Q4 2023 Kingstone Co Inc Earnings Call
Operator: Hello, and welcome to the Kingstone Companies Incorporated fourth quarter and full year 2023 earnings conference. If anyone should require operator assistance, please press star zero on your telephone key. A brief question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone key.
Hello, and welcome to the Kingstone companies incorporated fourth quarter and full year 2023 earnings conference call. If anyone should require operator assistance. Please press star zero on your telephone keypad.
Brief question and answer session will follow the formal presentation can you may be placed in the question queue at any time by pressing star one on your telephone keypad.
Karen Daly: At this time, I'd like to turn the call over to Karen Daly, Vice President of the Equity Group and Kingstone's Investor Relations Representative. Karen, you may begin. Thank you, Kevin. Good morning, everyone.
At this time I'd like to turn the call over to Karen Daily Vice President of the equity group and Keystones Investor Relations Representative Karen you may begin.
Karen Daily: Thank you Kevin Good morning, everyone joining us on the call today will be Chief Executive Officer, Meryl Golden and Chief Financial Officer, Jennifer about them.
Karen Daly: Joining us on the call today will be Chief Executive Officer Meryl Golden and Chief Financial Officer Jennifer Gravelle. On behalf of the company, I would like to note that this conference call may include forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from projected results. Such 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 Factors That May Affect Future Results and Financial Condition 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 our 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, you may begin.
Karen Daily: On behalf of the company I would like to note that this conference call May include 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.
Karen Daily: We're looking statements speak only as of the date on which they are made and Kingstone undertakes no obligation to update the information discussed.
Karen Daily: For more information please refer to the section entitled factors that may affect future results and financial condition in part one item one a of the company's latest Form 10-K. Additionally, todays remarks may include references to non-GAAP measures for a reconciliation of our non-GAAP measures to GAAP figures. Please.
Speaker Change: See the tables in our latest earnings release with that it's my pleasure to turn the call over to Meryl Golden Merrill you may begin.
Meryl S. Golden: Thanks, Karen. And good morning, everyone. As I reflect on my first six months serving as CEO of Kingstone, it has been a journey of immense learning, and I am truly honored to have been entrusted to lead this great company. I want to thank our investors for your feedback leading to enhanced transparency and to inform you that we now have an investor presentation on our website with additional data that might be of interest. It has certainly taken longer than we had hoped to get it right, but I can proudly say that we have completed the turnaround, and Kingstone is again returning to profitability. We are thrilled to again be positioned for consistent profitability and growth. Our products are priced right, our policyholders are insured to value, business written in the select product is producing a materially lower frequency than our legacy product, indicating our advanced segmentation is working, and the reduction in our expense ratio gives us a competitive advantage at a time when there are few active competitors in the market. I could not be more enthusiastic about our future.
Meryl S. Golden: Thanks, Karen and good morning, everyone.
Meryl S. Golden: As I reflect on my first six months, serving as CEO of Kingstone. It has been a journey of immense learning and I am truly honored to have been entrusted to lead this great company.
Meryl S. Golden: I want to thank our investors for your feedback leading to enhanced transparency and to inform you that we now have an investor presentation on our website with additional data that might be of interest.
Meryl S. Golden: It has certainly taken longer than we had hoped to get it right, but I can proudly say that we have completed the turnaround and Kingstone has returned to profitability. We are thrilled to again be positioned for consistent profitability and growth.
Meryl S. Golden: Our products are priced right. Our policyholders are insured to value business written in the select product is producing a materially lower frequency than our legacy product, indicating our advanced segmentation is working.
Meryl S. Golden: And the reduction in our expense ratio gives us a competitive advantage at a time when there are few active competitors in the market.
Meryl S. Golden: I could not be more enthusiastic about our future.
Meryl S. Golden: Returning to profitability is not just a financial milestone. It's a reflection of our commitment to sound financial management and operational efficiency, which has been unwavering. Our return to profitability is a product of the hard work, dedication, and perseverance of every member of the Kingstone team. Our transformation journey has been marked by bold decisions and an intense focus on execution. The past few years have been a period of profound change, growth, and adaptation. The benefits of Kingstone 2.0 and Kingstone 3.0 are now flowing through to our income statement and doing so at an accelerating rate. Our numbers speak for themselves.
Meryl S. Golden: Returning to profitability is not just a financial milestone, it's a reflection of our commitment to sound financial management and operational efficiency that has been unwavering I returned to profitability as a product of the hard work dedication and perseverance of every man.
Meryl S. Golden: <unk> of the Kingstone team.
Meryl S. Golden: Our transformation journey has been marked by bold decisions and an intense focus on execution.
Meryl S. Golden: The past few years have been a period of profound change growth and adaptation the.
Meryl S. Golden: The benefits of Kingstone, two O and Kingstone three O are now flowing through to our income statement and doing so at an accelerating rate our numbers now speak for themselves you can see this in the fourth quarter results and it will become even more apparent in our overall results as the noncore.
Meryl S. Golden: You can see this in the fourth-quarter results, and it will become even more apparent in our overall results as the non-core business continues to run off. I am extremely optimistic about the results that Kingstone can deliver in 2024 and beyond. We have successfully taken a series of actions since year end 2022 that resulted in a rapid reduction in our non-core business. As of December 31st, our non-core premium declined by 40 percent, and policies enforced by 48 percent year over year. In the fourth quarter, we obtained regulatory approval to withdraw from New Jersey in line with our strategy and feel confident that we will reduce our non-core policies by 80 percent by the end of 2024, two years after starting this initiative. We continue to adjust rates to stay ahead of loss trends and inflation. During the quarter, we increased rates 20 percent in both our New York legacy and New Jersey homeowners products, in addition to rate changes in other states, as well as increased replacement costs.
Meryl S. Golden: Business continues to run off I'm extremely optimistic about the results that kingstone can deliver in 'twenty 'twenty four and beyond.
Meryl S. Golden: We have successfully taken a series of actions since year end 2022 that resulted in the rapid reduction in our noncore business at December 31st our noncore premium declined by 40% and policies in force by 48% year over year in the fourth quarter, we obtained.
Meryl S. Golden: Regulatory approval to withdraw from New Jersey in line with our strategy and feel confident that we will reduce our noncore policies by 80% by the end of 'twenty 'twenty four two years after starting this initiative.
We continue to take rate to stay ahead of loss trends and inflation during the quarter, we increase rates, 20% and both are in New York Legacy and New Jersey homeowners product. In addition to rate changes and other states as well as increased replacement cost so our policyholders continue.
Meryl S. Golden: So our policyholders continue to be insured to value; our core legacy, homeowner rate change was 24% for the full year. Our strategy to focus on our core business will allow us to continue deepening our producer relationships and to operate more profitably over time. To further strengthen our product offering and underwriting, this week, we announced a partnership with Zojax, an InsurTech firm that specializes in flood prevention, which will help mitigate the risk of water damage for our policyholders.
Meryl S. Golden: To be insured to value.
Meryl S. Golden: Our core legacy.
Meryl S. Golden: Homeowner rate change was 24% for the full year.
Our strategy to focus on our core business will allow us to continue deepening our producer relationships and to operate more profitably over time.
Meryl S. Golden: To further strengthen our product offering and underwriting this week, we announced a partnership with Zoe Jacks and insure tech firm that specializes in flood prevention, which will help mitigate the risk of water damage for our policy holders.
Meryl S. Golden: We managed our exposure to catastrophe reinsurance very conservatively by slowing our core new business, particularly those risks contributing most to our PML. And since the rates for catastrophe reinsurance did not spike as high as feared, the increase in catastrophe premiums was less than we planned for. During the quarter, we began lifting these new business restrictions, resulting in a higher new business growth rate for our core business, which is accelerating even faster in 2024. We also successfully completed the placement of our 2024 quota share treaty with improved terms. For 2024, we will see 27% of adjusted personal lines written premium down from 30% in the prior year and will receive a higher seating commission rate than last year as our reinsurance partners recognize the positive changes that we have made to our business. Before I turn the call over to Jen, I am pleased to share that, for the first time in several years, we are sharing our expectations and providing initial guidance for full year 2024. I want to remind you that our results are very weather-dependent, and we have assumed no major catastrophe events in this guidance.
Meryl S. Golden: We managed our exposure to catastrophe reinsurance very conservatively by slowing our core new business, particularly those risk contributing most to our P. M L and since the rates for catastrophe reinsurance did not spike as high as feared the increase in catastrophe premium.
Meryl S. Golden: Was less than we'd planned for <unk>.
Meryl S. Golden: During the quarter, we began lifting these new business restrictions, resulting in a higher new business growth rate on our core business, which is accelerating even faster in 2024.
Meryl S. Golden: We also successfully completed the placement of our 'twenty 'twenty four quota share treaty with improved terms for 'twenty 'twenty four we will see 27% of adjusted personal lines written premium down from 30% in the prior year and will receive a higher ceding commission rate than last year.
Meryl S. Golden: As a reinsurance partners recognize the positive changes that we have made to our business.
Meryl S. Golden: Before I turn the call over to Jenn I am pleased to share that for the first time in several years, we are sharing our expectations and providing initial guidance for full year 'twenty 'twenty four I want to remind you that our results are very weather dependent and we have assumed no major catastrophe events in.
Jenn: This guidance. We also assumed the same level of quota share and ceding Commission as we currently have and that our reinsurance costs would stay flat at our July 1st renewal with those assumptions our guidance is as follows.
Meryl S. Golden: We also assume the same level of quota share in Seating Commission as we currently have and that our reinsurance costs would stay flat at our July 1st renewal. With those assumptions, our guidance is as follows. We believe our core business direct written premium will grow between 12 and 16% year over year and will achieve a gap combined ratio between 88 and 92, earnings per diluted share between $0.50 and $0.90, and return on equity between 15% and 22%.
Jenn: We believe our core business direct written premium will grow between 12, and 16% year over year, and we will achieve a GAAP combined ratio between 88 and 92, earning.
Jenn: Earnings per diluted share between 50 cents and 90% and return on equity between 15% and 22%.
Jennifer Lee Gravelle: Our improved results are the culmination of the initiatives that have already been successfully executed, so we are confident that the benefits will become increasingly apparent in our quarterly results going forward. Our margins are increasing due to our efforts to increase premiums. At the same time, the reduction in the non-core business is improving our loss ratio, and the company's expenses have been reduced materially. With that, I'll turn the call over to Jen to review our financial results. Take it away, Jen.
Jenn: Our improved results are the culmination of the initiatives that have already been successfully executed. So we are confident that the benefits will become increasingly apparent in our quarterly results going forward.
Jenn: Our margins are increasing due to our efforts to increase premiums at the same time the reduction in the noncore business is improving our loss ratio and the company's expenses have been reduced materially.
Jenn: With that I'll turn the call over to Jan to review, our financial results take it away Jan.
Jennifer Lee Gravelle: Thank you, Meryl, and good morning, everyone. We're very pleased to report profitability during the fourth quarter, achieving a net income of $2.9 million, or $0.26 per diluted share. This is a very significant improvement from the same period last year when we saw a net loss of $4 million, or a loss of $0.37 per share. Core direct written premiums increased 7.1% to $47 million, while the non-core business successfully declined 40.8% during the quarter. On a consolidation basis, direct premiums written decreased slightly with price increases and new business premium in our core business offset by our planned non-core policy runoff. The full year direct premiums written were flat to the prior year period.
Jan: Thank you Marilyn and good morning, everyone. We're very pleased to report the profitability during the fourth quarter, achieving a net income of $2 9 million or <unk> 26 cents per diluted share. This is a very significant improvement from the same period last year. When we saw a net loss of 4 million or a loss of 37.
Jan: <unk> per share.
Our direct written premiums increased seven 1% to 47 million, while the noncore business successfully declined 48% during the quarter on.
Jan: On a consolidation basis direct premiums written decreased slightly with price increases and new business premium in our core business offset by our planned noncore policy run off for the full year direct premiums written were flat.
Jan: The prior year period.
Jennifer Lee Gravelle: Our fourth quarter combined ratio improved 24.4 points. Transcription by Transcription Outsourcing, LLC. The attritional loss ratio improved 7.3 points to 53.8%, and catastrophe losses were 10.7 points lower than the prior year period. There was no development of prior year reserves for the quarter.
Jan: Our fourth quarter combined ratio improved 24.4 points.
Jan: 89, 5%, primarily driven by a strong underwriting results coupled with lower catastrophe losses.
Jan: The attritional loss ratio improved seven three points to 53, 8% and catastrophe losses were $10 seven points lower than the prior year period.
Jan: There was no development on prior year reserves for the quarter. Our expense ratio was generally in line with the prior year period at 32, 7%.
Jennifer Lee Gravelle: Our expense ratio was generally in line with a prior year period at 32.7%. For the year, our combined ratio improved 8 points to 105.3 percent. The nutritional loss ratio improved 2.9 points to 65.3 percent. The catastrophe losses were 0.4 points lower than the full year of 2022, and there was no development of prior year reserves.
For the year, our combined ratio improved eight points to 105, 3%. The attritional loss ratio improved two nine points to 65, 3% catastrophe losses were 0.4 points lower than full year of 2022, and there was no development of prior year reserves.
Jennifer Lee Gravelle: Our expense ratio improved by 3.1 points to 32.9%. As outlined in our most recent shareholder letter from Meryl, we expect to receive further improvement in our expense ratio, forecasting a 29% net expense ratio in 2024. Net income increased 3% and 21.7% for the fourth quarter and full year, respectively. The increase was driven by higher interest rates earned on cash balances, and with regard to the improvement for the full year, there was a reversal of accrued interest income due to an accounting error in 2022. There was no correction necessary in 2023.
Jan: Our expense ratio improved by three one points to 32, 9%.
Jan: As outlined in our most recent shareholder letter from Merrell, we expect to receive further improvement in our expense ratio forecasting a 29% net expense ratio in 2024.
Jan: Net income increased 3% and 21, 7% for the fourth quarter and full year respectively.
Jan: The increase was driven by higher interest rates earned on cash balances and in regards to the improvement for the full year. There was a reversal of accrued interest income due to an accounting error in 2022, there was no correction necessary in 2023.
Jennifer Lee Gravelle: Equity holdings, including preferred shares, fixed income ETFs, mutual funds, and a hedge fund investment, increased by $1.5 million. Bond holdings, excluding those classified as held to maturity, increased by $6.1 million pre-tax, resulting in a $4.8 million after-tax increase to other comprehensive income and a $0.43 increase to book value per share. The effective duration of our fixed maturity securities is 4.1 years, with an average yield of 3.58%. Book value at December 31, 2023, was $2.81 per diluted share and $3.80 excluding AOCI.
Jan: Equity holdings, including preferred shares fixed income Etfs mutual funds and a hedge fund investment increased by $1 5 million.
Jan: Bond holdings, excluding those classified as held to maturity increased by $6 $1 million pretax, resulting in a $4.8 million after tax increase to other comprehensive income and a 43% increase to book value per share.
Jan: The effective duration of our fixed maturity securities is four one years.
Jan: With an average yield of 3.58%.
Jan: Book value at December 31, 2023 was $2.81 per diluted share and $3.80 excluding OCI.
Jennifer Lee Gravelle: We are very pleased with the progress we have made, leading to a return of equity of 9.7% during the fourth quarter. As Meryl mentioned earlier, we believe we can achieve a return on equity of 15 to 22% for the full year 2024. And with that, we'll open it up. Kevin
Jan: We're very pleased with the progress we have made leading to the return of equity of nine 7% during the fourth quarter.
Jan: As Mary mentioned earlier, we believe we can achieve.
Jan: Return on equity of 15% to 22% for the full year 2024.
Mary: And with that we'll open it up for questions Kevin.
Operator: You will now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star one on your telephone. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove requests. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1.
Kevin: Thank you well now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset.
None: Before pressing star one one moment, please while we poll for questions.
Operator: One moment, please, while we pull. Once again, if you'd like to be placed in the question queue, please press star one on your telephone. One moment, please, while we poll for questions. If you would like to be placed in the question queue, please press star 1 on your telephone. Our first question today is from John Old from Longmeadow Investors. Your line is now active.
None: Once again, if you have to be placed in the question queue. Please press star one on your telephone keypad one moment, please while we poll for questions.
None: Once again, if you'd like to be placed in the question queue. Please press star one on your telephone keypad.
None: Our first question today is coming from John <unk> from Longmeadow investors. Your line is now live.
Jon Paul Newsome: Thank you. Thanks, Meryl and Jen. What a year.
None: Thank you thanks, Marilyn John what are your thoughts.
Jon Paul Newsome: Thank you. Congratulations. Thanks, Jon. Yeah, so I'm just curious what level of I know you were talking about, you know, assuming no major storms, but what level of General Cat.
None: Congratulations.
John: Thanks, John.
John: So I'm just curious what level of I know you were talking about you know assuming no major storms, but what level of.
John: It's sort of general cat.
Meryl S. Golden: Unknown Attendee, Jon Newsome, Unknown Attendee, Gabriel McClear, Scott Preston, Kingstone Companies Inc. Help me and everyone else to understand that how much, How much non-cash? Appreciation, amortization, and interest is embedded in the guidance because I think your appreciation and amortization are elevated due to the terrific spending you did on software projects and such that's bearing fruit, but a lot of that will go away over time. So if you could just add a little commentary there, because I think your earnings are, you know, probably a little bit understated on a cash basis. Jon, let's start with... Sure. Go ahead, Meryl.
John: Or are you assuming in 'twenty four and then.
John: So that'll be helpful for you.
None: We and everyone else to understand that.
None: How much.
None: How much noncash.
None: Uh huh.
None: Depreciation and amortization and interest is embedded in the guidance because I think you're right.
None: Depreciation and amortization is there's elevated due to the.
None: Terrific spending you did on software projects and social its bearing fruit, but a lot of that will go away.
None: Overtime. So if you could just a little commentary there coming through earnings.
None: Probably a little bit understated on a cash basis.
None: John Let's start sure so but.
Barrel: Go ahead barrel sorry, yeah. So before I answer your question John I, just want to correct Jen when she was talking about net investment income. She said net income and so it was investment income that she was talking about that increased 3% for the year. So to your question about cats.
Meryl S. Golden: Sorry. Yeah. So before I answer your question, Jon, I just want to correct Jen. When she was talking about net investment income, she said net income. And so it was investment income that she was talking about that increased 3% for the year.
Meryl S. Golden: Sure. So to your question about CAAT, we've included seven points of CAAT in the plan for 2024. And that is based on what our trailing 12-year or so history has been of what we call PCS events, so normal catastrophe events and not like major hurricanes.
Barrel: So we've included seven points of cats.
Barrel: And the plan for 'twenty 'twenty, four and that is based on what our trailing 12 your or so history has been of.
Barrel: What we called P. C. S events, so normal catastrophe events and not like major Hurricanes. So seven points are included in the forecast.
Jennifer Lee Gravelle: So seven points are included in the four, Jen, do you want to take a shot at the non-cash question? A lot of the, I'm looking it up for you right now, Jon, I'm trying to find it in front of me here. Yeah, I don't have the file in front of me, Jon.
Jan do you want to take a shot at the noncash question.
Jan: A lot of these.
Jan: I'm I'm looking it up for you right now John I tried to find it in front of me here.
Jan: Okay.
None: Yeah, I I don't have to buy all of them in front of me, John but we're gonna have to revert back to you on that one.
Jennifer Lee Gravelle: We're gonna have to revert back to you on that one. Okay. But your depreciation amortization, when it's going, it's going down, and it should keep going down, because most of it is a three-year amortization. Correct. So I mean, a lot of that expense is going to go away over time.
None: Okay.
None: Depreciation and amortization line.
None: It's going down as we keep going down.
None: Is it the most of it is a three year ameren.
None: The amortization correct. So I mean, a lot of that expense is going to go away overtime.
Jennifer Lee Gravelle: Um... That is correct. That is correct. So that in itself is about a 20 Cent Kit, you know, eventually will go away.
None:
None: That is correct that is correct yes.
None: Yep.
None: In itself has about a <unk>.
Yes.
None: Yeah. Eventually will go away I just wanted to clarify that okay. Thank you very much and appreciate all your hard work you guys have done.
Jon Paul Newsome: Thank you very much, and I appreciate all your hard work you guys have done. Thanks, Jon. We'll get back to you with a more clear answer. Yeah.
None: Thanks, John we'll get back to you on a more a clearer answer.
None: Yeah.
Gabriel McClear: Thank you. The next question today is coming from Gabriel McClure of a private investor. Your line is now, Hey, congrats, Meryl and Jennifer, on a great quarter. Thanks, Gabe. Yeah. I just had a couple of questions. One, the diluted... and Basic Shares. There's a gap now there that didn't exist before. So did the debt investor, did he exercise his warrants there? What
None: Thank you. Your next question today is coming from Gabriel Mcclure from a private Investor. Your line is now live.
None: Yeah.
None: Yeah.
None: Yeah.
Gabriel Mcclure: Hey, congrats.
Gabriel Mcclure: Maryland, Jennifer on a on a great quarter.
Jennifer: Thanks Gabe.
Jennifer: Yeah.
None: I just had a couple of questions.
None: Wanted to.
None: The diluted.
None: Basic shares there is a gap now that didn't exist before.
None:
None: The debt investor to the exercises warrants or what happened there.
Meryl S. Golden: So I'll take that, Jen. So no, the warrants are not yet exercised, but per GAP, when you make a profit, there's a formula where you include some of the warrants in the share count.
None: So I'll I'll take that John So no the warrants are not yet exercised but per GAAP.
None: When you make a profit.
John: There is a formula where you include some of the warrants in the share count. So that's the difference for the quarter.
Meryl S. Golden: So that's the difference for the quarter. Okay, okay. And then, Kind of going forward, I know it's really early, but inquiring minds want to know, how are you thinking about capital allocation priorities now that we're starting to make some money, Meryl? Well, I would say that our top priority right now is our debt maturity. And as you know, we have $20 million of debt that matures at the end of the year. So we have nine months to figure out what to do.
None: Okay. Okay. Thanks for clearing that up and then.
None: Kind of going forward I know, it's really early but.
None: Hiring minds want to know how are you thinking about capital allocation priority now that we're starting to make some money on merrell.
None: Well I would say that our top priority right now is our debt maturity.
None: And as you know that or we have $20 million of debt that matures in at the end of the year. So we have nine months to figure out what to do so that is certainly our top priority in terms of capital allocation.
Meryl S. Golden: So that is certainly our top priority in terms of capital allocation. Okay, good enough. And congratulations again on a great quarter. Good luck. Thank you. Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to Meryl for any further or closing comments.
None: Okay good enough.
None: Again on a great quarter. Good luck. Thank you.
None: Thank you we reached end of our question and answer session I would like to turn the floor back over to Mary for any further or closing comments.
Mary: Great. So thank you again for joining our call today I want to express my deepest appreciation to our talented team members, who have worked tirelessly through the various initiatives and to our producers reinsurers and shareholders for your unwavering support we're committed to delivering long term value to our <unk>.
Meryl S. Golden: So, thank you again for joining our call today. I want to express my deepest appreciation to our talented team members who have worked tirelessly on the various initiatives and to our producers, reinsurers, and shareholders for your unwavering support. We're committed to delivering long-term value to our shareholders. And have a great day. Bye. Thank you. That does conclude today's teleconference webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation.
Mary: Our holders and have a great day.
Mary: Hi, thank.
None: Thank you that does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.