Greetings, and welcome to the Kingstone Companies Second Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. A 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 Ms. Amanda Goldstein, Investor Relations Director. Thank you, please go ahead.

Thank you very much, Donna and good morning, everyone. Yesterday afternoon, the company issued a press release detailing Kingstone's 2022 second 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, 2021, 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.

Thanks, Amanda, and good morning, everyone. We're pleased that you can join us for this second quarter 2022 conference call as in our prior call, with the elephants still present in the room. At the end of our remarks, I will share what I can and hope you understand that what I say is limited as per an existing nondisclosure agreement. Today, as an hour prior call, we will only accept questions from the analysts that cover this stock. But first let me talk about the state of Kingstone. Our focus remains squarely on returning Kingstone to profitability. It's not an overnight process, but much has already been done, and much is underway. I'd like to begin by reviewing the key changes we've made, and which we have focused on in order to improve our profitability. First, we have been and continue to take rate in all states. We're achieving this through a combination of rate filings, inflation garden increases, and adjustments to coverage to properly reflect increased replacement costs. Second, through the introduction of our new select product suite, which better matches rate to risk, we are targeting more profitable risk profiles. Select which is now live and over 85% of our footprint, and which will increase to more than 90% when our next state goes live later this quarter. Third, we developed and have implemented a proprietary model to enable us to better identify currently insured risk risks that do not meet our profitability standards. And fourth and last, we've made numerous changes to reduce our expenses. And I'm pleased to note that this effort, which has begun to bear fruit as a result of Kingstone 2.0, and that'll be discussed by Meryl. But one last thing before Meryl reviews our operating results, I'm not sure that I need to, but I do feel obligated to point out what many of you already know. Our premium rates are approved by the insurance departments of each state in which we operate and remain at that level until the next approved change. We cannot and do not flow through our increased costs as they occur, like so many other businesses can. Our loss and loss adjustment expenses are subject to inflation, supply chain issues, make repairs more difficult makes the repair processes take longer. So yes, we priced that in, but the rate impact is deferred. And our current results reflect the 9% to 10% inflation seen throughout our Northeast footprint. So with that, let me turn it over to Meryl to review our operating results for the second quarter. Meryl, please go ahead.

Great thanks, Barry. The company posted a second quarter net loss of $5.4 million and $0.51 per diluted share compared to net income of $1.3 million and $0.12 per diluted share for the same period last year. While approximately $0.33 per share of this decline was attributable to a spike in market interest rates and the decline in value of our equities and other investments, I will tackle the operations portion and Barry will rejoin and go over the investment portfolio. Direct premiums for the quarter were up $5.2 million from the prior year to $49.8 million most of this growth was due to rate increases. During the quarter our written premium increased by 11.6% while our policies in force grew only 3.3%. Similar to what we shared in the first quarter, we are adding premium at more than three times the rate that we are adding exposures. We expect this premium growth to continue and the delta between premiums and expected losses to widen throughout the remainder of the year. While we have seen our rates increase interesting we have also seen our policyholder retention increase, our retention is up in every major line of business we write. This along with a 20% increase in quota activity gives you a sense of the favorable competitive environment we are operating in. Net written premiums declined versus last year as a result of our entering into a new 30% personal lines quota share treaty. The net loss in LAE ratio was 66.9%, up 8.3 points from the prior year period. This increase from the prior year was attributable to two main items. First, we experienced an increase in fire severity due to some large fire claims, as well as the impact of inflation. While Q2 losses were elevated, I want to…

Great, thanks, Meryl. I also need to address the portfolio and as you know, we've always invested primarily in highly rated limited duration fixed income securities, and similar items that are meant to provide us with income while limiting our risk profile. We like all others have seen the dramatic rise in interest rates in the first and second quarters result in a decline in bond values felt most profoundly in the shorter maturities that Kingstone holds. A portfolio of realignment during late last year led us to holding better quality bonds, and a more diversified portfolio albeit at lower rates than previous and lower than available today. While these bond prices are down, and we are required to reduce their values, mark them to market and flow the change through our balance sheet as other comprehensive income. We have always invested with the intent of holding and not trading bonds. We fully expect that our A+ rated portfolio will pay off at par upon maturity, and the decline in other comprehensive income will be restored at the time, as rates have already begun to return and now are back to early Q2 levels, book value per share suffered by $0.57 in the second quarter and $1.30 year-to-date. Also suffering declines were our preferred stocks and fixed income ETFs, both being bond surrogates that behave in a very similar way to changes in rates. As these equities decline, we record those changes in our income statement, reducing our earnings. Realized and unrealized changes in our equity portfolio have reduced per share earnings by $0.33 for the second quarter and $0.67 for this six month period. Finally, I'd like to briefly address the business update, we provided in our earnings release late yesterday afternoon. Our Board and Management team regularly review…

Thank you. [Operator Instructions] Our first question today is coming from Paul Newsome of Piper Sandler. Please go ahead.

Good morning. Thanks for the call. I got a couple three questions here. I want to ask about the PIF growth and retention. And I guess I would like you to tie these thoughts and comments into what you were doing, or at least more details about what you're doing on the in force book to essentially improve the profitability of that. I know there are other things you can do. You know, looking at the [indiscernible] earned insured value and things of that nature? And I was a little surprised that retention improved. Because - in your books you're not profitable, you don't - to improve retention, right? You want PIF growth usually to shrink. So maybe you could kind of talk to - what you're doing to work that existing book into a more profitable state, besides just rolling it into the new product?

Yes, so I mean, there's a few parts of that question. I'll try to handle them, Paul. And I'll let Meryl correct me or embellish upon what I say first. I mean, your statement that retention, it sounds as though you think retention is a bad thing, when we're unprofitable. And the fact that the matter is, in most sections of our book, we are profitable. It's those - specific areas that have not proven to meet our requirements that we're targeting. I'm not going to tell you what our secret sauce is because I know we have competitors listening to this call. But at a minimum, we've eliminated our exposure to the high value market. We no longer write high valued homes, and over time, and we'll continue to eliminate those risks from our book. So that's the kind of thing I'm talking about. We have a lot of other pieces to that algorithm we've built. But again, I can't share that with you. In terms of Meryl, would you want to pick up anything here?

Sure Paul, we're taking rate, we're non-renewing unprofitable segments. We are working with unprofitable producers to move some of their business elsewhere. We're pulling updated replacement costs and making sure that our books are - our book is insured to value. So it's a combination of all those factors and others.

But - Paul, I think the operative thing here is we are selling new business. We're selling new business I mean, 80% of our business still comes from New York. So we're selling new business in New York and adding PIF account there while we're eliminating these unprofitable risks. So the small single-digit, I think it was 3% growth in PIF account this quarter is the net of new business ads that are far better priced and underwritten, and the elimination of those risks that we're targeting, you know, that we're targeting, getting away from. So I hope that - hope that gives you a little color to what we're doing.

It absolutely does. And then I want to ask about the net investment income level. It was excluding the unrealized losses, which I think is pretty normal this quarter for insurers. The straight up net investment income was a little bit lower than I expected. Is that the impact of the ETFs and - the other items that you mentioned?

No, because we are not in that.

Between stock market?

Yes I mean, then, we're going to publish our 10-Q. It's due on Monday afternoon, and we'll have that out timely. In that report, you'll see that in the quarter, we needed to make an adjustment and reduce our accrued interest receivable on a handful or I don't know - I shouldn't say handle a segment of Fannie Mae bonds. And it frankly, was a result of our third-party software processor. Having an overall accrual, we rely upon them, we rely upon their SOX-1 filing, but we had to take a one-time write-off of I think on a pre-tax basis, something north of $700,000. So you're going to see that as an item disclosed in the footnotes. But I think if you were to add back that charge, this quarter's investment income is pretty much where you'd expect it to be.

Thank you - so that should snap back?

Yes.

To levels?

It had nothing to do with 2022 at all.

Right and then finally, is there anything you could add about the rest of the capital structure, you've got some debt, this refinancing and obviously, I know there may be some limited comments you can make, but I'm getting a lot of questions [indiscernible]?

I'm sure you are, and while I could assure you is that we're not just cognizant of it, cognizant of it, but are actively working on that. And I would hope that we'll be able to share with you and everybody else, the progress we're making, but at this point, those bonds come due on December 30. We fully expect and will pay-off those bonds on a timely basis, as we do have an opportunity when we have the refinancing done to pay them off early. But the terms of those bonds makes it prohibitively expensive, because if we wanted to pay them off early, effectively we'd still have to pay the interest through December 30 with a minor discount. So I guess the answer to your question is, we're aware of it. We're working on it. We've got a lot of major activities going on at the same time. I think there's more than one elephant, but at least I've been talking about one. And I would hope that the confidence that our investors have had over the years, and which we've discharged our obligations timely without fail. Frankly, that's what's going to happen again and, but thank you for bringing that up.

Thank you. I'll let other folks to ask questions. Thank you for your help.

Thank you.

Thank you at this time, I'd like to turn the floor back over to Mr. Goldstein, President and Chief Executive Officer of Kingstone Companies for closing comments.

Well, thank you, operator and much appreciated. That concludes our call for today and thank you all for listening in. Hope to speak with you all very soon. Bye-bye.

Ladies and gentlemen, thank you for your participation and interest in Kingstone Companies. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.