UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to _________

Commission File Number 0-1665

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		36-2476480
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

15 Joys Lane

Kingston, NY 12401
(Address of principal executive offices)

(845) 802-7900
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	KINS	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒☐
Non-accelerated filer	☐☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~November 9, 2020,~~May 17, 2021, there were ~~10,675,198~~10,680,653 shares of the registrant’s common stock outstanding.

KINGSTONE COMPANIES, INC.

INDEX

			PAGE

PART I –— FINANCIAL INFORMATION			2

Item 1 –—	Financial Statements		2
	Condensed Consolidated Balance Sheets at ~~September 30, 2020~~March 31, 2021 (Unaudited) and December 31, ~~2019~~2020		2
	Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss for the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2021 (Unaudited) and 2020 (Unaudited) ~~and 2019 (Unaudited)~~		3
	Condensed Consolidated Statements of Stockholders’ Equity for the three months ~~and nine months~~ ended ~~September 30, 2020~~March 31, 2021 (Unaudited) and ~~2019~~2020 (Unaudited)		~~4-5~~4
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 (Unaudited) and ~~2019~~2020 (Unaudited)		65
	Notes to Condensed Consolidated Financial Statements (Unaudited)		76
Item 2 –—	Management’s Discussion and Analysis of Financial Condition and Results of Operations		3935
Item 3 –—	Quantitative and Qualitative Disclosures About Market Risk		7561
Item 4 –—	Controls and Procedures		7561

PART II –— OTHER INFORMATION		63		77

Item 1 –—	Legal Proceedings		7763
Item 1A –—	Risk Factors		7763
Item 2 –—	Unregistered Sales of Equity Securities and Use of Proceeds		7964
Item 3 –—	Defaults Upon Senior Securities		7964
Item 4 –—	Mine Safety Disclosures		7964
Item 5 –—	Other Information		7964
Item 6 –—	Exhibits		8065
Signatures		66		80

Table of Contents

Forward-Looking Statements

This Quarterly Report contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The events described in forward‑looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated results or other consequences of our plans or strategies, projected or anticipated results from acquisitions to be made by us, or projections involving anticipated revenues, earnings, costs or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward‑looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may cause actual results and outcomes to differ materially from those contained in the forward-looking statements include, but are not limited to the risks and uncertainties discussed in Part I Item 1A (“Risk Factors”) of our Annual Report under “Factors That May Affect Future Results and Financial Condition” on Form 10-K for the year ended December 31, ~~2019~~2020 and Part II, Item 1A of this Quarterly Report.

Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward‑looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward‑looking statements. We undertake no obligation to publicly update or revise any forward‑looking statements, whether from new information, future events or otherwise except as required by law.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

~~KINGSTONE COMPANIES, INC. AND SUBSIDIARIES~~

Condensed Consolidated Balance Sheets


	September 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020
	(unaudited)						(unaudited)
Assets
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $7,899,304at September 30, 2020 and $4,124,767at December 31, 2019)	$	7,369,608		$	3,825,952
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $145,126,859 at September 30, 2020 and $162,202,355 at December 31, 2019)		156,538,589			168,236,181
Equity securities, at fair value (costof 30,300,839 at September 30, 2020 and $22,624,668 at December 31, 2019)		29,623,267			24,661,382
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $9,564,055 at March 31, 2021 and $8,194,824 at December 31, 2020)							$	9,180,786		$	7,368,815
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $139,299,693 at March 31, 2021 and $145,045,584 at December 31, 2020)								147,585,805			157,549,272
Equity securities, at fair value (cost of $32,651,343 at March 31, 2021 and $32,571,166 at December 31, 2020)								35,430,803			34,413,313
Other investments		2,829,078			2,584,913			6,348,590			3,518,626
Total investments		196,360,542			199,308,428			198,545,984			202,850,026
Cash and cash equivalents		24,388,103			32,391,485			22,179,960			19,463,742
Premiums receivable, net		13,883,708			12,706,411			10,885,621			11,819,639
Reinsurance receivables, net		55,529,408			40,750,538			37,366,742			45,460,729
Deferred policy acquisition costs		19,916,325			20,634,378			19,351,989			20,142,515
Intangible assets		500,000			500,000			500,000			500,000
Property and equipment, net		7,788,633			7,620,636			8,294,847			8,083,123
Deferred income taxes, net		0			311,052
Other assets		8,992,936			6,979,884			9,759,071			9,262,493
Total assets	$	327,359,655		$	321,202,812		$	306,884,214		$	317,582,267

Liabilities
Loss and loss adjustment expense reserves	$	84,979,024		$	80,498,611		$	84,457,059		$	82,801,228
Unearned premiums		88,167,636			90,383,238			86,219,795			90,009,272
Advance premiums		4,919,256			3,191,512			4,145,845			2,660,354
Reinsurance balances payable		10,062,649			11,714,724			2,336,498			6,979,735
Deferred ceding commission revenue		7,207,142			7,735,398			93,318			93,519
Accounts payable, accrued expenses and other liabilities		11,134,175			9,986,317			7,789,131			8,433,233
Deferred income taxes, net		1,972,782			-			3,138,231			4,156,913
Long-term debt, net		29,603,566			29,471,431			29,691,656			29,647,611
Total liabilities		238,046,230			232,981,231			217,871,533			224,781,865

Commitments and Contingencies (Note 11)								0			0

Stockholders' Equity
Stockholders’ Equity
Preferred stock, $.01 par value; authorized 2,500,000 shares		0			0			0			0
Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,871,307 shares at September 30, 2020 and 11,824,889 at December 31, 2019; outstanding 10,675,198 shares at September 30, 2020 and 10,797,450 shares at December 31, 2019		118,713			118,248
Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,935,321 shares at March 31, 2021 and 11,871,307 at December 31, 2020; outstanding 10,672,794 shares at March 31, 2021 and 10,616,815 shares at December 31, 2020								119,353			118,713
Capital in excess of par		70,372,799			69,133,918			71,116,917			70,769,165
Accumulated other comprehensive income		9,017,415			4,768,870			6,548,178			9,880,062
Retained earnings		13,318,838			16,913,097			15,190,031			15,928,345
Stockholder equity before treasury stock		92,827,765			90,934,133
								92,974,479			96,696,285
Treasury stock, at cost, 1,196,109 shares at September 30, 2020 and 1,027,439 shares at December 31, 2019		(3,514,340	)		(2,712,552	)
Total stockholders' equity		89,313,425			88,221,581
Treasury stock, at cost, 1,262,527 shares at March 31, 2021 and 1,254,492 shares at December 31, 2020								(3,961,798	)		(3,895,883	)
Total stockholders’ equity								89,012,681			92,800,402

Total liabilities and stockholders' equity	$	327,359,655		$	321,202,812
Total liabilities and stockholders’ equity							$	306,884,214		$	317,582,267

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~Loss (Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Three months ended March 31,													2021			2020

Revenues
Net premiums earned	$	27,521,081		$	34,220,010		$	81,099,387		$	95,017,178		$	34,589,218		$	26,941,450
Ceding commission revenue		3,448,774			1,029,582			10,760,087			2,982,960			(1,065	)		3,831,099
Net investment income		1,494,086			1,856,553			4,771,936			5,200,034			1,783,196			1,665,844
Net gains (losses) on investments		2,107,876			998,162			(1,638,674	)		3,712,180			2,960,407			(6,444,418	)
Other income		250,654			343,391			772,672			998,927			171,446			259,630
Total revenues		34,822,471			38,447,698			95,765,408			107,911,279			39,503,202			26,253,605

Expenses
Loss and loss adjustment expenses		20,117,975			24,781,318			49,317,427			71,587,850			22,560,672			16,385,821
Commission expense		8,036,298			7,722,825			23,652,765			21,866,420			8,223,839			7,855,927
Other underwriting expenses		6,346,846			6,430,734			19,434,110			17,983,174			6,467,042			6,761,792
Other operating expenses		1,038,453			609,924			3,364,483			2,647,221			1,352,306			1,236,895
Depreciation and amortization		710,181			646,201			2,070,435			1,876,202			822,340			687,094
Interest expense		456,545			456,545			1,369,635			1,369,635			456,545			456,545
Total expenses		36,706,298			40,647,547			99,208,855			117,330,502			39,882,744			33,384,074

Loss from operations before income taxes		(1,883,827	)		(2,199,849	)		(3,443,447	)		(9,419,223	)		(379,542	)		(7,130,469	)
Income tax benefit		(655,971	)		(474,687	)		(1,379,578	)		(1,998,251	)		(68,445	)		(1,686,266	)
Net loss		(1,227,856	)		(1,725,162	)		(2,063,869	)		(7,420,972	)		(311,097	)		(5,444,203	)

Other comprehensive income, net of tax
Gross change in unrealized gains on available-for-sale-securities		1,778,478			1,323,626			5,938,600			9,191,817
Other comprehensive loss, net of tax
Gross change in unrealized losses on available-for-sale-securities														(3,823,279	)		(6,727,489	)

Reclassification adjustment for (gains) losses
included in net loss		(606,969	)		46,841			(560,696	)		81,636
Net change in unrealized gains		1,171,509			1,370,467			5,377,904			9,273,453
Income tax expense related to items
of other comprehensive income		(246,017	)		(287,798	)		(1,129,359	)		(1,947,424	)
Other comprehensive income, net of tax		925,492			1,082,669			4,248,545			7,326,029
Reclassification adjustment for gains included in net loss														(394,297	)		(102,222	)
Net change in unrealized losses														(4,217,576	)		(6,829,711	)
Income tax benefit related to items of other comprehensive loss														885,692			1,434,240
Other comprehensive loss, net of tax														(3,331,884	)		(5,395,471	)

Comprehensive (loss) income	$	(302,364	)	$	(642,493	)	$	2,184,676		$	(94,943	)
Comprehensive loss													$	(3,642,981	)	$	(10,839,674	)

Earnings (loss) per common share:
Loss per common share:
Basic	$	(0.12	)	$	(0.16	)	$	(0.19	)	$	(0.69	)	$	(0.03	)	$	(0.50	)
Diluted	$	(0.12	)	$	(0.16	)	$	(0.19	)	$	(0.69	)	$	(0.03	)	$	(0.50	)

Weighted average common shares outstanding
Basic		10,673,077			10,779,641			10,737,853			10,769,817			10,676,298			10,807,841
Diluted	��	10,673,077			10,779,641			10,737,853			10,769,817			10,676,298			10,807,841

Dividends declared and paid per common share	$	0.0400		$	0.0625		$	0.1425		$	0.2625		$	0.0400		$	0.0625

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity (Unaudited)

Three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

														Accumulated																										Accumulated
											Capital			Other																							Capital			Other
	Preferred Stock				Common Stock						in Excess			Comprehensive		Retained			Treasury Stock								Preferred Stock				Common Stock						in Excess			Comprehensive			Retained			Treasury Stock
	Shares		Amount		Shares			Amount			of Par			Income		Earnings			Shares		Amount			Total			Shares		Amount		Shares			Amount			of Par			Income (Loss)			Earnings			Shares		Amount			Total
Balance, July 1, 2019	-		$	0		11,802,087		$	118,020		$	68,373,590		$	3,359,047	$	18,531,657			1,027,439	$	(2,712,552	)		87,669,762
Balance, January 1, 2020																												-	$	0		11,824,889		$	118,248		$	69,133,918		$	4,768,870		$	16,913,097			1,027,439	$	(2,712,552	)	$	88,221,581
Stock-based compensation				0		0			-			407,714			0		0					0			407,714			-		0		-			0			487,450			0			0			-		0			487,450
Vesting of restricted stock awards		-		0		12,050			120			(120	)		0		0			-		0			0			-		0		38,866			387			(387	)		0			0			-		0			0
Shares deducted from restricted stock awards for payment of withholding taxes		-		0		(3,126	)		(30	)		(25,408	)		0		0			-		0			(25,438	)		-		0		(12,489	)		(123	)		(87,831	)		0			0			-		0			(87,954	)
Acquisition of treasury stock																												-		0		-			0			0			0			0			42,434		(242,724	)		(242,724	)
Dividends				0					0			0			0		(637,927	)				0			(637,927	)		-		0		-			0			0			0			(675,960	)		-		0			(675,960	)
Net loss				0					0			0			0		(1,725,162	)				0			(1,725,162	)		-		0		-			0			0			0			(5,444,203	)		-		0			(5,444,203	)
Change in unrealized gains on available-for-sale securities, net of tax				0					0			0			1,082,669		0					0			1,082,669
Balance, September 30, 2019		-	$	0		11,811,011		$	118,110		$	68,755,776		$	4,441,716	$	16,168,568			1,027,439	$	(2,712,552	)	$	86,771,618
Change in unrealized gains on available- for-sale securities, net of tax																												-		0		-			0			0			(5,395,471	)		0			-		0			(5,395,471	)
Balance, March 31, 2020																												-	$	0		11,851,266		$	118,512		$	69,533,150		$	(626,601	)	$	10,792,934			1,069,873	$	(2,955,276	)	$	76,862,719

														Accumulated																										Accumulated
											Capital			Other																							Capital			Other
	Preferred Stock				Common Stock						in Excess			Comprehensive		Retained			Treasury Stock								Preferred Stock				Common Stock						in Excess			Comprehensive			Retained			Treasury Stock
	Shares		Amount		Shares			Amount			of Par			Income		Earnings			Shares		Amount			Total			Shares		Amount		Shares			Amount			of Par			Income			Earnings			Shares		Amount			Total
Balance, July 1, 2020		-	$	0		11,866,254		$	118,662		$	69,951,549		$	8,091,923	$	14,973,684			1,196,109	$	(3,514,340	)	$	89,621,478
Balance, January 1, 2021																												-	$	-		11,871,307		$	118,713		$	70,769,165		$	9,880,062		$	15,928,345			1,254,492	$	(3,895,883	)	$	92,800,402
Stock-based compensation		-		0		-			0			430,896			0		0			-		0			430,896			-		-		-			-			494,998			-			-			-		0			494,998
Vesting of restricted stock awards		-		0		6,790			69			(69	)		0		0			-		0			0			-		0		85,922			859			(859	)		0			0			-		0			0
Shares deducted from restricted stock awards for payment of withholding taxes		-		0		(1,737	)		(18	)		(9,577	)		0		0			-		0			(9,595	)		-		0		(21,908	)		(219	)		(146,387	)		0			0			-		0			(146,606	)
Acquisition of treasury stock																												-		0		-			0			0			0			0			8,035		(65,915	)		(65,915	)
Dividends				0					0			0			0		(426,990	)				0			(426,990	)		-		0		-			0			0			0			(427,217	)		-		0			(427,217	)
Net loss				0					0			0			0		(1,227,856	)				0			(1,227,856	)		-		0		-			0			0			0			(311,097	)		-		0			(311,097	)
Change in unrealized gains on available- for-sale securities, net of tax				0					0			0			925,492		0					0			925,492			-		0		-			0			0			(3,331,884	)		0			-		0			(3,331,884	)
Balance, September 30, 2020		-	$	0		11,871,307		$	118,713		$	70,372,799		$	9,017,415	$	13,318,838			1,196,109	$	(3,514,340	)	$	89,313,425
Balance, March 31, 2021																												-	$	0		11,935,321		$	119,353		$	71,116,917		$	6,548,178		$	15,190,031			1,262,527	$	(3,961,798	)	$	89,012,681

See accompanying notes to condensed consolidated financial statements.

Table of Contents

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of ~~Stockholders' Equity~~Cash Flows (Unaudited)
~~Nine months ended September 30, 2020 and 2019~~

Accumulated

Capital

Other

Preferred Stock

Common Stock

in Excess

Comprehensive

Retained

Treasury Stock

Shares

Amount

Shares

Amount

of Par

Income (Loss)

Earnings

Shares

Amount

Total

Balance, January 1, 2019

            -

$ 0

11,775,148

$ 117,751

$ 67,763,940

$ (2,884,313 )

$ 26,380,816

1,027,439

$ (2,712,552 )

88,665,642

Stock-based compensation

0

0

1,116,921

0

0

0

1,116,921

Vesting of restricted stock awards

-

0

43,596

434

(434 )

0

0

-

0

0

Shares deducted from restricted stock awards for payment of withholding taxes

-

0

(10,733 )

(105 )

(148,173 )

0

0

-

0

(148,278 )
Exercise of stock options

-

0

3,000

30

23,522

0

0

-

0

23,552

Dividends

0

0

0

0

(2,827,276 )

0

(2,827,276 )
Net loss

0

0

0

0

(7,420,972 )

0

(7,420,972 )
Change in unrealized gains on available-
for-sale securities, net of tax

0

0

0

7,326,029

0

0

7,326,029

Balance, September 30, 2019

-

$ 0

11,811,011

$ 118,110

$ 68,755,776

$ 4,441,716

$ 16,132,568

1,027,439

$ (2,712,552 )

$ 86,735,618

Accumulated

Capital

Other

Preferred Stock

Common Stock

in Excess

Comprehensive

Retained

Treasury Stock

Shares

Amount

Shares

Amount

of Par

Income

Earnings

Shares

Amount

Total

Balance, January 1, 2020

           -

$ 0

11,824,889

$ 118,248

$ 69,133,918

$ 4,768,870

$ 16,913,097

1,027,439

$ (2,712,552 )

$ 88,221,581

Stock-based compensation

0

0

1,373,283

0

0

0

1,373,283

Vesting of restricted stock awards

-

0

67,686

676

(676 )

0

0

-

0

0

Shares deducted from restricted stock awards for payment of withholding taxes

-

0

(21,268 )

(211 )

(133,726 )

0

0

-

0

(133,937 )
Acquisition of treasury stock

-

0

-

0

0

0

0

168,670

(801,788 )

(801,788 )
Dividends

0

0

0

0

(1,530,390 )

0

(1,530,390 )
Net loss

0

0

0

0

(2,063,869 )

0

(2,063,869 )
Change in unrealized gains on available-
for-sale securities, net of tax

0

0

0

4,248,545

0

0

4,248,545

Balance, September 30, 2020

-

$ 0

11,871,307

$ 118,713

$ 70,372,799

$ 9,017,415

$ 13,318,838

1,196,109

$ (3,514,340 )

$ 89,313,425

Three months ended March 31,

2021

2020

Cash flows from operating activities:

Net loss

$ (311,097 )

$ (5,444,203 )
Adjustments to reconcile net loss to net cash flows provided by (used in) operating activities:

Net gains on sale of investments

(1,127,234 )

(274,581 )
Net unrealized (gains) losses on equity investments

(1,003,209 )

6,121,608

Net unrealized gains of other investments

(829,964 )

597,391

Depreciation and amortization

822,340

687,094

Bad debts

59,876

35,737

Amortization of bond premium, net

31,639

105,189

Amortization of discount and issuance costs on long-term debt

44,045

44,045

Stock-based compensation

494,998

487,450

Deferred income tax (benefit) expense

(132,990 )

397,593

(Increase) decrease in operating assets:

Premiums receivable, net

874,142

757,551

Reinsurance receivables, net

8,093,987

(1,958,517 )
Deferred policy acquisition costs

790,526

1,062,490

Other assets

(478,564 )

(521,521 )
Increase (decrease) in operating liabilities:

Loss and loss adjustment expense reserves

1,655,831

(2,647,512 )
Unearned premiums

(3,789,477 )

(5,904,700 )
Advance premiums

1,485,491

(47,633 )
Reinsurance balances payable

(4,643,237 )

(6,377,437 )
Deferred ceding commission revenue

(201 )

(799,997 )
Accounts payable, accrued expenses and other liabilities

(644,102 )

(1,576,461 )
Net cash flows provided by (used in) operating activities

1,392,800

(15,256,414 )

Cash flows from investing activities:

Purchase - fixed-maturity securities held-to-maturity

(1,827,425 )

0

Purchase - fixed-maturity securities available-for-sale

(5,424,374 )

(961,000 )
Purchase - equity securities

(5,732,648 )

(5,220,778 )
Purchase - other investments

(2,000,000 )

0

Sale or maturity - fixed-maturity securities available-for-sale

11,548,405

10,553,818

Sale - equity securities

6,433,262

5,518,428

Acquisition of property and equipment

(1,034,064 )

(432,112 )
Net cash flows provided by investing activities

1,963,156

9,458,356

Cash flows from financing activities:

Withholding taxes paid on vested retricted stock awards

(146,606 )

(87,954 )
Purchase of treasury stock

(65,915 )

(242,724 )
Dividends paid

(427,217 )

(675,960 )
Net cash flows used in financing activities

(639,738 )

(1,006,638 )

Increase (decrease) in cash and cash equivalents

$ 2,716,218

$ (6,804,696 )
Cash and cash equivalents, beginning of period

19,463,742

32,391,485

Cash and cash equivalents, end of period

$ 22,179,960

$ 25,586,789

Supplemental disclosures of cash flow information:

Cash paid for income taxes

$ 0

$ 0

Cash paid for interest

$ 0

$ 0

See accompanying notes to condensed consolidated financial statements.


5
~~Table of Contents~~
~~KINGSTONE COMPANIES, INC. AND SUBSIDIARIES~~
~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~
~~Nine months ended September 30,~~

2020

2019

Cash flows from operating activities:

Net loss

$ (2,063,869 )

$ (7,420,972 )
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:

Net (gains) losses on sale of investments

(857,650 )

54,759

Net unrealized losses (gains) on equity investments

2,740,489

(3,196,260 )
Net unrealized gains of other investments

(244,165 )

(570,679 )
Depreciation and amortization

2,070,435

1,876,202

Bad debts

70,666

0

Amortization of bond premium, net

518,146

283,620

Amortization of discount and issuance costs on long-term debt

132,135

132,135

Stock-based compensation

1,373,283

1,116,921

Deferred income tax expense (benefit)

1,154,475

(2,133,486 )
(Increase) decrease in operating assets:

Premiums receivable, net

(1,247,963 )

(390,922 )
Reinsurance receivables, net

(14,778,870 )

(213,334 )
Deferred policy acquisition costs

718,053

(2,583,831 )
Other assets

(2,010,253 )

(882,320 )
Increase (decrease) in operating liabilities:

Loss and loss adjustment expense reserves

4,480,413

21,212,317

Unearned premiums

(2,215,602 )

11,036,552

Advance premiums

1,727,744

1,629,862

Reinsurance balances payable

(1,652,075 )

(1,123,540 )
Deferred ceding commission revenue

(528,256 )

(857,805 )
Accounts payable, accrued expenses and other liabilities

1,147,858

1,568,746

Net cash flows (used in) provided by operating activities

(9,465,006 )

19,537,965

Cash flows from investing activities:

Purchase - fixed-maturity securities held-to-maturity

(4,041,750 )

0

Purchase - fixed-maturity securities available-for-sale

(12,447,259 )

(15,373,113 )
Purchase - equity securities

(15,614,675 )

(6,657,676 )
Sale and redemption - fixed-maturity securities held-to-maturity

500,000

400,000

Sale or maturity - fixed-maturity securities available-for-sale

29,666,158

9,835,464

Sale - equity securities

8,103,697

2,941,492

Acquisition of property and equipment

(2,238,432 )

(3,231,483 )
Net cash flows provided by (used in) investing activities

3,927,739

(12,085,316 )

Cash flows from financing activities:

Proceeds from exercise of stock options

0

23,552

Withholding taxes paid on vested retricted stock awards

(133,937 )

(148,278 )
Purchase of treasury stock

(801,788 )

0

Dividends paid

(1,530,390 )

(2,827,276 )
Net cash flows used in financing activities

(2,466,115 )

(2,952,002 )

(Decrease) increase in cash and cash equivalents

$ (8,003,382 )

$ 4,500,647

Cash and cash equivalents, beginning of period

32,391,485

21,138,403

Cash and cash equivalents, end of period

$ 24,388,103

$ 25,639,050

Supplemental disclosures of cash flow information:

Cash paid for income taxes

$ 0

$ 388,000

Cash paid for interest

$ 825,000

$ 825,000

~~See accompanying notes to condensed consolidated financial statements.~~
6
Table of Contents

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Nature of Business and Basis of Presentation

Kingstone Companies, Inc. (referred to herein as “Kingstone” or the “Company”), through its wholly owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance exclusively through retail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut continue to be growing markets for the Company, ~~80.6%~~72.3% and ~~79.9%~~82.7% of KICO’s direct written premiums for the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2021 and 2020, respectively, came from the New York policies. Kingstone, through its wholly owned subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, accesses alternate forms of distribution outside of the independent agent and broker network, through which KICO currently distributes its various products. Kingstone (through Cosi) now has the opportunity to partner with name-brand carriers and access nationwide insurance agencies.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, ~~2019~~2020 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March ~~16, 2020.~~31, 2021. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations. The results of operations for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 may not be indicative of the results that may be expected for the year ending December 31, ~~2020.~~2021.
Certain prior year balances were reclassified to conform with the current year presentation.

Note 2 – Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which include the reserves for losses and loss adjustment expenses, and are subject to estimation errors due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of many years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require judgments by management. On an ongoing basis, management reevaluates its assumptions and the methods for calculating these estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the consolidated financial statements.

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Table of Contents

Principles of Consolidation

The accompanying condensed consolidated financial statements consist of Kingstone and its following wholly owned subsidiaries: (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates, and (2) Cosi. All significant intercompany account balances and transactions have been eliminated in consolidation.

Accounting Changes

~~The Company has determined that it was not subject to any new accounting pronouncements that became effective during the nine months ended September 30, 2020.~~
~~Accounting Pronouncements~~
In ~~June 2016,~~December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company is currently evaluating the effect the updated guidance will have on its condensed consolidated financial statements.
~~In December 2019, the FASB issued ASU~~ 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. The Company adopted this ASU as of January 1, 2021, and it did not have a material impact on our condensed consolidated financial statements.
Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company is currently evaluating the ~~impact of this~~effect the updated guidance will have on its condensed consolidated financial ~~condition and results of operations.~~statements.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.

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Table of Contents

Note 3 - Investments

Fixed-Maturity Securities

The amortized cost, estimated fair value, and unrealized gains and losses on investments in fixed-maturity securities classified as available-for-sale as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:

September 30, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Fixed-Maturity Securities:

U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

$ 3,026,477

$ 42,853

$ 0

$ 0

$ 3,069,330

$ 42,853

Political subdivisions of States,

Territories and Possessions

5,593,778

322,297

0

0

5,916,075

322,297

Corporate and other bonds

Industrial and miscellaneous

112,504,206

10,698,206

(1,654 )

0

123,200,758

10,696,552

Residential mortgage and other

asset backed securities (1)

24,002,398

535,772

(38,491 )

(147,253 )

24,352,426

350,028

Total

$ 145,126,859

$ 11,599,128

$ (40,145 )

$ (147,253 )

$ 156,538,589

$ 11,411,730

March 31, 2021

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Fixed-Maturity Securities:

U.S. Treasury securities and obligations of U.S. government

corporations and agencies

$ 2,014,895

$ 19,785

$ 0

$ 0

$ 2,034,680

$ 19,785

Political subdivisions of States, Territories and Possessions

8,606,088

173,655

(86,507 )

0

8,693,236

87,148

Corporate and other bonds Industrial and miscellaneous

104,774,373

7,791,664

(78,069 )

0

112,487,968

7,713,595

��

Residential mortgage and other asset backed securities (1)

23,904,337

566,540

(8,225 )

(92,731 )

24,369,921

465,584

Total

$ 139,299,693

$ 8,551,644

$ (172,801 )

$ (92,731 )

$ 147,585,805

$ 8,286,112

(1)
KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York (“FHLBNY”) (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of ~~September 30, 2020,~~March 31, 2021, the estimated fair value of the eligible investments was approximately ~~$6,685,000.~~$10,962,000. KICO will retain all rights regarding all securities if pledged as collateral. As of ~~September 30, 2020,~~March 31, 2021, there was no outstanding balance on the FHLBNY credit line.

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Table of Contents

December 31, 2019

Net

Cost or

Gross

Gross Unrealized Losses

Estimated

Unrealized

Amortized

Unrealized

Less than 12

More than 12

Fair

Gains

Category

Cost

Gains

Months

Months

Value

Fixed-Maturity Securities:

U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

$ 7,037,856

$ 23,244

$ 0

$ 0

$ 7,061,100

$ 23,244

Political subdivisions of States,

Territories and Possessions

9,151,293

181,835

(11,316 )

0

9,321,812

170,519

Corporate and other bonds

Industrial and miscellaneous

119,874,573

5,777,624

(16,685 )

(13,473 )

125,622,039

5,747,466

Residential mortgage and other

asset backed securities (1)

26,138,633

437,841

(68,793 )

(276,451 )

26,231,230

92,597

Total

$ 162,202,355

$ 6,420,544

$ (96,794 )

$ (289,924 )

$ 168,236,181

$ 6,033,826

December 31, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Fixed-Maturity Securities:

U.S. Treasury securities and obligations of U.S. government

corporations and agencies

$ 3,020,710

$ 29,190

$ 0

$ 0

$ 3,049,900

$ 29,190

Political subdivisions of States, Territories and Possessions

5,287,561

355,541

0

0

5,643,102

355,541

Corporate and other bonds Industrial and miscellaneous

108,573,422

11,634,123

(13,216 )

0

120,194,329

11,620,907

Residential mortgage and other asset backed securities (1)

28,163,891

617,368

(7,371 )

(111,947 )

28,661,941

498,050

Total

$ 145,045,584

$ 12,636,222

$ (20,587 )

$ (111,947 )

$ 157,549,272

$ 12,503,688

(1)
~~(1)~~
KICO ~~has~~ placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the ~~FHLBNY~~Federal Home Loan Bank of New York (“FHLBNY”) (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of December 31, ~~2019,~~2020, the estimated fair value of the eligible investments was approximately ~~$7,284,000.~~$11,391,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, ~~2019,~~2020, there was no outstanding balance on the FHLBNY credit line.

A summary of the amortized cost and estimated fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is shown below:

September 30, 2020

December 31, 2019

Amortized

Estimated

Amortized

Estimated

Remaining Time to Maturity

Cost

Fair Value

Cost

Fair Value

Less than one year

$ 8,879,582

$ 8,986,248

$ 11,986,401

$ 12,025,804

One to five years

46,530,097

49,878,416

49,715,422

51,000,025

Five to ten years

57,021,277

64,194,995

69,850,104

74,410,275

More than 10 years

8,693,505

9,126,504

4,511,795

4,568,847

Residential mortgage and other asset backed securities

24,002,398

24,352,426

26,138,633

26,231,230

Total

$ 145,126,859

$ 156,538,589

$ 162,202,355

$ 168,236,181

March 31, 2021

December 31, 2020

Amortized

Estimated

Amortized

Estimated

Remaining Time to Maturity

Cost

Fair Value

Cost

Fair Value

Less than one year

$ 9,079,054

$ 9,181,876

$ 8,559,005

$ 8,668,064

One to five years

43,059,233

46,164,289

44,137,567

47,745,430

Five to ten years

51,273,291

55,781,784

55,508,712

63,159,775

More than 10 years

11,983,778

12,087,935

8,676,409

9,314,062

Residential mortgage and other asset backed securities

23,904,337

24,369,921

28,163,891

28,661,941

Total

$ 139,299,693

$ 147,585,805

$ 145,045,584

$ 157,549,272

The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

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Table of Contents

Equity Securities

The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:

September 30, 2020

Gross

Gross

March 31, 2021

Unrealized

Unrealized

Estimated

Gross

Gross

Estimated

Category

Cost

Gains

Losses

Fair Value

Cost

Gains

Losses

Fair Value

Equity Securities:

Preferred stocks

$ 14,260,019

$ 325,070

$ (339,125 )

$ 14,245,964

$ 19,827,370

$ 1,207,776

$ (221,142 )

$ 20,814,004

Common stocks, mutual funds, and exchange traded funds

16,040,820

777,813

(1,441,330 )

15,377,303

12,823,973

1,810,617

(17,791 )

14,616,799

Total

$ 30,300,839

$ 1,102,883

$ (1,780,455 )

$ 29,623,267

$ 32,651,343

$ 3,018,393

$ (238,933 )

$ 35,430,803

December 31, 2019

Gross

Gross

Unrealized

Unrealized

Estimated

Category

Cost

Gains

Losses

Fair Value

Equity Securities:

Preferred stocks

$ 8,374,424

$ 339,257

$ (11,794 )

$ 8,701,887

Common stocks, mutual funds, and exchange traded funds

14,250,244

1,982,878

(273,627 )

15,959,495

Total

$ 22,624,668

$ 2,322,135

$ (285,421 )

$ 24,661,382

December 31, 2020

Gross

Gross

Estimated

Category

Cost

Gains

Losses

Fair Value

Equity Securities:

Preferred stocks

$ 18,097,942

$ 853,277

$ (426,942 )

$ 18,524,277

Common stocks, mutual funds, and exchange traded funds

14,473,224

1,820,512

(404,700 )

15,889,036

Total

$ 32,571,166

$ 2,673,789

$ (831,642 )

$ 34,413,313

Other Investments

The cost and estimated fair value of, and gross ~~unrealized~~ gains on, the Company’s other investments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:

September 30, 2020

December 31, 2019

Gross

Gross

Unrealized

Estimated

Unrealized

Estimated

Category

Cost

Gains

Fair Value

Cost

Gains

Fair Value

Other Investments:

Hedge fund

$ 1,999,381

$ 829,697

$ 2,829,078

$ 1,999,381

$ 585,532

$ 2,584,913

Total

$ 1,999,381

$ 829,697

$ 2,829,078

$ 1,999,381

$ 585,532

$ 2,584,913

March 31, 2021

December 31, 2020

Gross

Estimated

Gross

Estimated

Category

Cost

Gains

Fair Value

Cost

Gains

Fair Value

Other Investments:

Hedge fund

$ 3,999,381

$ 2,199,209

$ 6,198,590

$ 1,999,381

$ 1,369,245

$ 3,368,626

Real estate limited partnership

150,000

0

150,000

150,000

0

150,000

Total

$ 4,149,381

$ 2,199,209

$ 6,348,590

$ 2,149,381

$ 1,369,245

$ 3,518,626

1110
Table of Contents

Held-to-Maturity Securities

The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses on, investments in held-to-maturity fixed-maturity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are summarized as follows:

September 30, 2020

March 31, 2021

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Cost

Gains

Months

Months

Value

Gains

Held-to-Maturity Securities:

U.S. Treasury securities

$ 729,583

$ 162,442

$ 0

$ 0

$ 892,025

$ 162,442

$ 729,606

$ 210,129

$ 0

$ 0

$ 939,735

$ 210,129

Political subdivisions of States,

Territories and Possessions

998,480

56,700

0

0

1,055,180

56,700

Political subdivisions of States, Territories and Possessions

998,382

42,508

0

0

1,040,890

42,508

Corporate and other bonds

Industrial and miscellaneous

5,641,545

334,412

(23,858 )

0

5,952,099

310,554

Exchange traded debt

1,812,762

28,106

(5,897 )

0

1,834,971

22,209

Corporate and other bonds Industrial and miscellaneous

5,640,036

242,695

(134,272 )

0

5,748,459

108,423

Total

$ 7,369,608

$ 553,554

$ (23,858 )

$ 0

$ 7,899,304

$ 529,696

$ 9,180,786

$ 523,438

$ (140,169 )

$ 0

$ 9,564,055

$ 383,269

December 31, 2019

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Held-to-Maturity Securities:

U.S. Treasury securities

$ 729,550

$ 151,002

$ 0

$ 0

$ 880,552

$ 151,002

Political subdivisions of States,

Territories and Possessions

998,619

51,021

0

0

1,049,640

51,021

Corporate and other bonds

Industrial and miscellaneous

2,097,783

97,627

(835 )

0

2,194,575

96,792

Total

$ 3,825,952

$ 299,650

$ (835 )

$ 0

$ 4,124,767

$ 298,815

December 31, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized

Category

Cost

Gains

Months

Months

Value

Gains

Held-to-Maturity Securities:

U.S. Treasury securities

$ 729,595

$ 319,714

$ 0

$ 0

$ 1,049,309

$ 319,714

Political subdivisions of States, Territories and Possessions

998,428

50,917

0

0

1,049,345

50,917

Corporate and other bonds Industrial and miscellaneous

5,640,792

455,378

0

0

6,096,170

455,378

Total

$ 7,368,815

$ 826,009

$ 0

$ 0

$ 8,194,824

$ 826,009

Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum funds requirements.

1211
Table of Contents

A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is shown below:

September 30, 2020

December 31, 2019

Amortized

Estimated

Amortized

Estimated

Remaining Time to Maturity

Cost

Fair Value

Cost

Fair Value

Less than one year

$ -

$ 0

$ 500,000

$ 499,165

One to five years

2,597,739

2,793,089

2,099,268

2,215,640

Five to ten years

1,499,837

1,710,586

620,134

655,923

More than 10 years

3,272,032

3,395,629

606,550

754,039

Total

$ 7,369,608

$ 7,899,304

$ 3,825,952

$ 4,124,767

March 31, 2021

December 31, 2020

Amortized

Estimated

Amortized

Estimated

Remaining Time to Maturity

Cost

Fair Value

Cost

Fair Value

Less than one year

$ 500,639

$ 512,985

$ 0

$ 0

One to five years

2,098,011

2,244,083

2,598,193

2,777,936

Five to ten years

1,505,366

1,639,444

1,502,603

1,727,316

More than 10 years

5,076,770

5,167,543

3,268,019

3,689,572

Total

$ 9,180,786

$ 9,564,055

$ 7,368,815

$ 8,194,824

The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

Investment Income

Major categories of the Company’s net investment income are summarized as follows:

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

Income:

Fixed-maturity securities

$ 1,264,633

$ 1,499,135

$ 4,106,404

$ 4,500,346

Equity securities

290,834

253,594

787,702

666,247

Cash and cash equivalents

1,834

75,253

89,993

288,334

Total

1,557,301

1,827,982

4,984,099

5,454,927

Expenses:

Investment expenses

63,215

(28,571 )

212,163

254,893

Net investment income

$ 1,494,086

$ 1,856,553

$ 4,771,936

$ 5,200,034

Three months ended

March 31,

2021

2020

Income:

Fixed-maturity securities

$ 1,491,127

$ 1,447,938

Equity securities

357,311

253,073

Cash and cash equivalents

924

44,223

Total

1,849,362

1,745,234

Expenses:

Investment expenses

66,166

79,390

Net investment income

$ 1,783,196

$ 1,665,844

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were ~~$500,000and $400,000~~$-0- for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019, respectively.~~2020.

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were ~~$29,666,158~~$11,548,405 and ~~$9,835,464~~$10,553,818 for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Proceeds from the sale of equity securities were ~~$8,103,697~~$6,433,262 and ~~$2,941,492~~$5,518,428 for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

1312
Table of Contents

The Company’s net gains (losses) on investments are summarized as follows:

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

Realized Gains (Losses)

-

Fixed-maturity securities:

Gross realized gains

$ 714,162

$ 10

$ 967,573

$ 10,954

Gross realized losses

(107,193 )

(46,851 )

(304,118 )

(92,591 )

606,969

(46,841 )

560,696

(81,637 )

Equity securities:

Gross realized gains

199,439

38,477

644,111

83,737

Gross realized losses

(209,069 )

0

(449,916 )

(56,859 )

(9,630 )

38,477

194,195

26,878

Net realized (losses) gains

597,339

(8,364 )

857,650

(54,759 )

Unrealized Gains (Losses)

Equity securities:

Gross gains

1,223,779

916,496

0

3,196,260

Gross losses

0

0

(2,740,489 )

0

1,223,779

916,496

(2,740,489 )

3,196,260

Other investments:

Gross gains

286,758

90,030

244,165

570,679

Gross losses

0

0

0

0

286,758

90,030

244,165

570,679

Net unrealized gains (losses)

1,510,537

1,006,526

(2,496,324 )

3,766,939

Net gains (losses) on investments

$ 2,107,876

$ 998,162

$ (1,638,674 )

$ 3,712,180

Three months ended

March 31,

2021

2020

Realized Gains (Losses)

Fixed-maturity securities:

Gross realized gains

$ 410,311

$ 204,225

Gross realized losses

(15,986 )

(32,342 )

394,325

171,883

Equity securities:

Gross realized gains

933,122

316,513

Gross realized losses

(200,213 )

(213,815 )

732,909

102,698

Net realized gains

1,127,234

274,581

Unrealized Gains (Losses)

Equity securities:

Gross gains

1,003,209

0

Gross losses

0

(6,121,608 )

1,003,209

(6,121,608 )

Other investments:

Gross gains

829,964

0

Gross losses

0

(597,391 )

829,964

(597,391 )

Net unrealized gains (losses)

1,833,173

(6,718,999 )

Net gains (losses) on investments

$ 2,960,407

$ (6,444,418 )

Impairment Review

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities to evaluate the necessity of recording impairment losses for other-than-temporary declines in the estimated fair value of investments. In evaluating potential impairment, GAAP specifies (i) if the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in comprehensive ~~income.~~loss. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security ~~as projected~~ based on cash flow projections. For held-to-maturity ~~debt~~fixed-maturity securities, the amount of OTTI recorded in comprehensive loss for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security based on ~~the basis of~~ timing of future estimated cash flows of the security.

OTTI losses are recorded in the ~~condensed~~ consolidated statements of operations and comprehensive ~~income (loss)~~loss as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, there were 1920 and 3916 fixed-maturity securities, respectively, that accounted for the gross unrealized ~~loss.~~losses. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of investments for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to ~~retain~~hold the investment for a period of time sufficient to allow for an anticipated recovery of estimated fair value to the Company’s cost basis.
13
Table of Contents
The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at March 31, 2021 as follows:

March 31, 2021

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities and obligations of U.S.

government corporations and agencies

$ 0

$ 0

0

$ 0

$ 0

0

$ 0

$ 0

Political subdivisions of States, Territories and

Possessions

4,236,366

(86,507 )

3

0

0

0

4,236,366

(86,507 )

Corporate and other bonds industrial and

miscellaneous

4,991,204

(78,069 )

3

0

0

0

4,991,204

(78,069 )

Residential mortgage and other

asset backed securities

3,512,982

(8,225 )

4

3,477,111

(92,731 )

10

6,990,093

(100,956 )

Total fixed-maturity

securities

$ 12,740,552

$ (172,801 )

10

$ 3,477,111

$ (92,731 )

10

$ 16,217,663

$ (265,532 )

14
Table of Contents

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at ~~September 30,~~December 31, 2020 as follows:

September 30, 2020

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ 0

$ 0

0

$ 0

$ 0

0

$ 0

$ 0

Political subdivisions of

States, Territories and

Possessions

0

0

0

0

0

0

0

0

Corporate and other

bonds industrial and

miscellaneous

522,450

(1,654 )

1

0

0

0

522,450

(1,654 )

Residential mortgage and other

asset backed securities

4,003,377

(38,491 )

6

5,020,026

(147,253 )

12

9,023,403

(185,744 )

Total fixed-maturity

securities

$ 4,525,827

$ (40,145 )

7

$ 5,020,026

$ (147,253 )

12

$ 9,545,853

$ (187,398 )

December 31, 2020

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities and obligations of U.S.

government corporations and agencies

$ 0

$ 0

0

$ 0

$ 0

0

$ 0

$ 0

Political subdivisions of States, Territories and

Possessions

0

0

0

0

0

0

0

0

Corporate and other bonds industrial and

miscellaneous

1,006,901

(13,216 )

1

0

0

0

1,006,901

(13,216 )

Residential mortgage and other

asset backed securities

6,137,522

(7,371 )

5

3,735,732

(111,947 )

10

9,873,254

(119,318 )

Total fixed-maturity securities

$ 7,144,423

$ (20,587 )

6

$ 3,735,732

$ (111,947 )

10

$ 10,880,155

$ (132,534 )

15
~~Table of Contents~~
~~The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 2019 as follows:~~

December 31, 2019

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ 0

$ 0

0

$ 0

$ 0

0

$ 0

$ 0

Political subdivisions of

States, Territories and

Possessions

3,067,428

(11,316 )

3

0

0

0

3,067,428

(11,316 )

Corporate and other

bonds industrial and

miscellaneous

3,730,478

(16,685 )

7

1,300,915

(13,473 )

3

5,031,393

(30,158 )

Residential mortgage and other

asset backed securities

5,862,636

(68,793 )

5

13,534,768

(276,451 )

21

19,397,404

(345,244 )

Total fixed-maturity

securities

$ 12,660,542

$ (96,794 )

15

$ 14,835,683

$ (289,924 )

24

$ 27,496,225

$ (386,718 )
16
Table of Contents

Note 4 - Fair Value Measurements

The following table presents information about the Company’s investments that are measured at fair value on a recurring basis at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 indicating the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

September 30, 2020

Level 1

Level 2

Level 3

Total

Fixed-maturity securities available-for-sale

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ 3,069,330

$ 0

$ 0

$ 3,069,330

Political subdivisions of

States, Territories and

Possessions

0

5,916,075

0

5,916,075

Corporate and other

bonds industrial and

miscellaneous

121,119,461

2,081,297

0

123,200,758

Residential mortgage backed securities

0

24,352,426

0

24,352,426

Total fixed maturities

124,188,791

32,349,798

0

156,538,589

Equity securities

29,623,267

0

0

29,623,267

Total investments

$ 153,812,058

$ 32,349,798

$ 0

$ 186,161,856

March 31, 2021

Level 1

Level 2

Level 3

Total

Fixed-maturity securities available-for-sale

U.S. Treasury securities and obligations of U.S.

government corporations and agencies

$ 2,034,680

$ 0

$ 0

$ 2,034,680

Political subdivisions of States, Territories and Possessions

0

8,693,236

0

8,693,236

Corporate and other bonds industrial and miscellaneous

110,434,895

2,053,073

0

112,487,968

Residential mortgage backed securities

0

24,369,921

0

24,369,921

Total fixed maturities

112,469,575

35,116,230

0

147,585,805

Equity securities

35,430,803

0

0

35,430,803

Total investments

$ 147,900,378

$ 35,116,230

$ 0

$ 183,016,608

December 31, 2019

Level 1

Level 2

Level 3

Total

Fixed-maturity securities available-for-sale

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ 7,061,100

$ 0

$ 0

$ 7,061,100

Political subdivisions of

States, Territories and

Possessions

0

9,321,812

0

9,321,812

Corporate and other

bonds industrial and

miscellaneous

123,010,772

2,611,267

0

125,622,039

Residential mortgage backed securities

0

26,231,230

0

26,231,230

Total fixed maturities

130,071,872

38,164,309

0

168,236,181

Equity securities

24,661,382

0

0

24,661,382

Total investments

$ 154,733,254

$ 38,164,309

$ 0

$ 192,897,563

December 31, 2020

Level 1

Level 2

Level 3

Total

Fixed-maturity securities available-for-sale

U.S. Treasury securities and obligations of U.S.

government corporations and agencies

$ 3,049,900

$ 0

$ 0

$ 3,049,900

Political subdivisions of States, Territories and Possessions

0

5,643,102

0

5,643,102

Corporate and other bonds industrial and miscellaneous

118,123,890

2,070,439

0

120,194,329

Residential mortgage and other asset backed securities

0

28,661,941

0

28,661,941

Total fixed maturities

121,173,790

36,375,482

0

157,549,272

Equity securities

34,413,313

0

0

34,413,313

Total investments

$ 155,587,103

$ 36,375,482

$ 0

$ 191,962,585

1716
Table of Contents

The following table sets forth the Company’s investment in a hedge fund and real estate limited partnership both measured at Net Asset Value (“NAV”) per share as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The Company measures this investment at fair value on a recurring basis. Fair value using NAV per share is as follows as of the dates indicated:

Category

September 30,
2020

December 31,
2019

Other Investments:

Hedge fund

$ 2,829,078

$ 2,584,913

Total

$ 2,829,078

$ 2,584,913

Category

March 31,
2021

December 31, 2020

Other Investments:

Hedge fund

$ 6,198,590

$ 3,368,626

Real estate limited partnership

150,000

150,000

Total

$ 6,348,590

$ 3,518,626

The investment is generally redeemable with at least 45 days prior written notice. The hedge fund investment is accounted for as a limited partnership by the Company. Income is earned based upon the Company’s allocated share of the partnership’s changes in unrealized gains and losses to its partners. Such amounts have been recorded in the condensed consolidated statements of operations and comprehensive ~~income (loss)~~loss within net gains (losses) on investments.

The estimated fair value and the level of the fair value hierarchy of the Company’s long-term debt as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 not measured at fair value is as follows:

September 30, 2020

March 31, 2021

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Long-term debt

Senior Notes due 2022

$ 0

$ 27,279,652

$ 0

$ 27,279,652

$ 0

$ 27,295,348

$ 0

$ 27,295,348

December 31, 2019

December 31, 2020

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Long-term debt

Senior Notes due 2022

$ 0

$ 27,313,994

$ 0

$ 27,313,994

$ 0

$ 27,272,727

$ 0

$ 27,272,727

17
Table of Contents
Note 5 - Fair Value of Financial Instruments and Real Estate

The estimated fair values of the Company’s financial instruments and real estate as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:

September 30, 2020

December 31, 2019

Carrying

Estimated

Carrying

Estimated

Value

Fair Value

Value

Fair Value

Fixed-maturity securities-held-to maturity

$ 7,369,608

$ 7,899,304

$ 3,825,952

$ 4,124,767

Cash and cash equivalents

$ 24,388,103

$ 24,388,103

$ 32,391,485

$ 32,391,485

Premiums receivable, net

$ 13,883,708

$ 13,883,708

$ 12,706,411

$ 12,706,411

Reinsurance receivables, net

$ 55,529,408

$ 55,529,408

$ 40,750,538

$ 40,750,538

Real estate, net of accumulated depreciation

$ 2,238,435

$ 2,705,000

$ 2,292,743

$ 2,705,000

Reinsurance balances payable

$ 10,062,649

$ 10,062,649

$ 11,714,724

$ 11,714,724

18
~~Table of Contents~~

March 31, 2021

December 31, 2020

Carrying

Estimated

Carrying

Estimated

Value

Fair Value

Value

Fair Value

Fixed-maturity securities-held-to maturity

$ 9,180,786

$ 9,564,055

$ 7,368,815

$ 8,194,824

Cash and cash equivalents

$ 22,179,960

$ 22,179,960

$ 19,463,742

$ 19,463,742

Premiums receivable, net

$ 10,885,621

$ 10,885,621

$ 14,020,716

$ 14,020,716

Reinsurance receivables, net

$ 37,366,742

$ 37,366,742

$ 45,460,729

$ 45,460,729

Real estate, net of accumulated depreciation

$ 2,199,771

$ 2,705,000

$ 2,219,999

$ 2,705,000

Reinsurance balances payable

$ 2,336,498

$ 2,336,498

$ 6,979,735

$ 6,979,735

Note 6 – Property and Casualty Insurance Activity

Premiums Earned

Premiums written, ceded and earned are as follows:

Direct

Assumed

Ceded

Net

Direct

Assumed

Ceded

Net

Nine months ended September 30, 2020

Three months ended March 31, 2021

Premiums written

$ 125,089,571

$ 0

$ (43,813,468 )

$ 81,276,103

$ 38,129,117

$ 0

$ (7,329,507 )

$ 30,799,610

Change in unearned premiums

2,215,602

0

(2,392,318 )

(176,716 )

3,789,478

0

130

3,789,608

Premiums earned

$ 127,305,173

$ 0

$ (46,205,786 )

$ 81,099,387

$ 41,918,595

$ 0

$ (7,329,377 )

$ 34,589,218

Nine months ended September 30, 2019

Three months ended March 31, 2020

Premiums written

$ 128,333,117

$ 938

$ (20,914,074 )

$ 107,419,981

$ 36,696,929

$ 0

$ (13,506,255 )

$ 23,190,674

Change in unearned premiums

(11,035,993 )

(559 )

(1,366,251 )

(12,402,803 )

5,904,700

0

(2,153,924 )

3,750,776

Premiums earned

$ 117,297,124

$ 379

$ (22,280,325 )

$ 95,017,178

$ 42,601,629

$ 0

$ (15,660,179 )

$ 26,941,450

Three months ended September 30, 2020

Premiums written

$ 45,742,165

$ 0

$ (15,747,215 )

$ 29,994,950

Change in unearned premiums

(3,161,356 )

0

687,487

(2,473,869 )
Premiums earned

$ 42,580,809

$ 0

$ (15,059,728 )

$ 27,521,081

Three months ended September 30, 2019

Premiums written

$ 46,023,290

$ 861

$ (5,586,278 )

$ 40,437,873

Change in unearned premiums

(4,579,777 )

(761 )

(1,637,325 )

(6,217,863 )
Premiums earned

$ 41,443,513

$ 100

$ (7,223,603 )

$ 34,220,010

Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 was ~~$4,919,256and $3,191,512,~~$4,145,845 and $2,660,354, respectively.

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Loss and Loss Adjustment Expense Reserves

The following table provides a reconciliation of the beginning and ending balances for unpaid losses and loss adjustment expense (“LAE”) reserves:

Three months ended

March 31,

2021

2020

Balance at beginning of period

$ 82,801,228

$ 80,498,611

Less reinsurance recoverables

(20,154,251 )

(15,728,224 )
Net balance, beginning of period

62,646,977

64,770,387

Incurred related to:

Current year

22,571,727

16,512,475

Prior years

(11,055 )

(126,654 )
Total incurred

22,560,672

16,385,821

Paid related to:

Current year

7,749,998

5,787,129

Prior years

10,059,577

13,777,236

Total paid

17,809,575

19,564,365

Net balance at end of period

67,398,074

61,591,843

Add reinsurance recoverables

17,058,985

16,259,256

Balance at end of period

$ 84,457,059

$ 77,851,099

Nine months ended
September, 30
2020 2019

Balance at beginning of period

$ 80,498,611

$ 56,197,106

Less reinsurance recoverables

(15,728,224 )

(15,671,247 )
Net balance, beginning of period

64,770,387

40,525,859

Incurred related to:

Current year

49,597,154

60,401,821

Prior years

(279,727 )

11,186,029

Total incurred

49,317,427

71,587,850

Paid related to:

Current year

29,845,049

31,515,656

Prior years

24,068,492

18,600,946

Total paid

53,913,541

50,116,602

Net balance at end of period

60,174,273

61,997,107

Add reinsurance recoverables

24,804,751

15,412,316

Balance at end of period

$ 84,979,024

$ 77,409,423

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of ~~$23,826,986and $8,849,440for~~$823,856 and $5,866,898 for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Prior year incurred loss and LAE development is based upon estimates by line of business and accident year. Prior year loss and LAE development incurred during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 was $11,055 unfavorable and ~~2019 was $279,727favorable and $11,186,029unfavorable,~~$126,654 unfavorable, respectively. During the nine months ended September 30, 2019, the Company increased case reserves for certain older open liability claims, which primarily affected the ultimate loss projections for commercial lines business. This was in response to management’s detailedManagement periodically performs a review of open liability claims ~~that resulted in new assessments of~~to assess carried case and incurred but not reported (“IBNR”) reserve levels, giving consideration to both Company and industry trends.

Loss and LAE reserves

The reserving process for loss and LAE reserves provides for the Company’s best estimate at a particular point in time of the ultimate unpaid cost of all losses and LAE incurred, including settlement and administration of losses, and is based on facts and circumstances then known including losses that have occurred but that have not yet been reported. The process relies on standard actuarial reserving methodologies, judgments relative to estimates of ultimate claim severity and frequency, the length of time before losses will develop to their ultimate level (‘tail’ factors), and the likelihood of changes in the law or other external factors that are beyond the Company’s control. Several actuarial reserving methodologies are used to estimate required loss reserves. The process produces carried reserves set by management based upon the actuaries’ best estimate and is the cumulative combination of the best estimates made by line of business, accident year, and loss and LAE. The amount of loss and LAE reserves for individual reported claims (the “case reserve”) is determined by the claims department and changes over time as new information is gathered. Such information is critical to the review of appropriate IBNR reserves and includes a review of coverage applicability, comparative liability on the part of the insured, injury severity, property damage, replacement cost estimates, and any other information considered pertinent to estimating the exposure presented by the claim. The amounts of loss and LAE reserves for unreported claims and development on known claims (IBNR reserves) are determined using historical information aggregated by line of insurance as adjusted to current conditions. Since this process produces loss reserves set by management based upon the actuaries’ best estimate, there is no explicit or implicit provision for uncertainty in the carried loss reserves.

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Due to the inherent uncertainty associated with the reserving process, the ultimate liability may differ, perhaps substantially, from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. On at least a quarterly basis, the Company reviews by line of business existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior periods. Several methods are used, varying by line of business and accident year, in order to select the estimated period-end loss reserves. These methods include the following:

Paid Loss Development – historical patterns of paid loss development are used to project future paid loss emergence in order to estimate required reserves.

Incurred Loss Development – historical patterns of incurred loss development, reflecting both paid losses and changes in case reserves, are used to project future incurred loss emergence in order to estimate required reserves.

Paid Bornhuetter-Ferguson (“BF”) – an estimated loss ratio for a particular accident year is determined, and is weighted against the portion of the accident year claims that have been paid, based on historical paid loss development patterns. The estimate of required reserves assumes that the remaining unpaid portion of a particular accident year will pay out at a rate consistent with the estimated loss ratio for that year. This method can be useful for situations where an unusually high or low amount of paid losses exists at the early stages of the claims development process.

Incurred Bornhuetter-Ferguson (“BF”) - an estimated loss ratio for a particular accident year is determined, and is weighted against the portion of the accident year claims that have been reported, based on historical incurred loss development patterns. The estimate of required reserves assumes that the remaining unreported portion of a particular accident year will pay out at a rate consistent with the estimated loss ratio for that year. This method can be useful for situations where an unusually high or low amount of reported losses exists at the early stages of the claims development process.

Incremental Claim-Based Methods – historical patterns of incremental incurred losses and paid LAE during various stages of development are reviewed and assumptions are made regarding average loss and LAE development applied to remaining claims inventory. Such methods more properly reflect changes in the speed of claims closure and the relative adequacy of case reserve levels at various stages of development. These methods may provide a more accurate estimate of IBNR for lines of business with relatively few remaining open claims but for which significant recent settlement activity has occurred.

Frequency / Severity Based Methods – historical measurements of claim frequency and average paid claim size (severity) are reviewed for more mature accident years where a majority of claims have been reported and/or closed. These historical averages are trended forward to more recent periods in order to estimate ultimate losses for newer accident years that are not yet fully developed. These methods are useful for lines of business with slow and/or volatile loss development patterns, such as liability lines where information pertaining to individual cases may not be completely known for many years. The claim frequency and severity information for older periods can then be used as reasonable measures for developing a range of estimates for more recent immature periods.

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Management’s best estimate of required reserves is generally based on an average of the methods above, with appropriate weighting of methods based on the line of business and accident year being projected. In some cases, additional methods or historical data from industry sources are employed to supplement the projections derived from the methods listed above.

Three key assumptions that materially affect the estimate of loss reserves are the loss ratio estimate for the current accident year used in the BF methods, the loss development factor selections used in the loss development methods, and the loss severity assumptions used in the frequency / severity method described above. The loss ratio estimates used in the BF methods are selected after reviewing historical accident year loss ratios adjusted for rate changes, trend, and mix of business. The severity assumptions used in the frequency / severity method are determined by reviewing historical average claim severity for older more mature accident periods, trended forward to less mature accident periods.

The Company is not aware of any claim trends that have emerged or that would cause future adverse development that have not already been contemplated in setting current carried reserves levels.

In New York State, lawsuits for negligence are subject to certain limitations and must be commenced within three years from the date of the accident or are otherwise barred. Accordingly, the Company’s exposure to unreported claims (“pure” IBNR) for accident dates of ~~September 30, 2017~~March 31, 2018 and prior is limited, although there remains the possibility of adverse development on reported claims (“case development” IBNR). In certain rare circumstances states have retroactively revised a statute of limitations. The Company is not aware of any such effort that would have a material impact on the Company’s results.

The following is information about incurred and paid claims development as of ~~September 30, 2020,~~March 31, 2021, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of ~~September 30, 2020~~March 31, 2021 included in the net incurred loss and allocated expense amounts. The historical information regarding incurred and paid claims development for the years ended December 31, ~~2011~~2012 to December 31, ~~2019~~2020 is presented as supplementary unaudited information.


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All Lines of Business
(in thousands, except reported claims data)

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

As of
September 30, 2020

For the Years Ended December 31,

Cumulative

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

As of

Accident

Nine
months
ended
September 30,

Number of
Reported
Claims by
Accident

Year

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020
IBNR
Year

For the Years Ended December 31,

March 31, 2021

Accident Year

2012

2013

2014

2015

2016

2017

2018

2019

2020

Three
months ended
March 31, 2021

IBNR

Cumulative Number of Reported
Claims by Accident Year

(Unaudited 2011 - 2019)

(Unaudited)

(Unaudited 2012 - 2020)

(Unaudited)

2011

$ 7,603

$ 7,678

$ 8,618

$ 9,440

$ 9,198

$ 9,066

$ 9,144

$ 9,171

$ 9,127

$ 9,128

$ 0

1,914

2012

9,539

9,344

10,278

10,382

10,582

10,790

10,791

11,015

10,891

19

4,704
(1)

$ 9,539

$ 9,344

$ 10,278

$ 10,382

$ 10,582

$ 10,790

$ 10,791

$ 11,015

$ 10,885

$ 10,885

$ 13

4,704
(1)
2013

10,728

9,745

9,424

9,621

10,061

10,089

10,607

10,456

33

1,561

10,728

9,745

9,424

9,621

10,061

10,089

10,607

10,495

10,511

4

1,564

2014

14,193

14,260

14,218

14,564

15,023

16,381

16,425

253

2,137

14,193

14,260

14,218

14,564

15,023

16,381

16,428

16,414

180

2,138

2015

22,340

21,994

22,148

22,491

23,386

22,974

108

2,555

22,340

21,994

22,148

22,491

23,386

23,291

23,359

95

2,557

2016

26,062

24,941

24,789

27,887

27,862

507

2,878

26,062

24,941

24,789

27,887

27,966

27,857

512

2,878

2017

31,605

32,169

35,304

36,131

383

3,389

31,605

32,169

35,304

36,160

36,186

400

3,393

2018

54,455

56,351

58,233

1,986

4,204

54,455

56,351

58,441

58,511

1,963

4,215

2019

75,092

72,772

10,765

4,423

75,092

72,368

72,371

8,809

4,453

2020

47,313

8,823

4,499

63,083

63,014

8,473

5,772

2021

21,443

7,581

816

Total

$ 312,185

Total

$ 340,551

(1)
Reported claims for accident year 2012 includes 3,406 claims from Superstorm Sandy.

All Lines of Business
(in thousands)


Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

Accident

For the Years Ended December 31,

Nine months ended September 30,

Year

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

(Unaudited 2011 - 2019)

(Unaudited)

2011

$ 3,740

$ 5,117

$ 6,228

$ 7,170

$ 8,139

$ 8,540

$ 8,702

$ 8,727

$ 8,789

$ 8,994

2012

3,950

5,770

7,127

8,196

9,187

10,236

10,323

10,428

10,448

2013

3,405

5,303

6,633

7,591

8,407

9,056

9,717

10,009

2014

5,710

9,429

10,738

11,770

13,819

14,901

15,428

2015

12,295

16,181

18,266

19,984

21,067

22,088

2016

15,364

19,001

21,106

23,974

25,125

2017

16,704

24,820

28,693

30,821

2018

32,383

44,516

49,247

2019

40,933

53,910

2020

28,688

Total

$ 254,757

Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented

$ 57,428

Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

For the Years Ended December 31,

Three months ended March 31,

Accident Year

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

(Unaudited 2012 - 2020)

(Unaudited)

2012

$ 3,950

$ 5,770

$ 7,127

$ 8,196

$ 9,187

$ 10,236

$ 10,323

$ 10,428

$ 10,451

$ 10,533

2013

3,405

5,303

6,633

7,591

8,407

9,056

9,717

10,016

10,133

2014

5,710

9,429

10,738

11,770

13,819

14,901

15,491

15,497

2015

12,295

16,181

18,266

19,984

21,067

22,104

22,201

2016

15,364

19,001

21,106

23,974

25,234

25,310

2017

16,704

24,820

28,693

31,393

31,831

2018

32,383

44,516

50,553

50,921

2019

40,933

54,897

55,822

2020

39,045

46,451

2021

7,287

Total

$ 275,987

Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented

$
64,564

All outstanding liabilities before 2011, net of reinsurance

98

All outstanding liabilities before 2011, net of reinsurance

114

Liabilities for loss and allocated loss adjustment expenses, net of reinsurance

$ 57,526

Liabilities for loss and allocated loss adjustment expenses, net of reinsurance

$
64,678


Reported claim counts are measured on an occurrence or per event basis. A single claim occurrence could result in more than one loss type or claimant; however, the Company counts claims at the occurrence level as a single claim regardless of the number of claimants or claim features involved.


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Table of Contents

The reconciliation of the net incurred and paid loss development tables to the loss and LAE reserves in the consolidated balance sheet is as follows:

As of

(in thousands)

March 31, 2021

Liabilities for loss and loss adjustment expenses, net of reinsurance

$ 64,678

Total reinsurance recoverable on unpaid losses

17,059

Unallocated loss adjustment expenses

2,720

Total gross liability for loss and LAE reserves

$ 84,457

As of

(in thousands)

September 30,
2020

Liabilities for loss and loss adjustment expenses, net of reinsurance

$ 57,626

Total reinsurance recoverable on unpaid losses

24,805

Unallocated loss adjustment expenses

2,648

Total gross liability for loss and LAE reserves

$ 85,079

Reinsurance

~~Through June 30, 2019, the Company’s quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis.~~ Effective December 15, 2019, the Company entered into a quota share reinsurance treaty for its personal lines business, which primarily consists of homeowners’ policies, covering the period from December 15, 2019 through December ~~31,~~30, 2020 (“2019/2020 Treaty”). ~~The Company’s quota share reinsurance treaties in effect during~~Effective December 31, 2020, the nine months ended September 30, 2019 for its personal lines business were covered through June 30, 2019 under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017/2019 Treaty”). The treaty in effect during the nine months ended September 30, 2019 was covered through June 30, 2019 under the July 1, 2018 through June 30, 2019 treaty year (“2018/20192019/2020 Treaty ~~Year”).~~
24
~~Table of Contents~~
~~Effective July 1, 2019, the 2017/2019 Treaty and the commercial umbrella treaty~~ expired on a ~~run-off~~cut off basis; ~~these treaties were~~this treaty was not renewed. The Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2020. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows:

Treaty Year
December 15, 2019
to
Line of Business
December 30, 2020
Personal Lines:
Homeowners, dwelling fire and and canine legal liability Quota share treaty:
Percent ceded
25 %

Treaty Year

Line of Business

December 15, 2019
to
December 31, 2020

July 1, 2019
to
December 14, 2019

July 1, 2018
to
June 30, 2019

Personal Lines:

Homeowners, dwelling fire and

and canine legal liability

Quota share treaty:

Percent ceded

25 %

None

10 %

Treaty Year

December 31, 2020

July 1, 2020

December 15, 2019

Treaty Year

to

to

to

Line of Business

January 1, 2021
to
June 30, 2021

July 1, 2020
to
December 31, 2020

December 15, 2019
to
June 30, 2020

July 1, 2019
to
December 14, 2019

July 1, 2018
to
June 30, 2019

June 30, 2021

December 30, 2020

June 30, 2020

Personal Lines:

Personal Lines:

Homeowners, dwelling fire and

and canine legal liability

Quota share treaty:

canine legal liability Quota share treaty:

Risk retained on intial

$1,000,000 of losses

NA (7)

$ 750,000

$ 750,000

$ 1,000,000

$ 900,000

$1,000,000 of losses (6)

$ 1,000,000

$ 750,000

$ 750,000

Losses per occurrence subject

to quota share

reinsurance coverage

NA (7)

$ 1,000,000

$ 1,000,000

None

$ 1,000,000

to quota share reinsurance coverage

None (6)

$ 1,000,000

$ 1,000,000

Expiration date

December 31, 2020

December 31, 2020

June 30, 2019

NA (6)

December 30, 2020

December 30, 2020

Excess of loss coverage and

facultative facility

coverage (1)

$ 8,000,000

$ 8,000,000

$ 9,000,000

$ 9,000,000

$ 9,000,000

facultative facility coverage (1)

$ 8,000,000

$ 8,000,000

$ 9,000,000

in excess of

in excess of

in excess of

in excess of

in excess of

in excess of

in excess of

in excess of

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

Total reinsurance coverage

per occurrence (7)

$ 8,000,000

$ 8,250,000

$ 9,250,000

$ 9,000,000

$ 9,100,000

per occurrence (6)

$ 8,000,000

$ 8,250,000

$ 9,250,000

Losses per occurrence subject

to reinsurance coverage

$ 8,000,000

$ 9,000,000

$ 10,000,000

$ 10,000,000

$ 10,000,000

$ 8,000,000

$ 9,000,000

$ 10,000,000

Expiration date (7)

June 30, 2021

June 30, 2021

June 30, 2020

June 30, 2020

June 30, 2019

Expiration date (6)

June 30, 2021

June 30, 2021

June 30, 2020

Catastrophe Reinsurance:

Initial loss subject to personal

lines quota share treaty

NA (7)

$ 7,500,000

$ 7,500,000

None

$ 5,000,000

None (6)

$ 7,500,000

$ 7,500,000

Risk retained per catastrophe

occurrence (2) (7)

$ 10,000,000

$ 8,125,000

$ 5,625,000

$ 7,500,000

$ 4,500,000

occurrence (2) (6)

$ 10,000,000

$ 8,125,000

$ 5,625,000

Catastrophe loss coverage

in excess of

quota share coverage (3) (7)

$ 475,000,000

$ 475,000,000

$ 602,500,000

$ 602,500,000

$ 445,000,000

quota share coverage (3) (6)

$ 475,000,000

$ 475,000,000

$ 602,500,000

Reinstatement premium

protection (4) (5) (6)

Yes

Yes

Yes

Yes

Yes

protection (4) (5)

Yes

Yes

Yes

(1)
For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000.
(2)
Plus losses in excess of catastrophe coverage. ~~Effective~~For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note ~~(7)~~(6) below).
(3)
Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.
(4)
~~Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000.~~
~~(5)~~
~~Effective~~For the period July 1, 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.
~~(6)~~(5)
~~Effective~~For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.
~~(7)~~(6)
~~Quota~~The personal lines quota share ~~expires~~(homeowners, dwelling fire and canine legal liability) expired on December ~~31,~~30, 2020; reinsurance coverage from ~~January 1, 2021~~December 31, 2020 through June 30, 2021 is only for excess of loss and catastrophe reinsurance.

2523
Table of Contents

Treaty Year

July 1, 2020

July 1, 2019

July 1, 2018

to

to

to

Line of Business

June 30, 2021

June 30, 2020

June 30, 2019

Personal Lines:

Personal Umbrella

Quota share treaty:

Percent ceded - first $1,000,000 of coverage

90 %

90 %

90 %
Percent ceded - excess of $1,000,000 of coverage

95 %

100 %

100 %
Risk retained

$ 300,000

$ 100,000

$ 100,000

Total reinsurance coverage per occurrence

$ 4,700,000

$ 4,900,000

$ 4,900,000

Losses per occurrence subject to quota share reinsurance coverage

$ 5,000,000

$ 5,000,000

$ 5,000,000

Expiration date

June 30, 2021

June 30, 2020

June 30, 2019

Commercial Lines:

General liability commercial policies

Quota share treaty

None

None

None

Risk retained

$ 750,000

$ 750,000

$ 750,000

Excess of loss coverage above risk retained

$ 3,750,000

$ 3,750,000

$ 3,750,000

in excess of

in excess of

in excess of

$ 750,000

$ 750,000

$ 750,000

Total reinsurance coverage per occurrence

$ 3,750,000

$ 3,750,000

$ 3,750,000

Losses per occurrence subject to reinsurance coverage

$ 4,500,000

$ 4,500,000

$ 4,500,000

Commercial Umbrella

Quota share treaty:

None

None

Percent ceded - first $1,000,000 of coverage

90 %
Percent ceded - excess of $1,000,000 of coverage

100 %
Risk retained

$ 100,000

Total reinsurance coverage per occurrence

$ 4,900,000

Losses per occurrence subject to quota share reinsurance coverage

$ 5,000,000

Expiration date

June 30, 2019

Treaty Year

July 1, 2020

July 1, 2019

to

to

Line of Business

June 30, 2021

June 30, 2020

Personal Lines:

Personal Umbrella

Quota share treaty:

Percent ceded - first $1,000,000 of coverage

90 %

90 %
Percent ceded - excess of $1,000,000 of coverage

95 %

100 %
Risk retained

$ 300,000

$ 100,000

Total reinsurance coverage per occurrence

$ 4,700,000

$ 4,900,000

Losses per occurrence subject to quota share reinsurance coverage

$ 5,000,000

$ 5,000,000

Expiration date

June 30, 2021

June 30, 2020

Commercial Lines:

General liability commercial policies

Quota share treaty

None

None

Risk retained

$ 750,000

$ 750,000

Excess of loss coverage above risk retained

$ 3,750,000

$ 3,750,000

in excess of

in excess of

$ 750,000

$ 750,000

Total reinsurance coverage per occurrence

$ 3,750,000

$ 3,750,000

Losses per occurrence subject to reinsurance coverage

$ 4,500,000

$ 4,500,000

Commercial Umbrella

Quota share treaty:

None

None

The Company’s reinsurance program has been structured to enable the Company to grow its premium volume while maintaining regulatory capital and other financial ratios generally within or below the expected ranges used for regulatory oversight purposes. The reinsurance program also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. The Company’s participation in reinsurance arrangements does not relieve the Company of its obligations to policyholders.

Ceding Commission Revenue

The Company earns ceding commission revenue under its quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions are earned, and (ii) a sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increases when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decreases when the estimated ultimate loss ratio increases.

26
~~Table of Contents~~
The Company’s estimated ultimate treaty year loss ratios (the “Loss Ratio(s)”) for treaties in effect during the three months ~~and nine months~~ ended ~~September 30,~~March 31, 2020 are attributable to contracts under the 2019/2020 Treaty. The Loss Ratios for treaties in effect for the nine months ended September 30, 2019 are attributable to contracts under the 2017/2019 Treaty for the 2018/2019 Treaty Year, which expired on June 30, 2019 and was not renewed. There was no ~~current quota share~~ treaty in effect during the three months ended ~~September 30, 2019, and therefore no current contingent commission adjustment~~March 31, 2021. In addition to the treaty that was ~~recorded for~~in effect during the three months ended ~~September 30, 2019.~~
~~Under the 2019/~~March 31, 2020, Treaty and the 2017/2019 Treaty for the 2018/2019 Treaty Year, the Company received an upfront fixed provisional ceding commission rate that is not subject to a sliding scale contingent adjustment. In addition to the treaties that were in effect during the nine months ended September 30, 2020 and 2019, and three months ended September 30, 2019, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods increase or decrease, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned.

24
Table of Contents
Ceding commission revenue consists of the following:

Three months ended

March 31,

2021

2020

Provisional ceding commissions earned

$ 45,499

$ 3,720,360

Contingent ceding commissions earned

(46,564 )

110,739

$ (1,065 )

$ 3,831,099

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

Provisional ceding commissions earned

$ 3,460,768

$ 1,320,069

$ 10,621,804

$ 4,001,294

Contingent ceding commissions earned

(11,994 )

(290,487 )

138,283

(1,018,334 )

$ 3,448,774

$ 1,029,582

$ 10,760,087

$ 2,982,960

Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled annually based on the Loss Ratio of each treaty year that ends on June 30. As discussed above, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods develop, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, net contingent ceding commissions payable to reinsurers under all treaties was approximately ~~$2,864,000and~~$2,336,000 and $2,886,000, respectively, which is recorded in reinsurance balances payable on the accompanying ~~condensed~~ consolidated balance sheets.

Note 7 – Debt

Federal Home Loan Bank

In July 2017, KICO became a member of, and invested in, the Federal Home Loan Bank of New York (“FHLBNY”). ~~The aggregate fair~~KICO is required to maintain an investment in capital stock of FHLBNY. Based on redemption provisions of FHLBNY, the stock has no quoted market value and is carried at cost. At its discretion, FHLBNY may declare dividends on the stock. Management reviews for impairment based on the ultimate recoverability of the ~~investment~~cost basis in ~~dividend bearing common stock was $11,200and $15,180as of September 30, 2020~~the stock. At March 31, 2021 and December 31, ~~2019, respectively.~~2020, no impairment has been recognized. FHLBNY members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances, which are to be fully collateralized. Eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. See Note 3 – Investments for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of the previous quarter and are due and payable within ninety days of borrowing. The maximum allowable advance as of ~~September 30, 2020~~March 31, 2021 was approximately ~~$11,732,000.~~$12,751,000. Advances are limited to 85% of the amount of available collateral, which was approximately ~~$5,683,000~~$9,318,000 as of ~~September 30, 2020.~~March 31, 2021. There were no borrowings under this facility during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.
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~~Table of Contents~~

Long-term Debt

On December 19, 2017, the Company issued $30 million of ~~its5.50%~~its 5.50% Senior Unsecured Notes ~~dueDecember~~due December 30, 2022 (the “Notes”) in an underwritten public offering. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, which began on June 30, 2018 at the rate of 5.50% per annum. The net proceeds of the issuance were $29,121,630, net of discount of ~~$163,200and~~$163,200 and transaction costs of $715,170, for an effective yield of 5.67% per annum. The balance of long-term debt as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is as follows:


September 30,

December 31,

March 31,

December 31,

2020

2019

2021

2020

5.50% Senior Unsecured Notes

$ 30,000,000

$ 30,000,000

$ 30,000,000

$ 30,000,000

Discount

(73,023 )

(97,325 )

(56,773 )

(64,883 )
Issuance costs

(323,411 )

(431,244 )

(251,571 )

(287,506 )
Long-term debt, net

$ 29,603,566

$ 29,471,431

$ 29,691,656

$ 29,647,611

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Table of Contents

The Notes are unsecured obligations of the Company and are not the obligations of or guaranteed by any of the Company’s subsidiaries. The Notes rank senior in right of payment to any of the Company’s existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the Notes. The Notes rank equally in right of payment to all of the Company’s existing and future senior indebtedness, but will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the Notes will be structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries. The Company may redeem the Notes, at any time in whole or from time to time in part, at the redemption price equal to the greater of: (i) 100% of the principal amount of the Notes to be redeemed; and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if the Notes matured on the applicable redemption date (exclusive of interest accrued to the applicable redemption date) discounted to the redemption date on a semi-annual basis at the Treasury Rate, plus 50 basis points.

The Company has used an aggregate ~~$28,256,335of~~$28,256,335 of the net proceeds from the offering to contribute capital to KICO in order to support additional growth. The remainder of the net proceeds is being used for general corporate purposes. A registration statement relating to the debt issued in the offering was filed with the SEC, which became effective on November 28, 2017.

Note 8 – Stockholders’ Equity

Dividends Declared and Paid

Dividends declared and paid on Common Stock were ~~$1,530,390~~$427,217 and ~~$2,827,276for~~$675,960 for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The Company’s Board of Directors approved a quarterly dividend on ~~November 4, 2020~~May 3, 2021 of ~~$.04per~~$.04 per share payable in cash on ~~December~~June 15, ~~2020~~2021 to stockholders of record as of ~~November 30, 2020~~May 28, 2021 (see Note 13 - Subsequent Events).
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~~Table of Contents~~

Stock Options

Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which a maximum of ~~700,000shares~~700,000 shares of Common Stock of the Company were initially authorized to be issued pursuant to the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and stock bonuses. Incentive stock options granted under the 2014 Plan expire no later than ten years from the date of grant (except no later than five years for a grant to a 10% stockholder). Non-statutory stock options granted under the 2014 Plan expire no later than ten years from the date of grant. The Board of Directors or the Compensation Committee determines the vesting provisions for stock awards granted under the 2014 Plan, subject to the provisions of the 2014 Plan. On August 5, 2020, the Company’s stockholders approved amendments to the 2014 Plan, including an increase in the maximum number shares of Common Stock of the Company that are authorized to be ~~used~~issued pursuant to the 2014 Plan ~~to1,400,000.~~to 1,400,000.

The results of operations for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ include stock-based compensation expense for stock options totaling approximately ~~$14,000and $20,000,~~$14,000 and $17,000, respectively. ~~The results of operations for the nine months ended September 30, 2020 and 2019 include stock-based compensation expense for stock options totaling approximately $52,000and $21,000, respectively.~~ Stock-based compensation expense related to stock options is net of estimated forfeitures of approximately 16% for the three months ended March 31, 2021 and ~~nine months ended September 30,~~ 2020. ~~Stock-based compensation expense related to stock options is net of estimated forfeitures of approximately 17% for the three months and nine months ended September 30, 2019.~~ Such amounts have been included in the condensed consolidated statements of operations and comprehensive ~~income (loss)~~loss within other operating expenses.

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Table of Contents
No options were granted during the three months ended March 31, 2021. The weighted average estimated fair value of stock options granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2020 ~~and 2019~~ was ~~$2.40per share and $1.91per~~$1.66 per share, respectively. The fair value of stock options at the grant date was estimated using the Black-Scholes option-pricing model.

The following weighted average assumptions were used for grants during the following periods:

Nine months ended

September 30,

2020

2019

Dividend Yield

3.14 %

2.87 %
Volatility

37.69 %

36.11 %
Risk-Free Interest Rate

1.40 %

1.61 %
Expected Life

2.75 years

3.25 years

Three months ended
March 31,
2021
2020
Dividend Yield
n/a
3.14 %
Volatility
n/a
37.69 %
Risk-Free Interest Rate
n/a
1.40 %
Expected Life
n/a
2.75 %

~~TheBlack-Scholesoptionpricingmodelwasdevelopedforuseinestimatingthefairvalueoftradedoptions,whichhavenovestingrestrictionsandarefullytransferable.Inaddition,~~The Black-Scholes option ~~valuationmodels~~pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock options.

29
~~Table of Contents~~
A summary of stock option activity under the Company’s 2014 Plan for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 is as follows:

Stock Options

Number
of Shares

Weighted Average Exercise Price per Share

Weighted Average Remaining Contractual Term

Aggregate
Intrinsic
Value

Outstanding at January 1, 2020

82,000

$ 8.61

3.38

$ 0

Granted

74,523

$ 7.96

4.34

$ -

Exercised

-

$ 0

-

$ -

Forfeited

(36,557 )

$ 8.43

-

$ -

Outstanding at September 30, 2020

119,966

$ 8.26

3.80

$ -

Vested and Exercisable at September 30, 2020

50,000

$ 8.45

1.34

$ 0

Stock Options

Number of
Shares

Weighted
Average
Exercise Price
per Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic
Value

Outstanding at January 1, 2021

119,966

$ 8.26

3.55

$ 0

Granted

-

$ -

-

$ -

Exercised

-

$ -

-

$ -

Expired

(12,000 )

$ 7.85

-

$ -

Outstanding at March 31, 2021

107,966

$ 8.31

3.68

$ 33,994

Vested and Exercisable at March 31, 2021

27,500

$ 8.64

3.18

$ 1,725

The aggregate intrinsic value of options outstanding and options exercisable at ~~September 30, 2020~~March 31, 2021 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the ~~$5.89closing~~$8.54 closing price of the Company’s Common Stock on ~~September 30, 2020.~~March 31, 2021. No options were exercised during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. The total intrinsic value of options ~~forfeited~~expired during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was $-0-, determined as of the date of ~~forfeiture.~~expiration.

Participants in the 2014 Plan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”), or by exchanging a number of shares owned for a period of greater than one year having a fair market value equal to the exercise price of the option being exercised (“Share Exchange”).

As of ~~September 30, 2020,~~March 31, 2021, the estimated fair value of unamortized compensation cost related to unvested stock option awards was approximately ~~$78,000.~~$50,000. Unamortized compensation cost as of ~~September 30, 2020~~March 31, 2021 is expected to be recognized over a remaining weighted-average vesting period of ~~1.38~~1.04 years.

As of ~~September 30, 2020,~~March 31, 2021, there were ~~810,199shares~~556,357 shares reserved for grants under the 2014 Plan.
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~~Table of Contents~~

Restricted Stock Awards

A summary of the restricted Common Stock activity under the Company’s 2014 Plan for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 is as follows:

Restricted Stock Awards

Shares

Weighted Average Grant Date Fair Value per Share

Aggregate Fair Value

Balance at January 1, 2020

213,929

$ 16.51

$ 3,554,174

Granted

209,518

$ 7.93

$ 1,661,504

Vested

(91,863 )

$ 14.49

$ (1,331,254 )
Forfeited

(19,266 )

$ 15.18

$ (292,455 )

Balance at September 30, 2020

312,318

$ 10.45

$ 3,591,969

Restricted Stock Awards

Shares

Weighted Average Grant Date Fair Value per Share

Aggregate Fair Value

Balance at January 1, 2021

370,964

$ 9.96

$ 3,990,999

Granted

321,335

$ 6.95

$ 2,233,366

Vested

(124,187 )

$ 9.50

$ (1,180,239 )
Forfeited

-

$ -

$ 0

Balance at March 31, 2021

568,112

$ 8.98

$ 5,044,126

Fair value was calculated using the closing price of the Company’s Common Stock on the grant date. For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ stock-based compensation for these grants was approximately ~~$416,000and $388,000,~~$481,000 and $472,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2020 and 2019, stock-based compensation for these grants was approximately $1,321,000and $1,096,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss).loss. These amounts reflect the Company’s accounting expense and do not correspond to the actual value that will be recognized by the directors, executives and employees.
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Table of Contents

Note 9 – Income Taxes

The Company files a consolidated U.S. federal income tax return that includes all wholly owned subsidiaries. State tax returns are filed on a consolidated or separate return basis depending on applicable laws. The Company records adjustments related to prior years’ taxes during the period when they are identified, generally when the tax returns are filed. The effect of these adjustments on the current and prior periods (during which the differences originated) is evaluated based upon quantitative and qualitative factors and are considered in relation to the consolidated financial statements taken as a whole for the respective periods.

Deferred tax assets and liabilities are determined using the enacted tax rates applicable to the period the temporary differences are expected to be recovered. Accordingly, the current period income tax provision can be affected by the enactment of new tax rates. The net deferred income taxes on the balance sheets reflect temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and income tax purposes, tax effected at various rates depending on whether the temporary differences are subject to federal taxes, state taxes, or both.

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~~Table of Contents~~
Significant components of the Company’s deferred tax assets and liabilities are as follows:

September 30,

December 31,

March 31,

December 31,

2020

2019

2021

2020

Deferred tax asset:

Net operating loss carryovers (1)

$ 55,845

$ 1,586,247

$ 559,181

$ 0

Claims reserve discount

779,554

839,959

901,585

838,030

Unearned premium

3,185,331

3,105,344

3,783,502

3,880,275

Deferred ceding commission revenue

1,513,500

1,624,434

19,597

19,639

Other

491,402

462,019

608,485

648,691

Total deferred tax assets

6,025,632

7,618,003

5,872,350

5,386,635

Deferred tax liability:

Investment in KICO (2)

759,543

759,543

759,543

759,543

Deferred acquisition costs

4,182,428

4,333,219

4,063,918

4,229,928

Intangible asset

105,000

105,000

105,000

105,000

Depreciation and amortization

369,570

312,298

908,157

954,446

Net unrealized gains of securities - available-for-sale

2,581,873

1,796,891

3,173,963

3,494,631

Total deferred tax liabilities

7,998,414

7,306,951

9,010,581

9,543,548

Net deferred income tax (liability) asset

$ (1,972,782 )

$ 311,052

Net deferred income tax liability

$ (3,138,231 )

$ (4,156,913 )
(1)
The deferred tax assets from net operating loss carryovers (“NOL”) are as follows:

September 30,

December 31,

Type of NOL

2020

2019

Expiration

Federal only, current year

$ 0

$ 1,517,866

(A)

State only (B)

1,864,863

1,616,568

December 31, 2040

Valuation allowance

(1,809,018 )

(1,548,187 )

State only, net of valuation allowance

55,845

68,381

Total deferred tax asset from net operating loss carryovers

$ 55,845

$ 1,586,247

~~(A)~~
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. The Company will elect on its 2019 federal income tax return to carry back the 2019 NOL to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019.
~~(B)~~
Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of September 30, 2020 and December 31, 2019 was approximately $28,690,000and $24,901,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax, which is included in the consolidated statements of operations and comprehensive income (loss) within other underwriting expenses. Kingstone has recorded a valuation allowance due to the uncertainty of generating enough state taxable income to utilize 100% of the available state NOLs over their remaining lives, which expire between 2027 and 2040.
~~(2)~~
~~Deferred tax liability – Investment in KICO~~

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Table of Contents

March 31,

December 31,

Type of NOL

2021

2020

Expiration

Federal only, current year (A)

$ 559,181

$ 1,200,056

NOL carried back

0

(1,200,056 )

Federal only, current year

$ 559,181

$ 0

None

State only (B)

1,931,884

1,815,546

December 31, 2040

Valuation allowance

(1,931,884 )

(1,815,546 )

State only, net of valuation allowance

0

0

Total deferred tax asset from net operating loss carryovers

$ 559,181

$ 0

(A) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2020 and 2019 NOLs. The Company elected on its 2019 federal income tax return to carry back the 2019 NOL to tax years 2014 and 2015. The Company will elect on its 2020 federal income tax return to carry back the 2020 NOL to tax year 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2020 and 2019.
(B) Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of March 31, 2021 and December 31, 2020 was approximately $29,721,000 and $27,931,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax, which is included in the consolidated statements of operations and comprehensive loss within other underwriting expenses. Kingstone has recorded a valuation allowance due to the uncertainty of generating enough state taxable income to utilize 100% of the available state NOLs over their remaining lives, which expire between 2027 and 2041.
(2) Deferred tax liability – Investment in KICO

On July 1, 2009, the Company completed the acquisition of 100% of the issued and outstanding common stock of KICO (formerly known as Commercial Mutual Insurance Company (“CMIC”)) pursuant to the conversion of CMIC from an advance premium cooperative to a stock property and casualty insurance company. Pursuant to the plan of conversion, the Company acquired a 100% equity interest in KICO, in consideration for the exchange of ~~$3,750,000principal~~$3,750,000 principal amount of surplus notes of CMIC. In addition, the Company forgave all accrued and unpaid interest on the surplus notes as of the date of conversion. As of the date of acquisition, unpaid accrued interest on the surplus notes along with the accretion of the discount on the original purchase of the surplus notes totaled ~~$2,921,319(together~~$2,921,319 (together “Untaxed Interest”). As of the date of acquisition, the deferred tax liability on the Untaxed Interest was $1,169,000. A temporary difference with an indefinite life exists when the parent has a lower carrying value of its subsidiary for income tax purposes. The deferred tax liability was reduced to ~~$759,543upon~~$759,543 upon the reduction of federal income tax rates as of December 31, 2017. The Company is required to maintain its deferred tax liability of ~~$759,543related~~$759,543 related to this temporary difference until the stock of KICO is sold, or the assets of KICO are sold or KICO and the parent are merged.

In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. No valuation allowance against deferred tax assets has been established, except for NOL limitations, as the Company believes it is more likely than not the deferred tax assets will be realized based on the historical taxable income of KICO, or by offset to deferred tax liabilities.

29
Table of Contents
The Company had no material unrecognized tax benefit and no adjustments to liabilities or operations were required. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. If any had been recognized these would have been reported in income tax expense.

Generally, taxing authorities may examine the Company’s tax returns for the three years from the date of filing. The Company’s tax returns for the years ended December 31, ~~2016~~2017 through December 31, 2019 remain subject to examination. ~~The Company’s federal income tax return for the year ended December 31, 2016 has been examined by the Internal Revenue Service and was accepted as filed.~~

Note 10 –Earnings/(Loss) Per Common Share

Basic net earnings/(loss) per common share is computed by dividing income/(loss) available to common shareholders by the weighted-average number of shares of Common Stock outstanding. Diluted earnings/(loss) per common share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options as well as non-vested restricted stock awards. The computation of diluted earnings/(loss) per common share excludes those options with an exercise price in excess of the average market price of the Company’s Common Stock during the periods presented.

The computation of diluted earnings/(loss) per common share excludes outstanding options in periods where the exercise of such options would be anti-dilutive. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, no options were included in the computation of diluted earnings (loss) per common share as they would have been anti-dilutive for the relevant periods and, as a result, the weighted average number of shares of Common Stock used in the calculation of diluted earnings per common share has not been adjusted for the effect of such options.

33
~~Table of Contents~~
The reconciliation of the weighted average number of shares of Common Stock used in the calculation of basic and diluted earnings (loss) per common share follows:

Three months ended

Nine months ended

September 30,

September 30,

2020

2019

2020

2019

Weighted average number of shares outstanding

10,673,077

10,779,641

10,737,853

10,769,817

Effect of dilutive securities, common share equivalents:

Stock options

-

-

-

-

Restricted stock awards

-

-

-

-

Weighted average number of shares outstanding,

used for computing diluted earnings per share

10,673,077

10,779,641

10,737,853

10,769,817

Three months ended

March 31,

2021

2020

Weighted average number of shares outstanding

10,676,298

10,807,841

Effect of dilutive securities, common share equivalents:

Stock options

0

0

Restricted stock awards

0

0

Weighted average number of shares outstanding,

used for computing diluted earnings per share

10,676,298

10,807,841

Note 11 - Commitments and Contingencies

Litigation

From time to time, the Company is involved in various legal proceedings in the ordinary course of business. For example, to the extent a claim is asserted by a third party in a lawsuit against one of the Company’s insureds covered by a particular policy, the Company may have a duty to defend the insured party against the claim. These claims may relate to bodily injury, property damage or other compensable injuries as set forth in the policy. Such proceedings are considered in estimating the liability for loss and LAE expenses.

~~On June 12, 2019, Phillip Woolgar filed a suit naming the Company and certain present or former officers and directors as defendants in a putative class action captioned~~ ~~Woolgar v. Kingstone Companies et al.~~, 19 cv 05500 (S.D.N.Y.), asserting claims under Section 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. Plaintiff sought to represent a class of persons or entities that purchased Kingstone securities between March 14, 2018, and April 29, 2019, and alleged violations of the federal securities law in connection with the Company’s April 29, 2019 announcement regarding losses related to winter catastrophe events. The lawsuit alleged that the Company failed to disclose that it did not adequately follow industry best practices related to claims handling and thus did not record sufficient claim reserves, and that as a result, Defendants’ positive statements about the Company’s business, operations and prospects misled investors. Plaintiff seeks, among other things, an undetermined amount of money damages. On August 10, 2020, the court granted the Company’s motion to dismiss the amended complaint in the suit. The court permitted plaintiff to amend the complaint to attempt to cure the deficiencies identified by the court in its opinion (to the extent plaintiff had a good faith basis to do so) by September 11, 2020. Plaintiff failed to replead by the September 11, 2020 deadline. On September 16, 2020, the court issued an order closing the case. Plaintiff did not file an appeal, rendering the dismissal final and the Company considers the matter closed.

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Table of Contents

Office Lease

The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. See Note 2 - Accounting Policies for additional information regarding the accounting for leases.

The Company is a party to a non-cancellable operating lease, dated March 27, 2015, for its office facility for KICO located in Valley Stream, New York expiring March 31, 2024.

On July 8, 2019, the Company entered into a lease agreement for an additional office facility for Cosi located in Valley Stream, New York under a non-cancelable operating lease. The lease has a term of seven years and two months expiring December 31, 2026.

~~In addition to the base rental costs, occupancy lease agreements generally provide for rent escalations resulting from increased assessments from real estate taxes and other charges.~~
Additional information regarding the Company’s office operating leases is as follows:

Three months ended

Nine months
ended

Lease cost

September 30,
2020

September 30,
2020

Operating leases

$ 61,297

$ 183,891

Short-term leases

0

0

Total lease cost (1)

$ 61,297

$ 183,891

Other information on operating leases

Cash payments included in the measurement of lease

liability reported in operating cash flows

$ 62,782

$ 147,018

Discount rate

5.50 %

5.50 %
Remaining lease term in years

5 years

5 years

Three months ended

Three months ended

Lease cost

March 31, 2021

March 31, 2020

Operating leases

$ 60,518

$ 81,251

Short-term leases

0

0

Total lease cost (1)

$ 60,518

$ 81,251

Other information on operating leases

Cash payments included in the measurement of lease liability reported in operating cash flows

$ 64,979

$ 82,736

Discount rate

5.50 %

5.50 %
Remaining lease term in years

5.75 years

6.75 years

~~(1)~~
(1)
Included in the condensed consolidated statements of operations and comprehensive ~~income (loss)~~loss within other underwriting expenses for KICO and within other operating expenses for Cosi.

The following table presents the contractual maturities of the Company’s lease liabilities as of ~~September 30, 2020:~~March 31, 2021:

For the Year

Ending

December 31,

Total

Remainder of 2020

$ 64,281

2021

264,571

2022

273,831

2023

283,415

2024

140,739

Thereafter

192,916

Total undiscounted lease payments

1,219,753

Less: present value adjustment

188,522

Operating lease liability

$ 1,031,231

For the Year

Ending

December 31,

Total

Remainder of 2021

$ 220,245

2022

273,831

2023

283,415

2024

140,739

2025

94,799

Thereafter

98,117

Total undiscounted lease payments

1,111,146

Less: present value adjustment

156,672

Operating lease liability

$ 954,474

Rent expense for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ amounted to ~~$61,297and $41,342, respectively. Rent expense for the nine months ended September 30, 2020~~$60,518 and ~~2019 totaled $183,891and $124,026,~~$81,251, respectively. Rent expense is included in the accompanying condensed consolidated statements of operations and comprehensive ~~income (loss)~~loss within other underwriting expenses.

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Employment Agreements

Barry Goldstein, President, Chief Executive Officer and Executive Chairman of the Board

On October 14, 2019, the Company and Barry B. Goldstein, the Company’s President, Chief Executive Officer and Executive Chairman of the Board, entered into a Second Amended and Restated Employment Agreement (the “Amended Employment Agreement”). The Amended Employment Agreement is effective as of January 1, 2020 and expires on December 31, 2022. The Amended Employment Agreement extends the expiration date of the employment agreement in effect for Mr. Goldstein from December 31, 2021 to December 31, 2022.

Pursuant to the Amended Employment Agreement, Mr. Goldstein is entitled to receive an annual base salary of ~~$500,000and~~$500,000 and an annual bonus equal to 6% of the Company’s consolidated income from operations before taxes, exclusive of the Company’s consolidated net investment income (loss), net unrealized gains (losses) on equity securities and net realized gains (losses) on investments, up to a maximum of 2.5 times his base salary. In addition, pursuant to the Amended Employment Agreement, Mr. Goldstein is entitled to receive a long-term compensation (“LTC”) award of between $945,000 and $2,835,000 based on a specified minimum increase in the Company’s adjusted book value per share (as defined in the Amended Employment Agreement) as of December 31, 2022 as compared to December 31, 2019 (with the maximum LTC payment being due if the average per annum increase is at least 14%). Further, pursuant to the Amended Employment Agreement, in the event that Mr. Goldstein’s employment is terminated by the Company without cause or he resigns for good reason (each as defined in the Amended Employment Agreement), Mr. Goldstein would be entitled to receive his base salary, the 6% bonus and the LTC payment for the remainder of the term. In addition, in the event of Mr. Goldstein’s death, his estate would be entitled to receive his base salary, accrued bonus and accrued LTC payment through the date of death. Further, in the event that Mr. Goldstein’s employment is terminated by the Company without cause or he resigns for good reason, or, in the event of the termination of Mr. Goldstein’s employment due to disability or death, Mr. Goldstein’s granted but unvested restricted stock awards will vest. Mr. Goldstein would be entitled, under certain circumstances, to a payment equal to 3.82 times his then annual salary, the target LTC payment of $1,890,000 and his accrued 6% bonus in the event of the termination of his employment within eighteen months following a change of control of the Company.

Pursuant to the Amended Employment Agreement, in January 2020, Mr. Goldstein received a grant of ~~157,431shares~~157,431 shares of restricted stock under the terms of the Company’s 2014 Plan determined by dividing ~~$1,250,000by~~$1,250,000 by the fair market value of the Company’s Common Stock on the date of grant. This 2020 grant vested with respect to one-third of the award on the first anniversary of the grant date and will ~~become vested~~vest with respect to one-third of the award on each of the ~~first and~~ second ~~anniversaries~~anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. Also pursuant to the Amended Employment Agreement, Mr. Goldstein ~~will be entitled to receive~~received a grant, under the terms of the 2014 Plan, during January 2021, of ~~a number of~~230,769 shares of restricted stock determined by dividing ~~$1,500,000by~~$1,500,000 by the fair market value of the Company’s Common Stock on the date of grant. ~~The January~~This 2021 grant will ~~become vested~~vest with respect to one-half of the award on each of the first anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. Further, pursuant to the Amended Employment Agreement, Mr. Goldstein isreceived in 2020 and 2021, and will be entitled to receive during 2022 a grant, under the terms of the 2014 Plan, ~~during each of 2020, 2021 and 2022,~~ of a number of shares of restricted stock determined by dividing ~~$136,500by~~$136,500 by the fair market value of the Company’s Common Stock on the date of grant. In January 2020, Mr. Goldstein was granted ~~17,191shares~~17,191 shares of restricted stock pursuant to this provision. This grant vested with respect to one-third of the award on the first anniversary of the grant date and will ~~become vested~~vest with respect to one-third of the award on each of the ~~first and~~ second ~~anniversaries~~anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. ~~The~~In January 2021, Mr. Goldstein was granted 21,000 shares of restricted stock pursuant to the provision. This grant will ~~become vested~~vest with respect to one-half of the award on each of the first anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. The 2022 grant will ~~become vested~~vest on December 31, 2022 based on the continued provision of services through such date.

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Dale A. Thatcher

Effective July 19, 2019 (the “Separation Date”), Dale A. Thatcher retired and resigned his positions as Chief Executive Officer and President of the Company and KICO. At such time, he also resigned his positions on the Board of Directors of each of the Company and KICO. Effective upon Mr. Thatcher’s separation from employment, the Board appointed Barry B. Goldstein, former Chief Executive Officer and Executive Chairman of the Board of Directors, to the position of Chief Executive Officer and President of each of the Company and KICO. Mr. Goldstein previously served as Chief Executive Officer and President of the Company from March 2001 through December 31, 2018, and as Chief Executive Officer and President of KICO from January 2012 through December 31, 2018.

In connection with his separation from employment, each of the Company and KICO entered into an Agreement and General Release (the “Separation Agreement”) with Mr. Thatcher. Pursuant to the Separation Agreement, the Company and KICO ~~shall collectively provide~~provided the following payments and benefits to Mr. Thatcher in full satisfaction of all payments and benefits and other amounts due to him under the terms of the existing employment agreements upon his separation from employment: (i) $381,111 (representing the amount of base salary he would have received had he remained employed through March 31, 2020), (ii) $5,000 in full satisfaction for any bonus payments payable under the existing employment agreements, (iii) continuing group health coverage commencing on the Separation Date and ending on March 31, 2020, and (iv) continued vesting of all stock awards previously granted to Mr. Thatcher in his capacity as an executive officer but which were unvested as of the Separation Date (the “Shares”) (Mr. Thatcher shall not be entitled to any further grants of stock awards after the Separation Date). Effective January 27, 2021, the Company entered into an agreement (the “Relinquishment Agreement”) with Mr. Thatcher. Pursuant to the Relinquishment Agreement, Mr. Thatcher relinquished his right to receive 14,077 unissued Shares which vested on January 1, 2021, the right to receive 11,905 Shares which were scheduled to vest on March 14, 2021 and the right to receive 14,076 Shares which were scheduled to vest on January 1, 2022 in full consideration of the payment by the Company of an aggregate of $280,406.
In addition, the Company and KICO agreed to provide Mr. Thatcher with a severance payment of ~~$20,000in~~$20,000 in consideration for a release. Pursuant to the Separation Agreement, Mr. Thatcher agreed that, for a period of three years following the Separation Date, he shall not accept any operating executive role with another property and casualty insurance company.

Meryl Golden, Chief Operating Officer

On September 16, 2019, the Company and Meryl Golden entered into an employment agreement (the “Golden Employment Agreement”) pursuant to which Ms. Golden serves as the Company’s Chief Operating Officer. Ms. Golden also serves as KICO’s Chief Operating Officer. The Golden Employment Agreement became effective as of September 25, 2019 (amended on December 24, 2020) and now expires on December 31, ~~2021.~~2022.

Pursuant to the Golden Employment Agreement, Ms. Golden is entitled to receive an annual salary of ~~$500,000and was granted~~$500,000. The Golden Employment also provides for the grant on the effective date of a five year option for the purchase of ~~50,000shares~~50,000 shares of the Company’s Common Stock pursuant to the 2014 Plan. The options granted ~~will~~ vest in ~~three~~four equal installments, with the first installment vesting on the grant date, and the remaining installments vesting on the first, second, and ~~second~~third anniversaries ~~following~~of the grant date, subject to the terms of the stock option agreement between the Company and Ms. Golden. In January 2021, pursuant to the Golden Employment Agreement as amended, Ms. Golden was granted 30,000 shares of restricted Common Stock pursuant to the 2014 Plan and will be entitled to receive in January 2022 an additional grant of 30,000 shares of restricted Common Stock pursuant to the 2014 Plan. Each such grant will vest in three equal installments on each of the first, second and third anniversaries of the grant date.

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COVID-19

The outbreak of the coronavirus, also known as “COVID-19”, has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures have had and will continue to have a material adverse impact on global economic conditions as well as on the Company’s business activities. The extent to which COVID-19 may impact the Company’s business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the United States and other countries to contain, prevent and treat the disease. These events are highly uncertain and, as such, the Company cannot determine their financial impact at this time. No adjustments have been made to the amounts reported in these condensed consolidated financial statements as a result of this matter.

Note 12 – Deferred Compensation Plan

On June 18, 2018, the Company adopted the Kingstone Companies, Inc. Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan is offered to a select group (“Participants”), consisting of management and highly compensated employees as a method of recognizing and retaining such Participants. The Deferred Compensation Plan provides for eligible Participants to elect to defer up to 75% of their base compensation and up to 100% of bonuses and other compensation and to have such deferred amounts deemed to be invested in specified investment options. In addition to the Participant deferrals, the Company may choose to make matching contributions to some or all of the Participants in the Deferred Compensation Plan to the extent the Participant did not receive the maximum matching or non-elective contributions permissible under the Company’s 401(k) Plan due to limitations under the Internal Revenue Code or the 401(k) Plan. Participants may elect to receive payment of their account balances in a single cash payment or in annual installments for a period of up to ten years. The deferred compensation liability as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 amounted to ~~$629,593and $599,274,~~$835,302 and $763,789, respectively, and is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. The Company did not make any voluntary contributions for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

Note 13 – Subsequent Events

The Company has evaluated events that occurred subsequent to ~~September 30, 2020~~March 31, 2021 through the date these condensed consolidated financial statements were issued for matters that required disclosure or adjustment in these condensed consolidated financial statements.

Dividends Declared

On ~~November 4, 2020,~~May 3, 2021, the Company’s Board of Directors approved a quarterly dividend of $0.04 per share payable in cash on ~~December~~June 15, ~~2020~~2021 to stockholders of record as of the close of business on ~~November 30, 2020~~May 28, 2021 (see Note 8 – Stockholders’ Equity).

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

We offer property and casualty insurance products to individuals through our wholly owned subsidiary, Kingstone Insurance Company (“KICO”). KICO’s insureds are located primarily in downstate New York, consisting of New York City, Long Island and Westchester County, although we are actively writing business in New Jersey, Rhode Island, Connecticut and Massachusetts. We are licensed in the States of New York, New Jersey, Rhode Island, Connecticut, Massachusetts, Pennsylvania, Maine, and New Hampshire. For the three ~~and nine~~ months ended ~~September 30, 2020, respectively, 80.6% and 79.9%~~March 31, 2021, 72.3% of KICO’s direct written premiums came from the New York policies.

In addition, through our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, we access alternative distribution channels. Through Cosi, we have the opportunity to partner with name-brand carriers and access nationwide insurance agencies. See “Distribution Channels” below for a discussion of our distribution channels. Cosi receives commission revenue from KICO for the policies it places with others and pays commissions to these agencies. Cosi retains the profit between the commission revenue received and the commission expense ~~paid.~~ paid (“Net Cosi ~~revenue~~Revenue”). Commission expense is ~~eliminated against commission expense~~reduced by Net Cosi Revenue and ~~Cosi related~~Cosi-related operating expenses are included in other operating expenses. ~~Cosi related~~Cosi-related operating expenses are not included in our stand-alone insurance underwriting business and, accordingly, ~~its~~Cosi’s expenses are not included in the calculation of our combined ratio as described below.

We derive substantially all of our revenue from KICO, which includes revenues from earned premiums, ceding commissions from quota share reinsurance, net investment income generated from its portfolio, and net realized gains and losses on investment securities. All of KICO’s insurance policies are written for a one-year term. Earned premiums represent premiums received from insureds, which are recognized as revenue over the period of time that insurance coverage is provided (i.e., ratably over the one-year life of the policy). A significant period of time can elapse from the receipt of insurance premiums to the payment of insurance claims. During this time, KICO invests the premiums, earns investment income and generates net realized and unrealized investment gains and losses on investments. Our holding company earns investment income from its cash holdings and may also generate net realized and unrealized investment gains and losses on future investments.

Our expenses include the insurance underwriting expenses of KICO and other operating expenses. Insurance companies incur a significant amount of their total expenses from losses incurred by policyholders, which are referred to as claims. In settling these claims, various loss adjustment expenses (“LAE”) are incurred such as insurance adjusters’ fees and legal expenses. In addition, insurance companies incur policy acquisition costs. Policy acquisition costs include commissions paid to producers, premium taxes, and other expenses related to the underwriting process, including employees’ compensation and benefits.

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~~Table of Contents~~
Other operating expenses include our corporate expenses as a holding company and operating expenses of Cosi. These corporate expenses include legal and auditing fees, executive employment costs, and other costs directly associated with being a public company. Cosi operating expenses primarily include employment, ~~costs~~occupancy and consulting costs.

Product Lines

Our product lines include the following:

Personal lines: Our largest line of business is personal lines, consisting of homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies.

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Table of Contents
Commercial liability: Through July 2019, we offered businessowners policies, which consist primarily of small business retail, service, and office risks, with limited property exposures. We also wrote artisan’s liability policies for small independent contractors with smaller sized workforces. In addition, we wrote special multi-peril policies for larger and more specialized businessowners risks, including those with limited residential exposures. Further, we offered commercial umbrella policies written above our supporting commercial lines policies.

In May 2019, due to the poor performance of this line we placed a moratorium on new commercial lines and new commercial umbrella submissions while we further reviewed this business. In July 2019, due to the continuing poor performance of these lines, we made the decision to no longer underwrite commercial lines or commercial umbrella risks. ~~In force~~In-force policies as of July 31, 2019 for these lines ~~are being~~were non-renewed at the end of their ~~current~~ annual terms. ~~For the three months and nine months ended September 30, 2020,~~As of March 31, 2021 there are no commercial liability policies in-force. As of March 31, 2021, these expired policies represent approximately ~~0.9% and 3.4%, respectively of net premiums earned and as of September 30, 2020, 36.8%~~29.5% of loss and LAE reserves net of reinsurance recoverables. See discussion below under “Additional Financial Information”.

Livery physical damage: We write for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs. These policies insure only the physical damage portion of insurance for such vehicles, with no liability coverage included.

Other: We write canine legal liability policies and have a small participation in mandatory state joint underwriting associations.

Key Measures

We utilize the following key measures in analyzing the results of our insurance underwriting business:

Net loss ratio: The net loss ratio is a measure of the underwriting profitability of an insurance company’s business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.

Net underwriting expense ratio: The net underwriting expense ratio is a measure of an insurance company’s operational efficiency in administering its business. Expressed as a percentage, this is the ratio of the sum of acquisition costs (the most significant being commissions paid to our producers) and other underwriting expenses less ceding commission revenue less other income to net premiums earned.

Net combined ratio: The net combined ratio is a measure of an insurance company’s overall underwriting profit. This is the sum of the net loss and net underwriting expense ratios. If the net combined ratio is at or above 100 percent, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.

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~~Table of Contents~~
Underwriting income: Underwriting income is net pre-tax income attributable to our insurance underwriting business before investment activity. It excludes net investment income, net realized gains from investments, and depreciation and amortization (net premiums earned less expenses included in combined ratio). Underwriting income is a measure of an insurance company’s overall operating profitability before items such as investment income, depreciation and amortization, interest expense and income taxes.
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Table of Contents

Distribution Channels

During 2019, we initiated an alternative distribution program through Cosi (“Alternative Distribution”). The goal of this program is to enhance our personal lines distribution channel to include nationally recognized name-brand carriers along with nationwide call center and digital insurance agencies. While still in early stages of development, the impact of this initiative can be measured by the amount of new premiums written compared to total premiums written, which includes renewals from our independent agency network. The table below shows premiums written by distribution channel for our homeowners and dwelling fire components of personal lines.

Three months ended

Three months ended

Nine months ended

Nine months ended

Three months ended

Three months ended

($ in thousands)

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

March 31, 2021

March 31, 2020

Direct Written Pemiums

Amount

Percent

Amount

Percent

Amount

Percent

Amount

Percent

Amount

Percent

Amount

Percent

Core Independent

$ 33,325

76.5 %

$ 32,430

79.2 %

$ 91,752

76.8 %

$ 89,712

82.3 %

$ 27,979

77.5 %

$ 27,145

79.0 %
Expansion Independent (1)

9,001

20.7 %

7,188

17.6 %

22,343

18.7 %

16,681

15.3 %

6,179

17.1 %

5,242

15.3 %
Alternative Distribution

through Cosi

1,256

2.9 %

1,317

3.2 %

5,313

4.4 %

2,560

2.3 %

1,922

5.3 %

1,979

5.8 %
Total

$ 43,582

100.0 %

$ 40,935

100.0 %

$ 119,408

100.0 %

$ 108,953

100.0 %

$ 36,080

100.0 %

$ 34,366

100.0 %

(1)Outside of New York

~~(Percent~~ (Percent components may not sum to totals due to rounding)

For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ Alternative Distribution made up ~~2.9%~~5.3% and ~~3.2%~~5.8%, respectively, of direct written premiums for our homeowners and dwelling fire components of personal lines. ~~As discussed above, on~~On July 10, 2020, KICO’s A.M. Best Financial Strength Rating was downgraded from A- (Excellent) to B++ (Good). ~~We believe this~~This action has resulted in and will continue to result in a ~~material~~ decrease in the business from Cosi, a multi-state licensed general agent that had partnered with name-brand carriers, some of which require an A.M. Best rating of A- (Excellent) from its partners.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements include the accounts of Kingstone Companies, Inc. and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions in certain circumstances that affect amounts reported in our condensed consolidated financial statements and related notes. In preparing these condensed consolidated financial statements, our management has utilized information including our past history, industry standards, and the current economic environment, and other factors, in forming its estimates and judgments ~~for~~of certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by our management in formulating its estimates in these financial statements may not materialize. Application of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact ~~the~~ comparability of our results of operations to those of similar companies.
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~~Table of Contents~~

We believe that the most critical accounting policies relate to the reporting of reserves for loss and LAE, including losses that have occurred but have not been reported prior to the reporting date, amounts recoverable from third party reinsurers, deferred ceding commission revenue, deferred policy acquisition costs, deferred income taxes, the impairment of investment securities, intangible assets and the valuation of stock-based compensation. See Note 2 to the condensed consolidated financial ~~statements - “Accounting Policies” for information related to updated accounting policies.~~statements.
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Table of Contents

Consolidated Results of Operations

~~Nine~~Three Months Ended ~~September 30, 2020~~March 31, 2021 Compared to ~~Nine~~Three Months Ended ~~September 30, 2019~~March 31, 2020

The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:

Nine months ended September 30,

Three months ended March 31,

($ in thousands)

2020

2019

Change

Percent

2021

2020

Change

Percent

Revenues

Direct written premiums

$ 125,090

$ 128,333

$ (3,243 )

(2.5 )%

$ 38,129

$ 36,697

$ 1,432

3.9 %
Assumed written premiums

-

1

(1 )

na
%

-

-

-

na
%

125,090

128,334

(3,244 )

(2.5 )%

38,129

36,697

1,432

3.9 %
Ceded written premiums

Ceded to quota share treaties

24,562

6,110

$ 18,452

302.0 %

138

7,098

(6,960 )

(98.1 )%
Ceded to excess of loss treaties

1,482

1,219

263

21.6 %

524

495

29

5.9 %
Ceded to catastrophe treaties

17,770

13,585

4,185

30.8 %

6,668

5,913

755

12.8 %
Total ceded written premiums

43,814

20,914

22,900

109.5 %

7,330

13,506

(6,176 )

(45.7 )%

Net written premiums

81,276

107,420

(26,144 )

(24.3 )%

30,799

23,191

7,608

32.8 %

��

Change in unearned premiums

Direct and assumed

2,216

(11,037 )

13,253

na
%

3,789

5,905

(2,116 )

(35.8 )%
Ceded to quota share treaties

(2,392 )

(1,366 )

(1,026 )

(75.1 )%

-

(2,154 )

2,154

(100.0 )%
Change in net unearned premiums

(176 )

(12,403 )

12,227

98.6 %

3,789

3,751

38

1.0 %

Premiums earned

Direct and assumed

127,305

117,297

10,008

8.5 %

41,918

42,602

(684 )

(1.6 )%
Ceded to reinsurance treaties

(46,206 )

(22,280 )

(23,926 )

(107.4 )%

(7,329 )

(15,661 )

8,332

53.2 %
Net premiums earned

81,099

95,017

(13,918 )

(14.6 )%

34,589

26,941

7,648

28.4 %

Ceding commission revenue

10,760

2,983

7,777

260.7 %

(1 )

3,831

(3,832 )

100.0 %
Net investment income

4,772

5,200

(428 )

(8.2 )%

1,783

1,666

117

7.0 %
Net (losses) gains on investments

(1,639 )

3,712

(5,351 )

144.2 %
Net gains (losses) on investments

2,960

(6,444 )

9,404

145.9 %
Other income

773

999

(226 )

(22.6 )%

172

260

(88 )

(33.8 )%
Total revenues

95,765

107,911

(12,146 )

(11.3 )%

39,503

26,254

13,249

50.5 %
Expenses

Loss and loss adjustment expenses

Direct and assumed:

Loss and loss adjustment expenses excluding the effect of catastrophes

52,737

72,682

(19,945 )

(27.4 )%

23,156

21,971

1,185

5.4 %
Losses from catastrophes, tropical storm Isaias (1)(2)

17,358

-

17,358

na
%
Losses from catastrophes, all others (1)

3,049

7,755

(4,706 )

(60.7 )%
Losses from catastrophes (1)

229

281

(52 )

(18.5 )%
Total direct and assumed loss and loss adjustment expenses

73,144

80,437

(7,293 )

(9.1 )%

23,385

22,252

1,133

5.1 %

Ceded loss and loss adjustment expenses:

Loss and loss adjustment expenses excluding the effect of catastrophes

13,794

8,041

5,753

71.5 %

824

5,784

(4,960 )

(85.8 )%
Losses from catastrophes, tropical storm Isaias (1)(2)

9,233

-

9,233

na
%
Losses from catastrophes, all others (1)

800

808

(8 )

(1.0 )
Losses from catastrophes (1)

-

83

(83 )

(100.0 )%
Total ceded loss and loss adjustment expenses

23,827

8,849

14,978

169.3 %

824

5,867

(5,043 )

(86.0 )%

Net loss and loss adjustment expenses:

Loss and loss adjustment expenses excluding the effect of catastrophes

38,943

64,641

(25,698 )

(39.8 )%

22,332

16,187

6,145

38.0 %
Losses from catastrophes, tropical storm Isaias (1)(2)

8,125

-

8,125

na
%
Losses from catastrophes, all others (1)

2,249

6,947

(4,698 )

(67.6 )%
Losses from catastrophes (1)

229

198

31

15.7 %
Net loss and loss adjustment expenses

49,317

71,588

(22,271 )

(31.1 )%

22,561

16,385

6,176

37.7 %

Commission expense

23,653

21,866

1,787

8.2 %

8,223

7,856

367

4.7 %
Other underwriting expenses

19,434

17,983

1,451

8.1 %

6,467

6,762

(295 )

(4.4 )%
Other operating expenses

3,364

2,647

717

27.1 %

1,352

1,237

115

9.3 %
Depreciation and amortization

2,070

1,876

194

10.3 %

822

687

135

19.7 %
Interest expense

1,370

1,370

-

-
%

457

457

-

-
%
Total expenses

99,209

117,330

(18,122 )

(15.4 )%

39,883

33,384

6,498

19.5 %

Loss before taxes

(3,443 )

(9,419 )

5,976

63.4 %

(379 )

(7,130 )

6,751

94.7 %
Income tax benefit

(1,379 )

(1,998 )

619

31.0 %

(68 )

(1,686 )

1,618

96.0 %
Net loss

$ (2,064 )

$ (7,421 )

$ 5,357

72.2 %

$ (311 )

$ (5,444 )

$ 5,133

94.3 %

(1)
The ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ include catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers.
~~(2)~~
~~The nine months ended September 30, 2020 includes catastrophe losses from tropical storm Isaias, which has been designated PCS Storm 2044.~~

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Nine months ended September 30,

Three months ended March 31,

2020

2019

Percentage
Point Change

Percent
Change

2021

2020

Percentage Point Change

Percent Change

Key ratios:

Net loss ratio

60.8 %

75.3 %

(14.5 )

(19.3 )%

65.2 %

60.8 %

4.4

7.2 %
Net underwriting expense ratio

38.9 %

37.8 %

1.1

2.9 %

42.0 %

39.1 %

2.9

7.4 %
Net combined ratio

99.7 %

113.1 %

(13.4 )

(11.8 )%

107.2 %

99.9 %

7.3

7.3 %

Direct Written Premiums

Direct written premiums during the ~~nine~~three months ended ~~September 30,~~March 31, 2021 (“Three Months 2021”) were $38,129,000 compared to $36,697,000 during the three months ended March 31, 2020 (“~~Nine~~Three Months 2020”~~) were $125,090,000 compared to $128,333,000 during the nine months ended September 30, 2019 (“Nine Months 2019”~~). The ~~decrease~~increase of ~~$3,243,000,~~$1,432,000, or ~~2.5%~~3.9%, was primarily due ~~to the decrease~~an increase in premiums from our ~~commercial~~personal lines ~~business as result of our decision in July 2019 to no longer underwrite this line of~~ business. Direct written premiums from our personal lines business for ~~Nine~~Three Months ~~2020~~2021 were ~~$119,598,000,~~$36,158,000, an increase of ~~$10,455,000,~~$1,724,000, or ~~9.6%~~5.0%, from ~~$109,143,000~~$34,435,000 in ~~Nine~~Three Months ~~2019.~~2020.

Beginning in 2017 we started writing homeowners policies in New Jersey. Through 2019 we expanded to Rhode Island, Massachusetts and Connecticut. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were ~~$24,293,000~~$10,569,000 in ~~Nine~~Three Months ~~2020, an increase of $7,393,000, or 43.7%.~~2021 compared to ~~$16,900,000~~$6,335,000 in ~~Nine~~Three Months ~~2019~~2020. Direct written premiums from our Core business were $27,560,000 in Three Months 2021 compared to $30,362,000 in Three Months 2020.

Net Written Premiums and Net Premiums Earned

~~Through June 30, 2019, our quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis.~~ Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December ~~31,~~30, 2020 (“2019/2020 Treaty”). ~~Our~~Effective December 31, 2020, the 2019/2020 Treaty expired on a cut off basis; this treaty was not renewed. In addition to the 2019/2020 Treaty, our personal lines quota share reinsurance treaty in effect for ~~Nine~~Three Months 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 ~~was covered through~~Treaty”) that expired on June 30, ~~2019 (together with~~2019. The run-off covered the ~~run-off period) under a treaty covering a two-year~~ period from July 1, ~~2017~~2019 through June 30, ~~2019~~2020 (“2017/2019 Treaty”). The treaty in effect during Nine Months 2019 was covered through June 30, 2019 (together with the run-off period) under the July 1, 2018 through June 30, 2019 treaty year (“2018/2019 Treaty Year”2019/2020 Run-Off”). The following table describes the quota share reinsurance ceding rates in effect ~~for each treaty year~~ during ~~Nine~~Three Months ~~2020~~2021 and ~~Nine~~Three Months ~~2019 under the 2019/2020 Treaty and the 2017/2019 Treaty, respectively.~~2020. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.

~~Nine~~Three months ended ~~September 30,~~March 31,
2021
2020
~~2019~~
~~("2019/2020~~
~~Treaty")~~
~~("2018/2019~~
~~Treaty Year")~~

Quota share reinsurance rates

Personal lines
~~25% (2)~~

~~10%~~
2019/2020 Treaty
n/a
25% (1)
2018/2019 Treaty
n/a
10 % (2)

(1)
The ~~2018/2019~~2019/2020 Treaty ~~Year, covered under the 2017/2019 Treaty, expired on a run-off basis~~was effective ~~July 1,~~from December 15, 2019 through ~~June~~December 30, 2020 ~~(the “2019 Run-off”)~~with a quota share reinsurance rate of 25%.

(2)
The ~~2019/2020~~2018/2019 Treaty ~~was effective December 15, 2019 with~~expired on a ~~quota share reinsurance rate of 25%.~~
~~See “Reinsurance” below for changes to our personal lines quota share treaty effective December 15, 2019, and~~run-off basis from July 1, 2019 ~~and 2018.~~through June 30, 2020.

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Net written premiums ~~decreased $26,144,000,~~increased $7,608,000, or ~~24.39%~~32.8%, to ~~$81,276,000~~$30,799,000 in ~~Nine~~Three Months ~~2020~~2021 from ~~$107,420,000~~$23,191,000 in ~~Nine~~Three Months ~~2019.~~2020. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). The ~~decrease~~increase in net written premiums in ~~Nine~~Three Months ~~2020~~2021 was attributable to the ~~inception~~expiration of the 2019/2020 Treaty on December ~~15, 2019 and the decrease in commercial lines premiums, which are not subject to~~30, 2020 on a ~~quota share treaty.~~cut-off basis (see table above). In ~~Nine~~Three Months ~~2020,~~2021, our premiums ceded under quota share treaties ~~increased~~decreased by ~~$18,452,000 over the comparable~~$6,960,000 in comparison to ceded premiums in ~~Nine~~Three Months ~~2019.~~2020. Our personal lines business was subject to the ~~2017/~~2019/2020 Treaty from December 15, 2019 ~~Treaty under~~through December 30, 2020. Our personal lines business was subject to the 2018/2019 Treaty ~~Year~~ through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force ~~will continue~~continued to be ceded under the 10% quota share rate until such policies ~~expire~~expired (run-off) over the next year. The ~~2019 Run-off~~2019/2020 run-off period iswas from July 1, 2019 through June 30, 2020 and there was no return of unearned premiums under this arrangement.

Excess of loss reinsurance treaties

An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In ~~Nine~~Three Months ~~2020,~~2021, our ceded excess of loss reinsurance premiums increased by ~~$263,000 over the comparable ceded premiums for Nine Months 2019. The increase was due to an increase in premiums subject to excess of loss reinsurance.~~
~~Catastrophe reinsurance treaties~~
Most of the premiums written under our personal lines policies are also subject to our catastrophe treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaties provided that reinsurance rates are stable or are increasing. In Nine Months 2020, our premiums ceded under catastrophe treaties increased by $4,185,000 over the comparable ceded premiums in Nine Months 2019. The change was due to an increase in our catastrophe limit purchased, an increase in premiums subject to catastrophe reinsurance due to continued growth of our personal lines business, and an increase in reinsurance rates effective July 1, 2019. Through June 30, 2020, our ceded catastrophe premiums were paid based on the total direct written premiums subject to the catastrophe reinsurance treaty. Effective July 1, 2020, and continuing through June 30, 2021, our ceded catastrophe premiums will be paid based on the total insured value of our risks calculated as of August 31, 2021.
~~Net premiums earned~~
Net premiums earned decreased $13,918,000, or 14.6%, to $81,099,000 in Nine Months 2020 from $95,017,000 in Nine Months 2019. The decrease was due to the inception of the 2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share treaty.
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~~Table of Contents~~
~~Ceding Commission Revenue~~
~~The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:~~

Nine months ended September 30,

($ in thousands)

2020

2019

Change

Percent

Provisional ceding commissions earned

$ 10,622

$ 4,001

$ 6,621

165.5 %

Contingent ceding commissions earned

Contingent ceding commissions earned excluding

the effect of catastrophes

138

(1,018 )

1,156

n/a

Effect of catastrophes on ceding commissions earned

-

-

-

n/a

Contingent ceding commissions earned

138

(1,018 )

1,156

n/a

Total ceding commission revenue

$ 10,760

$ 2,983

$ 7,777

260.7 %
Ceding commission revenue was $10,760,000 in Nine Months 2020 compared to $2,983,000 in Nine Months 2019. The increase of $7,777,000, or 260.7%, was due to an increase in both provisional ceding commissions earned and contingent ceding commissions earned. The increase in provisional ceding commissions occurred due to the increase in quota share reinsurance rates effective December 15, 2019 (see below for discussion of provisional ceding commissions earned and contingent ceding commissions earned).
~~Provisional Ceding Commissions Earned~~
We receive a provisional ceding commission based on ceded written premiums. The $6,621,000 increase in provisional ceding commissions earned is primarily due to the increase in the quota share ceding rate effective December 15, 2019 to 25%, from the 10% rate in effect in Nine Months 2019. There was an increase in ceded premiums in Nine Months 2020 available from which to earn ceding commissions compared to Nine Months 2019 due to the changes in quota share ceding rates, the elimination of the 10% quota share treaty on effective July 1, 2019, and an increase in personal lines direct written premiums subject to the quota share.
~~Contingent Ceding Commissions Earned~~
The 2019/2020 Treaty and 2017/2019 Treaty structure calls for a higher upfront provisional ceding commission and there is not an opportunity to earn additional contingent ceding commissions under these treaties. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017. Under our prior years’ quota share treaties, we received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive.
~~Net Investment Income~~
Net investment income was $4,772,000 in Nine Months 2020 compared to $5,200,000 in Nine Months 2019, a decrease of $428,000, or 8.2%. The average yield on invested assets was 3.51% as of September 30, 2020 compared to 3.62% as of September 30, 2019.
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~~Table of Contents~~
Cash and invested assets were $220,749,000 as of September 30, 2020 compared to $221,610,000 as of September 30, 2019. The $861,000 decrease in cash and invested assets was primarily attributable to premiums ceded, net of ceding commissions, at the inception of the 2019/2020 Treaty, partially offset by an increase in operating cash flows for the periods after September 30, 2019.
~~Net Gains and Losses on Investments~~
Net losses on investments were $1,639,000 in Nine Months 2020 compared to a net gain of $3,712,000 in Nine Months 2019. Unrealized losses on our equity securities and other investments in Nine Months 2020 were $2,394,000, compared to unrealized gains of $3,767,000 in Nine Months 2019. Realized gains on sales of investments were $275,000 in Nine Months 2020 compared to realized losses of $55,000 in Nine Months 2019. Unrealized losses in Nine Months 2020 were due to the market fluctuations related to the Covid-19 pandemic.
~~Other Income~~
Other income was $773,000 in Nine Months 2020 compared to $999,000 in Nine Months 2019. The decrease of $226,000, or 22.6%, was primarily due to a reduction in fees from our commercial lines business as a result of our decision in July 2019 to no longer write this line of business.
~~Net Loss and LAE~~
Net loss and LAE was $49,317,000 in Nine Months 2020 compared to $71,588,000 in Nine Months 2019. The net loss ratio was 60.8% in Nine Months 2020 compared to 75.3% in Nine Months 2019, an improvement of 14.5 percentage points.
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~~Table of Contents~~
~~The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business:~~
~~(Components may not sum to totals due to rounding)~~
During Nine Months 2020, the loss ratio improved 14.5 points, from 75.3% in Nine Months 2019 to 60.8% in Nine Months 2020. The loss ratio improved due to several factors, including a reduced impact from prior year loss development and an improvement in the core loss ratio driven by reductions in claim frequency affecting both personal lines and livery physical damage. These improvements have offset a higher impact from catastrophe losses in the Nine Months 2020 compared to the prior period, which is mostly related to the impact of Tropical Storm Isaias on August 4, 2020.
Prior year development has been slightly favorable for the Nine Months 2020, with 0.3 points of favorable impact on the overall loss ratio. The favorable loss development for the Nine Months 2020 compares to 11.7 points of unfavorable impact in the Nine Months 2019, which was primarily related to adverse loss development from commercial lines business, now in runoff. The impact of prior year development was 12.0 points more favorable in Nine Months 2020 compared to the prior year period.
The impact of catastrophe losses was greater in Nine Months 2020 when compared to the prior period. In the Nine Months 2020 there was a smaller impact from winter catastrophes events than in 2019; however the impact of Tropical Storm Isaias more than offset the favorable variance from winter catastrophe events. Tropical Storm Isaias resulted in net losses of $8,125,000, or 10.0 points on the 2020 loss ratio, through Nine Months 2020. Ten catastrophe events through Nine Months 2020 had a 12.8 point impact on the loss ratio, as compared to seven catastrophe events with a 7.3 point impact on the loss ratio through Nine Months 2019, or an increase in the impact from catastrophe events of 5.5 points compared to the prior period.
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~~Table of Contents~~
The underlying loss ratio (loss ratio excluding the impact of catastrophes and prior year development) was 48.4% for the Nine Months 2020, a decrease of 7.9 points from the 56.3% underlying loss ratio recorded for Nine Months 2019. The improvement was primarily due to reduced core claim frequency in personal lines and reduced claim frequency in the livery physical damage line. Excluding commercial lines, the underlying loss ratio improved 5.4 points, from 52.5% for Nine Months 2019 to 47.1% for the Nine Months 2020.
~~See table below under “Additional Financial Information” summarizing net loss ratios by line of business.~~
~~Commission Expense~~
Commission expense was $23,653,000 in Nine Months 2020 or 18.6% of direct earned premiums. Commission expense was $21,866,000 in Nine Months 2019 or 18.6% of direct earned premiums. The increase of $1,787,000 is primarily due to the increase in direct earned premiums for Nine Months 2020 as compared to Nine Months 2019.
~~Other Underwriting Expenses~~
Other underwriting expenses were $19,434,000 in Nine Months 2020 compared to $17,983,000 in Nine Months 2019. The increase of $1,451,000, or 8.1%, was primarily due to expenses related to growth in personal lines direct written premiums and salaries. Expenses directly related to the increase in personal lines direct written premiums primarily consist of underwriting expenses, software usage fees, and state premium taxes. Expenses indirectly related to the increase in personal lines direct written premiums primarily consist of salaries along with related other employment costs.
Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $8,177,000 in Nine Months 2020 compared to $7,637,000 in Nine Months 2019. The increase of $540,000, or 7.1%, was less than the 9.6% increase in personal lines direct written premiums. The increase in employment costs was attributable to the hiring of additional highly experienced management and separation payments to terminated employees, offset by staff reductions.
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~~Table of Contents~~
Our net underwriting expense ratio in Nine Months 2020 was 38.9% compared to 37.8% in Nine Months 2019. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

Nine months ended

September 30,

Percentage

2020

2019

Point Change

Other underwriting expenses

Employment costs

10.1 %

8.0 %

2.1

Underwriting fees (inspections/data services)

2.8

2.4

0.4

IT expenses

2.6

1.6

1.0

Other expenses

8.4

6.9

1.5

Total other underwriting expenses

23.9

18.9

5.0

Ceding commission revenue

Provisional

(13.1 )

(4.2 )

(8.9 )
Contingent

(0.2 )

1.1

(1.3 )
Total ceding commission revenue

(13.3 )

(3.1 )

(10.2 )

Other income

(0.9 )

(1.0 )

0.1

Commission expense

29.2

23.0

6.2

Net underwriting expense ratio

38.9 %

37.8 %

1.1

The overall 10.2 percentage point increase in the benefit from provisional ceding commissions was driven entirely by the change in our quota share ceding rates and its impact on provisional ceding commission revenue due to less retention beginning with the inception of the 2019/2020 Treaty on December 15, 2019, resulting in an increase in provisional ceding commissions. The components of our net underwriting expense ratio related to other underwriting expenses, other income and commissions increased in all categories due to less retention beginning with the inception of 2019/2020 Treaty on December 15, 2019, resulting in an overall 1.1 percentage point increase in the net underwriting expense ratio.
~~Other Operating Expenses~~
Other operating expenses, related to the expenses of our holding company and Cosi, were $3,364,000 for Nine Months 2020 compared to $2,647,000 for Nine Months 2019. The increase in Nine Months 2020 of $717,000, or 27.1%, as compared to Nine Months 2019 was primarily due to increases in equity compensation and executive bonus compensation. The increase in equity compensation was due to an annual restricted stock award pursuant to the employment agreement with Barry B. Goldstein, our Chief Executive Officer. In Nine Months 2019, executive bonus compensation was accrued pursuant to the employment agreement effective January 1, 2017 with Mr. Goldstein. The bonus is a one-time payment computed at the end of the three-year period ended December 31, 2019, and as of September 30, 2019 the three-year computation did not meet the required terms of profitability, resulting in the reversal of $698,000 previously accrued. There was no accrual for bonus in Nine Months 2020.
~~Depreciation and Amortization~~
Depreciation and amortization was $2,070,000 in Nine Months 2020 compared to $1,876,000 in Nine Months 2019. The increase of $194,000, or 10.3%, in depreciation and amortization was primarily due to depreciation of our new systems platform for handling business being written in Expansion states, newly purchased assets used to upgrade our systems infrastructure and improvements to the Kingston, New York home office building from which we operate.
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~~Table of Contents~~
~~Interest Expense~~
~~Interest expense was $1,370,000 for both Nine Months 2020 and Nine Months 2019. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017.~~
~~Income Tax Benefit~~
Income tax benefit in Nine Months 2020 was $1,379,000, which resulted in an effective tax benefit rate of 40.1%. Income tax benefit in Nine Months 2019 was $1,998,000, which resulted in an effective tax benefit rate of 21.2%. Loss before taxes was $3,443,000 in Nine Months 2020 compared to loss before taxes of $9,419,000 in Nine Months 2019. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. We elected on our 2019 federal income tax return to carry back the 2019 NOL of $7,222,000 to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019.
~~Net Loss~~
Net loss was $2,064,000 in Nine Months 2020 compared to net loss of $7,421,000 in Nine Months 2019. The decrease in net loss of $5,357,000 was due to the circumstances described above, which caused the decrease in our net loss ratio, increase in ceding commission revenue and other income, partially offset by the decrease in our net premiums earned, and increases in net losses on investments, other underwriting and operating expenses, and depreciation and amortization.
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~~Table of Contents~~
~~Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019~~
            ~~The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:~~

Three months ended September 30,

($ in thousands)

2020

2019

Change

Percent

Revenues

Direct written premiums

$ 45,743

$ 46,023

$ (280 )

(0.6 )%
Assumed written premiums

-

1

(1 )

n/a
%

45,743

46,024

(281 )

(0.6 )%
Ceded written premiums

Ceded to quota share treaties

8,962

147

8,815

5,996.6 %
Ceded to excess of loss treaties

535

386

149

38.6 %
Ceded to catastrophe treaties

6,251

5,053

1,198

23.7 %
Total ceded written premiums

15,748

5,586

10,162

181.9 %

Net written premiums

29,995

40,438

(10,443 )

(25.8 )%

Change in unearned premiums

Direct and assumed

(3,161 )

(4,581 )

1,420

31.0 %
Ceded to quota share treaties

688

(1,637 )

2,325

n/a
%
Change in net unearned premiums

(2,473 )

(6,218 )

3,745

60.2 %

Premiums earned

Direct and assumed

42,581

41,443

1,138

2.7 %
Ceded to reinsurance treaties

(15,060 )

(7,223 )

(7,837 )

(108.5 )%
Net premiums earned

27,521

34,220

(6,699 )

(19.6 )%

Ceding commission revenue

3,449

1,030

2,419

234.9 %
Net investment income

1,494

1,857

(363 )

(19.5 )%
Net gains on investments

2,107

998

1,109

111.1 %
Other income

251

343

(92 )

(26.8 )%
Total revenues

34,822

38,448

(3,626 )

(9.4 )%
Expenses

Loss and loss adjustment expenses

Direct and assumed:

Loss and loss adjustment expenses excluding the effect of catastrophes

15,656

26,518

(10,862 )

(41.0 )%
Losses from catastrophes, tropical storm Isaias (1)(2)

17,358

-

17,358

n/a
%
Losses from catastrophes, all others (1)

711

491

220

44.8 %
Total direct and assumed loss and loss adjustment expenses

33,725

27,009

6,716

24.9 %

Ceded loss and loss adjustment expenses:

Loss and loss adjustment expenses excluding the effect of catastrophes

4,202

2,182

2,020

92.6 %
Losses from catastrophes, tropical storm Isaias (1)(2)

9,233

-

9,233

n/a
%
Losses from catastrophes, all others (1)

172

45

127

282.2 %
Total ceded loss and loss adjustment expenses

13,607

2,227

11,380

511.0 %

Net loss and loss adjustment expenses:

Loss and loss adjustment expenses excluding the effect of catastrophes

11,454

24,335

(12,881 )

(52.9 )%
Losses from catastrophes, tropical storm Isaias (1)(2)

8,125

-

8,125

n/a
%
Losses from catastrophes, all others (1)

539

446

93

20.9 %
Net loss and loss adjustment expenses

20,118

24,781

(4,663 )

(18.8 )%

Commission expense

8,036

7,723

313

4.1 %
Other underwriting expenses

6,347

6,431

(84 )

(1.3 )%
Other operating expenses

1,038

610

428

70.2 %
Depreciation and amortization

710

646

64

9.9 %
Interest expense

457

457

-

-
%
Total expenses

36,706

40,648

(3,942 )

(9.7 )%

Loss before taxes

(1,884 )

(2,200 )

316

14.4 %
Income tax benefit

(655 )

(475 )

(180 )

(37.9 )%
Net loss

$ (1,229 )

$ (1,725 )

$ 496

28.8 %
~~(1)~~
The three months ended September 30, 2020 and 2019 include catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers.
~~(2)~~
~~The three months ended September 30, 2020 includes catastrophe losses from tropical storm Isaias, which has been designated PCS Storm 2044.~~
51
~~Table of Contents~~

Three months ended September 30,

2020

2019

Percentage
Point Change

Percent
Change

Key ratios:

Net loss ratio

73.1 %

72.4 %

0.7

1.0 %
Net underwriting expense ratio

38.8 %

37.4 %

1.4

3.7 %
Net combined ratio

111.9 %

109.8 %

2.1

1.9 %
~~Direct Written Premiums~~
Direct written premiums during the three months ended September 30, 2020 (“Three Months 2020”) were $45,743,000 compared to $46,023,000 during the three months ended September 30, 2019 (“Three Months 2019”). The decrease of $280,000, or 0.6%, was primarily due to the decrease in premiums from our commercial lines business as result of our decision in July 2019 to no longer underwrite this line of business. Direct written premiums from our personal lines business for Three Months 2020 were $43,641,000, an increase of $2,644,000, or 6.4%, from $40,996,000 in Three Months 2019.
            Beginning in 2017 we started writing homeowners policies in New Jersey. Through 2019 we expanded to Rhode Island, Massachusetts and Connecticut. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were $9,197,000 in Three Months 2020 compared to $7,371,000 in Three Months 2019.
~~Net Written Premiums and Net Premiums Earned~~
Through June 30, 2019, our quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis. Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December 31, 2020 (“2019/2020 Treaty”). Our personal lines quota share run-off reinsurance treaty in effect for Three Months 2019 was covered under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017/2019 Treaty”). The run-off treaty in effect during Three Months 2019 was covered under the July 1, 2018 through June 30, 2019 treaty year (“2018/2019 Treaty Year”). The following table describes the quota share reinsurance ceding rates in effect for each treaty year during Three Months 2020 and Three Months 2019 under the 2019/2020 Treaty and the 2017/2019 Treaty, respectively. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.
~~Three months ended September 30,~~
~~2020~~
~~2019~~
~~("2019/2020~~
~~Treaty")~~
~~("2018/2019~~
~~Treaty Year")~~
~~Quota share reinsurance rates~~
~~Personal lines~~
~~25% (2)~~
~~10% (1)~~
~~(1)~~
~~The 2018/2019 Treaty Year, covered under the 2017/2019 Treaty, expired on a run-off basis effective July 1, 2019 through June 30, 2020 (the “2019 Run-off”).~~
~~(2)~~
~~The 2019/2020 Treaty was effective December 15, 2019 with a quota share reinsurance rate of 25%.~~
~~See “Reinsurance” below for changes to our personal lines quota share treaty effective December 15, 2019, and July 1, 2019 and 2018.~~
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~~Table of Contents~~
Net written premiums decreased $10,443,000, or 25.8%, to $29,995,000 in Three Months 2020 from $40,438,000 in Three Months 2019. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). The decrease in net written premiums in Three Months 2020 was attributable to the inception of the 2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share treaty. In Three Months 2020, our premiums ceded under quota share treaties increased by $8,815,000 over the comparable ceded premiums in Three Months 2019. Our personal lines business was subject to the 2017/2019 Treaty under the 2018/2019 Treaty Year through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force will continue to be ceded under the 10% quota share rate until such policies expire (run-off) over the next year. The 2019 Run-off period is from July 1, 2019 through June 30, 2020 and there was no return of unearned premiums under this arrangement.
~~Excess of loss reinsurance treaties~~
~~An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In Three Months 2020, our ceded excess of loss reinsurance premiums increased by $149,000~~$29,000 over the comparable ceded premiums for Three Months ~~2019.~~2020. The increase was due to an increase in premiums subject to excess of loss reinsurance.

Catastrophe reinsurance treaties

Most of the premiums written under our personal lines policies are also subject to our catastrophe treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaties provided that reinsurance rates are stable or are increasing. In Three Months ~~2020,~~2021, our premiums ceded under catastrophe treaties increased by ~~$1,198,000~~$755,000 over the comparable ceded premiums in Three Months ~~2019.~~2020. The change was due to an increase in reinsurance rates effective July 1, ~~2019,~~2020, partially offset by a decrease in our ~~catastrophe~~ limit ~~purchased~~effective July 1, 2020. Through June 30, 2020, our ceded catastrophe premiums ~~are~~were paid based on the total direct written premiums subject to the catastrophe reinsurance treaty. Effective July 1, 2020, and continuing through June 30, 2021, our ceded catastrophe premiums will be paid based on the total insured value of our risks calculated as of August 31, 2021.

Net premiums earned

Net premiums earned ~~decreased $6,699,000,~~increased $7,648,000, or ~~19.6%~~28.4%, to ~~$27,521,000~~$34,589,000 in Three Months ~~2020~~2021 from ~~$34,220,000~~$26,941,000 in Three Months ~~2019.~~2020. The ~~decrease~~increase was due to the ~~inception~~expiration ofboth the 2019/2020 Treaty on December ~~15, 2019~~30, 2020 on a cut-off basis and the ~~decrease in commercial lines premiums, which are not subject to a quota share treaty.~~2019/2020 Run-Off as of June 30, 2020.

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Ceding Commission Revenue

The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:

Three months ended September 30,

Three Months ended March 31,

($ in thousands)

2020

2019

Change

Percent

2021

2020

Change

Percent

Provisional ceding commissions earned

$ 3,461

$ 1,320

$ 2,141

162.2 %

$ 45

$ 3,720

$ (3,675 )

(98.8 )%

Contingent ceding commissions earned

Contingent ceding commissions earned excluding

the effect of catastrophes

(12 )

(290 )

278

n/a

Effect of catastrophes on ceding commissions earned

-

-

-

n/a

Contingent ceding commissions earned

(12 )

(290 )

278

n/a%

(46 )

111

(157 )

n/a

Total ceding commission revenue

$ 3,449

$ 1,030

$ 2,419

234.9 %

$ (1 )

$ 3,831

$ (3,832 )

n/a
%

Ceding commission revenue was ~~$3,449,000~~$(1,000) in Three Months ~~2020~~2021 compared to ~~$1,030,000~~$3,831,000 in Three Months ~~2019.~~2020. The ~~increase~~decrease of ~~$2,419,000, or 234.9%,~~$3,832,000 was due to ~~an increase~~a decrease in both provisional ceding commissions earned and contingent ceding commissions earned. ~~The increase in provisional ceding commissions occurred due to the increase in quota share reinsurance rates effective December 15, 2019 (see~~See below for discussion of provisional ceding commissions earned and contingent ceding commissions ~~earned).~~earned.

Provisional Ceding Commissions Earned

~~We receive~~Through December 30, 2020, we received a provisional ceding commission based on ceded written premiums. The ~~$2,141,000 increase~~$3,675,000 decrease in provisional ceding commissions earned ~~is primarily~~was due to the ~~increase in~~expiration of both the ~~quota share ceding rate effective~~2019/2020 Treaty on December ~~15, 2019 to 25%, from~~30, 2020 on a cut-off basis and the ~~10% rate in effect in Three Months 2019. There was an increase in ceded premiums in Three Months~~ 2019/2020 ~~available from which to earn ceding commissions compared to Three Months 2019 due to the changes in quota share ceding rates, the elimination~~Run-Off as of ~~the 10% quota share treaty effective July 1, 2019, and an increase in personal lines direct written premiums subject to the quota share.~~June 30, 2020.

Contingent Ceding Commissions Earned

The structure of the 2019/2020 Treaty and ~~2017/2019 Treaty structure calls~~2019/2020 Run-Off called for a higher upfront provisional ceding commission and there iswas not an opportunity to earn additional contingent ceding commissions under ~~these~~those treaties. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017. Under our prior years’ quota share treaties, we received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive.

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~~Table of Contents~~
Net Investment Income

Net investment income was ~~$1,494,000~~$1,783,000 in Three Months 2021 compared to $1,666,000 in Three Months 2020, ~~compared to $1,856,000 in Three Months 2019, a decrease~~an increase of ~~$362,000,~~$117,000, or ~~19.5%~~7.0%. The average yield on invested assets was ~~3.51%~~3.52% as of ~~September 30, 2020~~March 31, 2021 compared to ~~3.62%~~3.77% as of ~~September 30, 2019.~~March 31, 2020.

Cash and invested assets were ~~$220,749,000~~$220,726,000 as of ~~September 30, 2020~~March 31, 2021 compared to ~~$221,610,000~~$201,649,000 as of ~~September 30, 2019.~~March 31, 2020. The ~~$861,000 decrease~~$19,077,000 increase in cash and invested assets was primarily attributable to the return of premiums ceded, net of ceding commissions, at the ~~inception~~expiration of the 2019/2020 Treaty ~~partially offset~~and by an increase in ~~operating cash flows for~~unrealized gains during the periods after ~~September 30, 2019.~~March 31, 2020.

Net Gains and Losses on Investments

Net gains on investments were ~~$2,107,000~~$2,960,000 in Three Months ~~2020~~2021 compared to ~~$998,000~~net losses of $6,444,000 in Three Months ~~2019.~~2020. Unrealized gains on our equity securities and other investments in Three Months ~~2020~~2021 were ~~$1,501,000,~~$1,833,000, compared to unrealized ~~gains~~losses of ~~$1,006,000~~$6,719,000 in Three Months ~~2019.~~2020. Realized gains on sales of investments were ~~$597,000~~$1,127,000 in Three Months ~~2020~~2021 compared to ~~loss~~a gain of ~~$8,000~~$275,000 in Three Months ~~2019.~~2020.
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Table of Contents

Other Income

Other income was ~~$251,000~~$172,000 in Three Months ~~2020~~2021 compared to ~~$343,000~~$260,000 in Three Months ~~2019.~~2020. The decrease of ~~$92,000,~~$88,000, or ~~44.0%~~33.8%, was primarily due to ~~a reduction~~the elimination of fees in our commercial lines business asthat was in run-off in Three Months 2020, a result of our decision in July 2019 to no longer underwrite this line of business.

Net Loss and LAE

Net loss and LAE was ~~$20,118,000 in~~$22,561,000 for Three Months ~~2020~~2021 compared to ~~$24,781,000 in~~$16,385,000 for Three Months ~~2019.~~2020. The net loss ratio was ~~75.1%~~65.2% in Three Months 2021 compared to 60.8% in Three Months 2020, ~~compared to 72.4% in Three Months 2019,~~ an increase of ~~0.7~~4.4 percentage points.
55
~~Table of Contents~~

The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business:

(Components may not sum to totals due to rounding)

During Three Months ~~2020,~~2021, the loss ratio ~~increased 0.7 points, from 72.4%~~was higher than Three Months 2020 mainly due to a higher frequency of non-weather water damage property claims as well as large fire losses. Although there were more water claims reported in Three Months ~~2019 to 73.1% in Three Months 2020. The loss ratio increased due~~2021 compared to the ~~impact of catastrophe events, primarily related to Tropical Storm Isaias on August 4, 2020. Partially offsetting the increased catastrophe losses, there was a large reduction in the impact of~~ prior year period, the observed activity was close to an average winter. There were also two severe fire claims reported during Three Month 2021. The combination of the two added approximately 4 points to the loss ~~development compared the same period in the prior year.~~ratio.

The impact of ~~catastrophe losses was significant in~~catastrophes, similar to Three Months 2020, ~~when compared to~~was low for Three Months 2019. In the Three Months 2020, Tropical Storm Isaias resulted in over 1,700 reported claims and direct losses exceeded our catastrophe reinsurance retention of $10 million. After quota share reinsurance, the net impact of Isaias is $8.125M, or2021 due to a ~~29.5 point impact on the quarterly loss ratio.~~mild winter season this year. There were ~~several smaller~~only three minor winter events classified as a catastrophe ~~events during the quarter, and in total the impact of~~this quarter. The estimated net catastrophe ~~events on~~losses were $229,000, which contributed 0.7 point to the loss ratio was 31.5 points for the quarter. This compares to a 1.3 point impact from catastrophe events in Three Months 2019, or an increase in the impact from catastrophe events of 30.2 points compared to the prior period.ratio.


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Prior year development ~~was slightly favorable in Three Months 2020, with a 0.4 point favorable impact~~continued to ~~the overall loss ratio. This was the fourth consecutive quarter of~~be stable ~~prior year loss development. The favorable loss development~~ for Three Months ~~2020 compares to 14.7 points~~2021; there was an overall favorable development of ~~unfavorable~~$11,000, which had marginal impact in Three Months 2019. Prior year loss development in Three Months 2019 was driven by the completion of reserve adjustments for commercial lines business, which is now in runoff. As of the end of Three Months 2020, there are now 189 open commercial lines claims, down from 205 claims that were open at June 30, 2020. The impact of prior year development was 15.1 points more favorable in Three Months 2020 compared to the prior year period.
The underlying loss ratio (loss ratio excluding the impact of catastrophes and prior year development) was 42.0% for Three Months 2020, a decrease of 14.4 points from the 56.4% underlying loss ratio recorded for Three Months 2019. The improvement was primarily due to reduced claim severity in personal lines, driven by a much lower impact from large fire claims in Three Months 2020 compared to the prior period. Claim frequency in the livery physical damage line also continued to show significant improvement over the prior year period. The impact of commercial lines on the ~~overall~~ loss ratio continues to decline due to a smaller open claims inventory and a smaller proportion of net earned premium attributable to commercial lines.   Excluding commercial lines, the underlying loss ratio improved 8.9 points, from 51.4% for Three Months 2019 to 42.5% for Three Months 2020.ratio.

See table below under “Additional Financial Information” summarizing net loss ratios by line of business.

Commission Expense

Commission expense was ~~$8,036,000~~$8,223,000 in Three Months ~~2020~~2021 or ~~18.9%~~19.6% of direct earned premiums. Commission expense was ~~$7,723,000~~$7,856,000 in Three Months ~~2019~~2020 or ~~18.6%~~18.4% of direct earned premiums. The increase of ~~$313,000~~$367,000 is primarily due to ~~the~~an increase in ~~direct earned premiums~~the estimate for annual contingent commissions for Three Months ~~2020~~2021 as compared to Three Months ~~2019.~~2020.

Other Underwriting Expenses

Other underwriting expenses were ~~$6,347,000~~$6,467,000 in Three Months ~~2020~~2021 compared to ~~$6,431,000~~$6,762,000 in Three Months ~~2019.~~2020. The decrease of ~~$84,000,~~$295,000, or ~~1.3%~~4.4%, was primarily due to an initiative to reduce expenses ~~and a reduction in bad debts.~~with the use of technology.

Our largest single component of other underwriting expenses is salaries and employment costs, with costs of ~~$2,835,000~~$2,539,000 in Three Months ~~2020~~2021 compared to ~~$2,737,000~~$2,740,000 in Three Months ~~2019.~~2020. The ~~increase~~decrease of ~~$97,000,~~$202,000, or ~~3.5%~~7.4%, was less than the ~~6.4%~~5% increase in personal lines direct written premiums. The ~~increase~~decrease in employment costs was attributable to ~~the hiring of additional highly experienced management and separation payments to terminated employees, offset by~~ staff reductions.
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~~Table of Contents~~

Our net underwriting expense ratio in Three Months ~~2020~~2021 was ~~37.4%~~42.0% compared to ~~37.5%~~39.1% in Three Months ~~2019.~~2020. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

Three months ended

Three months ended

September 30,

Percentage

March 31,

Percentage

2020

2019

Point Change

2021

2020

Point Change

Other underwriting expenses

Employment costs

10.3 %

8.0 %

2.3

7.3 %

10.2
%

(2.9
)
Underwriting fees (inspections/data services)

2.4

2.3

0.1

1.4

3.1

(1.7 )
IT expenses

2.7

1.7

1.0

3.0

2.4

Other expenses

7.7

6.9

0.8

7.0

9.3

(2.3 )
Total other underwriting expenses

23.1

18.9

4.2

18.7

25.0

(6.3 )

Commission expense

23.8

29.2

(5.4 )

Ceding commission revenue

Provisional

(12.6 )

(3.9 )

(8.7 )

(0.1 )

(13.8 )

13.7

Contingent

-

0.8

(0.8 )

0.1

(0.4 )

0.5

Total ceding commission revenue

(12.6 )

(3.1 )

(9.5 )

-

(14.2 )

14.2

Other income

(0.9 )

(1.0 )

0.1

(0.5 )

(0.9 )

0.4

Commission expense

29.2

22.6

6.6

Net underwriting expense ratio

38.8 %

37.4 %

1.4

42.0 %

39.1
%

2.9

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Table of Contents

The overall ~~9.5~~14.2 percentage point ~~increase~~decrease in the benefit from ~~provisional~~ ceding commissions was driven ~~entirely~~ by the ~~change~~reduction in ~~our quota share ceding rates and its impact on~~ provisional ceding commission revenue due to ~~less retention beginning with~~ the ~~inception~~expiration of the 2019/2020 Treaty on December ~~15, 2019, resulting in an increase in provisional ceding commissions.~~30, 2020. The components of our net underwriting expense ratio related to other underwriting expenses ~~other income~~ and commissions ~~increased~~decreased in all categories due to ~~less~~more retention ~~beginning with~~after the ~~inception~~expiration of the 2019/2020 Treaty on December ~~15, 2019,~~30 2020, resulting in an ~~overall 1.4~~11.7 percentage point ~~increase~~decrease in these components of the net underwriting expense ratio.

Other Operating Expenses

Other operating expenses, related to the expenses of our holding company and Cosi, were ~~$1,038,000~~$1,352,000 for Three Months ~~2020~~2021 compared to ~~$610,000~~$1,237,000 for Three Months ~~2019.~~2020. The increase in Three Months ~~2020~~2021 of ~~$428,000,~~$115,000, or ~~70.2%~~9.3%, as compared to Three Months ~~2019~~2020 was primarily due to an increase in ~~executive bonus compensation. In 2019, executive bonus~~employment costs due to fluctuations in deferred compensation ~~was accrued~~liability related to changes in the underlying invested portfolio and compensation paid pursuant to a relinquishment agreement with Dale A. Thatcher, our former Chef Executive Officer (see Note 11 to the condensed consolidated financial statements). The increase in employment ~~agreement effective January 1, 2017 with Barry B. Goldstein, our Chief Executive Officer. The bonus is~~costs was partially offset by a one-time payment computed at the end of the three-year period ended December 31, 2019, and as of September 30, 2019 the three-year computation did not meet the required terms of profitability, resultingdecrease in ~~the reversal of $698,000 previously accrued. There was no accrual for bonus in Three Months 2020.~~professional fees.
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Depreciation and Amortization

Depreciation and amortization was ~~$710,000~~$822,000 in Three Months ~~2020~~2021 compared to ~~$646,000~~$687,000 in Three Months ~~2019.~~2020. The increase of ~~$64,000,~~$135,000, or ~~9.9%~~19.7%, in depreciation and amortization was primarily due to depreciation of ~~our~~ new ~~systems platform~~system platforms for ~~handling business being written in Expansion states,~~policy and claims management and newly purchased assets used to upgrade our ~~systems infrastructure and improvements to the Kingston, New York home office building from which we operate.~~other systems.

Interest Expense

Interest expense was $457,000 for both Three Months ~~2020~~2021 and Three Months ~~2019.~~2020. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017.

Income Tax Expense

Income tax benefit in Three Months ~~2020~~2021 was ~~$656,000,~~$68,000, which resulted in an effective tax expense rate of ~~40.1%~~18.0%. Income tax benefit in Three Months ~~2019~~2020 was ~~$475,000,~~$1,686,000, which resulted in an effective tax expense rate of ~~21.6%~~23.6%. Loss before taxes was ~~$1,884,000~~$379,000 in Three Months ~~2020~~2021 compared to loss before taxes of ~~$2,200,000~~$7,130,000 in Three Months ~~2019.~~2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of ~~2019 NOL’s.~~2020 NOLs. We ~~elected~~will elect on our ~~2019~~2020 federal income tax return to carry back the ~~2019~~entire annual 2020 NOL of ~~$7,222,000~~$5,715,000 to tax ~~years 2014 and~~year 2015. The corporate tax rate in ~~2014 and~~ 2015 was 34%, compared to the corporate tax rate of 21% in ~~2019.~~2020.

Net Loss

Net loss was ~~$1,228,000~~$311,000 in Three Months ~~2020~~2021 compared to ~~net loss of $1,725,000~~$5,444,000 in Three Months ~~2019.~~2020. The decrease in net loss of ~~$497,000~~$5,133,000 was due to the circumstances described above, which caused the ~~decrease~~increases in our net ~~loss ratio, increase in ceding commission revenue, increases in~~premiums earned, net investment income, net gains on investments and ~~other income, and decrease~~decreases in other underwriting expenses, partially offset by the ~~decrease~~increases in ~~our~~ net ~~premiums earned, increase in~~loss ratio, commission expense, other operating expenses, ~~and~~ depreciation and ~~amortization.~~amortization, income tax benefit and a decrease in other income.
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Table of Contents

Additional Financial Information

We operate our business as one segment, property and casualty insurance. Within this segment, we offer an array of property and casualty policies to our producers. The following table summarizes gross and net written premiums, net premiums earned, and net loss and loss adjustment expenses by major product type, which were determined based primarily on similar economic characteristics and risks of loss.

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~~Table of Contents~~

For the Three Months Ended

For the Nine Months Ended

For the Three Months Ended

September 30,

September 30,

March 31,

2020

2019

2020

2019

2021

2020

Gross premiums written:

Personal lines

$ 43,640,603

$ 40,996,459

$ 119,598,207

$ 109,143,415

Personal lines(3)

$ 36,158,493

$ 34,434,836

Livery physical damage

2,045,746

2,590,434

5,466,552

8,199,269

1,903,992

2,314,401

Other(1)

62,664

401,073

192,395

535,950

67,107

74,855

Total without commercial lines

45,749,013

43,987,966

125,257,154

117,878,634

38,129,592

36,824,092

Commercial lines (in run-off effective July 2019)(2)

(6,848 )

2,036,185

(167,583 )

10,455,421

(475 )

(127,163 )
Total gross premiums written

$ 45,742,165

$ 46,024,151

$ 125,089,571

$ 128,334,055

$ 38,129,117

$ 36,696,929

Net premiums written:

Personal lines(3)

$ 27,916,850

$ 35,442,970

$ 76,231,996

$ 89,287,063

$ 28,829,812

$ 21,211,481

Livery physical damage

2,045,746

2,590,434

5,466,552

8,199,269

1,903,992

2,314,401

Other(1)

50,626

410,317

151,784

522,596

66,281

58,579

Total without commercial lines

30,013,222

38,443,721

81,850,332

98,008,928

30,800,085

23,584,461

Commercial lines (in run-off effective July 2019)(2)

(18,271 )

2,004,152

(574,228 )

9,411,053

(475 )

(393,787 )
Total net premiums written

$ 29,994,951

$ 40,447,873

$ 81,276,104

$ 107,419,981

$ 30,799,610

$ 23,190,674

Net premiums earned:

Personal lines(3)

$ 25,220,883

$ 27,487,526

$ 71,434,757

$ 75,737,374

$ 32,765,087

$ 22,599,634

Livery physical damage

2,014,458

2,712,283

6,803,475

7,850,822

1,765,276

2,606,579

Other(1)

49,939

275,324

149,087

392,745

59,330

50,149

Total without commercial lines

27,285,280

30,475,133

78,387,319

83,980,941

34,589,693

25,256,362

Commercial lines (in run-off effective July 2019)(2)

235,801

3,744,877

2,712,068

11,036,237

(475 )

1,685,088

Total net premiums earned

$ 27,521,081

$ 34,220,010

$ 81,099,387

$ 95,017,178

$ 34,589,218

$ 26,941,450

Net loss and loss adjustment expenses(4):

Personal lines

$ 18,657,325

$ 14,389,168

$ 41,810,950

$ 46,666,275

$ 20,756,653

$ 12,514,568

Livery physical damage

648,520

1,395,630

1,798,210

3,816,390

687,412

780,570

Other(1)

29,104

246,811

5,465

573,376

30,349

48,797

Unallocated loss adjustment expenses

827,031

726,778

2,839,359

2,072,570

1,006,281

769,812

Total without commercial lines

20,161,980

16,758,387

46,453,984

53,128,611

22,480,695

14,113,747

Commercial lines (in run-off effective July 2019)(2)

(44,005 )

8,022,931

2,863,443

18,459,239

79,977

2,272,074

Total net loss and loss adjustment expenses

$ 20,117,975

$ 24,781,318

$ 49,317,427

$ 71,587,850

$ 22,560,672

$ 16,385,821

Net loss ratio(4):

Personal lines

74.0 %

52.3 %

58.5 %

61.6 %

63.3 %

55.4 %
Livery physical damage

32.2 %

51.5 %

26.4 %

48.6 %

38.9 %

29.9 %
Other(1)

58.3 %

89.6 %

3.7 %

146.0 %

51.2 %

97.3 %
Total without commercial lines

73.9 %

55.0 %

59.3 %

63.3 %

65.0 %

55.9 %

Commercial lines (in run-off effective July 2019)(2)

-18.7 %

214.2 %

105.6 %

167.3 %

na

134.8 %
Total

73.1 %

72.4 %

60.8 %

75.3 %

65.2 %

60.8 %

(1)
“Other” includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.
(2)
In July 2019, we decided that we will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.
(3)
See discussion above with regard to “Net Written Premiums and Net Premiums Earned”, as to changes in quota share ceding rates, effective December 31, 2020, December 15, 2019 and July 1, ~~2019 and 2018.~~2019.
(4)
See discussion above with regard to “Net Loss and LAE”, as to catastrophe losses in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

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Table of Contents

Insurance Underwriting Business on a Standalone Basis

Our insurance underwriting business reported on a standalone basis for the periods indicated is as follows:

Three months ended

Nine months ended

September 30,

September 30,

Three months ended
March 31,

2020

2019

2020

2019

2021

2020

Revenues

Net premiums earned

$ 27,521,081

$ 34,220,010

$ 81,099,387

$ 95,017,178

$ 34,589,218

$ 26,941,450

Ceding commission revenue

3,448,774

1,029,582

10,760,087

2,982,960

(1,065 )

3,831,099

Net investment income

1,494,086

1,832,523

4,771,316

5,129,947

1,783,196

1,665,393

Net gains (losses) on investments

2,073,245

995,040

(1,580,398 )

3,652,189

2,912,525

(6,309,184 )
Other income

248,824

340,505

754,943

992,097

170,309

244,974

Total revenues

34,786,010

38,417,660

95,805,335

107,774,371

39,454,183

26,373,732

Expenses

Loss and loss adjustment expenses

20,117,975

24,781,318

49,317,427

71,587,850

22,560,672

16,385,821

Commission expense

8,036,298

7,745,174

23,652,765

21,866,420

8,223,839

7,855,927

Other underwriting expenses

6,346,846

6,430,734

19,434,110

17,983,174

6,467,042

6,761,792

Depreciation and amortization

676,989

622,222

1,970,859

1,804,265

788,835

653,902

Total expenses

35,178,108

39,579,448

94,375,161

113,241,709

38,040,388

31,657,442

(Loss) income from operations

(392,098 )

(1,161,788 )

1,430,174

(5,467,338 )
Income tax benefit

(203,922 )

(293,183 )

(24,888 )

(1,251,113 )
Net (loss) income

$ (188,176 )

$ (868,605 )

$ 1,455,062

$ (4,216,225 )
Income (loss) from operations

1,413,795

(5,283,710 )
Income tax expense (benefit)

251,565

(1,207,969 )
Net income (loss)

$ 1,162,230

$ (4,075,741 )

Key Measures:

Net loss ratio

73.1 %

72.4 %

60.8 %

75.3 %

65.2 %

60.8 %
Net underwriting expense ratio

38.8 %

37.4 %

38.9 %

37.8 %

42.0 %

39.1 %
Net combined ratio

111.9 %

109.8 %

99.7 %

113.1 %

107.2 %

99.9 %

Reconciliation of net underwriting expense ratio:

Acquisition costs and other

underwriting expenses

$ 14,383,144

$ 14,175,908

$ 43,086,875

$ 39,849,594

$ 14,690,881

$ 14,617,719

Less: Ceding commission revenue

(3,448,774 )

(1,029,582 )

(10,760,087 )

(2,982,960 )

1,065

(3,831,099 )
Less: Other income

(248,824 )

(340,505 )

(754,943 )

(992,097 )

(170,309 )

(244,974 )
Net underwriting expenses

$ 10,685,546

$ 12,805,821

$ 31,571,845

$ 35,874,537

$ 14,521,637

$ 10,541,646

Net premiums earned

$ 27,521,081

$ 34,220,010

$ 81,099,387

$ 95,017,178

$ 34,589,218

$ 26,941,450

Net Underwriting Expense Ratio

38.8 %

37.4 %

38.9 %

37.8 %

42.0 %

39.1 %

6146
Table of Contents

An analysis of our direct, assumed and ceded earned premiums, loss and loss adjustment expenses, and loss ratios is shown below:

Direct

Assumed

Ceded

Net

Direct

Assumed

Ceded

Net

Nine months ended September 30, 2020

Three months ended March 31, 2021

Written premiums

$ 125,089,571

$ -

$ (43,813,468 )

$ 81,276,103

$ 38,129,117

$ -

$ (7,329,507 )

$ 30,799,610

Change in unearned premiums

2,215,602

-

(2,392,318 )

(176,716 )

3,789,478

-

130

3,789,608

Earned premiums

$ 127,305,173

$ -

$ (46,205,786 )

$ 81,099,387

$ 41,918,595

$ -

$ (7,329,377 )

$ 34,589,218

Loss and loss adjustment expenses exluding

the effect of catastrophes

$ 52,736,775

$ -

$ (13,794,461 )

$ 38,942,314

$ 23,155,733

$ -

$ (823,856 )

$ 22,331,877

Catastrophe loss

20,407,638

-

(10,032,525 )

10,375,113

228,795

-

-

228,795

Loss and loss adjustment expenses

$ 73,144,413

$ -

$ (23,826,986 )

$ 49,317,427

$ 23,384,528

$ -

$ (823,856 )

$ 22,560,672

Loss ratio excluding the effect of catastrophes

41.4 %

n/a

29.9 %

48.0 %

55.2 %

0.0 %

11.2 %

64.6 %
Catastrophe loss

16.0 %

n/a

21.7 %

12.8 %

0.5 %

0.0 %

0.0 %

0.7 %
Loss ratio

57.5 %

n/a

51.6 %

60.8 %

55.8 %

0.0 %

11.2 %

65.2 %

Nine months ended September 30, 2019

Three months ended March 31, 2020

Written premiums

$ 128,333,117

$ 938

$ (20,914,074 )

$ 107,419,981

$ 36,696,929

$ -

$ (13,506,255 )

$ 23,190,674

Change in unearned premiums

(11,035,993 )

(559 )

(1,366,251 )

(12,402,803 )

5,904,700

-

(2,153,924 )

3,750,776

Earned premiums

$ 117,297,124

$ 379

$ (22,280,325 )

$ 95,017,178

$ 42,601,629

$ -

$ (15,660,179 )

$ 26,941,450

Loss and loss adjustment expenses exluding

the effect of catastrophes

$ 72,683,118

$ (917 )

$ (8,041,028 )

$ 64,641,173

$ 21,971,351

$ -

$ (5,783,990 )

$ 16,187,361

Catastrophe loss

7,755,089

-

(808,412 )

6,946,677

281,368

-

(82,908 )

198,460

Loss and loss adjustment expenses

$ 80,438,207

$ (917 )

$ (8,849,440 )

$ 71,587,850

$ 22,252,719

$ -

$ (5,866,898 )

$ 16,385,821

Loss ratio excluding the effect of catastrophes

62.0 %

-242.0 %

36.1 %

68.0 %

51.6 %

0.0 %

36.9 %

60.1 %
Catastrophe loss

6.6 %

0.0 %

3.6 %

7.3 %

0.7 %

0.0 %

0.5 %

0.7 %
Loss ratio

68.6 %

-242.0 %

39.7 %

75.3 %

52.2 %

0.0 %

37.5 %

60.8 %

Three months ended September 30, 2020

Written premiums

$ 45,742,165

$ -

$ (15,747,215 )

$ 29,994,950

Change in unearned premiums

(3,161,356 )

-

687,487

(2,473,869 )
Earned premiums

$ 42,580,809

$ -

$ (15,059,728 )

$ 27,521,081

Loss and loss adjustment expenses exluding

the effect of catastrophes

$ 15,655,839

$ -

$ (4,202,861 )

$ 11,452,978

Catastrophe loss

18,069,690

-

(9,404,693 )

8,664,997

Loss and loss adjustment expenses

$ 33,725,529

$ -

$ (13,607,554 )

$ 20,117,975

Loss ratio excluding the effect of catastrophes

36.8 %

n/a

27.9 %

41.6 %
Catastrophe loss

42.4 %

n/a

62.4 %

31.5 %
Loss ratio

79.2 %

n/a

90.3 %

73.1 %

Three months ended September 30, 2019

Written premiums

$ 46,023,290

$ 861

$ (5,586,278 )

$ 40,437,873

Change in unearned premiums

(4,579,777 )

(761 )

(1,637,325 )

(6,217,863 )
Earned premiums

$ 41,443,513

$ 100

$ (7,223,603 )

$ 34,220,010

Loss and loss adjustment expenses exluding

the effect of catastrophes

$ 26,516,544

$ 1,164

$ (2,182,511 )

$ 24,335,197

Catastrophe loss

491,362

-

(45,241 )

446,121

Loss and loss adjustment expenses

$ 27,007,906

$ 1,164

$ (2,227,752 )

$ 24,781,318

Loss ratio excluding the effect of catastrophes

64.0 %

1164.0 %

30.2 %

71.1 %
Catastrophe loss

1.2 %

0.0 %

0.6 %

1.3 %
Loss ratio

65.2 %

1164.0 %

30.8 %

72.4 %

(Percent components may not sum to totals due to rounding)

6247
Table of Contents

The key measures for our insurance underwriting business for the periods indicated are as follows:

Three months ended

Nine months ended

Three months ended

September 30

September 30

March 31,

2020

2019

2020

2019

2021

2020

Net premiums earned

$ 27,521,081

$ 34,220,010

$ 81,099,387

$ 95,017,178

$ 34,589,218

$ 26,941,450

Ceding commission revenue

3,448,774

1,029,582

10,760,087

2,982,960

(1,065 )

3,831,099

Other income

248,824

340,505

754,943

992,097

170,309

244,974

Loss and loss adjustment expenses (1)

20,117,975

24,781,318

49,317,427

71,587,850

22,560,672

16,385,821

Acquistion costs and other underwriting expenses:

Acquisition costs and other underwriting expenses:

Commission expense

8,036,298

7,722,825

23,652,765

21,866,420

8,223,839

7,855,927

Other underwriting expenses

6,346,846

6,430,734

19,434,110

17,983,174

6,467,042

6,761,792

Total acquistion costs and other

Total acquisition costs and other

underwriting expenses

14,383,144

14,153,559

43,086,875

39,849,594

14,690,881

14,617,719

Underwriting income (loss)

$ (3,282,440 )

$ (3,344,780 )

$ 210,115

$ (12,445,209 )
Underwriting (loss) income

$ (2,493,091 )

$ 13,983

Key Measures:

Net loss ratio excluding the effect of catastrophes

41.6 %

71.1 %

48.0 %

68.0 %

64.5 %

60.1 %
Effect of catastrophe loss on net loss ratio (1)

31.5 %

1.3 %

12.8 %

7.3 %

0.7 %

0.7 %
Net loss ratio

73.1 %

72.4 %

60.8 %

75.3 %

65.2 %

60.8 %

Net underwriting expense ratio excluding the

��

effect of catastrophes

38.8 %

37.4 %

38.9 %

37.8 %

42.0 %

39.1 %
Effect of catastrophe loss on net underwriting

expense ratio ~~(2)~~

0.0 %

0.0 %

0.0 %

0.0 %

0.0 %

0.0 %
Net underwriting expense ratio

38.8 %

37.4 %

38.9 %

37.8 %

42.0 %

39.1 %

Net combined ratio excluding the effect

of catastrophes

80.4 %

108.5 %

86.9 %

105.8 %

106.5 %

99.2 %
Effect of catastrophe loss on net combined

ratio (1) (2)

31.5 %

1.3 %

12.8 %

7.3 %
ratio (1)

0.7 %

0.7 %
Net combined ratio

111.9 %

109.8 %

99.7 %

113.1 %

107.2 %

99.9 %

Reconciliation of net underwriting expense ratio:

Acquisition costs and other

underwriting expenses

$ 14,383,144

$ 14,153,559

$ 43,086,875

$ 39,849,594

$ 14,690,881

$ 14,617,719

Less: Ceding commission revenue ~~(2)~~

(3,448,774 )

(1,029,582 )

(10,760,087 )

(2,982,960 )

1,065

(3,831,099 )
Less: Other income

(248,824 )

(340,505 )

(754,943 )

(992,097 )

(170,309 )

(244,974 )

$ 10,685,546

$ 12,783,472

$ 31,571,845

$ 35,874,537

$ 14,521,637

$ 10,541,646

Net earned premium

$ 27,521,081

$ 34,220,010

$ 81,099,387

$ 95,017,178

$ 34,589,218

$ 26,941,450

Net Underwriting Expense Ratio

38.8 %

37.4 %

38.9 %

37.8 %

42.0 %

39.1 %

(1)
For the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ includes the sum of net catastrophe losses and loss adjustment expenses of ~~$8,664,998~~$228,795 and ~~$446,121,~~$198,460, respectively. ~~For the nine months ended September 30, 2020 and 2019, includes the sum of net catastrophe losses and loss adjustment expenses of $10,375,113 and $6,946,677, respectively.~~


6348
Table of Contents

Investments

Portfolio Summary

Fixed-Maturity Securities

The following table presents a breakdown of the amortized cost, estimated fair value, and unrealized gains and losses of our investments in fixed-maturity securities classified as available-for-sale as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

March 31, 2021

September 30, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Amortized

Unrealized

Less than

More than

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

Cost

Gains

12 Months

12 Months

Value

Fair Value

U.S. Treasury securities and obligations of U.S. government corporations and agencies

$ 3,026,477

$ 42,853

$ -

$ -

$ 3,069,330

2.0 %
U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

$ 2,014,895

$ 19,785

$ -

$ -

$ 2,034,680

1.4 %

Political subdivisions of States,

Territories and Possessions

5,593,778

322,297

-

-

5,916,075

3.8 %

8,606,088

173,655

(86,507 )

-

8,693,236

5.9 %

Corporate and other bonds

Industrial and miscellaneous

112,504,206

10,698,206

(1,654 )

-

123,200,758

78.6 %

104,774,373

7,791,664

(78,069 )

-

112,487,968

76.2 %

Residential mortgage and other

asset backed securities (1)

24,002,398

535,772

(38,491 )

(147,253 )

24,352,426

15.6 %

23,904,337

566,540

(8,225 )

(92,731 )

24,369,921

16.5 %
Total

$ 145,126,859

$ 11,599,128

$ (40,145 )

$ (147,253 )

$ 156,538,589

100.0 %

$ 139,299,693

$ 8,551,644

$ (172,801 )

$ (92,731 )

$ 147,585,805

100.0 %

(1)
KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7 to the condensed consolidated financial statements). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of ~~September 30, 2020,~~March 31, 2021, the estimated fair value of the eligible investments was approximately ~~$6,685,000.~~$10,962,000. KICO will retain all rights regarding all securities if pledged as collateral. As of ~~September 30, 2020,~~March 31, 2021, there was no outstanding balance on the FHLBNY credit line.

December 31, 2019

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

$ 7,037,856

$ 23,244

$ -

$ -

$ 7,061,100

4.2 %

Political subdivisions of States,

Territories and Possessions

9,151,293

181,835

(11,316 )

-

9,321,812

5.5 %

Corporate and other bonds

Industrial and miscellaneous

119,874,573

5,777,624

(16,685 )

(13,473 )

125,622,039

74.7 %

Residential mortgage and other

asset backed securities (1)

26,138,633

437,841

(68,793 )

(276,451 )

26,231,230

15.6 %
Total

$ 162,202,355

$ 6,420,544

$ (96,794 )

$ (289,924 )

$ 168,236,181

100.0 %
49
Table of Contents

December 31, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

$ 3,020,710

$ 29,190

$ -

$ -

$ 3,049,900

1.9 %

Political subdivisions of States,

Territories and Possessions

5,287,561

355,541

-

-

5,643,102

3.6 %

Corporate and other bonds

Industrial and miscellaneous

108,573,422

11,634,123

(13,216 )

-

120,194,329

76.3 %

Residential mortgage and other

asset backed securities (1)

28,163,891

617,368

(7,371 )

(111,947 )

28,661,941

18.2 %
Total fixed-maturity securities

$ 145,045,584

$ 12,636,222

$ (20,587 )

$ (111,947 )

$ 157,549,272

100.0 %

(1)
KICO ~~has~~ placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its ~~relationship with~~membership in the ~~FHLBNY.~~Federal Home Loan Bank of New York ("FHLBNY") (see Note 7 to the condensed consolidated financial statements). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from ~~FHLBNY.~~the FHLBNY credit line. As of December 31, ~~2019,~~2020, the estimated fair value of the eligible investments was ~~$7,284,000.~~approximately $11,391,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, ~~2019,~~2020, there was no outstanding balance on the FHLBNY credit line.
64
~~Table of Contents~~

Equity Securities

The following table presents a breakdown of the cost and estimated fair value of, and gross ~~unrealized~~ gains and losses on, investments in equity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020

March 31, 2021

Gross

Gross

Estimated

% of

Estimated

% of

Unrealized

Unrealized

Fair

Estimated

Gross

Gross

Fair

Estimated

Category

Cost

Gains

Losses

Value

Fair Value

Cost

Gains

Losses

Value

Fair Value

Equity Securities:

Preferred stocks

$ 14,260,019

$ 325,070

$ (339,125 )

$ 14,245,964

48.1 %

$ 19,827,370

$ 1,207,776

$ (221,142 )

$ 20,814,004

58.7 %
Common stocks, mutual funds,

and exchange traded funds

16,040,820

777,813

(1,441,330 )

15,377,303

51.9 %
Common stocks and exchange traded mutual funds

12,823,973

1,810,617

(17,791 )

14,616,799

41.3 %
Total

$ 30,300,839

$ 1,102,883

$ (1,780,455 )

$ 29,623,267

100.0 %

$ 32,651,343

$ 3,018,393

$ (238,933 )

$ 35,430,803

100.0 %

December 31, 2019

December 31, 2020

Gross

Gross

Estimated

% of

Estimated

% of

Unrealized

Unrealized

Fair

Estimated

Gross

Gross

Fair

Estimated

Category

Cost

Gains

Losses

Value

Fair Value

Cost

Gains

Losses

Value

Fair Value

Equity Securities:

Preferred stocks

$ 8,374,424

$ 339,257

$ (11,794 )

$ 8,701,887

35.3 %

$ 18,097,942

$ 853,277

$ (426,942 )

$ 18,524,277

53.8 %
Common stocks, mutual funds,

and exchange traded funds

14,250,244

1,982,878

(273,627 )

15,959,495

64.7 %
Common stocks and exchange traded mutual funds

14,473,224

1,820,512

(404,700 )

15,889,036

46.2 %
Total

$ 22,624,668

$ 2,322,135

$ (285,421 )

$ 24,661,382

100.0 %

$ 32,571,166

$ 2,673,789

$ (831,642 )

$ 34,413,313

100.0 %
50
Table of Contents

Other Investments

The following table presents a breakdown of the cost and estimated fair value of, and gross ~~unrealized~~ gains on, our other investments as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020

December 31, 2019

Gross

Gross

Unrealized

Estimated

Unrealized

Estimated

Category

Cost

Gains

Fair Value

Cost

Gains

Fair Value

Other Investments:

Hedge fund

$ 1,999,381

$ 829,697

$ 2,829,078

$ 1,999,381

$ 585,532

$ 2,584,913

Total

$ 1,999,381

$ 829,697

$ 2,829,078

$ 1,999,381

$ 585,532

$ 2,584,913

65
~~Table of Contents~~

March 31, 2021

December 31, 2020

Gross

Estimated

Gross

Estimated

Category

Cost

Gains

Fair Value

Cost

Gains

Fair Value

Other Investments:

Hedge fund

$ 3,999,381

$ 2,199,209

$ 6,198,590

$ 1,999,381

$ 1,369,245

$ 3,368,626

Real estate limited partnership

150,000

-

150,000

150,000

-

150,000

Total

$ 4,149,381

$ 2,199,209

$ 6,348,590

$ 2,149,381

$ 1,369,245

$ 3,518,626

Held-to-Maturity Securities

The following table presents a breakdown of the amortized cost and estimated fair value of, and gross unrealized gains and losses on, investments in held-to-maturity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

March 31, 2021

September 30, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

Cost

Gains

Months

Months

Value

Fair Value

U.S. Treasury securities

$ 729,583

$ 162,442

$ -

$ -

$ 892,025

11.3 %

$ 729,606

$ 210,129

$ -

$ -

$ 939,735

9.8 %

Political subdivisions of States,

Territories and Possessions

998,480

56,700

-

-

1,055,180

13.4 %

998,382

42,508

-

-

1,040,890

10.9 %

Exchange traded debt

1,812,762

28,106

(5,897 )

-

1,834,971

19.2 %

Corporate and other bonds

Industrial and miscellaneous

5,641,545

334,412

(23,858 )

-

5,952,099

75.3 %

5,640,036

242,695

(134,272 )

-

5,748,459

60.1 %

Total

$ 7,369,608

$ 553,554

$ (23,858 )

$ -

$ 7,899,304

100.0 %

$ 9,180,786

$ 523,438

$ (140,169 )

$ -

$ 9,564,055

100.0 %

December 31, 2019

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

U.S. Treasury securities

$ 729,550

$ 151,002

$ -

$ -

$ 880,552

21.3 %

Political subdivisions of States,

Territories and Possessions

998,619

51,021

-

-

1,049,640

25.4 %

Corporate and other bonds

Industrial and miscellaneous

2,097,783

97,627

(835 )

-

2,194,575

53.3 %

Total

$ 3,825,952

$ 299,650

$ (835 )

$ -

$ 4,124,767

100.0 %
51
Table of Contents

December 31, 2020

Cost or

Gross

Gross Unrealized Losses

Estimated

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Estimated

Category

Cost

Gains

Months

Months

Value

Fair Value

U.S. Treasury securities

$ 729,595

$ 319,714

$ -

$ -

$ 1,049,309

12.8 %

Political subdivisions of States,

Territories and Possessions

998,428

50,917

-

-

1,049,345

12.8 %

Corporate and other bonds

Industrial and miscellaneous

5,640,792

455,378

-

-

6,096,170

74.4 %

Total

$ 7,368,815

$ 826,009

$ -

$ -

$ 8,194,824

100.0 %

Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum fund requirements.
66
~~Table of Contents~~

A summary of the amortized cost and fair value of our investments in held-to-maturity securities by contractual maturity as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is shown below:

September 30, 2020

December 31, 2019

March 31, 2021

December 31, 2020

Amortized

Estimated

Amortized

Estimated

Amortized

Estimated

Amortized

Estimated

Remaining Time to Maturity

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Cost

Fair Value

Less than one year

$ -

$ -

$ 500,000

$ 499,165

$ 500,639

$ 512,985

$ -

$ -

One to five years

2,597,739

2,793,089

2,099,268

2,215,640

2,098,011

2,244,083

2,598,193

2,777,936

Five to ten years

1,499,837

1,710,586

620,134

655,923

1,505,366

1,639,444

1,502,603

1,727,316

More than 10 years

3,272,032

3,395,629

606,550

754,039

5,076,770

5,167,543

3,268,019

3,689,572

Total

$ 7,369,608

$ 7,899,304

$ 3,825,952

$ 4,124,767

$ 9,180,786

$ 9,564,055

$ 7,368,815

$ 8,194,824

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Table of Contents

Credit Rating of Fixed-Maturity Securities

The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 as rated by Standard & Poor’s (or, if unavailable from Standard & Poor’s, then Moody’s or Fitch):

September 30, 2020

December 31, 2019

Estimated

Percentage of

Estimated

Percentage of

Fair

Fair

Fair

Fair

Value

Value

Value

Value

Rating

U.S. Treasury securities

$ 3,069,330

2.0 %

$ 7,061,100

4.2 %

Corporate and municipal bonds

AAA

1,428,866

0.9 %

1,996,676

1.2 %
AA

3,871,079

2.5 %

8,809,480

5.2 %
A

25,614,616

16.4 %

34,636,236

20.6 %
BBB

98,202,271

62.7 %

89,501,460

53.2 %
Total corporate and municipal bonds

129,116,832

82.5 %

134,943,852

80.2 %

Residential mortgage backed securities

AAA

5,423,422

3.5 %

2,976,306

1.8 %
AA

14,526,160

9.3 %

18,440,382

10.9 %
A

2,402,063

1.5 %

2,471,761

1.5 %
BBB

52,899

0.0 %

-

0.0 %
CCC

986,888

0.6 %

1,174,273

0.7 %
CC

58,271

0.0 %

86,461

0.1 %
C

15,917

0.0 %

17,813

0.0 %
D

170,272

0.1 %

215,015

0.1 %
Non rated

716,535

0.5 %

849,218

0.5 %
Total residential mortgage backed securities

24,352,427

15.5 %

26,231,229

15.6 %

Total

$ 156,538,589

100.0 %

$ 168,236,181

100.0 %
67
~~Table of Contents~~

March 31, 2021

December 31, 2020

Estimated

Percentage of

Estimated

Percentage of

Fair Market

Fair Market

Fair Market

Fair Market

Value

Value

Value

Value

Rating

U.S. Treasury securities

$ 2,034,680

1.4 %

$ 3,049,900

1.9 %

Corporate and municipal bonds

AAA

2,455,660

1.7 %

1,453,924

0.9 %
AA

5,675,825

3.8 %

3,572,164

2.3 %
A

23,310,110

15.8 %

23,989,619

15.2 %
BBB

88,743,195

60.1 %

95,814,824

60.9 %
Non rated

996,415

0.7 %

1,006,901

0.6 %
Total corporate and municipal bonds

121,181,205

82.1 %

125,837,432

79.9 %

Residential mortgage backed securities

AAA

2,000,079

1.4 %

5,467,075

3.5 %
AA

18,227,333

12.4 %

18,865,749

12.0 %
A

2,463,278

1.7 %

2,451,635

1.6 %
BBB

47,719

0.0 %

50,276

0.0 %
CCC

889,007

0.6 %

960,042

0.6 %
CC

60,710

0.0 %

62,029

0.0 %
C

-

0.0 %

15,161

0.0 %
D

64,944

0.0 %

119,144

0.1 %
Non rated

616,850

0.4 %

670,829

0.4 %
Total residential mortgage backed securities

24,369,920

16.5 %

28,661,940

18.2 %

Total

$ 147,585,805

100.0 %

$ 157,549,272

100.0 %

The table below summarizes the average yield by type of fixed-maturity security as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

Category

September 30,
2020

December 31,
2019

March 31,
2021

December 31, 2020

U.S. Treasury securities and

obligations of U.S. government

corporations and agencies

2.68 %

2.18 %

3.56 %

2.59 %

Political subdivisions of States,

Territories and Possessions

3.07 %

3.26 %

3.17 %

3.05 %

Exchange traded debt

5.11 %

0.00 %

Corporate and other bonds

Industrial and miscellaneous

3.56 %

3.73 %

3.68 %

3.52 %

Residential mortgage backed securities

1.64 %

2.01 %

0.76 %

1.18 %

Total

3.23 %

3.37 %

3.15 %

3.07 %
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Table of Contents

The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020

December 31, 2019

March 31,
2021

December 31, 2020

Weighted average effective maturity

5.3

4.8

5.2

5.2

Weighted average final maturity

6.8

6.3

6.6

6.6

Effective duration

4.7

4.3

4.7

4.7

Fair Value Consideration

Fair value is the price that would be received to sell an asset or paid to transfer a liability in a transaction involving identical or comparable assets or liabilities between market participants (an “exit price”). The fair value hierarchy distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities (“Level 2”), and unobservable inputs, including the reporting entity’s estimates of the assumption that market participants would use, having the lowest priority (“Level 3”). As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, 83% and 80%, respectively,~~2020, 81% of the investment portfolio recorded at fair value was priced based upon quoted market prices.
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~~Table of Contents~~

The table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale and equity securities by length of time the security has continuously been in an unrealized loss position as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ -

$ -

-

$ -

$ -

-

$ -

$ -

Political subdivisions of

States, Territories and

Possessions

-

-

-

-

-

-

-

-

Corporate and other

bonds industrial and

miscellaneous

522,450

(1,654 )

1

-

-

-

522,450

(1,654 )

Residential mortgage and other

asset backed securities

4,003,377

(38,491 )

6

5,020,026

(147,253 )

12

9,023,403

(185,744 )

Total fixed-maturity

securities

$ 4,525,827

$ (40,145 )

7

$ 5,020,026

$ (147,253 )

12

$ 9,545,853

$ (187,398 )

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Table of Contents

December 31, 2019

March 31, 2021

Less than 12 months

12 months or more

Total

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ -

$ -

-

$ -

$ -

-

$ -

$ -

$ -

$ -

-

$ -

$ -

-

$ -

$ -

Political subdivisions of

States, Territories and

Possessions

3,067,428

(11,316 )

3

-

-

-

3,067,428

(11,316 )

4,236,366

(86,507 )

3

-

-

-

4,236,366

(86,507 )

Corporate and other

bonds industrial and

miscellaneous

3,730,478

(16,685 )

7

1,300,915

(13,473 )

3

5,031,393

(30,158 )

4,991,204

(78,069 )

3

-

-

-

4,991,204

(78,069 )

Residential mortgage and other

asset backed securities

5,862,636

(68,793 )

5

13,534,768

(276,451 )

21

19,397,404

(345,244 )

3,512,982

(8,225 )

4

3,477,111

(92,731 )

10

6,990,093

(100,956 )

Total fixed-maturity

securities

$ 12,660,542

$ (96,794 )

15

$ 14,835,683

$ (289,924 )

24

$ 27,496,225

$ (386,718 )

$ 12,740,552

$ (172,801 )

10

$ 3,477,111

$ (92,731 )

10

$ 16,217,663

$ (265,532 )

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December 31, 2020

Less than 12 months

12 months or more

Total

Estimated

No. of

Estimated

No. of

Estimated

Fair

Unrealized

Positions

Fair

Unrealized

Positions

Fair

Unrealized

Category

Value

Losses

Held

Value

Losses

Held

Value

Losses

Fixed-Maturity Securities:

U.S. Treasury securities

and obligations of U.S.

government corporations

and agencies

$ -

$ -

-

$ -

$ -

-

$ -

$ -

Political subdivisions of

States, Territories and

Possessions

-

-

-

-

-

-

-

-

Corporate and other

bonds industrial and

miscellaneous

1,006,901

(13,216 )

1

-

-

-

1,006,901

(13,216 )

Residential mortgage and other

asset backed securities

6,137,522

(7,371 )

5

3,735,732

(111,947 )

10

9,873,254

(119,318 )

Total fixed-maturity

securities

$ 7,144,423

$ (20,587 )

6

$ 3,735,732

$ (111,947 )

10

$ 10,880,155

$ (132,534 )
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Table of Contents

There were 1920 securities at ~~September 30, 2020~~March 31, 2021 that accounted for the gross unrealized loss of our fixed-maturity securities available-for-sale, none of which were deemed by us to be other than temporarily impaired. There were 3916 securities at December 31, ~~2019~~2020 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. Significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of fair value to our cost basis.

Liquidity and Capital Resources

Cash Flows

The primary sources of cash flow are from our insurance underwriting subsidiary, KICO, and include direct premiums written, ceding commissions from our quota share reinsurers, loss recovery payments from our reinsurers, investment income and proceeds from the sale or maturity of investments. Funds are used by KICO for ceded premium payments to reinsurers, which are paid on a net basis after subtracting losses paid on reinsured claims and reinsurance commissions. KICO also uses funds for loss payments and loss adjustment expenses on our net business, commissions to producers, salaries and other underwriting expenses as well as to purchase investments and fixed assets.

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the primary source of cash flow for our holding company was the dividends received from KICO, subject to statutory restrictions. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, KICO paid dividends of ~~$5,000,000~~$1,000,000 to us.

KICO is a member of the Federal Home Loan Bank of New York (“FHLBNY”), which provides additional access to liquidity. Members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances. Advances are to be fully collateralized; eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. See Note 3 to our condensed consolidated financial statements – Investments, for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of the end of the previous quarter, which is ~~June 30,~~December 31, 2020, and are due and payable within 90 days of borrowing. The maximum allowable advance as of ~~September 30, 2020,~~March 31, 2021, based on the net admitted assets as of ~~June 30,~~December 31, 2020, was approximately ~~$11,732,000.~~$12,751,000. Advances are limited to 85% of the amount of available collateral, which was approximately ~~$5,683,000~~$9,318,000 as of ~~September 30, 2020.~~March 31, 2021. There were no borrowings under this facility during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

As of ~~September 30, 2020,~~March 31, 2021, invested assets and cash in our holding company totaled approximately ~~$2,102,000.~~$3,555,000. If the aforementioned sources of cash flow currently available are insufficient to cover our holding company cash requirements, we will seek to obtain additional financing.

Our reconciliation of net income to net cash provided by operations is generally influenced by the collection of premiums in advance of paid losses, the timing of reinsurance, issuing company settlements and loss payments.

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Table of Contents

Cash flow and liquidity are categorized into three sources: (1) operating activities; (2) investing activities; and (3) financing activities, which are shown in the following table:

Nine Months Ended September 30,

2020

2019

Three Months Ended March 31,

2021

2020

Cash flows (used in) provided by:

Cash flows provided by (used in):

Operating activities

$ (9,465,006 )

$ 19,537,965

$ 1,392,800

$ (15,256,414 )
Investing activities

3,927,739

(12,085,316 )

1,963,156

9,458,356

Financing activities

(2,466,115 )

(2,952,002 )

(639,738 )

(1,006,638 )
Net (decrease) increase in cash and cash equivalents

(8,003,382 )

4,500,647

Net increase (decrease) in cash and cash equivalents

2,716,218

(6,804,696 )
Cash and cash equivalents, beginning of period

32,391,485

21,138,403

19,463,742

32,391,485

Cash and cash equivalents, end of period

$ 24,388,103

$ 25,639,050

$ 22,179,960

$ 25,586,789

Net cash provided by operating activities was $1,393,000 in Three Months 2021 as compared to $15,256,000 used in operating activities ~~was $9,465,000~~ in ~~Nine~~Three Months ~~2020 as compared to $19,538,000 provided by operating activities in Nine Months 2019.~~2020. The ~~$29,003,000 decrease~~$16,649,000 increase in cash flows provided by operating activities in ~~Nine~~Three Months ~~2020~~2021 was primarily athe result of ~~a decrease~~an increase in cash arising from net fluctuations in assets and liabilities, partially offset by a decrease in net loss (adjusted for non-cash items) of ~~$14,752,000.~~$4,709,000. The net fluctuations in assets and liabilities are related to operating activities of KICO as affected by growth or declines in its operations, payments on claims and other changes, ~~in quota share ceding rates~~ which are described above.

Net cash provided by investing activities was ~~$3,928,000~~$1,963,000 in ~~Nine~~Three Months ~~2020~~2021 compared to ~~$12,085,000 used in~~$9,458,000 provided by investing activities in ~~Nine~~Three Months ~~2019.~~2020. The ~~$16,013,000 increase~~$7,495,000 decrease in net cash provided by investing activities was the result of ~~a $25,093,000~~an $8,803,000 increase in ~~disposal~~the acquisition of invested assets, partially offset by a ~~$10,073,000~~$1,909,000 increase in ~~acquisitions~~disposals of invested assets in ~~Nine~~Three Months ~~2020.~~2021.

Net cash used in financing activities was ~~$2,466,000~~$640,000 in ~~Nine~~Three Months ~~2020~~2021 compared to ~~$2,952,000~~$1,007,000 used in ~~Nine~~Three Months ~~2019.~~2020. The ~~$486,000~~$367,000 decrease in net cash used in financing activities was attributable to a ~~$1,297,000~~$249,000 reduction in dividends paid ~~partially offset by $802,000~~and a $177,000 decrease in purchases of treasury stock in ~~Nine~~Three Months ~~2020~~2021 compared to ~~Nine~~Three Months ~~2019.~~2020.

Reinsurance

~~Through June 30, 2019, our quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis.~~ Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December ~~31,~~30, 2020 (“2019/2020 Treaty”).
~~Our~~ Effective December 31, 2020 the 2019/2020 Treaty expired on a cut off basis; this treaty was not renewed. In addition to the 2019/2020 Treaty, our personal lines quota share reinsurance ~~treaties~~treaty in effect ~~during Nine~~for Three Months 2020 ~~and Nine Months 2019 for our~~also included the run-off of the personal lines ~~business, which primarily consists of homeowners’ policies, were~~quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered ~~under~~ the ~~2019/2020 Treaty and under a treaty covering a two-year~~ period from July 1, ~~2017 through June 30, 2019 (“2017/2019 Treaty”). The treaty in effect during Three Months 2019 (run-off period) and Nine Months~~ 2019 through June 30, ~~2019 (together with the run-off period) was covered under the July 1, 2018 through June 30, 2019 treaty year~~2020 (“~~2018/2019 Treaty Year”~~2019/2020 Run-off”).
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~~Table of Contents~~
Effective July 1, 2019, our 2017/2019 Treaty and commercial umbrella treaty expired on a run-off basis; these treaties were not renewed. We entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2020. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows:

Treaty Year

December 15, 2019

July 1, 2019

July 1, 2018

to

to

to

Line of Business

December 31, 2020

December 14, 2019

June 30, 2019

Personal Lines:

Homeowners, dwelling fire and

and canine legal liability

Quota share treaty:

Percent ceded

25 %

None

10 %

Treaty Year

January 1, 2021

July 1, 2020

December 15, 2019

July 1, 2019

July 1, 2018

to

to

to

to

to

Line of Business

June 30, 2021

December 31, 2020

June 30, 2020

December 14, 2019

June 30, 2019

Personal Lines:

Homeowners, dwelling fire and

and canine legal liability

Quota share treaty:

Risk retained on intial

$1,000,000 of losses

NA (7)

$ 750,000

$ 750,000

$ 1,000,000

$ 900,000

Losses per occurrence subject

to quota share

reinsurance coverage

NA (7)

$ 1,000,000

$ 1,000,000

None

$ 1,000,000

Expiration date

December 31, 2020

December 31, 2020

June 30, 2019

Excess of loss coverage and

facultative facility

coverage (1)

$ 8,000,000

$ 8,000,000

$ 9,000,000

$ 9,000,000

$ 9,000,000

in excess of

in excess of

in excess of

in excess of

in excess of

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

$ 1,000,000

Total reinsurance coverage

per occurrence (7)

$ 8,000,000

$ 8,250,000

$ 9,250,000

$ 9,000,000

$ 9,100,000

Losses per occurrence subject

to reinsurance coverage

$ 8,000,000

$ 9,000,000

$ 10,000,000

$ 10,000,000

$ 10,000,000

Expiration date (7)

June 30, 2021

June 30, 2021

June 30, 2020

June 30, 2020

June 30, 2019

Catastrophe Reinsurance:

Initial loss subject to personal

lines quota share treaty

NA (7)

$ 7,500,000

$ 7,500,000

None

$ 5,000,000

Risk retained per catastrophe

occurrence (2) (7)

$ 10,000,000

$ 8,125,000

$ 5,625,000

$ 7,500,000

$ 4,500,000

Catastrophe loss coverage

in excess of

quota share coverage (3) (7)

$ 475,000,000

$ 475,000,000

$ 602,500,000

$ 602,500,000

$ 445,000,000

Reinstatement premium

protection (4) (5) (6)

Yes

Yes

Yes

Yes

Yes

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Table of Contents
Treaty Year
December 15, 2019
to
Line of Business
December 30, 2020
Personal Lines:
Homeowners, dwelling fire and
and canine legal liability
Quota share treaty:
Percent ceded
25 %

Treaty Year

December 31, 2020

July 1, 2020

December 15, 2019

to

to

to

Line of Business

June 30, 2021

December 30, 2020

June 30, 2020

Personal Lines:

Homeowners, dwelling fire and

and canine legal liability

Quota share treaty:

Risk retained on intial

$1,000,000 of losses (6)

$ 1,000,000

$ 750,000

$ 750,000

Losses per occurrence subject

to quota share

reinsurance coverage

None (6)

$ 1,000,000

$ 1,000,000

Expiration date

NA (6)

December 30, 2020

December 30, 2020

Excess of loss coverage and

facultative facility

coverage (1)

$ 8,000,000

$ 8,000,000

$ 9,000,000

in excess of

in excess of

in excess of

$ 1,000,000

$ 1,000,000

$ 1,000,000

Total reinsurance coverage

per occurrence (6)

$ 8,000,000

$ 8,250,000

$ 9,250,000

Losses per occurrence subject

to reinsurance coverage

$ 8,000,000

$ 9,000,000

$ 10,000,000

Expiration date (6)

June 30, 2021

June 30, 2021

June 30, 2020

Catastrophe Reinsurance:

Initial loss subject to personal

lines quota share treaty

None (6)

$ 7,500,000

$ 7,500,000

Risk retained per catastrophe

occurrence (2) (6)

$ 10,000,000

$ 8,125,000

$ 5,625,000

Catastrophe loss coverage

in excess of

quota share coverage (3) (6)

$ 475,000,000

$ 475,000,000

$ 602,500,000

Reinstatement premium

protection (4) (5)

Yes

Yes

Yes

(1)
For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000.
(2)
Plus losses in excess of catastrophe coverage. ~~Effective~~For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note ~~(7)~~(6) below).
(3)
Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.
(4)
~~Effective~~
For the period July 1, ~~2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000.~~
~~(5)~~
~~Effective July 1,~~ 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.
~~(6)~~(5)
~~Effective~~
For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.
~~(7)~~(6)
~~Quota~~
The personal lines quota share ~~expires~~(homeowners, dwelling fire and canine legal liability) expired on December ~~31,~~30, 2020; reinsurance coverage from ~~January 1, 2021~~December 31, 2020 through June 30, 2021 is only for excess of loss and catastrophe reinsurance.

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Table of Contents


Treaty Year

Treaty Year

July 1, 2020

July 1, 2019

July 1, 2018

July 1, 2020

July 1, 2019

to

to

to

to

to

Line of Business

June 30, 2021

June 30, 2020

June 30, 2019

June 30, 2021

June 30, 2020

Personal Lines:

Personal Lines:

Personal Umbrella

Quota share treaty:

Percent ceded - first $1,000,000 of coverage

90 %

90 %

90 %

90 %

90 %
Percent ceded - excess of $1,000,000 of coverage

95 %

100 %

100 %

95 %

100 %
Risk retained

$ 300,000

$ 100,000

$ 100,000

$ 300,000

$ 100,000

Total reinsurance coverage per occurrence

$ 4,700,000

$ 4,900,000

$ 4,900,000

$ 4,700,000

$ 4,900,000

Losses per occurrence subject to quota share reinsurance coverage

$ 5,000,000

$ 5,000,000

$ 5,000,000

$ 5,000,000

$ 5,000,000

Expiration date

June 30, 2021

June 30, 2020

June 30, 2019

June 30, 2021

June 30, 2020

Commercial Lines:

Commercial Lines:

General liability commercial policies

Quota share treaty

None

None

None

None

None

Risk retained

$ 750,000

$ 750,000

$ 750,000

$ 750,000

$ 750,000

Excess of loss coverage above risk retained

$ 3,750,000

$ 3,750,000

$ 3,750,000

$ 3,750,000

$ 3,750,000

in excess of

in excess of

in excess of

in excess of

in excess of

$ 750,000

$ 750,000

$ 750,000

$ 750,000

$ 750,000

Total reinsurance coverage per occurrence

$ 3,750,000

$ 3,750,000

$ 3,750,000

$ 3,750,000

$ 3,750,000

Losses per occurrence subject to reinsurance coverage

$ 4,500,000

$ 4,500,000

$ 4,500,000

$ 4,500,000

$ 4,500,000

Commercial Umbrella

Quota share treaty:

None

None

None

None

Percent ceded - first $1,000,000 of coverage

90 %
Percent ceded - excess of $1,000,000 of coverage

100 %
Risk retained

$ 100,000

Total reinsurance coverage per occurrence

$ 4,900,000

Losses per occurrence subject to quota share reinsurance coverage

$ 5,000,000

Expiration date

June 30, 2019

~~Our growth~~Inflation
Premiums are established before we know the amount of losses and loss adjustment expenses or the extent to which inflation may affect such amounts. We attempt to anticipate the potential impact of inflation in ~~personal lines premiums~~establishing our reserves, especially as it relates to medical and hospital rates where historical inflation rates have exceeded the ~~increasing coastal exposure~~general level of inflation. Inflation in ~~Expansion states has increased our risks for catastrophes. Our catastrophe~~excess of the levels we have assumed could cause loss and loss adjustment expenses to be higher than we anticipated, which would require us to increase reserves and reduce earnings.
Fluctuations in rates ~~increased effective July 1, 2020 to reflect our increased risk and size~~of inflation also influence interest rates, which in turn impact the market value of our ~~personal lines business as well as increases in the reinsurance market related to COVID-19 exposure.~~investment portfolio and yields on new investments. Operating expenses, including salaries and benefits, generally are impacted by inflation.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Outlook

The impacts of COVID-19 and related economic conditions on our results are highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate. ~~In addition, because~~The impact of COVID-19 ~~did not begin to affect our financial results until late in the first quarter of 2020, its impact~~ on our results ~~through September 30, 2020 is~~for the period ended March 31, 2021 may not be indicative of its impact on our results for the remainder of ~~2020.~~2021. For additional information on the risks posed by COVID-19, see “The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity” included in Part II, Item 1A— “Risk Factors” in this Quarterly Report.
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Our net premiums earned may be impacted by a number of factors. Net premiums earned are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. Net written premiums from both renewal and new business are impacted by competitive market conditions as well as general economic conditions. As a result of COVID-19, economic conditions in the United States rapidly deteriorated. The decreased levels of economic activity have negatively impacted, and ~~will~~may continue to negatively impact, premium volumes generated by new business. We began to experience this impact in March 2020 and it became more significant in the second and third quarters of 2020. We also expect this impact will further persist but to a lesser extent for the remainder of ~~2020,~~2021, but the degree of the impact will depend on the extent and duration of the economic contraction and could be material. We have also made underwriting changes to emphasize profitability over growth and have culled out the type of risks that do not generate an acceptable level of return. This action has led, and ~~will~~may continue to lead, to a slowdown in premium growth, particularly in new business.
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~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to assure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our Chief Executive Officer and ~~Principal~~Chief Financial Officer have concluded that, as of ~~the end of such period,~~March 31, 2021, our disclosure controls and procedures ~~are:~~were: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act, and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and ~~Principal~~Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and ~~Principal~~Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and ~~Principal~~Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020.~~March 31, 2021.

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Changes in Internal Control over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on Effectiveness of Controls

Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and ~~Principal~~Chief Financial Officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~On June 12, 2019, Phillip Woolgar filed a suit naming the Company and certain present or former officers and directors as defendants in a putative class action captioned~~ ~~Woolgar v. Kingstone Companies et al.~~, 19 cv 05500 (S.D.N.Y.), asserting claims under Section 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. Plaintiff sought to represent a class of persons or entities that purchased Kingstone securities between March 14, 2018, and April 29, 2019, and alleged violations of the federal securities law in connection with the Company’s April 29, 2019 announcement regarding losses related to winter catastrophe events. The lawsuit alleged that the Company failed to disclose that it did not adequately follow industry best practices related to claims handling and thus did not record sufficient claim reserves, and that as a result, Defendants’ positive statements about the Company’s business, operations and prospects misled investors. Plaintiff sought, among other things, an undetermined amount of money damages.   On August 10, 2020, the court granted the Company’s motion to dismiss the amended complaint in the suit. The court permitted plaintiff to amend the complaint to attempt to cure the deficiencies identified by the court in its opinion (to the extent plaintiff had a good faith basis to do so). The outside date to file the amended complaint, was September 11, 2020 Since the plaintiff did not file and amended complaint by such date (or thereafter), the Company consideres this matter to be closed.None.

Item 1A. Risk Factors.

For a discussion of the Company’s potential risks and uncertainties, see Part I, Item 1A— “Risk Factors” and Part II, Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s ~~2019~~2020 Annual Report filed with the SEC, and Part I, Item 2—”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the ~~Company’s~~Company's periodic filings with the SEC. ~~Other than as described below, there~~There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company’s ~~2019~~2020 Annual Report.

~~The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity.~~
Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy and our results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 include, among others, the following:
~~Revenues.~~We expect that the impact of COVID-19 on general economic activity will negatively impact our premium volumes. We began to experience this impact in March 2020 and it became more significant in the second and third quarters of 2020. We also expect this impact will further persist but to a lesser extent for the remainder of 2020, but the degree of the impact will depend on the extent and duration of the economic contraction and could be material.
~~Investments.~~ The disruption in the financial markets related to COVID-19 has contributed to net investment losses, primarily due to the impact of changes in fair value on our equity investments and in our fixed-income investment portfolio. Our corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries. In addition, in recent years, many state and local governments have been operating under deficits or projected deficits. These deficits may be exacerbated by the costs of responding to COVID-19 and reduced tax revenues due to adverse economic conditions. The severity and duration of these deficits could have an adverse impact on the collectability and valuation of our municipal bond portfolio. Our investment portfolio also includes mortgage-backed securities which could be adversely impacted by declines in real estate valuations and/or financial market disruption. Further disruptions in global financial markets could adversely impact our net investment income in future periods.


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~~Table of Contents~~
~~Adverse Legislative and/or Regulatory Action.~~ Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. For example, we may be subject to legislative and/or regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies were not designed or priced to cover. Currently, in some states there is proposed legislation to require insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage. Regulatory restrictions or requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel or non-renew policies and our right to collect premiums.
~~Operational Disruptions and Heightened Cybersecurity Risks.~~ Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our producers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities.
~~Reinsurance Risks.~~ We purchase reinsurance to reduce our net liability on individual risks, to protect against possible catastrophes, to remain within a target ratio of net premiums written to policyholders’ surplus and to expand our underwriting capacity. Participation in reinsurance arrangements does not relieve us from our obligations to policyholders. Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes. Market conditions beyond our control, including the effect of COVID-19 on the reinsurance market, have impacted and may continue to impact the availability and cost of the reinsurance we purchase. No assurances can be given that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available in the future. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we will have to either accept an increase in our exposure risk, reduce our insurance writings or seek other alternatives.
~~Recent decline in the financial strength rating assigned to our insurance subsidiary by A.M. Best will impact our revenues and earnings.~~
Financial strength ratings are an important factor influencing the competitive position of insurance companies. The objective of the rating agencies’ rating systems is to provide an opinion as to an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. The ratings of Kingstone Insurance Company (“KICO”), our insurance subsidiary, reflect the rating agencies’ opinion as to its financial strength and are not evaluations directed to investors in our securities, nor are they recommendations to buy, sell or hold our securities.
Our ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of, the rating agencies. Our ability to write business, particularly commercial liability lines, is influenced by our financial strength rating from A.M. Best. On July 10, 2020, A.M. Best lowered the financial strength rating of KICO from “A-” (Excellent) to “B++” (Good). The outlook of A.M. Best’s credit rating is negative. A.M. Best indicated that the ratings downgrade of KICO reflects its balance sheet strength, which A.M. Best categorizes as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management. It stated that the ratings action was driven by a revision in KICO’s catastrophe reinsurance program effective July 1, 2020 which significantly reduces the amount of reinsurance protection previously contemplated and purchased.
Management believes that A.M. Best’s financial strength rating is more significant with regard to commercial liability insurance, as opposed to personal lines business. Since we have discontinued our commercial lines business, we believe that A.M. Best’s rating action will not result in a material decrease in the amount of business that KICO will be able to write. However, the A.M Best ratings downgrade has resulted in a material decrease in the business of our subsidiary, Cosi, a multi-state licensed general agency that had partnered with name-brand carriers which require an A.M. Best “A-” rating from its partners.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) None.

(b) Not applicable.

(c) The following table sets forth certain information with respect to purchases of common stock made by us during the quarter ended ~~September 30, 2020:~~March 31, 2021:
Period

Total
Number of Shares Purchased(1)

Average
Price Paid
per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)

Maximum Number of Shares that May Be Purchased Under the Plans or Programs(2)

1/1/21 – 1/31/21

-

-

-

-

2/1/21 – 2/28/21

-

-

-

-

3/1/21 – 3/31/21

8,035

$ 8.16

8,035

1,162,925

Total

8,035

$ 8.16

8,035

1,162,925

~~Period~~
(1)
~~Total~~
~~Number of Shares Purchased~~
~~Average~~
~~Price Paid~~
~~per Share~~
~~Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs~~
~~Maximum Number of Shares that May Be Purchased Under the Plans or Programs~~
Purchases were made by us in open market transactions.

(2)
~~7/1/20 – 7/31/20~~
-
-
-
-
~~8/1/20 – 8/31/20~~
-
-
-
-
~~9/1/20 – 9/30/20~~
-
-
-
-
~~Total~~
-
-
-
-
Up to $10,000,000 of common stock may be purchased pursuant to our repurchase plan; the maximum number of shares shown is based on the March 31, 2021 closing stock price.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Table of Contents

Item 6. Exhibits.

3(a)

Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2014 filed on May 15, 2014).

3(b)

By-laws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 9, 2009).

31(a)

Rule 13a-14(a)/15d-14(a) Certification of ~~Principal~~Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b)
Rule 13a-14(a)/15d-14(a) Certification of ~~Principal~~Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32+

Certification of Chief Executive Officer and ~~Principal~~Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

101.SCH XBRL Taxonomy Extension Schema.

101.CAL

101.CAL XBRL Taxonomy Extension Calculation Linkbase.

101.DEF

101.DEF XBRL Taxonomy Extension Definition Linkbase.

101.LAB

101.LAB XBRL Taxonomy Extension Label Linkbase.

101.PRE

101.PRE XBRL Taxonomy Extension Presentation Linkbase.

+

This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Securities Act of 1934, as amended.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

KINGSTONE COMPANIES, INC.

Dated: ~~November 9, 2020~~May 17, 2021
By:
/s/ Barry B. Goldstein

Barry B. Goldstein

Chief Executive Officer

Dated: ~~November 9, 2020~~May 17, 2021
By:
/s/ ~~Richard Swartz~~Scott Van Pelt

~~Richard Swartz~~Scott Van Pelt

~~Principal~~Chief Financial Officer

81
66

~~KINGSTONE COMPANIES, INC. AND SUBSIDIARIES~~

~~Condensed Consolidated Statements of Cash Flows (Unaudited)~~
~~Nine months ended September 30,~~

	2020			2019

Cash flows from operating activities:
Net loss	$	(2,063,869	)	$	(7,420,972	)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:
Net (gains) losses on sale of investments		(857,650	)		54,759
Net unrealized losses (gains) on equity investments		2,740,489			(3,196,260	)
Net unrealized gains of other investments		(244,165	)		(570,679	)
Depreciation and amortization		2,070,435			1,876,202
Bad debts		70,666			0
Amortization of bond premium, net		518,146			283,620
Amortization of discount and issuance costs on long-term debt		132,135			132,135
Stock-based compensation		1,373,283			1,116,921
Deferred income tax expense (benefit)		1,154,475			(2,133,486	)
(Increase) decrease in operating assets:
Premiums receivable, net		(1,247,963	)		(390,922	)
Reinsurance receivables, net		(14,778,870	)		(213,334	)
Deferred policy acquisition costs		718,053			(2,583,831	)
Other assets		(2,010,253	)		(882,320	)
Increase (decrease) in operating liabilities:
Loss and loss adjustment expense reserves		4,480,413			21,212,317
Unearned premiums		(2,215,602	)		11,036,552
Advance premiums		1,727,744			1,629,862
Reinsurance balances payable		(1,652,075	)		(1,123,540	)
Deferred ceding commission revenue		(528,256	)		(857,805	)
Accounts payable, accrued expenses and other liabilities		1,147,858			1,568,746
Net cash flows (used in) provided by operating activities		(9,465,006	)		19,537,965

Cash flows from investing activities:
Purchase - fixed-maturity securities held-to-maturity		(4,041,750	)		0
Purchase - fixed-maturity securities available-for-sale		(12,447,259	)		(15,373,113	)
Purchase - equity securities		(15,614,675	)		(6,657,676	)
Sale and redemption - fixed-maturity securities held-to-maturity		500,000			400,000
Sale or maturity - fixed-maturity securities available-for-sale		29,666,158			9,835,464
Sale - equity securities		8,103,697			2,941,492
Acquisition of property and equipment		(2,238,432	)		(3,231,483	)
Net cash flows provided by (used in) investing activities		3,927,739			(12,085,316	)

Cash flows from financing activities:
Proceeds from exercise of stock options		0			23,552
Withholding taxes paid on vested retricted stock awards		(133,937	)		(148,278	)
Purchase of treasury stock		(801,788	)		0
Dividends paid		(1,530,390	)		(2,827,276	)
Net cash flows used in financing activities		(2,466,115	)		(2,952,002	)

(Decrease) increase in cash and cash equivalents	$	(8,003,382	)	$	4,500,647
Cash and cash equivalents, beginning of period		32,391,485			21,138,403
Cash and cash equivalents, end of period	$	24,388,103		$	25,639,050

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	0		$	388,000
Cash paid for interest	$	825,000		$	825,000

	September 30, 2020
	Cost or		Gross		Gross Unrealized Losses						Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12			Fair		Unrealized
Category	Cost		Gains		Months			Months			Value		Gains

Fixed-Maturity Securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies	$	3,026,477	$	42,853	$	0		$	0		$	3,069,330	$	42,853

Political subdivisions of States,
Territories and Possessions		5,593,778		322,297		0			0			5,916,075		322,297

Corporate and other bonds
Industrial and miscellaneous		112,504,206		10,698,206		(1,654	)		0			123,200,758		10,696,552

Residential mortgage and other
asset backed securities (1)		24,002,398		535,772		(38,491	)		(147,253	)		24,352,426		350,028
Total	$	145,126,859	$	11,599,128	$	(40,145	)	$	(147,253	)	$	156,538,589	$	11,411,730

	March 31, 2021
	Cost or		Gross		Gross Unrealized Losses						Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12			Fair		Unrealized
Category	Cost		Gains		Months			Months			Value		Gains

Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government
corporations and agencies	$	2,014,895	$	19,785	$	0		$	0		$	2,034,680	$	19,785

Political subdivisions of States, Territories and Possessions		8,606,088		173,655		(86,507	)		0			8,693,236		87,148

Corporate and other bonds Industrial and miscellaneous		104,774,373		7,791,664		(78,069	)		0			112,487,968		7,713,595
									��
Residential mortgage and other asset backed securities (1)		23,904,337		566,540		(8,225	)		(92,731	)		24,369,921		465,584
Total	$	139,299,693	$	8,551,644	$	(172,801	)	$	(92,731	)	$	147,585,805	$	8,286,112

	December 31, 2019
													Net
	Cost or		Gross		Gross Unrealized Losses						Estimated		Unrealized
	Amortized		Unrealized		Less than 12			More than 12			Fair		Gains
Category	Cost		Gains		Months			Months			Value

Fixed-Maturity Securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies	$	7,037,856	$	23,244	$	0		$	0		$	7,061,100	$	23,244

Political subdivisions of States,
Territories and Possessions		9,151,293		181,835		(11,316	)		0			9,321,812		170,519

Corporate and other bonds
Industrial and miscellaneous		119,874,573		5,777,624		(16,685	)		(13,473	)		125,622,039		5,747,466

Residential mortgage and other
asset backed securities (1)		26,138,633		437,841		(68,793	)		(276,451	)		26,231,230		92,597
Total	$	162,202,355	$	6,420,544	$	(96,794	)	$	(289,924	)	$	168,236,181	$	6,033,826

	December 31, 2020
	Cost or		Gross		Gross Unrealized Losses						Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12			Fair		Unrealized
Category	Cost		Gains		Months			Months			Value		Gains

Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government
corporations and agencies	$	3,020,710	$	29,190	$	0		$	0		$	3,049,900	$	29,190

Political subdivisions of States, Territories and Possessions		5,287,561		355,541		0			0			5,643,102		355,541

Corporate and other bonds Industrial and miscellaneous		108,573,422		11,634,123		(13,216	)		0			120,194,329		11,620,907

Residential mortgage and other asset backed securities (1)		28,163,891		617,368		(7,371	)		(111,947	)		28,661,941		498,050
Total	$	145,045,584	$	12,636,222	$	(20,587	)	$	(111,947	)	$	157,549,272	$	12,503,688

	Three months ended					Nine months ended
	September 30,					September 30,
	2020		2019			2020		2019

Income:
Fixed-maturity securities	$	1,264,633	$	1,499,135		$	4,106,404	$	4,500,346
Equity securities		290,834		253,594			787,702		666,247
Cash and cash equivalents		1,834		75,253			89,993		288,334
Total		1,557,301		1,827,982			4,984,099		5,454,927
Expenses:
Investment expenses		63,215		(28,571	)		212,163		254,893
Net investment income	$	1,494,086	$	1,856,553		$	4,771,936	$	5,200,034

	March 31, 2021
	Less than 12 months							12 months or more							Total
	Estimated					No. of		Estimated					No. of		Estimated
	Fair		Unrealized			Positions		Fair		Unrealized			Positions		Fair		Unrealized
Category	Value		Losses			Held		Value		Losses			Held		Value		Losses

Fixed-Maturity Securities:

U.S. Treasury securities and obligations of U.S.
government corporations and agencies	$	0	$	0			0	$	0	$	0			0	$	0	$	0

Political subdivisions of States, Territories and
Possessions		4,236,366		(86,507	)		3		0		0			0		4,236,366		(86,507	)

Corporate and other bonds industrial and
miscellaneous		4,991,204		(78,069	)		3		0		0			0		4,991,204		(78,069	)

Residential mortgage and other
asset backed securities		3,512,982		(8,225	)		4		3,477,111		(92,731	)		10		6,990,093		(100,956	)

Total fixed-maturity
securities	$	12,740,552	$	(172,801	)		10	$	3,477,111	$	(92,731	)		10	$	16,217,663	$	(265,532	)

	September 30, 2020
	Level 1		Level 2		Level 3		Total

Fixed-maturity securities available-for-sale
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies	$	3,069,330	$	0	$	0	$	3,069,330

Political subdivisions of
States, Territories and
Possessions		0		5,916,075		0		5,916,075

Corporate and other
bonds industrial and
miscellaneous		121,119,461		2,081,297		0		123,200,758

Residential mortgage backed securities		0		24,352,426		0		24,352,426
Total fixed maturities		124,188,791		32,349,798		0		156,538,589
Equity securities		29,623,267		0		0		29,623,267
Total investments	$	153,812,058	$	32,349,798	$	0	$	186,161,856

Category	September 30, 2020		December 31, 2019

Other Investments:
Hedge fund	$	2,829,078	$	2,584,913
Total	$	2,829,078	$	2,584,913

Category	March 31, 2021		December 31, 2020

Other Investments:
Hedge fund	$	6,198,590	$	3,368,626

Real estate limited partnership		150,000		150,000
Total	$	6,348,590	$	3,518,626

	September 30, 2020				December 31, 2019
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value

Fixed-maturity securities-held-to maturity	$	7,369,608	$	7,899,304	$	3,825,952	$	4,124,767
Cash and cash equivalents	$	24,388,103	$	24,388,103	$	32,391,485	$	32,391,485
Premiums receivable, net	$	13,883,708	$	13,883,708	$	12,706,411	$	12,706,411
Reinsurance receivables, net	$	55,529,408	$	55,529,408	$	40,750,538	$	40,750,538
Real estate, net of accumulated depreciation	$	2,238,435	$	2,705,000	$	2,292,743	$	2,705,000
Reinsurance balances payable	$	10,062,649	$	10,062,649	$	11,714,724	$	11,714,724

	Direct			Assumed			Ceded			Net			Direct		Assumed		Ceded			Net

Nine months ended September 30, 2020
Three months ended March 31, 2021
Premiums written	$	125,089,571		$	0		$	(43,813,468	)	$	81,276,103		$	38,129,117	$	0	$	(7,329,507	)	$	30,799,610
Change in unearned premiums		2,215,602			0			(2,392,318	)		(176,716	)		3,789,478		0		130			3,789,608
Premiums earned	$	127,305,173		$	0		$	(46,205,786	)	$	81,099,387		$	41,918,595	$	0	$	(7,329,377	)	$	34,589,218

Nine months ended September 30, 2019
Three months ended March 31, 2020
Premiums written	$	128,333,117		$	938		$	(20,914,074	)	$	107,419,981		$	36,696,929	$	0	$	(13,506,255	)	$	23,190,674
Change in unearned premiums		(11,035,993	)		(559	)		(1,366,251	)		(12,402,803	)		5,904,700		0		(2,153,924	)		3,750,776
Premiums earned	$	117,297,124		$	379		$	(22,280,325	)	$	95,017,178		$	42,601,629	$	0	$	(15,660,179	)	$	26,941,450

Three months ended September 30, 2020
Premiums written	$	45,742,165		$	0		$	(15,747,215	)	$	29,994,950
Change in unearned premiums		(3,161,356	)		0			687,487			(2,473,869	)
Premiums earned	$	42,580,809		$	0		$	(15,059,728	)	$	27,521,081

Three months ended September 30, 2019
Premiums written	$	46,023,290		$	861		$	(5,586,278	)	$	40,437,873
Change in unearned premiums		(4,579,777	)		(761	)		(1,637,325	)		(6,217,863	)
Premiums earned	$	41,443,513		$	100		$	(7,223,603	)	$	34,220,010

	Nine months ended
	September, 30
	2020			2019

Balance at beginning of period	$	80,498,611		$	56,197,106
Less reinsurance recoverables		(15,728,224	)		(15,671,247	)
Net balance, beginning of period		64,770,387			40,525,859

Incurred related to:
Current year		49,597,154			60,401,821
Prior years		(279,727	)		11,186,029
Total incurred		49,317,427			71,587,850

Paid related to:
Current year		29,845,049			31,515,656
Prior years		24,068,492			18,600,946
Total paid		53,913,541			50,116,602

Net balance at end of period		60,174,273			61,997,107
Add reinsurance recoverables		24,804,751			15,412,316
Balance at end of period	$	84,979,024		$	77,409,423

	Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance																				As of September 30, 2020
	For the Years Ended December 31,																						Cumulative			Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance																				As of
Accident																			Nine months ended September 30,				Number of Reported Claims by Accident
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		IBNR		Year
																										For the Years Ended December 31,																				March 31, 2021
Accident Year																										2012		2013		2014		2015		2016		2017		2018		2019		2020		Three months ended March 31, 2021		IBNR		Cumulative Number of Reported Claims by Accident Year
	(Unaudited 2011 - 2019)																		(Unaudited)							(Unaudited 2012 - 2020)																		(Unaudited)

2011	$	7,603	$	7,678	$	8,618	$	9,440	$	9,198	$	9,066	$	9,144	$	9,171	$	9,127	$	9,128	$	0		1,914
2012				9,539		9,344		10,278		10,382		10,582		10,790		10,791		11,015		10,891		19		4,704	(1)	$	9,539	$	9,344	$	10,278	$	10,382	$	10,582	$	10,790	$	10,791	$	11,015	$	10,885	$	10,885	$	13		4,704	(1)
2013						10,728		9,745		9,424		9,621		10,061		10,089		10,607		10,456		33		1,561					10,728		9,745		9,424		9,621		10,061		10,089		10,607		10,495		10,511		4		1,564
2014								14,193		14,260		14,218		14,564		15,023		16,381		16,425		253		2,137							14,193		14,260		14,218		14,564		15,023		16,381		16,428		16,414		180		2,138
2015										22,340		21,994		22,148		22,491		23,386		22,974		108		2,555									22,340		21,994		22,148		22,491		23,386		23,291		23,359		95		2,557
2016												26,062		24,941		24,789		27,887		27,862		507		2,878											26,062		24,941		24,789		27,887		27,966		27,857		512		2,878
2017														31,605		32,169		35,304		36,131		383		3,389													31,605		32,169		35,304		36,160		36,186		400		3,393
2018																54,455		56,351		58,233		1,986		4,204															54,455		56,351		58,441		58,511		1,963		4,215
2019																		75,092		72,772		10,765		4,423																	75,092		72,368		72,371		8,809		4,453
2020																				47,313		8,823		4,499																			63,083		63,014		8,473		5,772
2021																																													21,443		7,581		816
																	Total		$	312,185																						Total		$	340,551

	Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident	For the Years Ended December 31,																		Nine months ended September 30,
Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
	(Unaudited 2011 - 2019)																		(Unaudited)

2011	$	3,740	$	5,117	$	6,228	$	7,170	$	8,139	$	8,540	$	8,702	$	8,727	$	8,789	$	8,994
2012				3,950		5,770		7,127		8,196		9,187		10,236		10,323		10,428		10,448
2013						3,405		5,303		6,633		7,591		8,407		9,056		9,717		10,009
2014								5,710		9,429		10,738		11,770		13,819		14,901		15,428
2015										12,295		16,181		18,266		19,984		21,067		22,088
2016												15,364		19,001		21,106		23,974		25,125
2017														16,704		24,820		28,693		30,821
2018																32,383		44,516		49,247
2019																		40,933		53,910
2020																				28,688
																	Total		$	254,757

Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented	$	57,428
				Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
				For the Years Ended December 31,																		Three months ended March 31,
Accident Year				2012		2013		2014		2015		2016		2017		2018		2019		2020		2021
				(Unaudited 2012 - 2020)																		(Unaudited)

2012				$	3,950	$	5,770	$	7,127	$	8,196	$	9,187	$	10,236	$	10,323	$	10,428	$	10,451	$	10,533
2013							3,405		5,303		6,633		7,591		8,407		9,056		9,717		10,016		10,133
2014									5,710		9,429		10,738		11,770		13,819		14,901		15,491		15,497
2015											12,295		16,181		18,266		19,984		21,067		22,104		22,201
2016													15,364		19,001		21,106		23,974		25,234		25,310
2017															16,704		24,820		28,693		31,393		31,831
2018																	32,383		44,516		50,553		50,921
2019																			40,933		54,897		55,822
2020																					39,045		46,451
2021																							7,287
																				Total		$	275,987

					Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented																	$	64,564
All outstanding liabilities before 2011, net of reinsurance		98	All outstanding liabilities before 2011, net of reinsurance																				114
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance	$	57,526	Liabilities for loss and allocated loss adjustment expenses, net of reinsurance																			$	64,678

	As of
*(in thousands)*	March 31, 2021
Liabilities for loss and loss adjustment expenses, net of reinsurance	$	64,678
Total reinsurance recoverable on unpaid losses		17,059
Unallocated loss adjustment expenses		2,720
Total gross liability for loss and LAE reserves	$	84,457

	Treaty Year
	December 15, 2019
	to
Line of Business	December 30, 2020

Personal Lines:

Homeowners, dwelling fire and and canine legal liability Quota share treaty:
Percent ceded		25	%

	Treaty Year
Line of Business	December 15, 2019 to December 31, 2020			July 1, 2019 to December 14, 2019	July 1, 2018 to June 30, 2019

Personal Lines:
Homeowners, dwelling fire and
and canine legal liability
Quota share treaty:
Percent ceded		25	%	None		10	%

											Treaty Year
											December 31, 2020		July 1, 2020		December 15, 2019
	Treaty Year										to		to		to
Line of Business	January 1, 2021 to June 30, 2021		July 1, 2020 to December 31, 2020		December 15, 2019 to June 30, 2020		July 1, 2019 to December 14, 2019		July 1, 2018 to June 30, 2019		June 30, 2021		December 30, 2020		June 30, 2020

Personal Lines:
Personal Lines:
Homeowners, dwelling fire and
and canine legal liability
Quota share treaty:
canine legal liability Quota share treaty:
Risk retained on intial
$1,000,000 of losses	NA (7)		$	750,000	$	750,000	$	1,000,000	$	900,000
$1,000,000 of losses (6)											$	1,000,000	$	750,000	$	750,000
Losses per occurrence subject
to quota share
reinsurance coverage	NA (7)		$	1,000,000	$	1,000,000	None		$	1,000,000
to quota share reinsurance coverage											None (6)		$	1,000,000	$	1,000,000
Expiration date			December 31, 2020		December 31, 2020				June 30, 2019		NA (6)		December 30, 2020		December 30, 2020
Excess of loss coverage and
facultative facility
coverage (1)	$	8,000,000	$	8,000,000	$	9,000,000	$	9,000,000	$	9,000,000
facultative facility coverage (1)											$	8,000,000	$	8,000,000	$	9,000,000
	in excess of		in excess of		in excess of		in excess of		in excess of		in excess of		in excess of		in excess of
	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000	$	1,000,000
Total reinsurance coverage
per occurrence (7)	$	8,000,000	$	8,250,000	$	9,250,000	$	9,000,000	$	9,100,000
per occurrence (6)											$	8,000,000	$	8,250,000	$	9,250,000
Losses per occurrence subject
to reinsurance coverage	$	8,000,000	$	9,000,000	$	10,000,000	$	10,000,000	$	10,000,000	$	8,000,000	$	9,000,000	$	10,000,000
Expiration date (7)	June 30, 2021		June 30, 2021		June 30, 2020		June 30, 2020		June 30, 2019
Expiration date (6)											June 30, 2021		June 30, 2021		June 30, 2020

Catastrophe Reinsurance:
Initial loss subject to personal
lines quota share treaty	NA (7)		$	7,500,000	$	7,500,000	None		$	5,000,000	None (6)		$	7,500,000	$	7,500,000
Risk retained per catastrophe
occurrence (2) (7)	$	10,000,000	$	8,125,000	$	5,625,000	$	7,500,000	$	4,500,000
occurrence (2) (6)											$	10,000,000	$	8,125,000	$	5,625,000
Catastrophe loss coverage
in excess of
quota share coverage (3) (7)	$	475,000,000	$	475,000,000	$	602,500,000	$	602,500,000	$	445,000,000
quota share coverage (3) (6)											$	475,000,000	$	475,000,000	$	602,500,000
Reinstatement premium
protection (4) (5) (6)	Yes		Yes		Yes		Yes		Yes
protection (4) (5)											Yes		Yes		Yes

(1)	For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000.
(2)	Plus losses in excess of catastrophe coverage. ~~Effective~~For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note ~~(7)~~(6) below).
(3)	Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.
(4)	~~Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000.~~
~~(5)~~	~~Effective~~For the period July 1, 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.
~~(6)~~(5)	~~Effective~~For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.
~~(7)~~(6)	~~Quota~~The personal lines quota share ~~expires~~(homeowners, dwelling fire and canine legal liability) expired on December ~~31,~~30, 2020; reinsurance coverage from ~~January 1, 2021~~December 31, 2020 through June 30, 2021 is only for excess of loss and catastrophe reinsurance.

	Treaty Year
	July 1, 2020			July 1, 2019			July 1, 2018
	to			to			to
Line of Business	June 30, 2021			June 30, 2020			June 30, 2019

Personal Lines:

Personal Umbrella
Quota share treaty:
Percent ceded - first $1,000,000 of coverage		90	%		90	%		90	%
Percent ceded - excess of $1,000,000 of coverage		95	%		100	%		100	%
Risk retained	$	300,000		$	100,000		$	100,000
Total reinsurance coverage per occurrence	$	4,700,000		$	4,900,000		$	4,900,000
Losses per occurrence subject to quota share reinsurance coverage	$	5,000,000		$	5,000,000		$	5,000,000
Expiration date	June 30, 2021			June 30, 2020			June 30, 2019

Commercial Lines:
General liability commercial policies
Quota share treaty	None			None			None
Risk retained	$	750,000		$	750,000		$	750,000
Excess of loss coverage above risk retained	$	3,750,000		$	3,750,000		$	3,750,000
	in excess of			in excess of			in excess of
	$	750,000		$	750,000		$	750,000
Total reinsurance coverage per occurrence	$	3,750,000		$	3,750,000		$	3,750,000
Losses per occurrence subject to reinsurance coverage	$	4,500,000		$	4,500,000		$	4,500,000

Commercial Umbrella
Quota share treaty:	None			None
Percent ceded - first $1,000,000 of coverage								90	%
Percent ceded - excess of $1,000,000 of coverage								100	%
Risk retained							$	100,000
Total reinsurance coverage per occurrence							$	4,900,000
Losses per occurrence subject to quota share reinsurance coverage							$	5,000,000
Expiration date							June 30, 2019

	September 30,			December 31,			March 31,			December 31,
	2020			2019			2021			2020

5.50% Senior Unsecured Notes	$	30,000,000		$	30,000,000		$	30,000,000		$	30,000,000
Discount		(73,023	)		(97,325	)		(56,773	)		(64,883	)
Issuance costs		(323,411	)		(431,244	)		(251,571	)		(287,506	)
Long-term debt, net	$	29,603,566		$	29,471,431		$	29,691,656		$	29,647,611

Stock Options	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2020		82,000		$	8.61		3.38	$	0

Granted		74,523		$	7.96		4.34	$	-
Exercised		-		$	0		-	$	-
Forfeited		(36,557	)	$	8.43		-	$	-

Outstanding at September 30, 2020		119,966		$	8.26		3.80	$	-

Vested and Exercisable at September 30, 2020		50,000		$	8.45		1.34	$	0

Stock Options	Number of Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2021		119,966		$	8.26		3.55	$	0

Granted		-		$	-		-	$	-
Exercised		-		$	-		-	$	-
Expired		(12,000	)	$	7.85		-	$	-

Outstanding at March 31, 2021		107,966		$	8.31		3.68	$	33,994

Vested and Exercisable at March 31, 2021		27,500		$	8.64		3.18	$	1,725

Restricted Stock Awards	Shares			Weighted Average Grant Date Fair Value per Share		Aggregate Fair Value

Balance at January 1, 2020		213,929		$	16.51	$	3,554,174

Granted		209,518		$	7.93	$	1,661,504
Vested		(91,863	)	$	14.49	$	(1,331,254	)
Forfeited		(19,266	)	$	15.18	$	(292,455	)

Balance at September 30, 2020		312,318		$	10.45	$	3,591,969

	September 30,			December 31,
Type of NOL	2020			2019			Expiration

Federal only, current year	$	0		$	1,517,866		(A)

State only (B)		1,864,863			1,616,568		December 31, 2040
Valuation allowance		(1,809,018	)		(1,548,187	)
State only, net of valuation allowance		55,845			68,381

Total deferred tax asset from net operating loss carryovers	$	55,845		$	1,586,247

~~(A)~~	On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. The Company will elect on its 2019 federal income tax return to carry back the 2019 NOL to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019.

~~(B)~~	Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of September 30, 2020 and December 31, 2019 was approximately $28,690,000and $24,901,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax, which is included in the consolidated statements of operations and comprehensive income (loss) within other underwriting expenses. Kingstone has recorded a valuation allowance due to the uncertainty of generating enough state taxable income to utilize 100% of the available state NOLs over their remaining lives, which expire between 2027 and 2040.

~~(2)~~	~~Deferred tax liability – Investment in KICO~~

	Three months ended			Nine months ended
Lease cost	September 30, 2020			September 30, 2020
Operating leases	$	61,297		$	183,891
Short-term leases		0			0
Total lease cost (1)	$	61,297		$	183,891

Other information on operating leases
Cash payments included in the measurement of lease
liability reported in operating cash flows	$	62,782		$	147,018
Discount rate		5.50	%		5.50	%
Remaining lease term in years	5 years			5 years