Kingstone Companies Inc (KINS) 2014 Q3 法說會逐字稿

Greetings, and welcome to the Kingstone Companies, Inc. third-quarter 2014 conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Forrest Hunt of The Equity Group. Thank you, Mr. Hunt. You may begin.

Thank you very much, and good morning, everyone. Yesterday afternoon, the Company issued the announcement of Kingstone's fiscal 2014 third-quarter results. We will be utilizing a slideshow presentation as an accompaniment to this call. This presentation is available on Kingstone Companies' website at kingstonecompanies.com.

While we will not be referring to the presentation slide by slide, the structure of the discussion will mirror that of the slideshow. We welcome each of you to review this presentation and follow along.

On this call, Kingstone may make forward-looking statements regarding the Company, its subsidiaries and businesses. Such statements are based on current expectations of management of each entity. The words anticipate, expects, believe, may, should, estimate, project, outlook, forecast or similar words are used to identify such forward-looking information.

The forward-looking events and circumstances discussed on this call may not occur and could differ materially as result of known and unknown risk factors and uncertainties affecting the companies including risks regarding the insurance industry, economic factors and the equity markets generally. The risk factors are discussed in the risk factors section of its Form 10-K for the year ended December 31, 2013.

No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as to the date in which they are made, and the Company and subsidiaries undertake no obligation to publicly update or revise any forward-looking statement whether as a result of new information, future events or otherwise.

When discussing our business operations we may use certain terms of [art] which are not defined under US GAAP. In the event of any unintentional difference between the presentation materials and our GAAP results, investors should rely on the financial information in our public filings.

With that, I'd like to turn the call over to the Barry Goldstein, the Chairman and CEO of Kingstone. Please go ahead, Barry.

Thank you, Forrest, and welcome, everyone. Joining me today is Victor Brodsky, Kingstone's Chief Financial Officer, as well as Ben Walden, Vice President and Chief Actuary.

We were very pleased to have reported strong results for the third quarter. When I met with many of you during our capital raise last December, I outlined how we define success at Kingstone. This includes achieving strong and sustainable growth that generates underwriting profits commensurate with the risk assumed. This must be done while adhering to our core philosophies of limiting leverage to protect our franchise and honoring our commitments to our Select Producers.

Please refer to slide 4. During the quarter ended September 30, policy count increased, premiums grew and we began to benefit from the changes to our quota share treaties that went into effect on July 1. We are seeing increased demand for our products in the market, and we are using our larger capital structure to take advantage of this opportunity.

Our strengthened financial position gained through the follow-on offering of last December allows us to retain more of the business that we write. During the third quarter, our direct written premiums totaled $20.1 million, an increase of 26.4% over the prior year.

Our largest business segment, personal lines, which includes homeowners and dwelling fire policies, grew at a rate of just over 30%. Please note that over the past eight quarters the personal lines premium growth rate per quarter has averaged 29% over the respective prior-year periods.

On a Companywide basis, we increased our policy count by 24% over Q3 2013, with a total of almost 43,000 in force at the end of the third quarter. This represents a sequential quarterly increase of more than 5% from the policy count at the close of the second quarter. Please note that over the past eight quarters the sequential quarterly policy growth rate has averaged 4.5%.

In Q3, our net combined ratio was 70.9%. Our net loss ratio was a very acceptable 45.9% for the quarter, but included heightened losses from the commercial auto line of business. Commercial auto is now a relatively small portion of our overall book, only about 3% of the total, and I will go into greater detail on this line in a moment.

Finally, we generated net income for the quarter of $1.9 million and earnings per diluted share of $0.26. There is a very large opportunity existing in our market, and we plan to continue to take full advantage of it. According to metrics published by SNL Financial, Kingstone was the 84th largest property and casualty insurer in New York State in 2013 based upon direct premiums written. This represents a market share of only 0.15%. When looking at homeowners, dwelling, fire and the like, Kingstone rises to number 28 in New York with a market share of just 0.6%. So New York is a very large market for us to pursue, and there is plenty of room available for us to grow.

I'd like to take a moment to highlight the importance of Kingstone distribution channel. We feel this is a major a differentiator between our Company and other publicly held insurers as well as our privately owned competitors. As a former agent, I have been in situations where as a top producer I have received phone calls from carrier representatives telling me they were preparing to cut my commission rate.

Why would they do that in spite of my delivering to them high-volume and better-than-average losses? Simple, just because they could. Because so many carriers have no real regard for the well-being of their so-called producer partners, and so many have shown a willingness to jeopardize the relationship many years in the making just to generate a short-term benefit.

We don't do that. We have competitors who have built their entire business on the backs of their agents and then go ahead and align themselves with direct writers who have a stated goal to cut the middleman out. Disintermediation, call it whatever you like. We consider the long-term impact of everything we do and will never take an action that does anything but support our Select Producers.

In the end, our support of the independent producer will win out as they will realize which carrier is truly their partner. We are not growing our premiums by adding new producers and increasing points of distribution. We are very careful when adding new producers. We protect our existing producer base and will not cannibalize them to achieve nominal incremental growth. We are far better served by our historical strategy of adding new products to our existing infrastructure.

In our slide presentation, and please go to slide 5, we highlight that since December 2012 we have increased our select producer network by less than 2%, and our total premium is well distributed throughout the group. We continually evaluate individual producer performance with our Company, and at times we are forced to cull out those that don't meet our standards.

An appointment with Kingstone has real value, and we believe that Kingstone has created a culture of mutual respect and partnership with each of our Select Producers. It is our unwavering support of the independent agent channel and our reputation for doing so that is a key point in all of our future growth plans.

Next, I would like to touch on each of our lines of business quickly in order to provide a better perspective of the Company's operations, so please turn to slide 6 and 7. Our personal lines direct written premium of $15.7 million in the third quarter made up the largest part of our total direct written premiums, or about 78% to the quarter.

It is important to know that we are not achieving our 30% premium growth rate due to higher rates, and I have already shown you that growth doesn't depend upon heightened distribution. We are achieving growth in our home market in downstate New York for three main reasons. First, through national carriers limiting their exposure to New York City and Long Island, and this has been discussed with you many times before, so we continue to take advantage of their cutback.

Second, we are gaining market share because a number of our regional competitors have chosen to raise their rates. Thus, while we haven't raised our homeowners' rates in many years, Kingstone is becoming more price competitive as a result of the actions taken by others. Producers have repeatedly told us that consistency in rate supports retention, and they are correct. As others were forced to raise their rates following dramatic losses they suffered from Superstorm Sandy, more and more of their customers are asking that their policies be shopped around due to the increases they are seeing, and some of these increases can be 20% and even more. This gives us many more selling opportunities for our consistently priced coverage.

Third, and finally, we believe that based upon surveys taken by the Professional Insurance Agents of New York, our brand itself is becoming better known and our backlog of applications by producers seeking an appointment is a testament to that.

Effective July 1, personal lines premiums ceded to our reinsurers was lowered to 55% from 75%. This was a very important change as the adjustment to ceding percentage in addition to an increase in overall direct written premiums caused net written premiums and personal lines to increase by 125% after excluding the effect of the return of premiums previously ceded.

Keep in mind that we have the ability to further reduce the quota share ceding percentage on our next renewal date of July 1, 2015, and in future years. Ultimately, our goal is to eliminate quota share reinsurance entirely and retain 100% of the profit produced by our personal lines.

Commercial lines of $2.5 million made up 12.5% of our gross premiums in the third quarter. These are artisans and business owners and special multi-peril policies, which consist primarily of small business risks without a residential exposure. We nonrenewed our commercial lines quota share reinsurance beginning in Q3, and thus we are now retaining all premiums written in the third quarter and future.

Next, let me address commercial auto where we provide primarily liability and some physical damage coverage for light vehicles owned mainly by small contractors and artisans. Commercial auto represented just over 3% of our business this quarter. Over the past few years, we have experienced higher than hopeful losses in this line of business.

We made the changes to pricing and underwriting rules we felt were necessary to generate an acceptable underwriting profit. While the business has improved, the margin we can hope to achieve is limited, and the required allocation of capital may never be justified. As a result, we have ceased new commercial auto production beginning October 1, and we will review each policy in force as they come up for renewal.

Finally, we provide the for-hire physical damage only policies for livery, cross-service vehicles and taxicabs. While still relatively small at about 6% of our total gross written premiums for the period, it was our fastest-growing line of business. This line has almost doubled in volume over the past year due largely to the expansion of for-hire vehicles in New York City, particularly Uber.

We are very proud of our results for the third quarter as displayed on slide 8. Note that this is the first quarter to benefit from the changes in reinsurance that we planned for when we did the offering in Q4 2013.

Now I'd like to turn the call over to Ben Walden, our Vice President and Chief Actuary.

Thank you, Barry. Let me take a few moments to discuss the loss ratio for the quarter. I will also go over some of the initiatives we have undertaken this year to enhance our reserving analyses.

Returning to slide 7 of the presentation, you can see that the third-quarter 2014 overall loss and loss expense ratio was 45.9%. This favorable result contributed directly to our GAAP combined ratio of 70.9% and implies a nice underwriting profit for the quarter.

The third-quarter loss and loss expense ratio for personal lines, by far our largest line of business, was an outstanding 15.7%. The low loss ratio was driven by the absence of severe weather events and below-average large loss activity.

As noted earlier, our quota share retention for personal lines increased from 25% to 45% effective July 1. Because of this, favorable results in personal lines now have a much greater impact on overall profits than they did a year ago.

The third-quarter 2014 loss ratio is disproportionately impacted by incurred losses from our commercial auto book of business. Although only 3% of our earned premium for the quarter was derived from commercial auto, the line contributed 34% of the total incurred losses.

The 2014 year-to-date loss and loss expense ratio for commercial auto now stands at 91.5%. We recently undertook an extensive evaluation of this line including an examination of the competitive marketplace. Although we do expect the loss ratio to improve from current levels, we now believe that the profitability potential for commercial auto is limited.

After reviewing the results with Barry, it is our feeling that our other lines of business would benefit from a reallocation of capital away from commercial auto.

The overall losses recorded for the third quarter 2014 are supported by detailed internal actuarial review of each line. The detailed actuarial reviews have been performed each quarter since I began with the Company almost a year ago. In addition, we have grown our liability claim stats since the start of this year and have enhanced our claims review procedures.

This will ensure that as we grow each open liability case is consistently monitored and that reserves are adjusted in a timely manner. On the property side, since most claims are reported and closed quickly, reserves are promptly set at appropriate values. Our personal lines results, which now are much greater impact on our overall loss ratio, are driven primarily by property claims.

The shift in our net premium mix towards personal lines should reduce the volatility and the overall loss ratio that is sometimes caused by the longer-tailed liability lines.

At this point, I will turn it over to Victor Brodsky, our CFO, to go through the financials in greater detail.

Thanks, Ben. I will briefly go through the quarterly highlights, but welcome each of you to review our press release and filings should you have any further questions. I will start with our net combined ratio and underwriting performance on slide 9.

Our net combined ratio for the quarter was 70.9%. The components of the combined ratio are net loss ratio and net underwriting expense ratio. Ben has already discussed our losses for the third quarter and our very healthy 45.9% loss ratio. Our net underwriting expense ratio was 25% in the third quarter.

Let me now take a moment to discuss the components of our net underwriting expenses, which contribute to net underwriting expense ratio. These components are commissions paid to our Select Producers; other underwriting expenses, which is the overhead required to run our business; and, finally, the ceding commissions we received from our quota share reinsurance partners.

Commission expense as a percentage of premiums written remains fairly constant except for the additional commission we pay our Select Producers as a bonus. As the premiums written increases, commission expense increases at a similar rate.

Our other underwriting expenses include the costs related to the writing of insurance policies, regulatory fees and the overall overhead of running our business. As Barry discussed earlier, our direct written premiums increased by 26.4%. But let me point out that are other underwriting expenses increased nearly 9%.

We are truly benefiting by scaling up our writings and utilizing the in-place infrastructure and our extremely efficient staff.

The final component is ceding commission revenue, which serves to reduce the ratio. Since the amount of ceding commissions we receive runs in tandem with the amount of premiums that we cede, it was expected that the ceding commissions would decline following the cutback of our personal lines treaty and the termination of our commercial lines treaty.

Moving to investments in slide 10 and in our 10-Q, we provide detailed information from our balance sheet. In short, our investment philosophy is simple. We seek stable after-tax income in our portfolio without putting our capital at risk.

Kingstone's cash and invested holdings at September 30, 2014, increased to $67.3 million as compared to $57.6 million at December 31, 2013. Net investment income increased 57.5% to $464,000 in the third quarter of 2014. This increase over last year resulted primarily from the deployment of the $18.8 million in net proceeds we received from our December 2013 public offering and from increased operating cash flows.

To summarize, our direct written premium growth and increases in net written premiums due to new quota share agreements, increases in net investment income along with other underwriting expenses, increasing their percentage well below the growth rate in direct written premiums led to a strong performance on the bottom line. This resulted in Kingstone's net income for the quarter of $1.9 million.

I am also very pleased to announce that our Board has declared a dividend of $0.05 per share, which will be payable on December 12, 2014. This will mark our 14th consecutive quarter of dividend distributions.

With that, I will turn things back over to the Barry for closing remarks.

Great, and thanks, Victor. As we have discussed in the past, we keep a very simple set of goals at Kingstone, which is what I call 20/20/20. That is the we point for 20% growth, a 20% operating margin and 20% return on equity.

In the third quarter, we achieved the first two of these goals with growth of 26.4% and an operating margin of 29.1%, but annualized return on equity just missed at 19.6%. These are not formal measures or expectations, but the metrics are used to gauge how we are doing. Two for three is very good, but we are seeking the Triple Crown.

Our growth rate has accelerated. We are retaining more of the business that we write, and we are doing so without strain from the core underwriting principles or philosophies that we have been practicing for decades. Operator, let's open it up for questions.

(Operator Instructions). Ken Billingsley, Compass Point.

Congratulations on the quarter. I wanted to ask, you mentioned on the livery growth segment that Uber was one of the main drivers of that. I just wanted to get an understanding, what are they actually purchasing coverage-wise from you? My understanding is some coverage is actually coming from these rideshares. So could you just talk about what product you are offering that they feel they need to purchase, or is it in excess of the coverage that is offered by the rideshare company?

It is in excess, but we only offer the physical damage, the comp and collision coverage, that is generally required by a lender when a new car or used car is purchased when there is a loan attended to it.

But as the people in the communities that are served by Uber are aware, it's been a very quickly disrupting service. The taxi and livery business in New York has changed dramatically in a very, very short period of time. We have seen the nature of the vehicles driven are changing. I got picked up the other day in an Uber car that was a brand-new Camry, where normally I would have gotten some kind of three-year-old Lincoln Continental.

So there's a lot changing. It's moving very quickly. We do not today write the liability side of the policy. We do write about 2,000 of these cars and growing very quickly, but the only coverage that we supply is the comp and collision or physical damage only.

You said that in excess of what the rideshare is offering, or is that in place on its own regardless of what Uber or the other companies (inaudible)?

I am not really familiar with what Uber provides to the drivers. This is purchased independent of whether -- I think whether they are a driver of Uber or just affiliated with any base, physical damage coverage is generally required by all lenders.

Okay, and is that only when they are on the clock, or are you offering coverage --?

No, we sell it on an annual basis.

Okay, so this is commercially -- this is essentially insuring the car the whole time that the driver is driving the car regardless of whether they are doing ride sharing?

24/7, yes.

Okay. Then I was going to ask, what percentage of your -- you said you have about 2,000 policies related to Uber. What percentage of the growth is related to traditional taxicab companies as opposed to each rideshare individual?

That's interesting. We do have data -- I'm sorry I don't have it at my fingertips -- that break down the coverages between black car -- what we call black car, silver car, which are basically a little bit older -- black cars -- and green car, which is a new type of taxicab in New York City where the medallion allows the driver to go anywhere and pick up fares anywhere except within certain designated sections of Manhattan.

But most of the growth we are seeing is in the black car segment, which is where the Uber cars would be. We are seeing growth in taxicabs, no doubt. Green cars is something that is relatively new, so I think the growth rate itself might be dramatically high, but in real total it is immaterial.

But the growth is coming from the black car side of the Uber side of the equation.

When you talk about your personal lines, I just want to clarify, of all of the personal lines growth -- I know you just say personal lines -- the majority of it is homeowners. But can you talk about what else may be in there and what percentage makeup that is of direct premiums?

I think Ben can handle the breakdown.

Most of the growth on a dollar perspective is from homeowners, but as a percentage of growth that is actually mostly in our dwelling fire program. We have seen a pretty big increase in policy counts over the last year there, and that's actually growing more rapidly than our homeowners line. We have a couple other minor lines of business that get folded into personal lines, but they don't really affect the growth rate too much.

How would you allocate between homeowners and dwelling fire on a ratio basis?

We have -- in terms of the total volume we have about 20,000 or two-thirds of our personal lines count is related to homeowners; the other one-third is related to dwelling fire. Dwelling fire is becoming a bigger percentage of the total as it is growing quicker.

And why is someone just buying the fire piece and not the liability or anything else?

The dwelling fire actually does have a liability component associated with it the way we sell it.

Okay.

These are the rental houses that where the landlord is purchasing the coverage, but we do also offer a liability component to that, which is pretty unique in the marketplace. The markets for that type of policy, there aren't too many companies that offer that right now. So we are gaining the market share there because of the lack of availability from other carriers.

Then what's in the homeowners product that's different that you are separating it since you are including liability in the dwelling fire as well?

You are asking what's the difference between a homeowners policy and a dwelling fire policy?

Yes, so homeowners policy has to be owner-occupied whereas a dwelling policy can be a rental situation. And we are ensuring the owner of the dwelling, who is not occupying, he is renting it out to tenants.

Just to clarify, okay, so you are selling the product to the owner of the property. This is not renters insurance? This is --?

Correct, that's right. Although in our homeowner's line we do also offer a tenant's policy, which is just a pure rental policy, which covers just the contents.

Last questions and I will let someone else ask. Just looking for prior-year development it looks like your loss ratio was impacted by just under 5 percentage points, $0.04 a share, from adverse development. Could you talk about where that came from?

Yes, we took about $400,000 in total prior-year development during the quarter. The majority of that, almost all that, actually was related to commercial auto, so it's for the older years, 2011 and 2012. And we have continued to look at that, but we think we have the reserves where we need them to be at the present time.

That was essentially setting them up since you planned on exiting that line was --?

I don't know if it's chicken or the egg, but when you get a look at it and then you -- we took back and looked at all of our results. Commercial auto had been very profitable line of business. And starting in, I guess, 2008 or 2009, it started to deteriorate and went -- was still profitable. But then things went the wrong way. We thought we had control over it and started to make the changes I talked about before including limiting the distribution to fewer number of producers. But in the end, the outside forces in the marketplace is really what dictated the exit.

It is an incredibly contentious court system in New York, and we have got a very competitive marketplace where carriers far larger, far more adept than we are willing to accept a very nominal -- what for us would be a very nominal rate of return. And at the same time, those -- particularly the direct writers who are doing it carry an expense ratio in the teens or low 20s.

So if we looked at just our regular operating expenses being in the low 30s, even if we match their prices we would have to lose money. I sometimes say my mother didn't have too many stupid sons. Maybe this son waited a little too long to pull the trigger. But as of October 1, we are not doing any new business in that line.

Very good. Thank you for the answers, and I will re-queue. Thank you.

(Operator Instructions). Mike Hughes, SGF Capital.

Just a follow-up on the commercial auto. How long does -- how long will it take to actually extract from that business? It was about 10% of net premiums earned this quarter. Where would you envision that number a year from now? And then just thinking in a tail risk on the claims, can you just discuss that a little bit, how far out would we have to worry about that?

I think what Ben was saying first is we feel as though having gone through the reviews we have our reserve is adequate now. In terms of worrying, I will be sleeping with one eye open for a while. But at least from an actuarial standpoint we feel like we're in good shape.

Each year -- as compared to other lines of business in New York, where there is policy periods that go up to -- in a homeowner's policy, you are basically obligated to write the policy for three years. With respect to commercial auto or certain other commercial lines, we are under no obligation to renew any one policy at all. And while we haven't yet made a complete decision as to how much higher we want to be, we know we do have a good portion of the book is a very profitable, stable, long-term book. How we cull out the rest of it is something we're working on as we speak.

Okay. So you actually over time will continue to run part of the commercial auto book?

If we can run it at a net gain that is worth the effort, we will.

Right, it's just --.

The question is is it worth the effort to even try to hold on to a couple of million dollars of nominally profitable premium. And one of the issues that we have to contend with is that we have got producers who have relied on us historically for this business, have given us really good quality business. The book itself over that five-, six-year period kind of got polluted, and we will clean it out. So with what's left over is worth that effort rather than just writing the whole thing off, that's a decision that will be made within the next I would say 60 days at the very latest.

Okay, understood. Second question, your two regional competitors, I think you referenced on the last call that they needed to -- or they actually took some price maybe about a year ago. Can you just remind me the process that they go through to take price? Is there another price increase that hits now or the first quarter next year for them?

I think Ben can go through this better, but keep in mind when Ben is answering that the policy period is three years in New York. So changes to rate or changes to other underwriting components of a policy take three years to work themselves through entirely (inaudible).

Right. So, the companies, the competitors we have, can file for rate changes at any point in time. Some of our primary competitors did do that within the last year or two, and they took significant increases. What the Department of Financial Services will normally allow in terms of an increase is limited generally on an annual basis to a certain percentage.

One of our competitors took a rate increase that was actually higher than that amount. So in order to get that to go through and flow through, they had to cap the change on an annual basis such that the full effect of the rate change that they took will not go through for three years on some of the policies that got big increases.

Over time, we are seeing more of that business come to us as those rates go up year after year on their renewals.

Mike, think of it as though -- for the carrier that took the rate increase, think of it from their position. They are going to get the benefit if you would of that rate increase over three years. So the third -- maybe just assume a third, a third and a third if there was really no growth in that carrier.

Over that same period of time, some of those policies may have multiple annual increases because of a limitation or a cap that the department placed on it. But my point is what we see -- and Ben has developed some really good software tools for us -- is we are seeing a heightened level of quoting where the prior carriers have taken rate increase as compared to that same carrier before they took the increase.

Okay, makes sense. One last question for you. I think your duration is a little bit longer than some of your peers. What is your current thinking on that?

Well, to be honest, we kind of have to -- we have a very different scenario than others. I have mentioned this before, but it is something we are quite proud of. We have never had to use our investment account for any bill to pay anything. So from the time I have -- well, I guess it is six years that I am running the investment account now -- we have never made a withdrawal from it except for one stupid little quarter where I decided that the tax due on the investment should be paid by the investment account.

It is almost like a separate business. And, yes, we started off a few years ago with a set of parameters that basically limited our average maturities to about seven years. We have the same rules where we only buy investment-grade debt. We stayed to that seven years; I guess our duration is something less than six now.

Some of our competitors have a higher -- have a large component of their fixed income in RMBS, which is something that would bring -- that brings down the duration yet supplies a good yield. That's something we are looking at currently as we grow.

I am just pretty satisfied that we started off in the right place. We have seen a lot of our BBBs turned to BBB+ or A-minus rated securities, and I really see no reason to change.

We have over the last year or so have -- well, starting the beginning of year we increased our exposure to municipals, which extended the duration a bit. But we caught a wave there and have done very well with it as well.

Okay. If I could just ask one more. I know it's early in the quarter, but do you think the commercial auto loss ratio, you can get that sub 100 in the current quarter?

Yes.

Okay. And then the personal lines was outstanding in the third quarter. I would assume that would be a little worse in the fourth quarter. Is that right? Or just give us some color on how the fourth quarter is looking on the personal side.

Right now I can't say it's looking much worse.

Okay.

It's a little premature. But the fellow who used to be the CEO of Kingstone, his name is (technical difficulty), and he reminds me at every opportunity that, Barry, this is a fortuitous business, and that we had a really good third quarter from a weather perspective. And more than just a weather perspective, we have had quarters where we have had multiple expensive fires. We really didn't have any in the third quarter.

So we are just happy that it worked out that way. And thus far in this quarter I have nothing that I'm looking at that makes me think it's going to be dramatically different, but one fire could turn over the boat.

Okay. Thank you very much.

(Operator Instructions). Paul Newsome, Sandler O'Neill.

Congratulations on the quarter. Fantastic. I was curious, some of the Florida home specialists, which are probably your closest public peers, had been talking about pressures either from the rating agencies or the reinsurers to expand outside of their geographic regions. Was curious if you had felt that some of those pressures are changing for you.

Thanks, Paul. While I didn't include it in the presentation, I can tell you that we recently began the process to secure licenses in four other states where we feel that our knowledge of the product coupled with our extensive reinsurance abilities would bode well. These are coastal exposed states, and until -- unless and until we get approved, I really do not want to mention the names of the states.

But we -- to separate us from Florida to me is a really easy distinction. We have got where Florida has a group of carriers, including a bunch that started in the last couple of years, who have been able to grow their business through the effective -- effectively the depopulation of an assigned risk plan. That has led to a substantial amount, if not all of their growth. And it's very beneficial from a financial perspective for them to take on business out of the plan and avoid the costs of reinsurance for a period time or paying the commissions.

As long as you keep doing it, it's really cool. It's like the way JetBlue got started. You have an airplane you don't have to pay maintenance for the first couple of years. As you grow, your maintenance expense is always lower than your peers. You are charging the same rate, you got a nice looking margin.

But when that growth stops, that financially engineered growth stops, you have got to act like a real company. Contrast that to Kingstone. Everything we do comes through the independent agent channel. We have not generated any of our growth through acquisition. Very little of our growth has come through increasing points of distribution, and almost none of our growth has come from raising of prices.

Kingstone has a business reputation amongst the producer community that we treat people fairly, that we treat people consistently and we don't try to put our hands in their pockets every time we can like some of the other carriers. You see private passenger writers, CEOs, whining around about how their agency business is shrinking. These are the same guys who just cut the commission rates on their producers.

Everything goes in both directions. I think we have a business that works off of plain-vanilla core principles, and we didn't need any kind of advantage like a takeout or an acquisition to generate the growth we have been able to.

It's a good point. Obviously, your claims systems have been tested by a big event where many of theirs has not. Thank you. That's all I had to ask. Appreciate it.

Ken Billingsley, Compass Point.

I just wanted to follow up on the livery discussion we had at the beginning of the Q&A. You said that you were -- this is essentially full-year coverage, so whether they are actually operating as a Uber driver or not, the coverage is still in place. What percentage of the time do they have to be driving for Uber where it doesn't become personal lines? Or what is the impact of whether it becomes a personal auto policy versus a livery essentially commercial auto policy?

We write them all as commercial auto. I think that's more of a question for the personal auto writers to make sure that their policies are not written on Uber vehicles, because in that case you can wind up with an exposure you are not expecting.

In our case, we think our pricing is set so that on the comp and collision we have the adequate rate in place, so that if it's being used part of the time for personal and part of the time for commercial, yes, we're basically rating it as if it is being used full time and for commercials, which it gets you an adequate rate.

The commercial rates are significantly higher than personal. That's what Ben was alluding to. It's a question that are asked of the private passenger writers.

Okay, that was going to be my next question was if you have a better pricing advantage in there. If those customers are buying that product, are there regulatory restrictions that you guys have to deal with regarding whether it if it is a personal auto policy versus commercial auto, or are there no regulatory hurdles that you have to -- you really have to avoid?

No, there's nothing from a regulatory standpoint. I don't know if anybody would rather pay $4,000 when they could pay $2,000. But, again, we are seeing this, and it's really started in October or November of 2012, I think it was. And we have revamped our physical damage program, brought on a -- we have the -- I think we are the only ones in the marketplace with a true online rate/write/bind ability in this line of business. so that helped it.

But the liability carriers in New York City in particular are a handful in number. None of them appear, at least on the published financials, to be doing particularly well, and it's something we keep our eye on no doubt. But we have been able to get involved, and this is a very -- perhaps the shortest tail line available in the marketplace. This is the car that the guy uses to make a living, and if he gets into an accident or something should happen to it, he needs that car back on the road within a day or two.

We find out about the claims almost as they happen. They guess settled very readily; we have a reputation for doing that. And, again, that goes a long way to keeping these policies in force.

Why are they buying the policy through you if it's that much more expensive? And I'm only asking this -- and if my understanding is correct is that Uber and Lyft these other rideshares are now offering coverage at least while they are on the clock. Is there a chance that --?

I am not sure that that -- let me stop you there. I don't know if that is New York City or New York state at all.

Okay.

There are very specific laws. And Uber has become like the uber-competitor in every marketplace they are in. They are very, very aggressive. This whole thing has required them to -- they came into the market with this rideshare program, as did another company named Lyft, and they tried to write their own rules. I guess I would do that too if I thought I had a better mousetrap. But what ultimately happened in New York is that Uber was forced to operate out of -- with bases, as the other TLC registrants are required to.

They have to -- each of these guys do have to show that they have commercial liability insurance in order to participate in Uber, and our policy really is an add-on to that to protect the value of the policy for the benefit of the lender.

Right. So the issue you are talking about really relates more -- much more to liability insurance and who covers a liability situation when there is an accident. What we offer is just the physical damage, so we are offering just to cover physical damage on a vehicle when it gets in an accident. No, there is not really as much of an issue there regarding competing coverage between personal and commercial.

Great. Thank you. Thanks for the clarity.

(Operator Instructions). Management, there seems to be no further questions at this time. Would you like to make any closing remarks?

Yes, great. Thank you. And everybody on the call, thank you for your time. We look forward to speaking to you again in our fourth quarter and year-end financial results conference call.

We understand there may be follow-up questions and encourage you to feel free to reach out for any of us. Or you can call our investor relations firm, The Equity Group, as well. We look forward to any feedback that you may have, and thank you again. Have a good day.

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