Q1 2025 Kingstone Companies Inc Earnings Call
Greetings and welcome to the Kingstone companies' first quarter 2025 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the call. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Speaker Change: It's now my pleasure to introduce Karen Daily Vice President of the equity group and Kingstone Investor Relations Representative Karen you may begin.
Karen Daily: Thank you Melissa and good morning, everyone.
Speaker Change: Joining us on the call today will be president and Chief Executive Officer Miracle pattern 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 the actual results to be materially different from projected results.
Speaker Change: Forward looking statements speak only as of the date on which they're made and Kingstone undertakes no obligation to update the information discussed.
Speaker Change: For more information please refer to the section entitled Risk factors 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 these non-GAAP measures. She got figures. Please see the people and the latest earnings release.
Speaker Change: With that it's my pleasure to turn the call over to Mel Goldman Merrill.
Mel Goldman: Thanks, Karen good morning, everyone and thanks for joining our call.
Mel Goldman: I'm delighted to share the results of our sixth consecutive quarter of profitability with 18% direct written premium growth overall, including 23% growth in our core business and net income of $3 9 million or 27 cents per diluted share.
Mel Goldman: As the northeast right or the first quarter is typically the least profitable quarter for the company and we were fortunate to have experienced another mild winter this quarter, which contributed to these terrific results.
Mel Goldman: As always I want to thank the great Kingstone team for their hard work and our select producers for their commitment to the company.
Mel Goldman: I'd like to start by providing more insight into the renewal rights transaction, we announced a few weeks ago with Am Guard a subsidiary of Berkshire Hathaway, you might recall that last year around the same time.
Mel Goldman: After withdrawal of Adirondack in Mountain Valley from New York was announced we mentioned that a third company had also announced their intention to withdraw from the admitted homeowners market nationally and has signed a renewal rights deal with foremost a farmer's subsidiary.
Mel Goldman: Gertz withdraw plan was never approved by the New York regulators as foremost underwriting appetite in Downstate, New York was to restrict it this created the opportunity for Kingstone to replace foremost and execute a renewal rights agreement for the business in Downstate New York.
Mel Goldman: M Guards withdrawal plan with Kingstone as the replacement carrier has now been approved by the New York regulators and when you expect to start quoting the business in late third quarter.
Mel Goldman: This transaction gains us access to the data from Am guard across all agents that opt into the program providing several competitive advantages first we get to underwrite the business upfront to make sure that we're only quoting those risks that meet our profitability standards second by providing a call.
Mel Goldman: For the business, we want to write to the producer we anticipate a higher overall conversion rate as it will take less effort for them to move the business to us and last we will be able to expand our footprint through the introduction to high potential producers who had not previously represented.
Mel Goldman: Stone.
Mel Goldman: Book. We are confident that they will contribute to Kingstone's profitability, as the business will be written in our select product which continues to outperform our expectations.
Mel Goldman: The Select Homeowners Program's cumulative frequency has now decreased for 13 straight quarters. For this quarter, our Select Homeowners frequency was 1.6 percent compared to 2.3 percent for our legacy product.
Mel Goldman: Select represents only 48% of policies enforced today, and we expect it to grow to close to 60% by the end of the year, which bodes well for our continued profitability.
Mel Goldman: Our plan for 2025 is to continue our focus on our core state of New York, capitalized on hard market conditions, and maximize our profitable growth in the state we know best.
Mel Goldman: We expect the Amgard Premium to help to accelerate our growth starting in late third quarter.
Speaker Change: While it's very early to have competence around the level of growth we'll see from this renewal rights transaction, our current estimate is 25 to 35 million in premium over a 12 month period.
Speaker Change: Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown
Speaker Change: The hard market conditions in our downstate New York footprint have not changed materially, although companies are starting to increase their underwriting appetite.
Speaker Change: Our consolidated Gerak-Ritten Premium Growth at 18% for the quarter was materially higher than the prior year quarter, which 23% rose in our core business, offset by a 64% reduction in non-core as planned.
Speaker Change: The growth in our core business premium was driven by a 68% increase in new business policy and a 19% higher renewal average premium for the property lines of business.
Speaker Change: The new business growth early in the quarter included policies from the Adirondack and Mountain Valley which are all, and these withdrawals have now been completed.
Speaker Change: In April , we implemented rate segmentation changes in our dwelling fire product, which should address this decline.
Karin Daly: Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown
Speaker Change: Growth and Net Premium in this earned exceeded 50% for the quarter, as a result of earnings from the $11 million in premium that was returned from the reduction in our quota share, along with the significant increasing growth we achieved in the second half of 2024, which is now being earned.
Robert Farnam, Meryl Golden,
For the quarter, our non-cat loss ratio was up 0.4.
Speaker Change: A percentage points driven by a reduction in property frequency but an increase in severity due to a few large fire losses. For homeowners, all perils combined but excluding catastrophes, our frequency was down over 35% for the quarter.
Speaker Change: For non-contestory water losses, our largest peril, we experienced the lowest level of frequency in recent years, offset by an increase in fire frequency, which is typical during the first quarter.
Speaker Change: Severity increased markedly during the quarter, as fire losses are very costly, resulting in a 3.3 percentage point increase in attracional losses, resulting in a 3.3 percentage point increase in attracional losses.
Speaker Change: During the quarter, we recognize 600,000 of favorable prior year development, improving our loss ratio by 1.4 percentage points.
Speaker Change: Robert Farnam, Meryl Golden,
Speaker Change: Relative to Severity, we are monitoring the cost of building material and acknowledge that tariff-related inflation is a moving target.
Speaker Change: If costs increase as expected, we will need to increase rates more than currently planned. Replacement costs are already updated annually to account for inflation. We don't anticipate that an increase in inflation would have a material impact on our
Speaker Change: During the quarter, we finalized the sale of our headquarters building an adjacent property, resulting in a one-time after-tax gain of 1.5 million. We also fully paid off our remaining holding company debt, which will save us over 800,000 million in interest annually.
Speaker Change: Bond issue costs of 175,000 were written off this border and are included in other operating expenses.
Speaker Change: In this uncertain time, it's a relief to have no death at the holding company, a healthy balance sheet and sufficient statutory surplus to support our core growth.
Speaker Change: Our net investment income per the quarter increased 36% to 2 million up from 1.5 million in the same period last year.
Speaker Change: Strong cash generation from operations continues to support our investment portfolio growth.
Speaker Change: During this quarter, we invested 16 million in highly rated mortgage-backed pass-through securities, collateralized mortgage obligations, and other asset-backed securities with a book yield of 5.41 percent and effective duration of 5.53 years.
Speaker Change: Approximately 10 million of our fixed income portfolio will mature by the end of the year and another 34 million by the end of 26.
Speaker Change: These securities have relatively low book yields of 3.1% and 3.6% respectively. As these assets mature, we plan to invest them at higher market rates which will further enhance our future investment income.
Speaker Change: Our non-cash invested yield average of 3.7% with an effective duration of 4.5 years and a weighted average maturity of 9.7 years.
Speaker Change: With the drop in interest rates, we saw a 2.2 million net increase in the value of our bond portfolio this quarter. The unrealized gain is reflected in our balance sheet as an increase in other comprehensive income adding to our overall financial strength.
Speaker Change: Before I turn the call over for questions and ask Sheridan yesterday's earnings release, we are reaffirming our calendar year 25 guidance.
Speaker Change: There is still too much uncertainty with the AMGAR transaction to determine the benefit and we plan to include it in our updated guidance next quarter.
Speaker Change: Overall, we delivered another strong quarter with 23% direct written premium growth in our core business and a 172% increase in that income.
Speaker Change: Our performance reflects the discipline of our underwriting strategy in a challenging environment.
Speaker Change: As we look forward, we are highly optimistic about the trajectory of our business. We are confident in our ability to generate long-term value for our shareholders through fossil execution and the fundamental building blocks we have put in place over the last few years.
With that, I'll open it up to questions. Operator?
Speaker Change: Thank you. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment may be necessary to pick up your handset before pressing the star keys. One moment please, while we pull for questions.
Karin Daly: . . . . . . . . .
Speaker Change: Thank you. Our first question comes from the line of Bob Farnam with Danny Montgomery Scott. Please proceed with your question.
Hi there, good morning. Hi, Bob.
Speaker Change: I wanted to start off with the fire losses. Thanks for the details. So it sounds like the fire losses were 3.3 points higher than you had anticipated for a typical first quarter.
Speaker Change: and that was offset by low-up attacks if you lost this by 3.5 points. Do I have that right?
Speaker Change: Yes and let me just tell you we're really not concerned about these fire losses so first of all we're talking about
Speaker Change: You know, a small handful that are more, you know, more losses than we experienced in the
You know, average of the last three years.
Speaker Change: And most of those fire losses were for policyholders, insured in our legacy product.
Speaker Change: So if you remember, we stopped writing new business in the legacy product in the beginning of 22.
Speaker Change: So these policy-olders have been with us quarter after quarter and for many first quarters and we've never seen an uptick in fire frequency before so it's clearly a random event and we also looked at all those fire losses
Speaker Change: And there is nothing, we wanted to see if there was something that stood out that was consistent, but there are across different geographies, cause of loss, and producers, so it's really just a random uptick for the quarter.
All right. Okay.
Speaker Change: Good, and that was why since the cat losses and the fire losses offset each other, that was why you didn't feel feel a need to update any confined ratio, I think even though cat losses were kind of lighter than you expected, is that... Yes, that's exactly the reason.
Okay.
Now that you've paid down the...
Unknown Attendee, Karin Daly,
Speaker Change: Where does David End and Sherry Purchase come into the mix as well, and non-organic growth as well?
Speaker Change: Yes, so it relative to the dividend and and Sherry Purchases the Board.
Speaker Change: actively discusses and considers the opportunities to return capital to shareholders.
Speaker Change: All the time, including restoring the dividend, so it's definitely something that is being discussed.
Speaker Change: and there's lots of opportunity to deploy our capital, given our growth, so I don't envision.
Speaker Change: Right, okay. Regarding that transaction, the Amgur transaction, I think I asked before, do you have any idea of the price difference between you and Amgurd, you know, as these, as you look at these policies, are they going to be sticker-shock, you know, as they get into the Kingstone's pricing range?
Speaker Change: and so my understanding is Amgard is filing for a rate increase in New York.
Speaker Change: So I think that will close the gap somewhat, but we'll have to see.
I mean, that's one of the-
Speaker Change: You know, we have a lot of uncertainty around what this transaction will mean for the company, but I've taken that into consideration in the in the estimate of 25 to 35 million over a 12 month period.
Speaker Change: All right, okay, and thanks for that. Guest him it as well. And last question for me, any updates on CFO search?
Speaker Change: Yes, so we're in the process. We have hired a retained search firm.
Speaker Change: and we are actively in the interview process. I can assure you that Victor Brodsky, our Chief Accounting Officer, who was our...
Former CFO and myself were...
Speaker Change: covering the gap in the short term, but we do look forward to adding another great person to our teams in the near future.
Okay, great.
Thanks for the answers. Thanks, Ben.
Speaker Change: Robert Farnam, Meryl Golden,
Speaker Change: Thank you. Our next question comes from the line of Gabriel McClear, Private Investor. Please proceed with your question.
Good morning, Meryl. Hi, Gabe.
Hi.
Speaker Change: So I had a couple of questions and we like the risk of sound like a broken record also to congratulate you on another great quarter.
Thank you. Yeah.
Speaker Change: So we had a nice jump in that investment income. It looked like it's accelerating and I was just going to see
Speaker Change: If you could give me a little color on why that happened and then maybe how I should think about that number, you know, evolving in the quarters throughout the year.
Speaker Change: Sure. So the primary reason for the jump in our investment income is that we're generating a lot of cash from the profitability of the insurance company.
and we're putting that to work in our investment portfolio.
Speaker Change: So as our investment portfolio grows, our investment income will grow.
Okay, got it. Thanks.
Speaker Change: And then I had another one for you. There's a couple of famous insurance executives out there that like to talk about.
Speaker Change: Their idea of value for their companies, they call them intrinsic value [inaudible]
Speaker Change: I know you're pretty busy over there, but do you ever have time to think about your own idea of the value of Kingstone, the intrinsic value versus maybe the market value or book value or whatever, and if so, could you share that with us?
So
Speaker Change: I don't really have anything to share. I mean, we certainly think about the value of Kingstone relative to the stock price and what we can do to increase our value, but I don't really have anything to share with you Gabe.
Okay.
My pleasure.
Karin Daly: Robert Farnam, Meryl Golden,
Speaker Change: Thank you. Our next question comes from the line. John Old, just long metal investors. Please proceed with your question.
Karin Daly: Robert Farnam, Meryl Golden,
Karin Daly: So yeah, Bob asked you answered the question about Seattle Circe. That was one of my questions. The other one was in the past you've talked about, you know, possibly looking at other jurisdictions, other states.
Karin Daly: Where do you stand with that process, or do you, so just stay focused on New York at the current time?
Karin Daly: Sure, so our 25 strategy is to continue to focus on downstate New York.
Karin Daly: and the hard market here and maximize our profitable growth and make sure that we are successfully executing.
Karin Daly: on this Amgard transaction, but...
Karin Daly: As I've mentioned in the past, this is a great time for Kingstone to be looking at other geographies because we have a product that properly matches rates of risk.
Karin Daly: Great team, Renembo, we're efficient, and there's a lot of states around the country that have a market need for more capacity, so it's a hard market in homeowners.
Nationally.
Karin Daly: So listen, I do want to, I know there are some investors that are super concerned about Kingstone expanding, given our history.
Karin Daly: And I want to assure you, we are not the same company we were in 2017 and we know what the mistakes made were in the past and the primary mistake was that our product
Karin Daly: Did not properly match Raid to Risk and therefore we were adversely selected again so we have a lot of comms in our product we're gonna be slow and thoughtful and do it right this time
Karin Daly: And as we make final decisions, I will certainly inform you it's a 2026 and beyond strategy for the companies, so no impact at this calendar year.
Got it. Thank you very much. Appreciate it. My pleasure.
Robert Farnam, Meryl Golden,
Speaker Change: Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown
Speaker Change: Thank you, ladies and gentlemen, there are no other questions in the queue. I'll turn the floor back to Ms. Golden for any final comments.
Karen Golden: Great, well thanks for joining the call today and we appreciate your continued support.
Have a great day!
Speaker Change: Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown
Speaker Change: Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown Attendee, Karin Daly, Unknown