Kingstone Companies, Inc. Stock

Good morning, and welcome to Kingstone Companies' Third Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. I'll now turn the call over to your host, Stefan Norbom, Kingstone's Investor Relations representative. Stefan, you may begin.

Thank you, and good morning, everyone. Joining us today are 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 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, whether as a result of new information, future events or otherwise, except as required by law. 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 definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, please see the tables in our latest earnings release dated November 5, 2026, available at kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl. Meryl?

Thanks, Stefan. Good morning, everyone, and thanks for joining our call. I'm really excited about our third quarter results, which topped the record we set just last quarter. Net income rose 62% to $17.6 million or $1.19 per diluted share. Our GAAP net combined ratio improved 7.1 points to 65.6%, and our annualized return on equity was 52.9%. Diluted book value per share grew 26.5% over the prior year to $9.21.

I'm proud of the improvement in our underlying business. Our underlying loss ratio, which excludes both catastrophe losses and prior year reserve development, improved 10.6 points to 33.5%. That improvement alone more than offset higher catastrophe losses of 7.5 points, which increased from 0.2 points for the benign storm season we experienced a year ago. We also recognized $3.8 million or 6.1 points of favorable prior year reserve development.

The low underlying loss ratio was mainly driven by better loss settlements due to improvements in our claims operations. We rebuilt our claims organization over the last 3 years, hiring very experienced adjusters and leaders, and we are seeing the benefits in material cycle time improvements leading to earlier visibility into ultimate property claims cost. In addition, overall personal lines non-catastrophe frequency for the quarter was lower than in the prior year quarter. We attribute the frequency improvement primarily to our Select Program, which now accounts for 65% of our homeowner policies, up from 54% a year ago.

Turning to growth. Direct premiums written grew 14.5% to $86.8 million. Relative to the prior year quarter, new business policy count increased 10%. Retention improved 2.9 points. Average renewal premium increased 5%, and policies in force increased 11% to more than 86,000. We added more than 8,000 customers over the past year. I'm particularly pleased that more of our policyholders are staying with us longer as growth in retention will be a tailwind for both growth and profitability improvement in the future.

As I mentioned on our last call, the New York market has gotten more competitive. We have seen some carriers broaden their underwriting appetite and others raise producer compensation as well as price more aggressively. As proven this quarter, we expect to continue to deliver top-tier growth and profitability even with increased competition. Kingstone is a leader in the coastal New York market as we have demonstrated our consistent appetite, stability, and commitment to our producers over many years. With broad and deep producer relationships, the segmentation power that Select provides, and an expense advantage, we are confident that we can continue to grow profitably across all market cycles.

We wrote little business in California this quarter. We entered the state to write risk with lower wildfire exposure at high returns given the capacity constraints in the market. Many admitted carriers have reopened to new business since we launched, and there is a lot of capacity through excess and surplus lines entrants who have been reducing rates significantly. Many of the risks producers are quoting with us have higher wildfire exposure than we are comfortable with or don't meet our margin requirements. So we chose not to write them. We are going to intentionally stay small in California, scaling only where pricing and risk quality meet our underwriting and return requirements.

In Connecticut, we began writing business in late September, as planned, with a small number of producers. While it is still very early and Connecticut's contribution to our results will be modest this year, reception to our reentry has been strong, and we are now focused on expanding distribution. These initiatives support our goal of $500 million of direct premiums written by year-end 2029. New York is our core franchise and the main source of our growth with measured expansion scaling over time. We are committed to diversifying our footprint. And while we recognize that it will take time for these new states to drive material volume, we are confident that diversification will result in more earnings durability.

Turning to our outlook. With 9 months behind us, we are raising and narrowing our '26 diluted earnings per share guidance to $2.70 to $2.90 from $2.20 to $2.90. We now expect full year return on equity of 29% to 30% compared with 24% to 30% previously. And we have improved our GAAP net combined ratio outlook to 79% to 83% from 81% to 86%. We are also updating our outlook for 2026 direct premiums written growth to approximately 16% from our previous range of 16% to 20%, which keeps us on pace toward our $500 million goal.

The higher earnings outlook reflects the results we have already delivered this year, including the favorable reserve development recognized through September. We will continue to execute with discipline and grow where the returns justify it. You can see that discipline in this quarter's underlying results. Net income grew 62% and diluted book value per share increased 26.5%, even with $4.5 million more in catastrophe losses than in the prior year quarter.

I remain extremely confident in Kingstone's trajectory. I want to thank the entire Kingstone team for their execution, especially members of our claims organization who have provided exceptional service to policyholders with catastrophe claims this quarter and our Select producers for their continued partnership. With that, I'll turn the call over to Randy for a more detailed review of our financial results. Randy?

Thank you, Meryl, and good morning again, everyone. From a net income and EPS standpoint, the third quarter was our second consecutive record quarter with net income of $17.6 million or $1.19 per diluted share compared with $10.9 million or $0.74 per diluted share in the third quarter of 2025. Operating net income increased 68% to $18 million, and diluted operating net income per share was $1.22 in the third quarter of 2026 compared with $0.73 in the same quarter last year. Annualized GAAP return on equity was 52.9% during the third quarter of 2026.

Net premiums earned grew 30.2% to $62.4 million in the third quarter of 2026, driven by growth in direct premiums written and reduced quota share cession in 2026. As a reminder, we reduced our New York personal lines quota share to 5% for the 2026 treaty year compared with 16% for the 2025 treaty year, allowing us to retain more premium and underwriting profit. Net investment income rose 50.3% to $3.8 million in the third quarter of 2026, driven by growth in invested assets and a higher average yield of 4.6%. Total investments were $337.1 million at September 30, up 9% from year-end.

Turning to underwriting. The GAAP net loss ratio was 34.9% compared with 44.3% in the prior year quarter, and our GAAP net combined ratio was 65.6% compared with 72.7%. Excluding both catastrophe losses, which added 7.5 points, and favorable prior year reserve development, which reduced the net loss ratio by 6.1 points, the underlying performance of the book was strong in the third quarter of 2026 with an underlying combined ratio of 64.2%, which is an improvement of 8.3 points compared to the same quarter last year.

This has been an above-average catastrophe year. Third quarter catastrophe losses came from 9 of the 24 events so far, and 2 of those 9 events accounted for most of the losses, with 1 of those 2 events being the late September Nor'easter, which contributed $1.7 million of losses. The $3.8 million of favorable development in the quarter came primarily from our property lines with a smaller favorable impact from our casualty book. During the first 9 months, favorable development totaled approximately $6.7 million or 3.8% of 9-month net premiums earned.

On expenses, our net underwriting expense ratio improved to 30.6% for the first 9 months of 2026 from 30.8% last year. In the third quarter, the ratio was 30.7% compared with 28.4% in the prior year quarter. Last year's quarter benefited from a $1.4 million favorable adjustment to the sliding scale ceding commissions, which lowered the third quarter of 2025's expense ratio by approximately 2.9 points. Excluding this adjustment, the third quarter of 2026 expense ratio would have improved 0.6 points versus the same prior year quarter.

For the 9 months of 2026, direct premiums written increased 17.4% to $228.9 million, and net premiums earned increased 29.8% to $178.7 million. Despite elevated winter catastrophe activity in the first quarter of 2026, costing approximately $13 million in losses, we generated net income of $27.2 million or $1.86 per diluted share and operating net income of $28.3 million or $1.93 per diluted share. The 9-month GAAP net combined ratio was 81.7% compared with 79% in the prior year period and included 10.4 points of catastrophe losses compared with 0.8 points last year. The underlying combined ratio improved 3.7 points to 75.1%.

I will conclude my portion of the call today discussing our capital position. GAAP diluted book value per share was $9.21 at September 30, up 26.5% from $7.28 a year ago and 6% from June 30, even after $9.7 million of after-tax net unrealized losses on our bond portfolio this quarter, which are recorded in Other Comprehensive Income rather than net income. Those losses reflect the rise in Treasury yields during the quarter and not a weakening in the credit quality or credit risk of the underlying portfolio. Excluding Accumulated Other Comprehensive Income, diluted book value per share was $10.43, up 34.9% from $7.74 a year ago and 12.5% from June 30. Our capital position is the strongest in our history. Stockholders' equity grew 11% this year to...

[Technical Difficulty]

Standby, ladies and gentlemen, we resume in one moment.

I'm back. Sorry about that. I think I lost connection.

Please continue.

Okay. Our capital position is the strongest in our history. Stockholders' equity grew 11% this year to $136.7 million at September 30. As a reminder, we have no debt at the holding company. Our current catastrophe reinsurance program provides $500 million of total limit, up 14% from last year's program, with first event retentions at $3.5 million for wildfire, $5 million for named storm, and $6 million for winter storm.

In California, a 30% quota share also limits our net exposures while the book is small. Our capital priorities remain funding profitable growth first, followed by dividend growth and then share repurchases in that order. Our quarterly dividend is $0.06 per share following the 20% increase in July, and we have authorization to repurchase up to 1 million shares through May 2028. We will continue to allocate capital to support our strategic growth plans while maximizing long-term shareholder value. With that, operator, we are ready for questions.

[Operator Instructions] Your first question is from the line of Bob Farnam with Brean Capital.

I'd like to talk about the $500 million direct written premium goal. Now I understand it's a goal, it's not guidance. But when you're talking about competition in California being a lot more than maybe expected, competition in New York picking up, I just -- I want to know what your thoughts are of actually keeping up to that number, because it may be much more difficult than you thought when you laid that out a year or 2 ago.

Sure. Thanks for your question, Bob. So we're in the second year of this 5-year plan to achieve $500 million. And, so far, we're on track; this year's guidance of 16% keeps us on track to hit $15 million -- $500 million. We need to grow approximately 15% each year, and this is the second year where we have achieved that. New York is our core franchise and the main source of our growth and with the measured expansion outside of New York scaling over time. And we do recognize it's going to take time for these states to drive material volume, but we're confident that the diversification benefit is worth it. And at this point, we're still confident we can achieve the $500 million.

Okay. So with your California expansion, can you give us an idea of the growth that you're seeing in California relative to the growth that maybe you thought you would see in the first year?

Sure. The growth we're seeing in California is very low. And what we had planned for the first year was $10 million, and we will be a fraction of that intentionally because, as I said, what we're getting quoted on is not within our appetite, our wildfire appetite or our return appetite. So we're continuing to focus on California. We have various strategies because we are very supportive of the diversification benefit it will provide to the company. But so far, it's a very small fraction of what we had anticipated.

Right. Okay. And in terms of the reserve development, I hear it's from property for the most part. I'm assuming that from accident year 2025 mostly given the shorter tail nature of the claims? And isn't it because the claims process improvements that you had, is that what's, kind of, driving the improvement there?

Yes. So, we had, as you mentioned, $3.8 million of favorable development in the quarter, and most of it was from property. But this is the first quarter where we've also had favorable development from casualty. So we're really happy about that. Certainly, given the short-tail nature of property, most of the favorable development was for '25. But I want to point out, like, I haven't really talked about our -- the rebuild of our claims organization. And what -- they really have done a great job with reserving the claim very quickly to its ultimate claims cost. And so we're seeing much less development, and that's really what is driving the favorable development this quarter and this year.

Okay. Great. And it sounds -- one of my typical questions I ask is kind of pricing versus loss trends. So with pricing, it sounds like it's still going up and loss trend, you're talking about claims frequency improving and claim severity improving. I'm going to assume that pricing is still ahead of loss trends at this point. Is that accurate?

Yes. So right now, there's 2 ways to get rate. One is the increase in replacement costs that really reflects inflation and the other is filed rate changes with the department that would affect other trends. Right now, we have no rate in the department. All of our rate change is from the increase in replacement costs. And it's slightly ahead of what we're seeing in terms of our loss trends. So we feel very comfortable that our guidance of 74% to 75% in terms of our underlying combined ratio that we can continue to achieve that even without needing to file rate in New York.

Okay. Good. And the last question I have is just more of a detailed question. Just -- so for the fourth quarter, what -- do you have -- is your underlying loss ratio higher than in other quarters? I'm trying to think about what goes on in the fourth quarter. And I don't know if you have increased fire losses or something -- water losses going out of the fourth quarter heading into the new year. So I'm just kind of curious in the fourth quarter, what should we expect in terms of the underlying loss ratio?

Yes. So we have given guidance for the whole year that you can, I guess, like figure out what we have planned for Q4, but we don't have any favorable development planned for Q4. We don't forecast that at all. And in general, the fourth quarter is an average cat quarter. So we'll see what this year's weather brings.

Yes. It was just -- it was probably more of a question of seasonality in terms of what the loss ratio. Obviously, you have -- first quarter is a big quarter for your underlying, but I didn't know if there was something similar in the fourth quarter.

Yes, it depends on the winter.

Our next questions are from the line of Paul Newsome with Piper Sandler.

I just had one quick follow-up question for Bob's conversation on the California business. Is it just increased competition for, like, the E&S products that is changing? Or is this also a sign that we're seeing some movement back into the admitted markets in California, in your opinion?

Yes. So it's really both. Again, our -- the premise for Kingstone entering California was we thought we could write lower wildfire business at high margins because the admitted market was so capacity constrained. But we have seen, particularly in the last quarter, many of the admitted writers open up for new business again. And in addition to that, there has been many companies entering the E&S space and kind of lots of rate decreases in that space. So it's really a combination. I think the market has changed rapidly, and it's pretty volatile, like we'll see what the results of this insurance commissioner election bring. That could potentially change the market. But in general, for us, it's been that the admitted market has reopened. So the type of business that we're getting quoted on is not within our risk appetite.

The next question comes from the line of Gabriel McClure, a private investor.

I wanted to just dig into kind of what Bob was asking about with the favorable development. You said that a lot of the property development was from the year 2025. What was the other casualty development from? Can you tell me like what period that was from?

I honestly don't know the years offhand, but our casualty lines are longer tail than property. So there is probably some favorable development from each of the years. I don't know specifically. I can follow up with you after the call and let you know that.

Okay. That would be great. And then I wanted to ask about the underlying loss ratio. It moved down pretty dramatically. I mean it was already low, and it's going lower. So I don't think it could go any lower. But is it more -- is it -- do you think it's going lower because more of the book is transitioning to the Select Program -- or is it because of what you're kind of talking about with your whole claims process, your whole claims division just being a better engine?

Yes, I think it's both. So attritional frequency continues to be very low overall, and that we contribute to risk selection in the Select Program for sure. But in addition to that, this rebuild of our claims organization and their focus on reducing cycle time is really leading to both better visibility and lower ultimate claims costs. So the claims organization is -- they're really focused on providing timely and excellent service and ensuring that we're paying the right amount on every claim. So it is absolutely a game changer for the company.

Okay. Okay. Great. And then I had one for Randy, if I could. Looking at those unrealized bond losses, I'm not sure I'm factoring this in the right way. So I think you said that in your remarks that you want to segregate those into AOCI. So I guess, $9.7 million would be about $0.67 if interest rates had stayed the same. But is that the right way to think about if interest rates would have stayed the same, you'd add the $0.67 back to the $1.19 and come up with around $1.85? Or is that not the right way to think about it?

Yes. Not quite the right way to think about it. So those are unrealized losses on our bond portfolio. So that $9.7 million goes through Other Comprehensive Income, which does not go through the income statement because they're unrealized. And so what it really does is we provide you the book value without the adjustment for ex-AOCI and then the adjustment for ex-AOCI. The delta between those 2 is really that a majority of that is those unrealized losses. So that's how to think of that. And it really is interest rate driven for the spike that we saw in September.

[Operator Instructions] At this time, I'll turn the floor back to management for closing remarks.

Great. Well, thank you so much for joining our call. Have a great day.

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

Good morning, and welcome to Kingstone Companies' Second Quarter 2026 Earnings Conference Call. As a reminder, today's conference is being recorded. I'll now turn the call over to your host, Stefan Norbom, Kingstone's Investor Relations representative. Stefan, you may begin.

Thank you, and good morning, everyone. Joining us today are 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 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 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 definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, please see the tables in our latest earnings release available at kingstonecompanies.com.

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

Thanks, Stefan. Good morning, everyone, and thanks for joining our call. Kingstone delivered the most profitable quarter in our history. Net income reached a record $15.5 million. Net income per diluted share increased 35% to $1.05, and our GAAP net combined ratio improved 1.3 points to 70.2% that performance produced an annualized return on equity of 50.8%.

Diluted book value per share reached $8.69, up 35% year-over-year, reflecting the value we are creating for shareholders. The earnings contribution was broad-based, driven by premium growth, underwriting profitability, operating efficiency and higher investment income.

Turning to growth. Direct premiums written increased 19% to $72.5 million, led by continued strength in New York Personal lines. Relative to the prior year quarter, new business policy count increased 35%, retention improved by 2 percentage points and average renewal premium increased 8% Net premiums earned grew 31% to $60.5 million as prior period growth continued to earn in and our lower quota share session allowed us to retain more premium.

While growth was robust this quarter, we are seeing signs of a softening market and an increasingly competitive environment. The pressure so far is most visible in the dwelling fire line. Demand across the broader franchise remains healthy as our new business and retention results show. Competition has entered and exited this market over time, while Kingstone's broad and long-standing producer relationships have supported our performance throughout market cycles.

Select has proven effective at risk selection and matching rate to risk, which matters even more in this environment. We will not chase volume at the expense of underwriting discipline. As competition increases, New York growth will moderate from first half levels. Our 16% to 20% full year guidance growth outlook already reflects the likelihood of increased competition.

Turning to underwriting. Attritional claim frequency remains very low overall, flat for non-weather water losses, our largest peril and up modestly from the prior year quarter for fire losses. Attritional severity for the non-weather water and fire perils combined increased, consistent with inflation and offset by the increase in average premium.

Against an exceptionally strong prior year quarter, the underlying loss ratio was 4.4 points higher. Year-to-date, though, it's up only 0.2 points. The catastrophe loss ratio was negative as favorable development on first quarter catastrophe losses exceeded second quarter catastrophe losses. We also recognized $1.6 million or 2.7 points of favorable prior-year development.

The Select product continues to perform well. On an exception-to-date basis, our Select homeowners claim frequency is more than 34% lower than our legacy product, while Select dwelling fire frequency is 19% lower. Select now represents 62% of our homeowner policies in force and 40% of our dwelling fire policies in force, extending our runway for continued mix improvement.

Our expense ratio improved by 2.1 points to 30.6%, reflecting continued operating leverage as we scale. Underwriting expense dollars are growing more slowly than net earned premium. The net combined ratio for the quarter was 70.2%, down 1.3 points from the prior year quarter. Randy will provide a more detailed review of our financial results.

We were pleased with our July 1 catastrophe reinsurance placement. We increased total catastrophe protection by 14% to $500 million, added wildfire protection and lowered the risk-adjusted cost of our core catastrophe excess of loss coverage by more than 15%. We also maintained low first event retention across all perils, including wildfire. This program is built for quarters unlike this one. It protects the balance sheet against adverse catastrophe scenarios, reduces earnings volatility and supports continued profitable growth.

We entered California in the last week of the quarter through only a handful of agencies, so it's too early to draw conclusions from the initial activity. Our California business leader knows the market well and has strong producer relationships, which are helping us understand how conditions are evolving. We expected new carriers and MGAs to enter California on an E&S basis. What has changed is that admitted carriers are also beginning to selectively reopen for new business and competition is building faster than we anticipated. That's why we started small.

We're using that early feedback to refine our approach before adding meaningful volume. Our E&S structure and platform allow us to remain nimble, adjusting pricing and appetite as market conditions evolve. We will scale only as the business meets our underwriting and return requirements. We are also on track to enter Connecticut on an admitted basis late in the third quarter. The Department of Insurance has been moving quickly on our filings, and we are preparing to begin writing business once our approvals are received.

New York remains our primary growth and earnings engine. California and Connecticut are measured steps toward a more geographically diversified company and over time, a less concentrated catastrophe footprint. These initiatives support our goal of reaching $500 million direct premiums written by year-end 2029. We will pursue that goal at a pace consistent with our return requirements, reinsurance protection and capital capacity.

Turning to our outlook. We are reaffirming all elements of our full year '26 guidance. We continue to expect direct premiums written growth of 16% to 20%, a GAAP net combined ratio of 81% to 86% and underlying combined ratio of 74% to 76% and a catastrophe loss ratio of 7% to 10%. The catastrophe range reflects the elevated winter storm activity in the first quarter. We also continue to expect diluted net income per share of $2.20 to $2.90 and return on equity of 24% to 30%.

Our modeling assumptions continue to include an effective tax rate of 21% and weighted average diluted shares outstanding of 14.8 million. The operating drivers we control are on track. With the most active months of hurricane season ahead and competitive conditions evolving, we believe maintaining our current ranges is appropriate. We remain confident in our full year outlook.

The second quarter demonstrates the earning power of the business we have built. Our New York franchise is growing. Our operating platform is converting that growth into earnings and our reinsurance and capital position support disciplined expansion. Our second half priorities are clear: grow New York while protecting rate adequacy, build California deliberately, launch Connecticut on schedule and continue translating profitable growth into earnings and book value per share.

I remain confident in Kingstone's trajectory because the drivers are clear: disciplined pricing and risk selection, strong producer relationships, expense control and prudent capital management. I want to thank the entire Kingstone team for their execution and our select producers for their continued partnership.

With that, I'll turn the call over to Randy for a more detailed review of our financial results. Randy?

Thank you, Meryl, and good morning again, everyone. From a net income and EPS standpoint, the second quarter was our most profitable quarter in company history with net income of $15.5 million and EPS of $1.05 per diluted share compared with $11.3 million or $0.78 per diluted share in the same quarter prior year.

Operating net income increased 41% to $15.3 million and diluted operating net income per share was $1.04 in the second quarter of 2026 compared with $0.75 in the prior year quarter. Annualized GAAP return on equity was 50.8% during the second quarter of 2026. As a reminder, the second quarter is typically our most profitable quarter. Net premiums earned increased 31% to $60.5 million in the second quarter of 2026, primarily reflecting continued growth in direct premiums written, along with the reduced quota share session. Our New York quota share session is 5% for the 2026 treaty year, a decrease of 11 percentage points from 16% in the 2025 treaty year, allowing us to retain more premium and underwriting profit.

Direct premiums written increased 19% to $72.5 million and policies in force increased 9.9% to 84,570. Net investment income increased 49% to $3.4 million in the second quarter of 2026 compared with the same quarter prior year, driven by an increase in invested assets and higher average yields that increased to 4.4%. Total investments were $334.1 million at June 30, up $24.4 million from year-end.

Turning to underwriting. The GAAP net loss ratio was 39.6% compared with 38.8% in the prior year quarter. The catastrophe loss ratio was negative 0.8% compared with 0.6% in the prior year quarter. Favorable development on our first quarter 2026 catastrophe losses exceeded the low catastrophe losses experienced during the second quarter of 2026, reducing the negative ratio.

Separately, we recognized 2.7 points of favorable prior year reserve development related to accident years before 2026. Excluding both CAT losses and favorable prior year reserve development, the underlying performance of the book was strong in the second quarter of 2026, with an underlying loss ratio of 43.1%. This compares with 38.7% underlying loss ratio in the second quarter of 2025 a quarter when the underlying performance of the book was also exceptionally strong.

The net underwriting expense ratio improved 2.1 points to 30.6% as net premiums earned grew faster than our expense base. Together, the GAAP net combined ratio improved 1.3 points to 70.2%. The underlying combined ratio was 73.7% compared with 71.4% in the prior year quarter. The absolute level of profitability remains strong and the expense ratio improvement demonstrates the scalability of the business.

For the first 6 months of 2026, direct premiums written increased 19% to $142.1 million and net premiums earned increased 30% to $116.3 million. Despite elevated winter loss -- winter catastrophe activity in the first quarter of 2026, costing about $14 million in losses, we generated net income of $9.7 million or $0.66 per diluted share and operating net income of $10.3 million or $0.70 per diluted share in the first half of 2026.

The first half of 2026 GAAP net combined ratio was 90.2% compared with 82.3% in the prior year period and included 12 points of catastrophe losses compared with 1.2 points in the first half last year. The underlying combined ratio improved 1.3 points to 80.7% and the underwriting expense ratio improved 1.5 points to 30.5% in the first half of 2026 compared with the first half of 2025, reflecting the strength in the performance of the underlying book of business.

At June 30, diluted book value per share was $8.69, up 35% from $6.44 a year ago. Diluted book value per share, excluding accumulated other comprehensive income, was $9.27, up 32% from $7.04 a year ago. With no holding company debt, our capital position continues to be strong, supporting both profitable expansion and measured shareholder returns.

During the quarter, we repurchased approximately 19,500 shares at an average price of $14.98 per share under the program our Board authorized in May. Following quarter end, our Board increased the quarterly dividend by 20% to $0.06 per share just 1 year after reinstating it. We will continue to allocate capital to support our strategic growth plans while maximizing long-term shareholder value.

With that, operator, we are ready for questions.

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

I've got a couple of kind of quick questions and one kind of overlooking question. So the quick question, your expense ratio improved to 30.6%, and you're talking about how it's going to improve as the company scales. Do you have any idea of where that expense ratio could fall to when you get up to kind of full speed over the next few years?

Sure. So we're thinking we could take about 1 point out of the expense ratio. So our interim goal is something like the 29%...

Okay. 29%. And when you're looking to write business, you need to have -- it has to meet your profitability expectations. What -- can you describe kind of what you're looking for when you are writing business, what your profitability targets are?

Well, we're pricing for an 85% combined. So that's our profitability expectation.

Speaker 4

85% combined is -- yes.

Okay. And I guess the more encompassing one is more competition. I know you offered quite a bit on competition. I kind of wanted to know the differences -- I'm assuming there's a difference between the California competition and the New York competition because California is mostly E&S, New York is admitted, but it sounds like admitted are getting into California as well. Are those admitted the same admitted that you face in New York? Or are they a different cohort of admitted trying to get into California at this point?

Sure. So perhaps I -- it wasn't clear what I was saying. In California, the admitted carriers had stopped writing new business to a large extent over the past couple of years because of the regulatory environment. And so there has been a surge in volume on the E&S side. And certainly, we expected a lot of new carriers in the E&S space because we had heard about that.

But what we had not anticipated in California was that the admitted carriers, the largest writers of homeowners in California to reopen for business. And we are starting to see that in the marketplace. So that is something we had not anticipated. The difference is in New York, the admitted carriers to a large -- the top 10 carriers to a large extent, avoid catastrophe-exposed property.

So our competition are the companies that focus on catastrophe-exposed property. And in New York, there is like 1 E&S writer, but most of the companies -- actually maybe 2, most of the companies are admitted. In California, our competition is both now the admitted and the E&S carriers. Does that answer your question, Bob?

Yes. So the admitted carriers in California, you're talking the large companies like State Farm and Farmers and whatnot. Are they -- they're not avoiding getting into the catastrophe exposure? I know that the regulator was basically saying you should -- these companies have to write some high-risk policies to be able to write in the state. So they're not avoiding the wildfire exposed areas like they are avoiding the coastal areas in New York. Is that what you're saying? Is that...

First of all, it's certainly not State Farm that I'm talking about. But what I'm like there is in California, something called the sustainable insurance plan and companies who file that they will write some more wildfire business, then they get access to forward-looking wildfire models and to include reinsurance in their pricing and other things.

So we're still seeing that admitted carriers have a limited appetite, particularly for business that is exposed to wildfire, but we just had not anticipated that they would start writing business again because so many of them were very restrictive until recently.

Okay. All right. And you're talking about the growth moderating in New York in the second half of the year, you're talking about increased competition. Is that new competition? Or is that same kind of the similar thing you're getting companies that had been there [ back ] writing and now they're slowly but surely dipping their toe back into the water?

Yes. I mean it's really both. So look, it's not a surprise. We all knew that the soft market is coming. But what we did see in July, we saw a tick down in our new business for dwelling fire. And from talking to agents, they're just talking more now about the softer market. So there have been a few new market entrants and existing competitors have loosened some of their guidelines.

There is one company that is priced in a really irrational way. So we hope they figure that out sooner rather than later. But listen, I want to reiterate that Kingstone has an unique position in the downstate New York market. We have broad and deep distribution and those agencies have stuck with us through various market cycles.

We have our select product that does a great job with risk selection and matching rate to risk, which is even more important in a soft market. We have low expenses. So I feel very confident we're going to continue to grow, but perhaps modestly slower than we have been. So again, it's just a different part of the cycle, and we'll do our best.

The next question is from the line of Cam Bianchi with Piper Sandler.

This is Cam on for Paul. Considering the expense ratio improvement you saw in the quarter, I'm wondering does the 30% quota share in the California book create any near-term expense ratio drag if that state ramps that would offset any New York-driven efficiency gains? As I know you mentioned about 29% is the target there. But just curious if that California book has any offset in there.

So thanks for your question. So right now, California is such a small piece of the pie, like we're -- even by the end of this year, it's going to be way less than 5% of our total business. And the 30% quota share was really intended just for risk aversion. We wanted to make sure that we didn't have a material impact on our profitability. So to answer your question, it has 0, really like no impact on the expense ratio at all.

Got it. Understood. And then I guess just looking forward a little bit once the California book ramps up a little bit and maybe just on the road to that, how are you guys prioritizing capital deployment between California and Connecticut expansion, increasing the dividend and opportunistic repurchases?

Randy, I'll let you take that.

Sure. Yes. So our capital allocation really remains the same even entering California. And our priorities are, first, to fund that profitable growth, and we've rebuilt surplus here over the last couple of years. And then we're focused on growing that quarterly dividend. And in the past quarter, our Board did increase our dividend by 20% to $0.06 per share. And then third, looking at when the opportunities present themselves, we will repurchase shares, but really in that order.

The next question is from the line of [ Greg Fortuner ], private investor.

Great number. It sounds like the market is getting a little soft. But when you did your -- when you figured your numbers earlier in the year, were you considering that? Or is that something that could affect what you're thinking going forward?

Yes. So if you're talking about our guidance on growth in particular, we did anticipate a softer market in the second half of the year. So the range is 16% to 20%. And year-to-date, we're at 19%. So we'll have to see how it goes. But right now, we're comfortable reaffirming our guidance.

Okay. Is it wrong to think that assume -- aside from any catastrophes that might hit that this earnings is a new run rate for us? Or am I getting too far ahead of myself?

Are you saying for Q2 or Q2...

Right. I'm just saying -- right. So is this -- I know the second quarter is always the best quarter. But that being said, if you go through the third quarter with no major storms and nothing out of the ordinary on the regular claims, should this be the run rate that we're expecting?

Yes. So I would say that our underlying combined ratio, so if you take out CAT loss and the prior favorable prior year development, that is the run rate we're expecting. So in our guidance, we split it between the underlying, and which are all the things that we control, and that's a combined ratio of 74% to 76% and then the CAT loss. So yes, I would say that the run rate is consistent with the guidance that we put out in March.

Okay. I understand that, except I'll just press you a little bit more to say, if you make $1.05 this quarter and then you make $1.05 next quarter, you're basically at your low end. And then it's just the fourth quarter to see how much you beat it by. Is that I mean, so you're being pretty conservative. Is that fair or no?

I mean, listen, we want our guidance to be accurate and durable. And while we feel very positive about our outlook, it is just the very beginning of the hurricane season. And Q3 is typically a quarter where we see sizable catastrophe losses.

So it's just -- and then with the change in the competitive environment, I just thought it was most prudent to maintain our guidance until we had better visibility into the rest of the year. So I hope you're right, Greg. I hope we're at the very high end, and we can update guidance next quarter.

All right. Two more quick questions. So when you talk about the competition, obviously, it takes time for policies to roll off, people can't just leave mid-policy and write a new policy to someone else. So I mean, when will we see the effects of what might be some competition?

Yes. So typically, in a soft market, look, we want to retain our renewals and consumers generally are much more price sensitive when on new business than they are on renewal business. So I think what we'll see -- what we're most likely to see is a decline in new business writings rather than any impact on the renewal rate, but time will tell. Like it really depends on how aggressive the competition is.

Okay. So you're expecting more of a moderation of new business versus our current book. Okay. Understand.

Yes.

And then my last question. In the past, you've told us what our maximum loss would be in the case of like a Sandy or some major storm. Has that changed since we wrote the new reinsurance policy? Or is that similar to -- I think you had said like maybe $5 million-ish or somewhere around that number?

Yes. So one of the -- we had this very successful placement this year, and we were able to retain our low first event retention across all perils. So our first event retention is $3.5 million for wildfire $4.75 million for named storm like a Sandy and then winter storm and severe convective storm is $6 million.

And so in the past, we've talked about let's take if a storm like Sandy hit us today with our current footprint, it would cost us roughly $5 million, $4.7 million pretax, $4 million after tax and about $0.27 per diluted share. So it is certainly just an earnings event for Kingstone, not a capital event. So to your question, Greg, nothing has changed. We've maintained that same very conservative first event retention to protect our surplus.

I guess to think if you can only lose $0.27 in a major storm, that's pretty -- you sleep in that, I imagine.

Absolutely.

The next question is from the line of Gabriel McClure, Private Investor.

Congrats on another record quarter. So when you were talking about the policies in force growth, you threw a number out there. I just wanted to make sure I heard you right because on the press here, it said that there's a 9.9% growth. Could you repeat that again, please?

I don't recall talking about policy in force growth. I said new business for the quarter was up 35%. Retention was up 2% and our average premium was up 8%. But we are really delighted that our policy in force growth was up almost 10% quarter-over-quarter. So you're right, what's in the press release is correct.

[Operator Instructions] At this time, I'll turn the floor back to Meryl for closing comments.

Terrific. Thank you so much for your interest in Kingstone, and thanks for joining us today. Have a wonderful day.

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

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.