new products and Kingstone 2.0 that you’re implementing. Do you think that the ROE over time obviously fluctuates depending upon the incidents in weather, et cetera, based in average, would you hope that it could be higher than that or do you have a goal or kind of, what are you shooting for?

Yes, thank you for the question, David and good talking with you. I think, yes, so what we’ve gone through and the measures we had to take that crimped our profitability and allowed us to realign the company to being almost exclusively a property writer. Those things are very much in the past now. I think a short-term goal of – or short-term target of 10% to 12% is very attainable, and as we alluded to before, that doesn’t anticipate much more than 5% or 7% growth happening. So if we can, the point being, I guess that the actions we took to improve upon our profitability are now showing up in our numbers so that we can look forward to growing that 10% to 12% in the future. But I’d hate to put a target on it. You may remember, and I think you invest a long ago when Kingstone was able to deliver high teens ROEs consistently, the competitive landscape changed that. I’m not saying that couldn’t happen again in our favor, but I’d hate to put a put a goal out there beyond the 10% to 12% that we’re talking about now. I hope that’s consistent with what you were thinking.

Right. Absolutely. Thank you.

Great, thank you.

There are no additional questions at this time, I would like to turn the call back to Barry Goldstein for closing remarks.

Great. Thanks everybody for listening in. I can only tell you that this job is getting to be a lot of fun again. I had a lot of fun. There was a couple of years that was like our walk through the desert, if you would. But we’ve come out on the other side and we’re having a blast. So stay tuned to these calls in the future, and please stay healthy until then. Thank you, Operator.

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