Greetings, and welcome to Kingstone Companies, Inc. Third Quarter 2022 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Rich Swartz, Chief Accounting Officer. Thank you, sir. You may begin.

Thank you very much, Maria, and good morning, everyone. Yesterday afternoon, the company issued a press release detailing Kingstone's 2022 third 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 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, Rich, and good morning, everyone, and thank you for joining us on our third quarter 2022 conference call. Before we get into a discussion on our financial and operational results, I want to provide you an update on a few matters that I know are top of mind for you all. First, as we've said, our Board and management team regularly review Kingstone's strategic, operational and financial priorities with the objective of driving stockholder value. As it relates to our ongoing discussions with Griffin Highline specifically, as you'll recall, in August, Griffin Highline submitted a final nonbinding indication of interest to the Board, proposing to acquire all of the outstanding equity of the company. We agreed to extend the period of exclusivity with Griffin Highline to further pursue that proposal, and that period of exclusivity has since expired. At this time, our discussions are focused on a potential strategic transaction with them rather than an outright acquisition of Kingstone. While no assurances can be given that a transaction of any kind will be consummated with Griffin Highline or any third party, our Board is committed to acting in the best interest of the company and our stockholders. We will continue to take actions consistent with that objective. Our goal remains to be as transparent as possible, and I'm personally committed to providing updates as appropriate. That said, I am limited in this regard given the confidentiality agreement in place and must stay within the bounds of what we're legally able to say. Today, as in our prior calls, we will only accept questions from the analysts that cover the stock. Second, as the Board considers all value-creating opportunities, as a management team, we are not sitting still. We've made significant progress executing on our operational plan, which I'll touch…

Thanks, Barry. The company posted a third quarter net loss of $4 million or $0.38 per diluted share compared to a net loss of $10.6 million or $1.01 per diluted share for the same period last year. Note that the mark-to-market decline in our equity portfolio amounted to $0.13 a share. Direct written premium for the quarter were up $5.7 million from the prior year to $54.6 million. Almost all this growth was due to rate increases. During the third quarter, our written premium increased by 11.7%, while our policies in force grew only 0.2%. We remain focused on increasing our average premium and expect to continue to grow premiums materially faster than exposures for the foreseeable future. The net loss and LAE ratio was 75%, down 22.1 points from the prior year when we experienced a large number of catastrophe claims. This quarter, the impact of catastrophes was de minimis, adding just over 1 point to loss ratio compared to 33 points from the prior year. The attritional or non-cat loss ratio was higher than the prior year and attributable to two main items. First, the largest driver was an increase in severity for non-weather water losses, reflecting the impact of inflation. Please be aware that the frequency of water losses was in line with the prior year quarter, but severity was materially elevated as remediation and repair costs reflect not only inflation in materials, but the increase in non-skilled labor wage rates. Second, we experienced an increase in frequency for our livery physical damage product. However, this line of business continues to be quite profitable. We are working hard to keep pace with and hopefully stay ahead of inflation, though it continues to weigh on our financial results. Inflation in loss cost requires us to increase premium rates…

[Operator Instructions] Our first question comes from Paul Newsome with Piper Sandler. Please proceed with your question.

Good morning. Perhaps you could give us a little bit more detail about the walk-through to profitability, and maybe you could put it into the context of what you are getting up with rate versus your perception future inflation. And then I - and maybe as a follow-up to that, could you talk a little bit more about the non-rate impacts of - the non-rate actions that you're taking and their impact as well? I was a little surprised to see that retention is holding up as well as it would be. I would have thought that you'd be trying to actually lower the retention with non-rate actions to improve profitability, but I can be wrong there, of course.

Barry, do you want me to take that?

Yes, go ahead, Meryl.

Okay. Hi Paul, so as I mentioned, we are doing a lot to return the company to profitability. So we've taken rate in all states. We also have this impact of replacement cost that is adding a lot to rate as we increase coverage. We have implemented a plan to re-underwrite the book, where we are non-renewing risk as we can by regulation. And we are also reinspecting a lot of properties that also results in either actions to address the - what our findings were from the inspections or nonrenewal. We have pruned some of our producers that have resulted in unprofitable business for us. And we are also very focused on reducing our expenses. So the combination of all of those factors should result in Kingstone being much more profitable in the future.

So maybe it would be helpful to put some numbers in that. You said, if I got it correct, you're looking at rate that's somewhere around 9%. I think you mentioned something 8% to 10% on inflation guards. What's your perception of the underlying inflation?

So to be clear, the 8% to 10% is not an increase in inflation guard. We are actually repulling replacement costs on all of our properties and making sure that the policyholders are insured to value. In terms of future inflation, I believe what we've built into our pricing is future inflation, so on top of what we've already experienced of roughly 6%.

Great. And then switching topics, can you talk a little bit about holding company liquidity or cash you have with the parent at the moment as well as how mechanically, just legally, the dividend capacity at the subsidiary works in New York?

Yes, I'll take that one, Paul. And in order for an insurance company to pay a dividend, there are a number of different metrics that need to be met. The most important one is it has to be the lesser of 10% of the insurance company's surplus or a quite an elaborate formula that compares the amount of investment income generated over the prior three years to the amount of dividends taken during that prior three year period. So we were able, through a series of transactions, to, staying within regulatory guidelines, make transfers to the holding company who now - which now has approximately $12 million in liquidity. And right now, we're at the filing that will take place, I think today, or maybe it happened yesterday. The surplus of the insurance company is at $76 million, and the insurance company has no debt. So the holding company owns 100% of the stock in the insurance company, which is $76 million in surplus and no debt. And right now, if asked, our RBC is about $400 million. So we're in a very, very strong financial position at the insurance company. The holding company is preparing to reduce its debt upon the refinancing that is being worked on, and we're very hopeful that a positive conclusion is in order. I hope that responds to what you were looking for.

No, that was great. That was all I was looking for. Thank you very much for your help as always.

Great. Thank you, Paul.

We have reached the end of our question-and-answer session. And I would now like to turn the floor back over to Barry Goldstein for closing comments.

Great. Well, thanks, everybody, for listening in. And I look forward to our next call, and take care between now and then. Have a good day.

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