Kingstone Companies, Inc. Aktie

Greetings, and welcome to the Kingstone Company's First Quarter 2026 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Stefan Norbom, Kingstone's Investor Relations representative. You may begin.

Thank you, and good morning, everyone. Joining us today on the call will be President and Chief Executive Officer, Meryl Golden; and Vice President and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note that this conference call may contain 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. 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 Risk Factors 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 these non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available on the company's website at www.kingstonecompanies.com. With that, it's my pleasure to turn the call over to Meryl Golden. Meryl?

Thanks, Stefan. Good morning, everyone, and thanks for joining our call. Let me start with the headlines. Our GAAP net combined ratio for the first quarter was a 112%, and we had a net loss of $5.8 million or $0.40 per diluted share. The quarter's results were driven by 11 winter catastrophe events across the Northeast, contributing 26 points to the loss ratio. The winter storm season in the first quarter was exceptionally severe for downstate New York and ranked as the coldest and snowiest in 11 years. I'm extremely proud of the way our claims organization handled these catastrophe events with many staff members working nights and weekends for months to be accessible and help our policyholders return to their pre-loss condition.

This level of catastrophe activity was contemplated in our full year guidance. Now let me turn to what I believe is the more important story this quarter, the health of our underlying business. Last quarter, we introduced the underlying combined ratio as our primary operating metric specifically to give investors a clearer view of the business we control separated from the inherent volatility of catastrophe events. That framework was designed for exactly this type of quarter. And when you look at what we control, every key metric improved. Our underlying combined ratio improved by 5.1 points year-over-year to 88.3%. The underlying loss ratio improved by over 4 points to 57.9%. The expense ratio improved by about 1 point to 30.4% Direct premiums written grew by almost 20%. Net premiums earned grew by 28%. Investment income increased by 63% and policies in force were up over 7% from the prior year quarter and up 2.5% from year-end.

Let me give you more insight into the quarter. The 20% growth in direct premium written was driven by continued momentum in our New York Personal Lines business with new business policies growing 19% year-over-year, average renewal premium up 10% and retention increasing by about 1 point. Policies in force grew over 7% to more than 82,000. Our renewal rights deal contributed approximately $2.5 million in direct premiums written for the quarter, so inorganic growth contributed about 4% and our organic growth in New York was a very strong 16%.

While policy volume was more moderate in January and February, likely due to the severe weather, March represented one of our strongest months of new business volume, reflecting sustained demand and the competitiveness of our product offering. The downstate New York market is still hard. While we have seen a few new market entrants and a bit of softening, we continue to see strong demand for our products from our producers.

Net premiums earned growth remains a powerful tailwind, increasing 28% in the quarter, primarily due to our reduced quota share, which allows us to retain a greater share of premiums and underwriting profit. As a reminder, for the '26 treaty year, we reduced our quota share from 16% to 5% for our core New York business, reflecting our confidence in the quality of the book.

Non-catastrophe claim frequency continues to be very low, but up modestly from the prior year quarter and in line with the full year 2025. Adjusted for inflation, non-cat severity was comparable to the prior year quarter. During the quarter, we also recognized 2.3 points of favorable prior year reserve development. On an inception-to-date basis, our Select homeowner claim frequency continues to be phenomenal and more than 33% lower than our legacy product, which bodes well for the future as Select is only 60% of our policies in force today.

Our expense ratio improved by 0.9 points to 30.4%, reflecting continued operating leverage as we scale. Underwriting expense dollars are growing at a slower pace than the growth in net earned premium. To put this in context, from full year '23 to full year '25, -- we improved the combined ratio from 105% to 75%, grew direct premiums written by nearly 40%, built the balance sheet with no long-term debt and positioned the company for its next phase of growth. One elevated winter quarter does not change that trajectory. The structural improvements we have made in risk selection in our operating model and in our claims organization are durable.

Turning to our strategic initiatives. We remain on track to enter California in the second quarter on an excess and surplus lines basis. As we outlined in our shareholder letter in April, California is one of the largest homeowner markets in the country with the fastest-growing excess and surplus lines market for homeowners. Our approach is to grow in a very deliberate and controlled fashion as we learn more about our pricing and risk selection. We'll be starting with a small number of agencies, all of whom are existing Kingstone partners in New York.

On an abundance of conservatism, we have a 3% quota share in place for California. While the initial contribution to our results will be modest, with most of our volume continuing to come from New York, we believe California can become a significant contributor to our growth and profit long term. We also recently incorporated Kingstone America Insurance Company, a new subsidiary domiciled in Connecticut that gives us flexibility to write business on both an admitted and non-admitted basis. We expect to begin writing admitted homeowners business in Connecticut in the third quarter. These initiatives are important milestones in our 5-year plan to reach $500 million in direct written premium by year-end 2029.

A quick comment on the insurance bills introduced by Governor Hochul earlier this year focused on insurance affordability. To date, all activity has been focused on auto insurance. And as such, I am optimistic that there will be no changes during the budget process impacting property insurance this year. What continues to set Kingstone apart is clear. First, our Select product continues to drive low claim frequency through improved risk selection and a low loss ratio by matching rate to risk. Second, our producer relationships generate strong retention and consistent new business flow. Third, our operating efficiency with an expense ratio now at 30%, provides durable margin advantage.

And last, our conservative reinsurance program ensures that catastrophe events are an earnings event, not a capital event. We will recover under our winter storm and catastrophe reinsurance programs during the quarter and are grateful to our reinsurance partners for their support. As far as our outlook, we are reaffirming all elements of our full '26 guidance, which was issued on March 5. Our guidance for direct premiums written growth of 15% to 20% and underlying combined ratio of 74% to 76% a catastrophe loss ratio of 7 to 10 points, diluted earnings per share of $2.20 to $2.90 and return on equity of 24% to 30% remain unchanged.

The first quarter catastrophe activity was within the scenario set embedded in our guidance. As a reminder, each 1 point of catastrophe loss ratio has an approximate $0.13 per share impact on diluted earnings per share, which we provided last quarter to give investors the tools to model different scenarios. I want to emphasize that the earnings power of this franchise is concentrated in the second through fourth quarters, consistent with typical seasonality for our business. Our underlying performance trends, combined with continued rate adequacy and disciplined growth, position us well to deliver on our full year outlook. With that, I'll turn the call over to Randy Patten, our Chief Financial Officer, for a more detailed review of our results. Randy?

Thank you, Meryl, and good morning again, everyone. The first quarter of 2026 was impacted by losses from 11 winter catastrophe events. During the quarter, we reported a net loss of $5.8 million, a diluted loss per share of $0.40, 112% combined ratio and an annualized return on equity of minus 19.6%.

Catastrophe losses added 26 points to the combined ratio in the first quarter of 2026 versus 1.7 points in the prior year quarter. We also recognized 2.3 points of favorable reserve development during the first quarter of 2026 compared to 1.4 points in the prior year quarter. Removing the impact from catastrophe losses and favorable reserve development, our underlying combined ratio in the first quarter of 2026 improved 5.1 points to 88.3% from 93.4% in the first quarter of 2025. The underlying loss ratio of 57.9% improved over 4 points from the prior year quarter. And including catastrophes alone, the loss ratio improved 5.1 points to 55.6%.

This improvement in the underlying loss ratio is supported by low non-catastrophe loss frequency, higher average premium and continued discipline in underwriting. These results reinforce the structural profitability improvements we have made over the past several years. Net premiums earned grew 28% to $55.9 million in the quarter, primarily reflecting the continued growth in direct premiums written, along with the reduced quota share session Meryl described. As a financial matter, the reduction in the quota shares contributing approximately $0.20 of incremental earnings per share for the full year is incorporated in our 2026 guidance. So to bring it together, our reported net combined ratio of 112% compared to 93.7% in the prior year quarter reflects an exceptionally severe winter season.

Removing catastrophe losses, the underlying combined ratio of 88.3% improved 5.1 points year-over-year. As Meryl mentioned, we introduced the underlying combined ratio last year specifically to isolate the performance we control from catastrophe volatility and the first quarter is precisely the type of quarter for which the metric was designed. Our net investment income for the quarter increased 63% to $3.3 million, up from $2 million in the same quarter last year. The momentum continues to be driven by robust cash generation from operations over the last year, which enabled us to grow our investment portfolio to $313.4 million, and we benefited from higher fixed income yields. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio's yield.

As of March 31, 2026, our portfolio yield is 4.3%, up from 3.7% at March 31, 2025, an increase of 60 basis points with an effective duration of 4.3 years. For the first quarter of 2026, we reported an expense ratio of 30.4%, an improvement of 0.9 percentage points from the first quarter of 2025. We continue to be diligent with expense management, realizing economies of scale as we continue to grow. As a reminder, the company's expense ratio was 41% in 2021. In less than 5 years, we have lowered it by 10 points, and we see opportunity to improve further as we gain scale.

Moving on to our capital position. As a reminder, we have no debt at the holding company. Shareholders' equity ended the quarter at $114.5 million, a decrease of $8.2 million during the quarter, a 39% increase in the first quarter of 2025. Book value per diluted share was $7.70 at March 31, 2026, a decrease of $0.58 from December 31, 2025, but an increase of 38% from $5.57 at March 31, 2025. Excluding accumulated other comprehensive income, book value per diluted share was $8.23, an increase of 32% from the prior year.

During April 2026, we declared our fourth consecutive quarterly dividend and have ample capital to fund the disciplined growth initiatives that we have outlined, including our entry into California in the second quarter and our launch of Kingstone American Insurance Company in Connecticut later this year. To wrap up our prepared remarks, it's not uncommon for Kingstone to experience its greatest level of catastrophe losses in the first quarter of the year being a Northeast writer.

However, the first quarter of 2026 was one of the coldest and snowiest winters in the last 11 years after experienced 2 of the more unusually mild winters in the previous 2 years. Looking beyond the catastrophe losses, the trajectory of the business has not changed. We continue to execute on our strategy. In the first quarter, we delivered improvements in underwriting, growth in premiums and increased investment income and continued diligent expense management, which will all carry through the rest of the year. Our capital position gives us the flexibility to execute against our growth plan without compromising balance sheet strength. And therefore, we are reaffirming all metrics in our 2026 projections. With that, operator, we are ready for questions.

[Operator Instructions] Our first questions come from the line of Bob Farnam with Brean Capital.

I had several questions here. But -- so one question I had was how much of the cats got into the reinsurance layer. Now it sounded like you're going to have some sort of recovery from the reinsurance companies. So it sounds like it did. So can you give us an idea of what kind of gross losses look like relative to net losses?

Sure. So we -- if you recall, we bought first event winter storm coverage. So that is a $5 million recovery. And then we have roughly $4 million, maybe $5 million going into the reinsurance tower. So our gross loss was about $25 million.

Okay. And net was 14.5%, something.

Yes. 26 points, yes.

Okay. So I don't want to get too much into forward-looking stuff, but you said that the policy count growth was accelerated in March. Can you give us an idea how -- did that continue into April? Or is that something that you don't want to touch at this point?

Yes. Our growth -- I can tell you that our growth have continued into the second quarter. We're at even a slightly higher premium growth than we've been experiencing. So I feel really good about our position in New York.

Okay. Great. One quick question for -- I guess, probably for Randy. So other operating expenses was higher than I expected. I wasn't sure if that was consulting fees related to get it to California or something like that. I just want to know if that was more of a run rate or is that a one-off relative to the last year, it seems like it was a lot higher.

Yes Bob, that's Randy. Yes. So other operating expenses, yes, that was a onetime expense, and that was really related to some board-level projects. So we don't expect that to continue in the future.

Okay. Great. And the last one I have, California. So it's probably more of an all-encompassing question. So all I hear over the last several months is ex company getting into California on an excess surplus lines basis, ex MGAs getting into California on an excess and surplus lines basis. I'm not sure what this does to the competitive environment in California, but I just kind of want to have an idea from you whether or not if the increased competition has an impact on your business plans, how amenable are you to tweaking your business plans? So I just maybe get a feel for kind of what the California situation is going to be looking like.

Sure. So let's not forget that the California market is $15 billion in homeowners premium, and it's the largest E&S homeowners market in the United States. So -- and lots of the admitted companies have pulled back. So there is a huge need for capacity in California. So I have heard of lots of different companies or MGAs entering on an E&S basis, but I really don't think it is going to change the demand for our product given the need for capacity. If you recall, our plan was to enter in a very conservative way. We're anticipating that California volume will be less than 5% for 2026. So I don't think there will be any implications on our plan in California at this point. But Kingstone is a very nimble company, and we will change our strategy in order to win in California. So we'll do what we need to do. But right now, I don't think there's any change that we need to make.

Okay. And I know I've asked you before, but so in the competitive environment in California, so what does Kingstone offer that will give agents the options to say, hey, we're going to put you with Kingstone over 30 other companies that might be looking for this business?

Sure. So our strategy in California is to capitalize on the same strengths that we have demonstrated in the New York market. So the first is that we're going to have a very high -- we created a select product specific for California. So we'll have a very highly segmented product to match rate to risk. So potentially, our price could be a reason that an agent puts business with us.

Second, we are a company, not an MGA. So -- and we are very much committed to the long term in California. We are committed to independent agents, and our plan is to enter the state and offer ease of use to the independent agents. We want their business, and we want a long-term relationship with them, which is different than some of the entrants who are just looking to capitalize on short-term market opportunities. So we feel pretty good that we'll be able to succeed in California.

Our next questions come from the line of Gabriel McClure.

I was going to ask you if there's any color or updates on the AmGUARD opportunity.

Sure. So for those that don't know, we did sign a renewal rights agreement with AmGUARD. We started writing business last September and the business is being nonrenewed over a 3-year period in New York, consistent with the minimum policy term, and we offer a quote to our producers when the business is renewing. So we've been writing about $800,000 a month since last September. In the first quarter, we wrote $2.5 million. So it represented about 4% of our growth in the quarter.

Okay. Great. Are you doing any investing or work around AI right now?

Sure. So we do a lot in AI. We don't talk about it much, but everything we're doing is about improving the productivity of our staff. So I'll give you some examples. So on the claims side, we are about to elevate AI and agentic AI for first notice of loss. So that will be very helpful in the event of catastrophe, which we hope we don't have any more this year. We've had enough. But that will -- there will be no limit on the number of losses that can be taken at any point in time. We also use a system to generate all of the coverage letters for the claims adjusters. And we use AI in terms of the content claims process, which has been very successful in improving the customer experience as well as reducing indemnity costs.

On the underwriting side, we use AI to evaluate property condition and also to identify inconsistencies between all the different sources the underwriters use to evaluate an individual property. So I could go on and on like it's evolving and changing. And I would say we're -- while we're doing a lot, just like many companies, we're early on, and we look forward to enhancing our usage of AI in the future.

That sounds really, really good. Yes. I think Bob asked you about the increased pace of growth in the first quarter. And just to kind of reaffirm, you said that the pace was continuing to be brisk, if not a little bit brisker in this quarter, if I heard right. And I was going to also ask you, I live out here in Arizona, so stupid question, but do you guys have any cat activity in Q2 so far?

So I think the answer is no. We experienced all that we could handle in Q1. Typically, Q2 is a very low cat quarter. And as far as I know, so far this quarter, there have been no catastrophe events.

Okay. Okay. Very good. And then I want to ask you about Connecticut. -- you kind of announced that we're going in on an admitted basis. And just kind of wondering about your thinking on going in on an admitted basis versus a non-admitted basis when you have a few more strings tied to you when you go in on an admitted basis.

Yes. So on any individual state entry, we evaluate whether we should do it on an admitted or a non-admitted basis. And the Connecticut insurance department is pretty insurance company friendly. We've operated here before. They move pretty quickly on filings. They're very reasonable. And really feedback we received from producers is that we would be adversely selected against as an E&S writer. There is an opportunity is on the admitted side. So it's really a combination of, let's call it, a friendly regulatory environment, along with the needs in the marketplace, and we think we can be successful in Connecticut on an admitted basis.

Okay. Okay. And then if I could, just one last question maybe for Randy. There was, I think, a $2 million loss in AOCI. Was that tied to higher interest rates marking down the bonds?

Yes, that's exactly right, Gabe. Yes, that's correct.

[operator instructions] I'm showing no further questions at this time. I'd now like to hand the call back over to Meryl Golden, President and CEO, for any closing remarks.

Thanks for joining the call today. We're going to continue to execute with discipline, manage catastrophe exposure prudently and invest in scalable growth opportunities to deliver long-term value to our shareholders. We look forward to updating you as the year progresses. Have a good day.

Ladies and gentlemen, thank you so much. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

Greetings, and welcome to the Kingstone Company's Fourth Quarter and Full Year 2025 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, [ Stefan Norba ], Kingstone Investor Relations representative. Thank you. You may begin.

Thank you, and good morning, everyone. Joining us on the call today will be President and Chief Executive Officer, Meryl Golden, Chief Financial Officer. Randy Patten. On behalf of the company, I would like to note, this conference may contain forward-looking statements, which involve known and unknown risks and uncertainties and other factors that may cause results -- actual results to be materially different from projected results. 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 Risk Factors and 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 these non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available at the company's website at www.kingstonecompanies.com.

With that, it's my pleasure to turn the call over to Meryl Golden. Meryl?

Thanks, Stefan. Good morning, everyone, and thanks for joining our call. I am delighted to share the results of our most profitable quarter and year in Kingstone's history. I want to thank the amazing Kingstone team and our select producers for making it possible. Let me start with the headlines. In the fourth quarter, we delivered net income of $14.8 million, diluted earnings per share of $1.03, diluted operating earnings per share of $1.08 and a GAAP net combined ratio of 64.2% and an annualized return on equity of 51%.

For the full year, net income more than doubled to $40.8 million diluted earnings per share increased 95% to $2.88, and our return on equity was 43%. These results exceeded the guidance we provided in November. I am particularly proud that from year-end 2023 to year-end 2025, we grew direct premiums written 39%, while improving our combined ratio by 30 points, these results are structural, not simply weather-driven, and they validate the transformation we have executed.

What sets Kingstone apart and what drove these results is clear. First, our Select product, now 57% of policies in force compared to 45% 1 year ago, continues to improve risk selection, properly matching rate to risk and driving lower claims frequency. Second, our producer relationships generate strong retention and consistent new business flow. Third, our operating efficiency with a net expense ratio that improved from 41% in 2021 to 30% in 2025 provides durable margin advantage and last, our conservative financial position with no debt and robust reinsurance means we can grow with confidence.

Turning to the quarter. Direct premiums written grew 14% and to $82.8 million, driven by higher average premiums and strong retention. For the full year, direct premiums written grew 15% to $277.8 million and our New York personal lines policies in force grew over 7%. The hard market conditions in our Downstate New York footprint have not changed materially. Demand from our producers remain strong, supported by policies from the Guard renewal rights agreement, which we began writing in September. New business policy count has increased sequentially from Q2 and in Q4 grew 25% over Q3.

In this environment, what separates the winners from the rest is straightforward, highly segmented products to better assess risk, low expenses, claims execution and deep producer relationships. We have built these advantages, and we will not chase volume at the expense of underwriting discipline. Net earned premium growth remains a powerful tailwind. And Net premiums earned increased 38% in the fourth quarter and 46% for the full year, primarily due to our reduced quota share, which allows us to retain a greater share of premium and underwriting profits.

The decision to reduce our quota share reflects our confidence in the quality of our book and that our underwriting results warrant retaining more premium. As such, we have reduced our quota share even further for 2026 and net earned premium growth will continue to be a tailwind. On underwriting, our fourth quarter net combined ratio of 64.2% reflects exceptional performance across the board. The underlying loss ratio was 34.7%, an improvement of over 14 points from the prior year quarter driven by meaningfully lower claim frequency. The improvement in frequency, particularly for nonweather water, our largest peril is a trend we have shared throughout the year, and we attributed to the effectiveness of risk selection in our Select product.

During the quarter, we also recognized the benefit from continuing improvements in our claims operations were faster cycle times and providing earlier visibility into ultimate property claim costs. For the full year, our underlying loss ratio improved nearly 4 points to 44.4%, and our catastrophe loss ratio was just 1.2 points. I want to be direct, while we benefited from very low catastrophe activity in 2025, our underlying performance improved materially even with a normalized catastrophe load, our full year combined ratio would have been in the low 80s, reflecting the differentiated platform we have built.

As we shared in the second quarter, we have set a 5-year goal of $500 million in direct premiums written by year-end 2029, approximately doubling the size of the company through continued growth in New York measured expansion into new markets and strategic inorganic opportunities. I am pleased to share that our first new market will be California, which we will be entering in the second quarter of '26 and on an excess and surplus lines basis.

California is one of the largest homeowners markets with $15 billion in written premium, almost double the size of New York and the largest E&S homeowners market in the country, where the supply-demand imbalance for homeowners' coverage continues to grow. The E&S approach gives us the flexibility to price wildfire risk using forward-looking models to set prices to achieve our margin requirements and to apply strict underwriting standards including rigorous property-level risk selection and real-time accumulation management. We will start small, consistent with our disciplined approach and scale as we gain confidence in our pricing and product. The initial contribution from California will be modest less than 5% of our '26 premium, with the vast majority of our volume continuing to come from New York, but the opportunity is enormous. And California will become a large contributor to our growth over time.

Turning to our outlook for '26. I want to explain important change in how we're reframing our outlook for this year because we think it will help investors better understand our business. Starting this year, we're introducing the underlying combined ratio, which excludes catastrophe losses and prior year reserve development as our primary operating lens. We define it as the underlying loss ratio plus the net expense ratio. This metric isolates the performance we control including pricing, risk selection, claims management and operating efficiency from the inherent volatility of catastrophe events.

In 2025, our underlying combined ratio was 74.4%, an improvement of 5.1 points from 79.5% in 2024. That improvement is structural. It reflects Select product penetration, earned rate adequacy and operating leverage is independent of catastrophic weather events. At the same time, our record combined ratio of 75% benefited from an outlier low catastrophe loss ratio of just 1.2 points. To put that in context, the 6-year average cat loss ratio from 2019 through '24 is 7.1 points. both '24 and '25 were well below the average, including 2 consecutive mild winters. So when you look at our '26 guidance, I want to be very clear about the bridge, the headline year-over-year change in earnings per share and return on equity is driven almost entirely by our assumption of a higher-than-normal catastrophe load not by any deterioration in our underlying business.

In fact, our underlying combined ratio guidance of 74% to 76% is comparable to 2025. The headline story is straightforward. The controllable business is healthy and growing. The year-over-year change reflects cat normalization. Here is our updated guidance for fiscal year 2026. Direct premiums written growth of 16% to 20% and an underlying combined ratio, excluding catastrophes and prior year reserve development of 74% to 76%, a catastrophe loss assumption of 7 to 10 points which is at or above the 6-year historical average and reflects the elevated winter storm activity we experienced in the first quarter of 2026 and a net combined ratio of 81 to 86.

Diluted earnings per share of $2.20 to $2.90 with a midpoint of $2.55 reflects an increase at the midpoint relative to our initial outlook and the benefit of a lower quota share session for the 26th treaty year. Our 16% to 20% direct premium growth target help keeps us on pace toward our 5-year goal of $500 million in direct premiums written by year-end 2029. I want to give investors the tools to model different catastrophe scenarios. On an illustrative basis, and this is not guided, each 1 point of catastrophe loss ratio has approximately a $0.13 impact on diluted earnings per share. So if you want to see what our earnings power looks like at fiscal year 2025 cat levels of 1.2 points, the illustrative answer is approximately $3.53 per diluted share, which represents 23% growth year-over-year. That is the underlying trajectory of this business.

I want to emphasize that weather is unpredictable, and our 2026 guidance assumes a higher-than-average catastrophe year given the winter weather in the first quarter of 2026. As a reminder, our catastrophe reinsurance program limits our maximum first event loss to $5 million pretax or approximately $0.27 per share after tax, whether from a hurricane or a winter storm. We will refine our outlook as the year unfolds. Before I hand it to Randy, I want to briefly address the regulatory proposals in New York regarding homeowner insurer profitability. We share the goal of affordability for consumers, and we are monitoring these proposals closely and engaging constructively through industry bodies. We believe any final legislation will need to account for the inherent volatility of catastrophe-exposed property insurance and the importance of maintaining carrier capacity and availability for New York homeowners.

We will continue to execute with discipline, advance our measured expansion road map and allocate capital prudently to drive sustained profitable growth. I remain highly confident in Kingstone's strategic direction and fully committed to creating long-term shareholder value. With that, I'll turn the call over to Randy Patten, our Chief Financial Officer, for a more detailed review of our results. Randy?

Thank you, Meryl. Good morning, again, everyone. The fourth quarter was our most profitable quarter in the company's history and our ninth consecutive quarter of profitability. During the quarter, we reported net income of $14.8 million, diluted earnings per share of $1.03, a 64.2% combined ratio and an annualized return on equity of 51%. For the full year, net income was $40.8 million, more than doubling the prior year and the most profitable in company history. Performance was driven by strong net earned premium growth as a reduced quota share in our second half of 2024 new business surge continue to earn in. This is combined with very low catastrophe losses, favorable frequency trends and lower expenses aided by adjustment to the sliding scale ceding commissions due to both an improvement in the attritional loss ratio and low catastrophe losses.

As a reminder, the quota share reduction from 27% to 16% for the 2025 treaty year reflected the improved quality of our book and increased our projected earnings per share by approximately $0.25 for 2025. For the 2026 treaty year, we have further reduced our quota share cession from 16% to 5%, reflecting continued confidence in the quality of our underwriting portfolio and capital position to support our growth. This reduction is expected to increase projected earnings per share by approximately $0.20 for 2026 and incorporated in our updated guidance ranges.

Our net investment income for the quarter in bed 65% to $3 million, up from $1.9 million last year. For the whole year, we achieved a 44% increase reaching $9.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our investment portfolio to $309.7 million and benefit from higher fixed income yields. We also continue to reposition a portion of the portfolio to capitalize on attractive new money yields of 4.7% in the fourth quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio yield and duration.

As of December 31, 2025, our fixed income yielded 4.3% with an effective duration of 4.4 years, up from and 3.7% in 3.9 years at December 31, 2024, an increase of 60 basis points and a half year, respectively. During the quarter, we recognized an additional $1 million in sliding scale contingent ceding commissions under our quota share treaty was about half the adjustment coming from lower attritional losses and half from lower catastrophe losses which contributed a 1.9 percentage point decrease in the 27.9% expense ratio reported in the fourth quarter. For the full year, 2025 reported an expense ratio of 30%, an improvement of 1.3 percentage points from the prior year, reaching 30% for the expense ratio is an important milestone for the company.

As a reminder, the company's expense ratio was 41% in 2021. And in 4 years, we have successfully lowered the expense ratio by 11 points through several expense initiatives. I'd now like to provide some detail on the guidance framework Meryl introduce. For the full year 2025, our underlying combined ratio was 74.4% comprised of a 44.4% underlying loss ratio and a 30% expense ratio. This was a 5.1 point improvement from 79.5% in the prior year. For the full year of 2026, we are guiding to an underlying combined ratio of 74% to 76%, reflecting continued benefits from our Select product and operating leverage.

Our full year 2025 catastrophe loss ratio of 1.2 points was well below the 6-year historical average of 7.1 points for the 2019 through 2024 period. Our full year 2026 guidance includes 7 to 10 points of catastrophe losses, which is above our historical average and incorporates the elevated winter storm activity experienced during the first quarter of 2026. The difference between our full year 2025 reported combined ratio of 75% and our full year 2026 guided range of 81% to 86% is mostly attributable to the inclusion of above-average catastrophe losses and minimal change to our underlying combined ratio.

I will conclude my portion of the call today discussing our capital position. We have no debt at the holding company. Shareholder equity ended the year at $122.7 million an increase of 84% during the year. Book value per diluted share increased 75% to $8.28 and book sale, excluding accumulated other comprehensive income increased 56% to $8.69. For 2025, return on equity is 43%, an increase of nearly 7 percentage points from the prior year. Given this foundation and our outlook, we declared our third consecutive quarterly dividend during the first quarter of 2026 and have ample capital to fund the disciplined growth initiatives that Meryl outlined.

With that, I will now turn the call back to Meryl for closing remarks.

Thanks, Randy. I just want to underscore one thing. The results we're sharing today reflect the durable competitive advantages we have built in underwriting in our producer relationships and in our operating model. We are entering '26 with a strong foundation, a clear road map for profitable growth and the financial flexibility to execute. We look forward to updating you as the year progresses. .

Operator, we're ready for questions.

[Operator Instructions] Our first question today is coming from Bob Farnam of Brean Capital.

I have a couple of questions. One, let's just talk about California first. Because obviously, California risks are not quite the same as Downstate, New York risks. So I kind of wanted to know. And I think this is going to be your first foray into kind of the excess and surplus lines basis or writing things. So I just want to know like how do you see the differences in the risks? How do you expect performance-wise? I'm just trying to get a little bit more color as to how California may be different from New York.

Sure. So we hired an actuarial consulting firm earlier this year to look at the landscape of all the catastrophe-exposed property markets for Kingstone to expand, and California came out on top because it's a very large market. It's dislocated and it's completely diversifying for Kingstone relative to New York. So our plan is to enter with the same differentiators as we have in New York. We're going to be using our Select product and that same firm that helped us build the Select product is helping us modify it to be appropriate for the California market. We are entering as E&S, so we can have a highly segmented product and use best-in-class models for underwriting and rating of wildfire risk and for risk aggregation. And we're fortunate that we have some underwriters and some claims employees that have experience in California. So that will be really helpful to us.

But mostly the point I want to make about our entry into California is that we will be disciplined. Our plan is to enter small, less than 5% of our premium for 2026, make sure we understand the market and we're doing everything right before we expand.

And if I read right in the presentation, you have a 30% quota share on the California business. Is that right?

That's correct. On an abundance of caution. We have a 30% quota share for California initially.

And are you looking to -- you write, all across California? Or are you looking like Northern California, Southern California, or coastal California by where the wildfires could possibly be? I'm just kind of curious, obviously, in New York, you have a specific targeted area. So I didn't know if California would be similar.

Yes. So in California, we're going to write all across the state. It's really important to manage our concentration in any area of California to manage the wildfire exposure, and we'll be doing that in real time. And we're focused on low to moderate wildfire risk..

Okay. And same kind of target size value for homes as in New York.

Same as New York.

Just change track a little bit here. So your expense ratio, obviously, you've had a lot of progress getting it down to 30%. Do you see -- like where do you see a happy run rate as to where that expense ratio you can get to? Are you pretty much where you should be? Or do you think you could still squeak some improvement out of that? .

Randy, do you want to take that? .

Bob, so reaching a 30% expense ratio is a huge milestone for the company. As you know, we -- if you look back to 2021, we were at 41%. And I think with some economies of scale, we can get that expense ratio down, possibly another half to a full point. But it's kind of where we expect it to be kind of in that 29% to 30% range is where we're ultimately we're comfortable with that expense range.

I just want to add, Bob, that most of the expense to enter California has already been incurred in terms of developing the product, programming the product. And we'll likely need to add some staff, but a modest amount of staff as we continue to grow in California. So I think we're going to get scale economies like the platform we've built is scalable.

Yes. I saw that in the presentation you're talking about your ability to scale up is not going to have a whole lot of impact on the expenses at this point.

So that's great. Last question for me. I probably ask you every quarter. But obviously, with such a profitable business, it has been a change in competition at this point in New York. It's just something that baffles me that you don't have a whole bunch of other companies trying to get into the same market to try to capture the same profitability.

Yes. I mean we've been hearing lately about different companies planning to entering the state, but let's not forget that competition has come and gone in New York and Kingstone has been able to execute regardless of the competitive environment. We are in a really good place in Downstate New York. We have our Select product that properly matches rate to risk, low expenses, we're providing great service to our producers and our policyholders and we have very deep and broad producer relations. So I feel confident we can compete successfully with whoever is entering New York State.

Congrats on a great year. That's it for me.

[Operator Instructions] Our next question is coming from Gabriel McClure a private investor.

Congrats on an outstanding quarter.

Thanks Gabe.

So I think Bob asked most of the questions that I had for you. Just want to circle back on the exposure limits on the policies in California. Can you remind us again what our exposure limits are on our New York policies? .

Sure. We just in New York, increased the available coverage A or value of the home to $5 million. So we had been operating with a max of $3.5 million for all of last year, and we've just increased to $5 million. And that would be our plan for California as well. We're going to start off with a cap that's a bit lower and as we gain confidence in our product, we'll open up to $5 million as well.

Okay. Okay. Got it. And then I think in your prepared remarks, you made a little bit of reference to the winter storm that you all had a couple of weeks ago. Did we have some noticeable claim activity from that storm? It looked pretty bad from out here in Arizona.

Yes Gabe, it's obvious you're not in the Northeast because it has been a bad winter. We haven't just had 1 winter storm. There have actually been 7 catastrophe events that have been declared since January 23. So the one thing I want to say is our claims department has been working so hard, I'm so proud of the way they've managed this catastrophe event and the service that they've been able to provide to our policyholders. And our estimate for the winter storm losses has been included in our guidance for 2026. So we've mentioned that we're planning for an at or above average catastrophe last year of 7 to 10 points, and that includes the catastrophe activity from Q1. Hopefully, the winter is over, and there won't be any more catastrophes declared. .

Yes, I hope so. Got it Okay. And then just last thing. The California opportunity is super exciting and interesting. I know Bob answered really or asked most of my questions already, but is there anything interesting or anecdotal that you have about the California market that you might want to share.

I think what is really important to understand is that the market is in need of capacity. And many people think that's because of wildfire. And certainly, wildfire is a major risk for California, but the primary issue in California is the regulatory environment, which precludes companies from charging adequate prices for the underlying exposure. So as an E&S writer, we're not subject to that same regulation. So it gives us a real advantage. And that's why you're seeing in California the E&S market for homeowners is growing faster than any other place in the United States. So I think it's a terrific opportunity to highlight the differentiators that Kingstone brings to the market, particularly relative to pricing sophistication and producer relationships and I'm really excited to start writing business there in Q2.

[Operator Instructions] We're showing no additional questions in queue at this time. I'd like to turn the floor back over to Ms. Golden for closing comments.

Great. Thank you, everyone, for joining us today. It's a really exciting time for Kingstone, and we appreciate your support. Have a wonderful day.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines and log off the webcast at this time, and enjoy the rest of your day.

Greetings. Welcome to Kingstone Companies' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

Joining us on today's call will be President and Chief Executive Officer, Meryl Golden; and Chief Financial Officer, Randy Patten.

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 and uncertainties and other factors that may cause actual results to differ materially from projected results. 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 section entitled Risk Factors 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 available on the company's website at www.kingstonecompanies.com.

With that, it is my pleasure to turn the call over to Meryl Golden. Meryl?

Thank you. Good morning, everyone, and thanks for joining us. We delivered one of the strongest quarters in our history with net income of $10.9 million, diluted earnings per share of $0.74, a GAAP combined ratio of 72.7% and an annualized return on equity of 43%. Direct written premium grew 14% and net investment income increased 52%. This was our second most profitable quarter in history and our eighth consecutive quarter of profitability, underscoring the consistency and enduring competitive advantages we have created.

I want to emphasize what sets Kingstone apart. First, our select product does a great job matching rate to risk and with risk selection, which reduces claim frequency over time. Second, our producer relationships support high retention and consistent new business flow. Third, our efficient operations and low expense structure enhance margin durability; and last, our great team, all of whom act with an ownership mentality.

The hard market conditions in our downstate New York footprint have not changed materially. While we've seen some competitors broaden their underwriting appetite, our overall volume remains strong. New business this quarter has moderated compared to last year's surge when we benefited from the market exits of Adirondack and Mountain Valley. But we've seen a month-over-month increase in new business since June, and that has continued into the fourth quarter. We've also begun writing policies under our renewal rights agreement with GUARD, which will meaningfully add to new business policy counts going forward. Growth of 14% for the quarter was driven primarily by an average premium increase of 13% and improved retention.

Looking ahead, we expect retention, which represents over 80% of our premium base to continue trending higher as rate changes transition to high single digits from the high teens pace of the past 3 years. Policies in force increased 4.2% year-over-year and 1.4% sequentially, underscoring the stability and loyalty of our agent and customer base. Net earned premium growth continues to be a powerful tailwind, exceeding 40% for the third consecutive quarter. The increase is primarily due to our reduced quota share, which allows us to retain a greater share of premiums and underwriting profits. Additionally, the surge in new business written in the second half of last year continues to earn in, further fueling the growth in earned premiums.

On underwriting, our underlying loss ratio was 44.1%, an increase of 4.9 percentage points versus the prior year quarter, driven by higher claim severity. Claim frequency, especially for non-weather water and fire, our largest perils, declined versus last year, a trend we have shared previously. We believe this is driven by a mix shift to more preferred risk in our Select products. The Select homeowners program now represents 54% of policies in force. And on an inception-to-date basis, Select homeowners claim frequency is 31% lower than our legacy product. During the quarter, large losses were modestly higher than the prior year's unusually favorable experience, but remained consistent with the prior 3 years otherwise. Year-to-date, our underlying loss ratio is up only 0.1 percentage point from the prior year. The variability in large losses is random and does not indicate a change in trend.

Catastrophe losses contributed 0.2 percentage points to the loss ratio compared with 1.7 percentage points in the prior year quarter. While catastrophe activity was light, our strong results aren't solely driven by favorable weather. With a normalized third quarter catastrophe load, our combined ratio would have been in the low 80s. Our state expansion initiative is progressing, and we intend to present Kingstone's multiyear road map to you in the first half of next year. With 3 quarters behind us, we've updated our 2025 guidance to reflect our outstanding performance. We are raising guidance for our net combined ratio, EPS and ROE, while reaffirming direct-written premium growth for all states to range between 12% and 17%. With anticipated net earned premiums of $187 million, we expect a GAAP net combined ratio between 78% and 82%, basic earnings per share between $2.30 and $2.70, diluted earnings per share between $2.20 and $2.60 and return on equity between 35% and 39%. Relative to our prior guidance and on the same net earned premium base, we have improved our GAAP combined ratio range by 100 basis points at the midpoint, raised both basic and diluted EPS ranges by 9% and 12%, respectively, and increased our ROE target range by roughly 300 basis points at the midpoint. This increased guidance reflects strong underwriting performance, sustained investment income growth and lower expenses, while maintaining our disciplined posture on pricing and exposure management.

With regard to fiscal '26 guidance, our baseline assumes normal seasonality and catastrophe activity. In both 2024 and 2025, we have very mild winters and low cat losses overall. Weather is unpredictable, and we assumed more reversion to the mean for our '26 guidance. We will refine our outlook as the year unfolds and moving forward, we'll announce subsequent years guidance in March, along with fourth quarter results.

Now I'll turn the call over to Randy Patten, our Chief Financial Officer, who joined Kingstone in late August. Randy brings 3 decades of insurance experience, most recently serving as Chief Accounting Officer and Treasurer at Next Insurance. Randy?

Thank you, Meryl, and good morning again, everyone. Q3 was our most profitable third quarter on record and our eighth consecutive quarter of profitability. We generated net income of $10.9 million, diluted earnings per share of $0.74, a 72.7% combined ratio and an annualized return on equity of 43%. Year-to-date, net income was $26 million, more than double the prior year. Performance was driven by strong net earned premium growth as our reduced quota share in the second half of 2024 new business surge continued to earn in, combined with very low catastrophe losses, favorable frequency trends and lower expenses aided by an adjustment to the sliding scale ceding commissions.

Our net investment income for the quarter jumped 52% to $2.5 million, up from $1.7 million last year. Year-to-date, we've seen a 39% increase, reaching $6.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our portfolio and benefit from higher fixed income yields. We capitalized on attractive new money yields of 5.2% in the third quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio's yield and duration. As of September 30, 2025, our fixed income yield is 4.03% with an effective duration of 4.4 years, up from 3.39% and 3.7 years at September 30, 2024, an increase of 64 basis points and 0.7 years, respectively.

During the quarter, we recognized an increase of $1.4 million in sliding scale contingent ceding commissions under our quota share treaty, reflecting low catastrophe losses, which contribute to the 4.6 percentage point decrease in the quarter's expense ratio. 2025 marks the first period in some time in which a significant portion of the quota share ceding commission is on a sliding scale basis. While sliding scale ceding commission for the attritional loss ratios look quarterly, sliding scale ceding commission for the catastrophe loss ratio cannot be reasonably estimated until after the peak of the hurricane season, so it was recognized this quarter. As a result of this adjustment, our year-to-date expense ratio is down 1.1 percentage points to 30.8% versus the same period in 2024, and we anticipate ending the year with an expense ratio for the full year 2025 lower than the prior year.

I will conclude my portion of the call today discussing our capital position. Our capital position remains strong. We have no debt at our holding company, KINS, and shareholders' equity exceeded $107 million, an increase of 80% year-over-year. Year-to-date return on equity is 39.8%, an increase of 3 percentage points from the same period last year. Given this foundation and our outlook, we reinstated our quarterly dividend during the quarter and have ample capital to fund disciplined growth.

With that, I'll open it up for questions. Operator?

[Operator Instructions] Our first question is from Bob Farnam with Janney Montgomery Scott.

So on your New York admitted basis, the Select product now is 54% of the policies in force. Will all accounts eventually move to Select, or some just renew on the legacy product indefinitely?

Yes. So we are maintaining our legacy book because it's profitable. So any policy written in legacy will stay there. But clearly, when it gets to be small enough, we'll probably convert it to Select, but we don't want our customers to experience that dislocation because it's profitable. So we don't have any plan to do that in the near term.

Okay. But all new business, is that put on the Select platform?

Yes, all new business has been written in Select since the beginning of 2022.

Right. Okay. So when you're getting into the new states on an excess and surplus lines basis, I'm assuming this is going to be a new product. So -- because it's E&S rather than admitted. So how is this product going to differ from Select? And how are you developing it?

Yes. So we are certainly going to benefit from the Select product and the experience we've had. But depending on the states we enter, there may be new perils or new rating variables that we'll need to account for. And we're currently deep in the development of that product as we speak. And we've been working with an outside actuarial consulting firm, the same firm that helped us develop the Select product for New York. So again, we're deep into it and feel really good about how we'll -- what the outcome will be.

And has the new E&S carrier been finally been approved yet?

So we are filing -- we have filed for a new company in Connecticut. It has not yet been approved. And we will be writing on an E&S basis as in Kingstone Insurance Company as well in certain states.

Okay, okay. A little change in direction. So I know it's only been 2 months, but the AmGUARD book, you started writing at the beginning of September. So how has that performed thus far relative to expectations? Not performed in terms of profitability, but in terms of having policies move over to Kingstone?

Yes. So it's early on. We started writing business effective September 1st. But so far, it's right within our expectations. So I had indicated that we write between $25 million and $35 million of business over a 3-year period. And we're right on track. We're writing about a little bit less than $1 million a month so far. And what I can tell you is we're very happy with the mix that we're seeing. It's very similar to what we've achieved in Select. However, we're writing a bit more business in the boroughs, and that is giving us some geographic diversification. So we're happy with that. So far, everything is right on track.

Okay. And one of the bigger questions I always get is just the competition in downstate New York. Now you said that some companies are expanding their target areas. How -- can you give us any more color as to how competitors are going into that environment?

Yes. So we compete with mostly MGAs in New York. And last year at this time when there was this surge of business from Adirondack Mountain Valley, a lot of companies stopped writing business. And throughout this year, they've just been opening up and writing more classes of business than they've written in the past, but it's not stopping us. Our growth is very healthy. And as I mentioned, every month since June, we've seen a sequential increase in our new business. So again, the way they're expanding is, it's not always obvious to us, but our conversion rate remains really high. So we feel good about where we're at competitively.

Our next question is from Gabriel McClure with private investor.

Congrats on a great quarter. And also, please thank whoever puts a PDF in place for us, that's very helpful.

Great.

Yes. I had one question for you. I think maybe a couple of months ago at the Sidoti conference or somewhere, you mentioned that these states you're looking at expanding into, you kind of described it as there being more demand for our policies that we'd offer on a homeowners policy that we'd offer on an E&S basis than there was supply. And so just my question is a couple of months ago, is the market still that way? Has it changed? Whatever you could offer up?

Sure. So the homeowners market, particularly catastrophe-exposed homeowners nationally is in a bit of a crisis and because companies are not making money. And so we do have an opportunity to expand geographically and be opportunistic so that we can have -- earn the same return that we are in New York. So nothing is really -- in a quarter, markets don't change much. So we have not seen a material change in the market and believe the opportunity still exists for us to expand successfully.

There are no further questions at this time. I would like to turn the conference back over to Meryl for closing remarks.

Excellent. Thank you for joining today. As we wrap up, I'd like to reemphasize what continues to set Kingstone apart, our Select product, our producer relationships, our low expense structure and our great team. This quarter's results reinforce the durability of our earnings power. We will continue to execute with discipline, advance our measured expansion road map and allocate capital prudently to support profitable growth. We appreciate your continued support and remain focused on delivering long-term shareholder value. Have a great day.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.

Greetings, and welcome to the Kingstone Company's Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Karin Daly, Vice President, The Equity Group and Kingstone Investor Relations Representative. Thank you, Karin. You may now begin.

Thank you, Dana. Good morning, everyone. Joining us on the call today will be President and Chief Executive Officer, Meryl Golden.

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. 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 Risk Factors in Part I, 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 these 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?

Thanks, Karin. Good morning, everyone, and thanks for joining our call today. Yesterday afternoon, we posted the most profitable quarter in Kingstone's history with $11.3 million in net income, an increase of 150% compared to the prior year quarter. We delivered a stellar combined ratio of 71.5% and with net premiums earned increasing 52% over last year, our underwriting profits were exceptional.

Our quarterly net income translates to diluted earnings per share of $0.78 and an annualized return on equity for the quarter of 50.8%. With the exception of our incredible results in 2024, this quarter's net income was higher than any other full calendar year's profit in Kingstone's history. A remarkable achievement.

Before covering our quarterly results in more detail, I want to recap some of the recent announcements we've made. First, I'm delighted that Randy Patten will be joining the company as CFO later this month. Randy comes from NEXT Insurance where he played a key role in facilitating the recent sale of the company to a subsidiary of Munich Re for $2.6 billion.

Additionally, he has extensive prior experience as a public company finance leader, including a robust understanding of capital raising and M&A matters, and will play a critical role in providing strategic financial leadership for the company. Having a CEO -- CFO of his caliber will be a tremendous asset for Kingstone, and I look forward to introducing Randy to you next quarter.

We've also had some changes on the Kingstone Board. 2 of our long-term board members, Tim McFadden and Carla D'Andre have completed their service after many years, and we are grateful for their numerous contributions. At the same time, Pranav Pasricha, an entrepreneurial leader with a strong track record of building insurance and technology companies join the Board. Pranav's perspective will be invaluable as we drive forward our longer-term strategy.

I also want to reiterate how pleased I am to have reinstated our quarterly dividend. The company is in a strong position, delivering consistent top-tier underwriting results and generating significant cash flow from operations. With a robust capital position and Kings inclusion in the Russell 2000, we believe it was the right time to restore the dividend. This decision reflects our commitment to rewarding our shareholders and demonstrates our confidence in the company's future growth and stability.

Turning to quarterly results. Direct written premium grew 14% for the quarter with 17% growth in our core business, offset by the planned 42% reduction in noncore business. The growth in our core property premium was driven by a 21% increase in new business policy count, a 15% higher renewal average premium and a slight uptick in retention. Core policies in force were up 11% from the prior year quarter, led by a 20% increase in Homeowners, our largest line of business, offset by declines in our smaller product lines, particularly dwelling fire.

The hard market conditions in our Downstate New York footprint have not changed materially. And while we are seeing some companies starting to write business again, or increasing their underwriting appetite, we have also seen others making further restrictions. At this point, there have been no new market entrants, but certainly, there could be in the future.

The growth in net earned premiums, a key driver of our increased operating income has been and will continue to be a tailwind for our results throughout the year, exceeding 50% again for the second consecutive quarter of 2025. The increase is primarily driven by our reduced quota share, which allows us to keep a higher percentage of our premiums and underwriting profit.

Additionally, the surge in new business written in the second half of last year continues to earn in, further contributing to the growth in earned premiums. From a profitability perspective, our non-cat loss ratio improved by 8.4 percentage points to 38.7% in the second quarter of '25 from 47.1% in the prior year quarter, driven by a material reduction in property frequency, primarily nonweather water losses, our largest peril.

The frequency of this peril has been improving over time, and we are confident that this trend will continue. We believe that the mix shift we have been experiencing, and our Select Homeowners program is the driver of our frequency improvement. As mentioned previously, our Select product pricing and underwriting has shifted our mix to more preferred risks with well-maintained homes, newer roofs, better insurance scores and higher deductibles.

Cumulative frequency for the Select Homeowners product has now decreased for 17 straight months. Additionally, fire-related claim frequency also improved this quarter. For Homeowners, all perils combined, excluding catastrophes, our frequency was down 29% for the quarter. And while severity was elevated compared to the second quarter of last year, it was down from the first 3 months of 2025. The rise in severity was more than offset by lower frequency, resulting in favorable loss performance. Catastrophe losses are typically low in the second quarter, and this quarter, they contributed only 0.6 percentage points to the loss ratio. We also recognized 213,000 or 0.5 percentage points of favorable reserve development on prior year losses.

Our expense ratio was up 1.5 percentage points in the quarter to 32.7%, and up 0.7 percentage points to 32% year-to-date. This is driven by lower ceding commission on our primary quota share treaty, which is on a sliding scale based on the loss ratio. As the year progresses and if the loss ratio continues to improve, as expected, ceding commission will continue to increase, and our expense ratio will benefit as a result.

We anticipate the expense ratio for full year 2025 to be in line with 2024. Overall, the combined ratio of 71.5% was 6.7 percentage points better than the 78.2% combined ratio in the second quarter last year, and our operating income increased by 130%, up $6.1 million to $10.8 million.

During the quarter, we finalized our catastrophe reinsurance purchase on favorable terms, we were able to increase the limit purchased by 57%, while incurring less than a 10% increase in price. This limit included multiyear protection of $125 million through the issuance of our first cat bond, and that helped manage the cost of the placement as we saw our rates overall decline by more than 10%. We also retained our first event retention of $5 million.

In spite of the increase in coverage the cost per dollar of earned premium decreased by 5% from the prior treaty period. We offset this decline in rates with better balance sheet protection. To give you a sense of our protection, if a loss event similar to Superstorm Sandy were to hit with our current exposure base today. Total loss cost would be approximately $95 million, of which $90 million would be paid by our reinsurers and $5 million would be paid by Kingstone.

Our net investment income for the quarter increased 30% to $2.3 million, up from $1.8 million in the same period last year. Strong cash generation from operations continues to drive our investment portfolio growth. During the quarter, we invested an additional $17.7 million in highly rated mortgage-backed pass-through securities, collateralized mortgage obligations and other asset-backed securities with a book yield of 5.6%, and an effective duration of 4.5 years. Increasing operating profits will continue to generate more cash, allowing us to grow our overall portfolio, while also investing in higher-yielding securities. This will result in higher investment income in the future.

Our noncash investment assets yield an average of 4% with an effective duration of 4.3 years, and a weighted average maturity of 10.3 years. With the drop-in interest rates late in the quarter and year-to-date, our bond portfolio increased in value by $1 million and $3.2 million net of taxes for the quarter and year-to-date, respectively. The unrealized gain is reflected in our balance sheet as an increase in other comprehensive income.

Before turning to '25 guidance, I want to share more about our longer-term strategy. I am very pleased to announce our 5-year goal of $0.5 billion in written premium, effectively doubling the size of the company relative to today. We have been diligently working on a strategic plan that outlines how we'll achieve this goal through a combination of organic initiatives and strategic inorganic opportunities in our Core state of New York, along with measured geographic expansion into new states. We will present this plan to you at an Investor Day in the future.

I want to emphasize that we intend to stick to our Core expertise of ensuring catastrophe-exposed properties. Relative to geographic expansion, we've conducted a thorough study of selected geographies and states with the help of industry-leading third-party advisers and overlaid important lessons learned from our past challenges to ensure that we do not make the same mistakes again. We plan to pursue prudent growth at a measured pace in our chosen new state testing and validating rate adequacy commensurate with risk factors in our new geographies. Our current plan is to go live in 2 states in '26 and 2 additional states in '27. We are not sharing the specific states this time to preserve our competitive advantage, but plan to do so in the coming quarters.

For background, in 2024, the broader Homeowners market across the U.S. was about $173 billion in written premium, and New York represented only $8 billion or about 5% of the total. So the growth potential is enormous, both in our Core state of New York and in thoughtfully selected new states that would provide a very large addressable market for us.

The Homeowners market overall is in a bit of a crisis, primarily as a result of an adequate pricing due to inflation and the rising cost of catastrophe events, the Homeowners line of business has lost money almost every year since 2017. This has resulted in a number of insurance companies restricting their writing in multiple states, and creating a scarcity of options for consumers seeking Homeowners coverage. While industry results for the Homeowners line of business improved in '24 to 99.7% combined ratio, it is expected to suffer its worst combined ratio in almost 15 years in 2025, due primarily to the California wildfires.

Additionally, climate change is leading to both an increase in the frequency of catastrophe events and a rise in the severity of these events. This, coupled with substantial underwriting losses has resulted in the top writers of Homeowners, the name brand insurers with dominant market share, to restrict new business writing and take deliberate action to reduce their exposure in higher catastrophe-prone geography.

As such, there's a strong need for underwriting capacity and we are confident that these market dynamics will allow Kingstone to expand opportunistically and achieve robust margins as we are doing today in our core state. State expansion will enable Kingstone to achieve a diversification benefit, which will mitigate our risk of geographic concentration, enhance risk management and improve financial stability.

Let me share some thoughts on why I'm confident we can expand successfully. First, as just mentioned, the Homeowners market is distressed with fewer participants and demand exceeding supply. When Kingstone expanded previously, the market was saturated, and the company had to compete on price to get the business. Today, availability is the imperative, not price competitiveness.

Second, we plan to offer coverage on an excess and surplus or E&S basis in the majority of these new geographies. E&S product offerings are not subject to the same rate approval and forms regulations as those offered on an admitted basis. This means we'll have greater flexibility to set rates to meet our margin requirements and customized coverage to manage loss costs. We'll also be able to avoid any business that does not meet our strict underwriting and profit standards.

Importantly, we have made significant advancements in our product design by more effectively leveraging data analytics and data science to build a more robust product. We'll be using our Select product for these new states, which has proven its effectiveness at properly matching rate to risk. When Kingstone expanded previously, the company did not have a product built using data science techniques and this led to adverse selection.

Kingstone is not the same company as in 2017. We have strengthened all aspects of our organization and assembled highly experienced team including in our claim's organization. We have never been stronger and now have a solid foundation to successfully execute this strategic expansion. We are currently finalizing the details of our plan, and I look forward to sharing it with you at an Investor Day in the future. I am very optimistic about our future prospects, and we'll keep you apprised as we continue to make progress.

And finally, with the first half of the year behind us, we've updated our guidance primarily to reflect our results this quarter, the AmGuard transaction and cost savings from our '25, '26 Catastrophe Reinsurance Placement. Relative to top line growth, we reduced the first 12-month premium estimate from the AmGuard renewal rights transaction to $12 million, now that we have a better understanding of our comparative rate levels, while regulation requires the book to be nonrenewed over a 3-year period, we had assumed many policyholders would move in advance of being nonrenewed in last quarter's estimate.

After gaining a better understanding of AmGuard's rate level, it became clear that there is not a compelling reason for policyholders to switch carriers until they get nonrenewed or AmGuard raises their prices further. As such, we expect a material premium benefit over a 3-year period, with the benefit realized more proportionally over all 3 years rather than front-loaded as we had previously assumed. We just started quoting policies with effective dates of September 1 and beyond.

Given market conditions and the various product changes we have been making, we continue to plan for substantial organic growth as well. Regarding the profitability metrics, our first half underwriting results were exceptional, and we also achieved significant cost savings from our '25, '26 Catastrophe Reinsurance Placement relative to what was assumed in previous guidance. As a result, we are raising our profitability metrics for 2025.

Our updated guidance is as follows: we are refining our Core business direct written premium growth to a range of 15% to 20% and based on approximately $187 million of net premiums earned, we expect to achieve a GAAP net combined ratio between 79% and 83%, basic earnings per share between $2.10 and $2.50, diluted earnings per share between $1.95 and $2.35 and return on equity between 30% and 38%. As a reminder, we have not assumed any major catastrophe events in this guidance.

To conclude, we delivered another exceptional quarter with direct written premium growth in our core business -- with 17% direct written premium growth in our core business and increased profitability with our highest quarterly income in history. I have never been more optimistic about the trajectory of our business and feel confident that with our terrific team, we will continue to put up top-tier financial results, while also achieving our goal of doubling the size of the company in 5 years.

With that, let's open it up for questions. Operator?

[Operator Instructions] Our first question today is coming from Bob Farnam of Janney Montgomery Scott.

I have a question on the reinsurance. So thank you for the details about kind of the $5 million net to you. I'm just curious, even if it's remote, what happens if it's a second event that occurs in your territory?

Sure. Our second event retention is $9 million. So after tax, roughly $7 million.

Okay. And you have a reinstatement premium for that as well?

Yes, we have a reinstatement premium for the first layer of our cat tower.

Okay. And the second question was, given that you're expanding into new states, I know you're doing a lot of research into -- how to do that appropriately. I'm just curious, what impact is that going to have on your expense ratio in the near term before premium really starts to roll in and rightsizes?

Yes. I don't think it's going to have much of -- it will not have much of an impact at all. So it's -- we have to modify the product. We've hired some staff to help lead the expansion effort, but the expenses relative to expansion will be very small relative to our earned premium growth. So I don't expect our expense ratio to tick up as a result of our expansion efforts.

Okay. So I mean a lot of times, companies say, well, we're spending a lot right now, but we haven't really generated the premium yet. So it's temporarily going to be a mismatch, but it sounds like it's not going to be much of an issue for Kingstone?

Yes. Look, we've built the foundation already. We already have the product. We need to modify it, obviously, for these various states, but we have the actuarial team. We have the team in place today that's doing the research and leading this. We have the claims team in place. So again, we might make a few hires and there's certainly systems cost, but it's immaterial on a relative basis, I don't think we'll see an uptick.

Great. Okay. And the last bit is with the AmGuard transaction, if I read it right, you're only looking for maybe $12 million of premium from that $70-some-odd million book. I'm just curious if that's something that you -- it's lower than I expected. So is that something you found in that book that maybe not all that conducive to getting into Kingstone?

No. Look, last quarter, I knew after announcing the transaction that everyone would want to know what the approximate premium benefit would be. And so we came up with an estimate, but we had very little data. And to be honest with you, we still have very little data because as I mentioned, we just put out the first batch of quotes effective September 1. So we don't have certainty around what our conversion rate will be.

But what we do have certainty around now is our rate level difference. And so we knew that AmGuard was taking a rate increase, but we didn't know where our rates would compare to AmGuard. So originally, I still think we're going to write $25 million to $35 million, which was the estimate that I shared last quarter. But last quarter, I thought it would be more front loaded because I assumed since we're paying higher commission that producers would proactively move the book.

But now that I see that our rates are higher, I think that the producers and consumers will wait until they're being nonrenewed in order to join Kingstone. So it's the same amount of total premium just spread more proportionately over 3 years rather than front-loaded as I had assumed last quarter. Does that make sense, Bob?

Yes. No, that's good color. That was one of the questions. I mean I just saw that it had come down from what you initially thought. So I just kind of wanted to ask about it. So good explanation.

Okay. Thanks, Bob.

Yes. That's it for me.

Our next question is coming from Gabriel McClure of Private Investor.

Congratulations on an amazing quarter.

Thank you.

Yes. So I guess you just answered my AmGuard question. Thank you for that and also the hurricane exposure. So I just have one question left for you.

Sure.

And so you announced the dividend reinstatement, and thank you for that. All the shareholders are grateful for that. But -- and as I kind of look at the company and the trajectory that you're on and basically a simplified way of saying that the money is starting to pile up, and I know we got a lot of growth ahead of us. But how does your capital allocation priorities look? How do you think about all that and share buybacks in the mix going forward?

Sure. So I've been asked the question in the past about share buybacks, and I'm going to be very consistent. We have the opportunity to use our capital, and we have no plans at this point to do a share buyback.

So we -- in terms of our capital strategy, we may need more capital to execute on our plan. And if needed, we'll look caterfully at all alternatives. But the profitability we've achieved over the last 7 quarters has put us in this phenomenal place where we've paid off our debt. We've replenished our surplus. We bought more reinsurance. We've reduced our quota share and now we've restated the dividend to shareholders. So we feel like we have sufficient capital to fund our growth in the near and midterm. And we just think we're in a really good place. I hope that answered your question.

It does.

Thank you. There's no further questions at this time. I will turn the call back over to Meryl Golden for closing remarks.

Terrific. Well, thank you for joining the call today. The entire team at Kingstone is both proud and energized by the strong results we've delivered, and we look forward to building Kingstone into a multistate carrier poised for meaningful growth and profitability in the years ahead. Have a great day.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.