| The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through | |
(6) | Excludes freeze and freeze related claims. | |
(7) | For the period January 1, 2022 through January 1, 2023, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty. Excludes losses from named storms. | |
(8) | Excess of loss and catastrophe reinsurance treaties will expire on June 30, 2022; reinsurance coverage in effect from July 1, 2022 through January 1, 2023 is only for personal lines quota share (homeowners, dwelling fire and canine legal liability) and underlying excess of loss reinsurance. | |
(9) | For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. | |
(10) | Plus losses in excess of catastrophe coverage. |
|
| Treaty Year |
| Treaty Year | ||||||||||||||||
|
| July 1, 2021 |
| July 1, 2020 |
| July 1, 2019 |
| July 1, 2021 | July 1, 2020 | |||||||||||
|
| to |
| to |
| to |
| to | to | |||||||||||
Line of Business |
| June 30, 2022 |
|
| June 30, 2021 |
|
| June 30, 2020 |
| June 30, 2022 | June 30, 2021 | |||||||||
|
|
|
|
|
|
|
| |||||||||||||
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 | % |
| 95 | % |
| 100 | % | |||||||||||
Percent ceded - excess of $1,000,000 dollars of coverage | 95 | % | 95 | % | ||||||||||||||||
Risk retained |
| $ | 300,000 |
| $ | 300,000 |
| $ | 100,000 |
| $ | 300,000 | $ | 300,000 | ||||||
Total reinsurance coverage per occurrence |
| $ | 4,700,000 |
| $ | 4,700,000 |
| $ | 4,900,000 |
| $ | 4,700,000 | $ | 4,700,000 | ||||||
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, 2022 |
| June 30, 2021 |
| June 30, 2020 |
| June 30, 2022 | June 30, 2021 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Commercial Lines (1): |
|
|
|
|
|
|
| |||||||||||||
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 |
| None | ||||||||||||
(1) | Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss. |
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.
| 26 |
| Table Of Contents |
Ceding Commission Revenue
The Company earned ceding commission revenue under the 2021/2023 Treaty for the three months ended March 31, 2022 based on a fixed provisional commission rate at which provisional ceding commissions will be earned. There was no quota share treaty in effect during the three months ended March 31, 2021. The Company earned ceding commission revenue under its expired quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions were earned, and (ii) a continuing 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.
The Company’s estimated ultimate treaty year loss ratios (the “Loss Ratio(s)”) for treaties in effect during the three months and six months ended June 30, 2020 are attributable to contracts under the 2019/2020 Treaty. There was no treaty in effect during the three months and six months ended June 30, 2021. In addition to the treaty that was in effect during the three months and six months ended June 30, 2020, 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.
Ceding commission revenue consists of the following:
|
| Three months ended |
| Six months ended |
| Three months ended | ||||||||||||||||||
|
| June 30, |
| June 30, |
| March 31, | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||||
|
|
|
|
|
|
| ||||||||||||||||||
Provisional ceding commissions earned |
| $ | 49,589 |
| $ | 3,440,676 |
| $ | 95,088 |
| $ | 7,161,036 |
| $ | 4,541,533 | $ | 45,499 | |||||||
Contingent ceding commissions earned |
|
| (3,848 | ) |
|
| 39,538 |
|
|
| (50,412 | ) |
|
| 150,277 |
| 139,863 | (46,564 | ) | |||||
|
| $ | 45,741 |
|
| $ | 3,480,214 |
|
| $ | 44,676 |
|
| $ | 7,311,313 |
| $ | 4,681,396 | $ | (1,065 | ) | |||
Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled periodically based on the Loss Ratio of each treaty year that ends on June 30.30, for the expired treaties that were subject to contingent commissions. 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 June 30, 2021March 31, 2022 and December 31, 2020,2021, net contingent ceding commissions payable to reinsurers under all treaties was approximately $2,026,000$2,741,000 and $2,604,000,$2,881,000, 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”). 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 cost basis in the stock. At June 30, 2021March 31, 2022 and December 31, 2020,2021, no impairment has been recognized. FHLBNY members have access to a variety of flexible, low costlow-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 backedmortgage-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 daysone year of borrowing. TheKICO is currently able to borrow on an overnight basis. If KICO has collateral, the maximum allowable advance as of June 30, 2021March 31, 2022 was approximately $12,480,000.$13,314,000 . Advances are limited to 85% of the amount of available collateral, which was approximately $9,211,000 as of June 30, 2021.March 31, 2022 and December 31, 2021 was $-0-. There werehave been no borrowings under this facility duringsince the six months ended June 30, 2021 and 2020.KICO became a member of FHLBNY.
| 27 |
| Table Of Contents |
Long-term Debt
On December 19, 2017, the Company issued $30 million of its 5.50% Senior Unsecured Notes 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 $163,200 and transaction costs of $715,170, for an effective yield of 5.67% per annum. The balance of long-term debt as of June 30, 2021March 31, 2022 and December 31, 20202021 is as follows:
|
| June 30, |
|
| December 31, |
| ||
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
|
|
| ||
5.50% Senior Unsecured Notes |
| $ | 30,000,000 |
|
| $ | 30,000,000 |
|
Discount |
|
| (48,662 | ) |
|
| (64,883 | ) |
Issuance costs |
|
| (215,637 | ) |
|
| (287,506 | ) |
Long-term debt, net |
| $ | 29,735,701 |
|
| $ | 29,647,611 |
|
March 31, | December 31, | |||||||
2022 | 2021 | |||||||
5.50% Senior Unsecured Notes | $ | 30,000,000 | $ | 30,000,000 | ||||
Discount | (24,331 | ) | (32,442 | ) | ||||
Issuance costs | (107,833 | ) | (143,767 | ) | ||||
Debt, net | $ | 29,867,836 | $ | 29,823,791 | ||||
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.points (“Make Whole Call”).
Due to the Make Whole Call, management intends to retire the Notes at or close to the scheduled maturity date in December 2022. Management plans to refinance the Notes with a new issue of debt of similar or longer maturity that would result in net proceeds equal to or greater than the principal amount of the current issue. In connection therewith, the Company has engaged an investment banker to serve as exclusive placement agent for a proposed offering by the Company of its securities (including debt, equity and/or preferred securities). The engagement letter indicates that the offering would be of such size as to generate proceeds to the Company of no less than $30,000,000. The Company also plans to use dividends paid to it by KICO, its insurance subsidiary, to repay the Notes. As of March 31, 2022, the maximum distribution that KICO could pay the Company without prior regulatory approval was approximately $1,122,000. Further, the Company plans to use available invested assets and cash to repay the Notes. As of March 31, 2022 and December 31, 2021, invested assets and cash was approximately $3,812,000 and $1,108,000, respectively.
The Company has used an aggregate $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 was 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.
| 28 |
| Table Of Contents |
Note 8 -– Stockholders’ Equity
Dividends Declared and Paid
Dividends declared and paid on Common Stock were $854,272$425,490 and $1,103,400$427,217 for the sixthree months ended June 30,March 31, 2022 and 2021, and 2020, respectively. The Company’sCompany announced on May 2, 2022 that its Board of Directors approved a quarterly dividend on July 29, 2021 of $.04$0.04 per share payable in cash on SeptemberJune 15, 20212022 to stockholders of record as of AugustMay 31, 20212022 (see Note 13 - Subsequent Events).
Stock Options
Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which a maximum of 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 of shares of Common Stock of the Company that are authorized to be issued pursuant to the 2014 Plan to 1,400,000.
The results of operations for the three months ended June 30,March 31, 2022 and 2021 and 2020 include stock-based compensation expense for stock options totaling approximately $14,000$6,000 and $21,000, respectively. The results of operations for the six months ended June 30, 2021 and 2020 include stock-based compensation expense for stock options totaling approximately $29,000 and $38,000,$14,000, respectively. Stock-based compensation expense related to stock options for the three months ended March 31, 2022 and 2021 is net of estimated forfeitures of approximately 16% for the three months18% and six months ended June 30, 2021 and 2020.16%, respectively. Such amounts have been included in the condensed consolidated statements of operations and comprehensive income (loss)loss within other operating expenses.
No options were granted during the sixthree months ended June 30, 2021. The weighted average estimated fair value of stock options granted during the six months ended June 30, 2020 was $2.40 per share.March 31, 2022. The fair value of stock options at the grant date wasare estimated using the Black-Scholes option-pricing model.
The following weighted average assumptions were used for grants during the following periods:
| ||||||||
| ||||||||
|
| |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
The Black-Scholes option 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 sixthree months ended June 30, 2021March 31, 2022 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, 2021 |
|
| 119,966 |
|
| $ | 8.26 |
|
|
| 3.55 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Exercised |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Expired |
|
| (12,000 | ) |
| $ | 7.85 |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2021 |
|
| 107,966 |
|
| $ | 8.31 |
|
|
| 3.43 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at June 30, 2021 |
|
| 27,500 |
|
| $ | 8.64 |
|
|
| 2.94 |
|
| $ | 0 |
|
Stock Options |
| Number of Shares |
|
| Weighted Average Exercise Price per Share |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding at January 1, 2022 |
|
| 107,201 |
|
| $ | 8.31 |
|
|
| 2.92 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | - |
|
Exercised |
|
| - |
|
| $ | 0 |
|
|
| - |
|
| $ | - |
|
Expired/Forfeited |
|
| - |
|
| $ | 0 |
|
| $ | - |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2022 |
|
| 107,201 |
|
| $ | 8.31 |
|
|
| 2.68 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at March 31, 2022 |
|
| 37,500 |
|
| $ | 8.72 |
|
|
| 2.49 |
|
| $ | 0 |
|
The aggregate intrinsic value of options outstanding and options exercisable at June 30, 2021March 31, 2022 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 $7.80$5.32 closing price of the Company’s Common Stock on June 30, 2021.March 31, 2022. No options were exercised, forfeited or expired during the sixthree months ended June 30, 2021.March 31, 2022. The total intrinsic value of options when forfeited are determined as of the date of forfeiture. The total intrinsic value of options when expired during the six months ended June 30, 2021 was $-0-,are determined as of the date of 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 June 30, 2021,March 31, 2022, the estimated fair value of unamortized compensation cost related to unvested stock option awards was approximately $36,000.$3,000. Unamortized compensation cost as of June 30, 2021March 31, 2022 is expected to be recognized over a remaining weighted-average vesting period of 0.820.50 years.
As of June 30, 2021,March 31, 2022, there were 504,376346,666 shares reserved for grants under the 2014 Plan.
| 30 |
| Table Of Contents |
Restricted Stock Awards
A summary of the restricted Common Stock activity under the Company’s 2014 Plan for the sixthree months ended June 30, 2021March 31, 2022 is as follows:
Restricted Stock Awards |
| Shares |
|
| Weighted Average Grant Date Fair Value per Share |
|
| Aggregate Fair Value |
|
| Shares |
|
| Weighted Average Grant Date Fair Value per Share |
|
| Aggregate Fair Value |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at January 1, 2021 |
| 370,964 |
| $ | 9.96 |
| $ | 3,990,999 |
| |||||||||||||||
Balance at January 1, 2022 |
| 628,531 |
| $ | 7.01 |
| $ | 6,074,595 |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Granted |
| 321,335 |
| $ | 6.95 |
| $ | 2,233,366 |
|
| 98,456 |
| $ | 5.53 |
| $ | 544,503 |
| ||||||
Vested |
| (99,123 | ) |
| $ | 9.24 |
| $ | (916,198 | ) |
| (245,604 | ) |
| $ | 7.14 |
| $ | (1,752,745 | ) | ||||
Forfeited |
|
| (7,133 | ) |
| $ | - |
| $ | 0 |
|
|
| - |
|
| $ | - |
| $ | - |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Balance at June 30, 2021 |
|
| 586,043 |
|
| $ | 8.92 |
|
| $ | 5,308,167 |
| ||||||||||||
Balance at March 31, 2022 |
|
| 481,383 |
|
| $ | 6.97 |
|
| $ | 4,866,352 |
| ||||||||||||
Fair value was calculated using the closing price of the Company’s Common Stock on the grant date. For the three months ended June 30,March 31, 2022 and 2021, and 2020, stock-based compensation for these grants was approximately $472,000$518,000 and $434,000,$481,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss). For the six months ended June 30, 2021 and 2020, stock-based compensation for these grants was approximately $952,000 and $905,000, 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.
Employee Stock Purchase Plan On June 19, 2021, the Company’s Board of Directors adopted the Kingstone Companies, Inc. Employee Stock Purchase Plan (the “ESPP”), subject to stockholder approval. Such approval was obtained on August 10, 2021. The purpose of the ESPP is to provide eligible employees of the Company with an opportunity to use payroll deductions to purchase shares of Common Stock of the Company. The maximum number of shares of Common Stock that may be purchased under the ESPP is 750,000, subject to adjustment as provided for in the ESPP. The ESPP was effective August 10, 2021 and expires on August 10, 2031. A maximum of 5,000 shares of Common Stock may be purchased by an employee during any offering period. The ESPP currently provides for an offering period from November 1, 2021 through October 31, 2022 (“2021/2022 Offering”). For the three months ended March 31, 2022 and 2021, stock-based compensation under the 2021/2022 Offering was approximately $6,000 and $-0-, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss. |
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.
| 31 |
| Table Of Contents |
Significant components of the Company’s deferred tax assets and liabilities are as follows:
|
| June 30, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
| 2021 |
| |||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Deferred tax asset: |
|
|
|
|
|
|
|
|
|
| ||||||
Net operating loss carryovers (1) |
| $ | 0 |
| $ | 0 |
|
| $ | 3,301,658 |
| $ | 1,112,318 |
| ||
Claims reserve discount |
| 955,790 |
| 838,030 |
|
| 1,169,042 |
| 1,186,789 |
| ||||||
Unearned premium |
| 3,908,439 |
| 3,880,275 |
|
| 3,279,286 |
| 3,246,364 |
| ||||||
Deferred ceding commission revenue |
| 17,763 |
| 19,639 |
|
| 1,990,698 |
| 2,047,187 |
| ||||||
Net unrealized losses on securities |
| 509,869 |
| 0 |
| |||||||||||
Other |
|
| 651,819 |
|
|
| 648,691 |
|
|
| 1,066,609 |
|
|
| 1,220,898 |
|
Total deferred tax assets |
|
| 5,533,811 |
|
|
| 5,386,635 |
|
|
| 11,317,162 |
|
| 8,813,556 |
| |
|
|
|
|
|
|
|
|
|
|
| ||||||
Deferred tax liability: |
|
|
|
|
|
|
|
|
|
| ||||||
Investment in KICO (2) |
| 759,543 |
| 759,543 |
|
| 759,543 |
| 759,543 |
| ||||||
Deferred acquisition costs |
| 4,189,701 |
| 4,229,928 |
|
| 4,547,882 |
| 4,670,187 |
| ||||||
Intangible asset |
| 105,000 |
| 105,000 |
| |||||||||||
Intangibles |
| 105,000 |
| 105,000 |
| |||||||||||
Depreciation and amortization |
| 796,799 |
| 954,446 |
|
| 1,537,104 |
| 1,046,817 |
| ||||||
Net unrealized gains of securities - available-for-sale |
|
| 3,696,296 |
|
|
| 3,494,631 |
| ||||||||
Net unrealized gains on securities |
|
| 0 |
|
|
| 2,039,756 |
| ||||||||
Total deferred tax liabilities |
|
| 9,547,339 |
|
|
| 9,543,548 |
|
|
| 6,949,529 |
|
| 8,621,303 |
| |
|
|
|
|
|
|
|
|
|
|
| ||||||
Net deferred income tax liability |
| $ | (4,013,528 | ) |
| $ | (4,156,913 | ) | ||||||||
Net deferred income tax asset |
| $ | 4,367,633 |
| $ | 192,253 |
| |||||||||
(1) | The deferred tax assets from net operating loss carryovers (“NOL”) are as follows: |
|
|
|
| March 31, | December 31, | |||||||||||||||||
Type of NOL |
| June 30, 2021 |
|
| December 31, 2020 |
|
| Expiration | 2022 | 2021 | Expiration | |||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Federal only, current year (A) |
| $ | 0 |
| $ | 1,200,056 |
|
| ||||||||||||||
Federal only, NOL from 2022 and 2021 | $ | 3,301,658 | $ | 1,112,318 | ||||||||||||||||||
NOL carried back |
|
| 0 |
|
|
| (1,200,056 | ) |
|
| 0 | 0 | ||||||||||
Federal only, current year |
| $ | 0 |
|
| $ | 0 |
|
| None | ||||||||||||
Federal only, NOL from 2022 and 2021 | 3,301,658 | 1,112,318 | None | |||||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||
State only |
| 1,993,964 |
| 1,815,546 |
| December 31, 2040 | 2,127,859 | 2,099,239 | December 2027 - December 2042 | |||||||||||||
Valuation allowance |
|
| (1,993,964 | ) |
|
| (1,815,546 | ) |
|
| (2,127,859 | ) | (2,099,239 | ) | ||||||||
State only, net of valuation allowance |
|
| 0 |
|
|
| 0 |
|
|
| 0 | 0 | ||||||||||
|
|
|
|
|
|
| ||||||||||||||||
Total deferred tax asset from net operating loss carryovers |
| $ | 0 |
|
| $ | 0 |
|
|
| $ | 3,301,658 | $ | 1,112,318 | ||||||||
(A) Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of March 31, 2022 and December 31, 2021 was approximately $32,736,000 and $32,296,000, 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 condensed 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 2042.
(2) Deferred tax liability – Investment in KICO
| Table |
|
|
|
|
|
|
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 $3,750,000 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 “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 $759,543 upon the reduction of federal income tax rates as of December 31, 2017. The Company is required to maintain its deferred tax liability of $759,543 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.
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 sixthree months ended June 30, 2021March 31, 2022 and 2020.2021. 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, 20172018 through December 31, 20192020 remain subject to examination.
Note 10 -Earnings/(Loss)–Loss Per Common Share
Basic net earnings/(loss)loss per common share is computed by dividing income/(loss)loss available to common shareholders by the weighted-average number of shares of Common Stock outstanding. Diluted earnings/(loss)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)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)loss per common share excludes outstanding options in periods where the exercise of such options would be anti-dilutive. For the sixthree months ended June 30,March 31, 2022 and 2021, no options were included in the computation of diluted earningsloss 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 earningsloss 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)loss per common share follows:
|
| Three months ended |
| Six months ended |
| Three months ended | ||||||||||||||||||
|
| June 30, |
| June 30, |
| March 31, | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average number of shares outstanding |
| 10,670,831 |
| 10,733,354 |
| 10,673,550 |
| 10,770,598 |
| 10,630,450 | 10,676,298 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Effect of dilutive securities, common share equivalents: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Stock options |
| - |
| - |
| 0 |
| 0 |
| - | - | |||||||||||||
Restricted stock awards |
|
| 175,893 |
|
|
| 1,430 |
|
|
| 136,374 |
|
|
| 0 |
| - | - | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Weighted average number of shares outstanding, used for computing diluted earnings per share |
|
| 10,846,724 |
|
|
| 10,734,784 |
|
|
| 10,809,924 |
|
|
| 10,770,598 |
| ||||||||
Weighted average number of shares outstanding, used for computing diluted loss per share | 10,630,450 | 10,676,298 | ||||||||||||||||||||||
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.
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 hashad a term of seven years and two months expiring December 31, 2026. During January 2022, pursuant to a mutual agreement with the landlord at a cost of $40,000, the Cosi lease was terminated effective as of January 31, 2022.
| 34 |
| Table Of Contents |
Additional information regarding the Company’s office operating leases is as follows:
|
| Three months ended |
|
| Six months ended |
| ||
Lease cost |
| June 30, 2021 |
|
| June 30, 2021 |
| ||
Operating leases |
| $ | 58,988 |
|
| $ | 117,977 |
|
Short-term leases |
|
| 0 |
|
|
| 0 |
|
Total lease cost (1) |
| $ | 58,988 |
|
| $ | 117,977 |
|
|
|
|
|
|
|
|
|
|
Other information on operating leases |
|
|
|
|
|
|
|
|
Cash payments included in the measurement of lease |
|
|
|
|
|
|
|
|
liability reported in operating cash flows |
| $ | 66,531 |
|
| $ | 131,510 |
|
Discount rate |
|
| 5.50 | % |
|
| 5.50 | % |
Remaining lease term in years |
| 6.25 years |
|
| 6.25 years |
| ||
Threee months ended | Threee months ended | |||||||
Lease cost | March 31, 2022 | March 31, 2021 | ||||||
Operating lease | $ | 46,938 | $ | 60,518 | ||||
Short-term leases | 0 | 0 | ||||||
Total lease cost (1) (2) | $ | 46,938 | $ | 60,518 | ||||
Other information on operating leases | ||||||||
Cash payments included in the measurement of lease liability reported in operating cash flows | $ | 53,003 | $ | 64,979 | ||||
Discount rate | 5.50 | % | 5.50 | % | ||||
Remaing lease term in years | ||||||||
KICO | 2 years | 3 years | ||||||
Cosi | - | 5.75 years | ||||||
(1) | Included in the condensed consolidated statements of operations and comprehensive |
The following table presents the contractual maturities of the Company’s lease liabilities as of June 30, 2021:March 31, 2022:
For the Year Ending December 31, |
| Total |
| |
Remainder of 2021 |
| $ | 133,061 |
|
2022 |
|
| 273,831 |
|
2023 |
|
| 283,415 |
|
2024 |
|
| 140,739 |
|
2025 |
|
| 94,799 |
|
Thereafter |
|
| 98,117 |
|
Total undiscounted lease payments |
|
| 1,023,962 |
|
Less: present value adjustment |
|
| 152,191 |
|
Operating lease liability |
| $ | 871,771 |
|
For the Year | ||||
Ending | ||||
December 31, | Total | |||
Remainder of 2022 | $ | 142,450 | ||
2023 | 194,919 | |||
2024 | 49,145 | |||
Total undiscounted lease payments | 386,514 | |||
Less: present value adjustment | 40,098 | |||
Operating lease liability (1) | $ | 346,416 | ||
(1) | The operating lease liability is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. |
Rent expense for the three months ended June 30,March 31, 2022 and 2021 and 2020 amounted to $58,988$46,938 and $61,297, respectively. Rent expense for the six months ended June 30, 2021 and 2020 amounted to $117,977 and $122,594,$60,518, respectively. Rent expense is included in the accompanying condensed consolidated statements of operations and comprehensive income (loss)loss within other underwriting expenses.
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 isbecame 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.
| Table |
Pursuant to the Amended Employment Agreement, Mr. Goldstein is entitled to receive an annual base salary of $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 157,431 shares of restricted stock under the terms of the Company’s 2014 Plan determined by dividing $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 each of the first anniversaryand second anniversaries of the grant date and will vest with respect to one-third of the award on each of the second anniversary of the grant date and December 31, 2022 based on the continued provision of services through the applicable vestingsuch date. Also pursuant to the Amended Employment Agreement, Mr. Goldstein received a grant, under the terms of the 2014 Plan, during January 2021, of 230,769 shares of restricted stock determined by dividing $1,500,000 by the fair market value of the Company’s Common Stock on the date of grant. This 2021 grant vested with respect to one-half of the award on the first anniversary of the grant date and will 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 vestingsuch date. Further, pursuant to the Amended Employment Agreement, Mr. Goldstein received in 2020, and 2021, and will be entitled to receive during 2022 a grant, under the terms of the 2014 Plan of a number of shares of restricted stock determined by dividing $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 17,191 shares of restricted stock pursuant to this provision. This grant vested with respect to one-third of the award on each of the first anniversaryand second anniversaries of the grant date and will vest with respect to one-third of the award on each of the second anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vestingsuch date. In January 2021, Mr. Goldstein was granted 21,000 shares of restricted stock pursuant to thethis provision. This grant vested with respect to one-half of the award on the first anniversary of the grant date and will 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 vestingsuch date. TheIn January 2022, Mr. Goldstein was granted 27,300 shares of restricted stock pursuant to this provision. This grant will vest on December 31, 2022 based on the continued provision of services through such date.
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 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 $20,000 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 President and 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, 2022.
| 36 |
| Table Of Contents |
Pursuant to the Golden Employment Agreement, Ms. Golden is entitled to receive an annual salary of $500,000. The Golden Employment also provides for the grant on the effective date of a five year option for the purchase of 50,000 shares of the Company’s Common Stock pursuant to the 2014 Plan. The options granted vest in four equal installments, with the first installment vesting on the grant date, and the remaining installments vesting on the first, second, and third anniversaries of the grant date, subject to the terms of the stock option agreement between the Company and Ms. Golden. In January 2021, pursuantPursuant to the Golden Employment Agreement as amended, in each of January 2021 and January 2022, 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.
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 including the emergence of new strains 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. TheAlthough the impact has been manageable thus far, 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 - – Employee Benefit Plans
Employee Bonus Plan
For the three months ended March 31, 2022 and year ended December 31, 2021 the Company did not accrue for, or pay, bonuses related to the employee bonus plan.
401 (k) Plan
The Company maintains a salary reduction plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) for its qualified employees. The Company matches 100% of each participant’s contribution up to 4% of the participant’s eligible contribution. The Company incurred approximately $62,000 and $56,000 of expense for the three months ended March 31, 2022 and 2021, respectively, related to the 401(k) Plan, which is recorded in other operating expenses on the accompanying consolidated statements of operations and comprehensive loss.
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 June 30, 2021March 31, 2022 and December 31, 20202021 amounted to $826,626$947,184 and $763,789,$907,914, 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 sixthree months ended June 20, 2021March 31, 2022 and 2020.2021.
Note 13 -– Subsequent Events
The Company has evaluated events that occurred subsequent to June 30, 2021March 31, 2022 through the date these condensed consolidated financial statements were issued for matters that required disclosure or adjustment in these condensed consolidated financial statements.
Reinsurance
Effective July 1, 2021, the Company entered into new excessPreliminary Non-binding Indication of loss and catastrophe reinsurance treaties (see Note 6 - Property and Casualty Insurance Activity - “Reinsurance”).
A. M. BestInterest
On August 6, 2021, KICO’s A.M. Best financial strength rating was downgraded from B++ (Good) to B+ (Good) and its long-term issuer credit rating (“Long-Term ICR”) was downgraded from “bbb” to “bbb-”. Concurrently, A.M. Best also downgraded the Company’s Long-Term ICR from “bb” to “bb-”. Also downgraded was the long-term issue credit rating on the Company’s $30.0 million 5.50% senior unsecured notes dueMay 4, 2022, from “bb” to “bb-”.
Employee Stock Purchase Plan
On June 19, 2021,adopted the Employee Stock Purchase Plan (the “Purchase Plan”), subjectreceived a preliminary non-binding indication of interest from Griffin Highline Capital LLC with regard to stockholder approval. Such approval was obtained on August 10, 2021. The purposean acquisition of all of the Purchase Plan is to provide eligible employees of the Company with an opportunity to use payroll deductions to purchase shares of Common Stockoutstanding equity of the Company. The maximum numberSee Item 2 “Management’s Discussion and Analysis of sharesFinancial Condition and Results of Common Stock that may be purchased under the Purchase Plan is 750,000, subject to adjustment as providedOperations” for in the Purchase Plan.further details.
Dividends Declared
On July 29, 2021,May 2, 2022, the Company’sCompany announced that its Board of Directors approved a quarterly dividend of $0.04 per share payable in cash on SeptemberJune 15, 20212022 to stockholders of record as of the close of business on AugustMay 31, 20212022 (see Note 8 -– Stockholders’ Equity).
| Table |
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 months and six months ended June 30, 2021, respectively, 79.8% and 76.3%March 31, 2022, 80.6% 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. 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 (“Net Cosi Revenue”). Commission expense is reduced by Net Cosi Revenue and Cosi-related operating expenses are included in other operating expenses. Cosi-related operating expenses are not included in our stand-alone insurance underwriting business and, accordingly, 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.
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, occupancy and consulting costs.
| Table |
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.
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 policies as of July 31, 2019 for these lines were non-renewed at the end of their annual terms. As of June 30,March 31, 2022 and December 31, 2021, there arewere no commercial liability policies in-force. As of June 30, 2021,March 31, 2022, these expired policies represent approximately 26.5%19.9% 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.
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 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 comparability of our results of operations to those of similar companies. See the Critical Accounting Estimates section within Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021 for further information.
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.statements in our Annual Report on Form 10-K for the year ended December 31, 2021.
Preliminary Non-binding Indication of Interest
On May 4, 2022, our Board of Directors received a preliminary non-binding indication of interest from Griffin Highline Capital LLC (“Griffin Highline”) with regard to an acquisition of all of the outstanding equity of our company. TigerRisk Capital Markets & Advisory has been engaged to advise our Board of Directors regarding strategic transactions. Our Board of Directors will carefully review the proposal to determine the course of action that it believes is in the best interest of our company and all of our stockholders. Due to the uncertainty as to the consummation of a transaction of the type sought by Griffin Highline, nothing in this Quarterly Report, including the financial statements comprising a portion hereof, include any adjustments to reflect the possible effects of the consummation of such a transaction.
| Table |
Consolidated Results of Operations
SixThree Months Ended June 30, 2021March 31, 2022 Compared to SixThree Months Ended June 30, 2020March 31, 2021
The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:
|
| Six months ended June 30, |
| Three months ended March 31, | ||||||||||||||||||||||||||||
($ in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Percent |
| 2022 | 2021 | Change | Percent | ||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Direct written premiums |
| $ | 82,745 |
| $ | 79,347 |
| $ | 3,398 |
| 4.3 | % | $ | 42,984 | $ | 38,129 | $ | 4,855 | 12.7 | % | ||||||||||||
Assumed written premiums |
|
| - |
|
|
| - |
|
|
| - |
|
| na | % | - | - | - | na | % | ||||||||||||
|
|
| 82,745 |
|
|
| 79,347 |
|
|
| 3,398 |
|
| 4.3 | % | 42,984 | 38,129 | 4,855 | 12.7 | % | ||||||||||||
Ceded written premiums |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Ceded to quota share treaties |
| 236 |
| 15,600 |
| (15,364 | ) |
| (98.5 | )% | ||||||||||||||||||||||
Ceded to quota share treaties (1) | 10,146 | 138 | 10,008 | 7,252.2 | % | |||||||||||||||||||||||||||
Ceded to excess of loss treaties |
| 1,059 |
| 947 |
| 112 |
| 11.8 | % | 857 | 524 | 333 | 63.5 | % | ||||||||||||||||||
Ceded to catastrophe treaties |
|
| 13,336 |
|
|
| 11,519 |
|
|
| 1,817 |
|
| 15.8 | % | 7,063 | 6,668 | 395 | 5.9 | % | ||||||||||||
Total ceded written premiums |
|
| 14,631 |
|
|
| 28,066 |
|
|
| (13,435 | ) |
| (47.9 | )% | 18,066 | 7,330 | 10,736 | 146.5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net written premiums |
|
| 68,114 |
|
|
| 51,281 |
|
|
| 16,833 |
|
| 32.8 | % | 24,918 | 30,799 | (5,881 | ) | (19.1 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Change in unearned premiums |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Direct and assumed |
| 1,937 |
| 5,377 |
| (3,440 | ) |
| (64.0 | )% | 2,393 | 3,789 | (1,396 | ) | (36.8 | )% | ||||||||||||||||
Ceded to quota share treaties |
|
| (25 | ) |
|
| (3,080 | ) |
|
| 3,055 |
|
| 99.2 | % | |||||||||||||||||
Ceded to quota share treaties (1) | (638 | ) | - | (638 | ) | na | % | |||||||||||||||||||||||||
Change in net unearned premiums |
|
| 1,912 |
|
|
| 2,297 |
|
|
| (385 | ) |
| (16.8 | )% | 1,755 | 3,789 | (2,034 | ) | (53.7 | )% | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Premiums earned |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Direct and assumed |
| 84,681 |
| 84,724 |
| (43 | ) |
| (0.1 | )% | 45,378 | 41,918 | 3,460 | 8.3 | % | |||||||||||||||||
Ceded to reinsurance treaties |
|
| (14,655 | ) |
|
| (31,146 | ) |
|
| 16,491 |
|
| 52.9 | % | (18,705 | ) | (7,329 | ) | (11,376 | ) | (155.2 | )% | |||||||||
Net premiums earned |
| 70,026 |
| 53,578 |
| 16,448 |
| 30.7 | % | 26,673 | 34,589 | (7,916 | ) | (22.9 | )% | |||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Ceding commission revenue |
| 45 |
| 7,311 |
| (7,266 | ) |
| (99.4 | )% | 4,681 | (1 | ) | 4,682 | na | % | ||||||||||||||||
Net investment income |
| 3,461 |
| 3,278 |
| 183 |
| 5.6 | % | 1,359 | 1,783 | (424 | ) | (23.8 | )% | |||||||||||||||||
Net gains (losses) on investments |
| 5,276 |
| (3,746 | ) |
| 9,022 |
| na | % | ||||||||||||||||||||||
Net (losses) gains on investments | (4,398 | ) | 2,960 | (7,358 | ) | (248.6 | )% | |||||||||||||||||||||||||
Other income |
|
| 296 |
|
|
| 522 |
|
|
| (226 | ) |
| (43.3 | )% | 236 | 172 | 64 | 37.2 | % | ||||||||||||
Total revenues |
|
| 79,104 |
|
|
| 60,943 |
|
|
| 18,161 |
|
| 29.8 | % | 28,551 | 39,503 | (10,952 | ) | (27.7 | )% | |||||||||||
Expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Direct and assumed: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses excluding the effect of catastrophes |
| 44,096 |
| 37,081 |
| 7,015 |
| 18.9 | % | 26,509 | 23,156 | 3,353 | 14.5 | % | ||||||||||||||||||
Losses from catastrophes (1) |
|
| 106 |
|
|
| 2,338 |
|
|
| (2,232 | ) |
| (95.5 | )% | |||||||||||||||||
Losses from catastrophes (2) | 6,837 | 229 | 6,608 | 2,885.6 | % | |||||||||||||||||||||||||||
Total direct and assumed loss and loss adjustment expenses |
|
| 44,202 |
|
|
| 39,419 |
|
|
| 4,783 |
|
| 12.1 | % | 33,346 | 23,385 | 9,961 | 42.6 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Ceded loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses excluding the effect of catastrophes |
| 882 |
| 9,592 |
| (8,710 | ) |
| (90.8 | )% | 6,587 | 824 | 5,763 | 699.4 | % | |||||||||||||||||
Losses from catastrophes (1) |
|
| - |
|
|
| 628 |
|
|
| (628 | ) |
| (100.0 | )% | |||||||||||||||||
Losses from catastrophes (2) | 3,818 | - | 3,818 | na | % | |||||||||||||||||||||||||||
Total ceded loss and loss adjustment expenses |
|
| 882 |
|
|
| 10,220 |
|
|
| (9,338 | ) |
| (91.4 | )% | 10,405 | 824 | 9,581 | 1,162.7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses excluding the effect of catastrophes |
| 43,214 |
| 27,489 |
| 15,725 |
| 57.2 | % | 19,922 | 22,332 | (2,410 | ) | (10.8 | )% | |||||||||||||||||
Losses from catastrophes (1) |
|
| 106 |
|
|
| 1,710 |
|
|
| (1,604 | ) |
| (93.8 | )% | |||||||||||||||||
Losses from catastrophes (2) | 3,019 | 229 | 2,790 | 1,218.3 | % | |||||||||||||||||||||||||||
Net loss and loss adjustment expenses |
|
| 43,320 |
|
|
| 29,199 |
|
|
| 14,121 |
|
| 48.4 | % | 22,941 | 22,561 | 380 | 1.7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Commission expense |
| 16,509 |
| 15,616 |
| 893 |
| 5.7 | % | 8,351 | 8,223 | 128 | 1.6 | % | ||||||||||||||||||
Other underwriting expenses |
| 13,160 |
| 13,087 |
| 73 |
| 0.6 | % | 6,816 | 6,467 | 349 | 5.4 | % | ||||||||||||||||||
Other operating expenses |
| 2,286 |
| 2,326 |
| (40 | ) |
| (1.7 | )% | 882 | 1,352 | (470 | ) | (34.8 | )% | ||||||||||||||||
Depreciation and amortization |
| 1,660 |
| 1,360 |
| 300 |
| 22.1 | % | 770 | 822 | (52 | ) | (6.3 | )% | |||||||||||||||||
Interest expense |
|
| 913 |
|
|
| 913 |
|
|
| - |
|
| - | % | 457 | 457 | - | - | % | ||||||||||||
Total expenses |
|
| 77,849 |
|
|
| 62,503 |
|
|
| 15,347 |
|
| 24.6 | % | 40,217 | 39,882 | 335 | 0.8 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Income (loss) before taxes |
| 1,256 |
| (1,560 | ) |
| 2,816 |
| na | % | ||||||||||||||||||||||
Income tax expense (benefit) |
|
| 244 |
|
|
| (724 | ) |
|
| 968 |
|
| na | % | |||||||||||||||||
Net income (loss) |
| $ | 1,012 |
|
| $ | (836 | ) |
| $ | 1,848 |
|
| na | % | |||||||||||||||||
Loss before taxes | (11,666 | ) | (379 | ) | (11,287 | ) | (2,978.1 | )% | ||||||||||||||||||||||||
Income tax benefit | (2,468 | ) | (68 | ) | (2,400 | ) | (3,529.4 | )% | ||||||||||||||||||||||||
Net loss | $ | (9,198 | ) | $ | (311 | ) | $ | (8,887 | ) | (2,857.6 | )% | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
(Columns in the table above may not sum to totals due to rounding) | (Columns in the table above may not sum to totals due to rounding) | |||||||||||||||||||||||||||||||
(1) | Effective December 31, 2021, we entered into a 30% quota share treaty. | |
(2) | The |
| Table |
|
| Six months ended June 30, |
| Three months ended March 31, | ||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Percentage Point Change |
|
| Percent Change |
| 2022 | 2021 | Percentage Point Change | Percent Change | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Key ratios: |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Net loss ratio |
| 61.9 | % |
| 54.5 | % |
| 7.4 |
| 13.6 | % | 86.0 | % | 65.2 | % | 20.8 | 31.9 | % | ||||||||||||||
Net underwriting expense ratio |
|
| 41.9 | % |
|
| 39.0 | % |
|
| 2.9 |
|
| 7.4 | % | 38.5 | % | 42.0 | % | (3.5 | ) | (8.3 | )% | |||||||||
Net combined ratio |
|
| 103.8 | % |
|
| 93.5 | % |
|
| 10.3 |
|
| 11.0 | % | 124.5 | % | 107.2 | % | 17.3 | 16.1 | % | ||||||||||
Direct Written Premiums
Direct written premiums during the sixthree months ended June 30,March 31, 2022 (“Three Months 2022”) were $42,984,000 compared to $38,129,000 during the three months ended March 31, 2021 (“SixThree Months 2021”) were $82,745,000 compared to $79,347,000 during the six months ended June 30, 2020 (“Six Months 2020”). The increase of $3,398,000,$4,855,000, or 4.3%12.7%, was primarily due an increase in premiums from our personal lines business. Direct written premiums from our personal lines business for SixThree Months 20212022 were $78,608,000,$40,163,000, an increase of $2,650,000,$4,005,000, or 3.5%11.1%, from $75,958,000$36,158,000 in SixThree Months 2020.2021. The increase in premiums from our personal lines business was primarily due to rate increases, and, to a lesser extent, an increase in policies in force. Direct written premiums from our livery physical damage business for SixThree Months 20212022 were $4,023,000,$2,773,000, an increase of $602,000,$869,000, or 17.6%45.7%, from $3,421,000$1,904,000 in SixThree Months 2020.2021. The increase in livery physical damage direct written premiums iswas due to the declining effect of the Covid-19COVID-19 pandemic in our geographic area.
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 ExpansionCore business were $19,571,000$34,648,000 in SixThree Months 20212022 compared to $15,096,000$30,917,000 in SixThree Months 2020.2021. Direct written premiums from our CoreExpansion business were $63,173,000$8,336,000 in SixThree Months 20212022 compared to $64,251,000$7,212,000 in SixThree Months 2020.2021.
Net Written Premiums and Net Premiums Earned
Effective December 15, 2019,31, 2021, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 201931, 2021 through December 30, 2020January 1, 2023 (“2019/20202021/2023 Treaty”). Effective December 31, 2020, the 2019/2020 Treaty expired on a cut off basis; this treatyThere was not renewed. In addition to the 2019/2020 Treaty, our personal linesno quota share reinsurance treaty in effect for Sixin Three Months 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-Off”). The following table describes the quota share reinsurance ceding rates in effect during Six Months 2021 and Six Months 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.
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| |||||||
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| ||||||
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| ||||||
|
|
|
|
2021. Net written premiums increased $16,833,000,decreased $5,881,000, or 32.8%19.1%, to $68,114,000$24,918,000 in SixThree Months 20212022 from $51,281,000$30,799,000 in SixThree Months 2020.2021. 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 increase in net written premiums in SixIn Three Months 2021 was attributable to the expiration of the 2019/2020 Treaty on December 30, 2020 on a cut-off basis (see table above). In Six Months 2021,2022, our premiums ceded under quota share treaties decreasedincreased by $15,364,000$10,008,000 in comparison to ceded premiums in SixThree Months 2020.2021 (see table above). Our personal lines business was subject to the 2019/20202021/2023 Treaty from December 15, 2019 through December 30, 2020. Ourin Three Months 2022, compared to no personal lines business was subject to the 2018/2019 Treaty through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force continued to be ceded under the 10% quota share rate until such policies expired (run-off) over the next year. The 2019/2020 run-off period was 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 increasetreaty in written premiums will increase the premiums ceded under our excess of loss treaties. In SixThree Months 2021, our ceded excess of loss reinsurance premiums increased by $112,000 over the comparable ceded premiums for Six Months 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 Six Months 2021, our premiums ceded under catastrophe treaties increased by $1,817,000 over the comparable ceded premiums in Six Months 2020. The change was due to an increase in reinsurance rates effective July 1, 2020, partially offset by a decrease in our limit effective July 1, 2020. 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 were paid based on the total insured value of our risks calculated as of August 31, 2020.
Net premiums earned
Net premiums earned increased $16,448,000, or 30.7%, to $70,026,000 in Six Months 2021 from $53,578,000 in Six Months 2020. The increase was due to the expiration of both the 2019/2020 Treaty on December 30, 2020 on a cut-off basis and the 2019/2020 Run-Off as of June 30, 2020.2021.
| Table |
Ceding Commission Revenue
The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:
|
| Six Months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provisional ceding commissions earned |
| $ | 95 |
|
| $ | 7,161 |
|
| $ | (7,066 | ) |
|
| (98.7 | )% |
Contingent ceding commissions earned |
|
| (50 | ) |
|
| 150 |
|
|
| (200 | ) |
|
| n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ceding commission revenue |
| $ | 45 |
|
| $ | 7,311 |
|
| $ | (7,266 | ) |
|
| (99.4 | )% |
Ceding commission revenue was $45,000 in Six Months 2021 compared to $7,311,000 in Six Months 2020. The decrease of $7,266,000 was due to a decrease in both provisional ceding commissions earned and contingent ceding commissions earned. See below for a discussion of provisional ceding commissions earned and contingent ceding commissions earned.
Provisional Ceding Commissions Earned
Through December 30, 2020, we received a provisional ceding commission based on ceded written premiums. The $7,066,000 decrease in provisional ceding commissions earned was due to the expiration of both the 2019/2020 Treaty on December 30, 2020 on a cut-off basis and the 2019/2020 Run-Off as of June 30, 2020.
Contingent Ceding Commissions Earned
The structure of the 2019/2020 Treaty and 2019/2020 Run-Off called for a higher upfront provisional ceding commission and there was not an opportunity to earn additional contingent ceding commissions under 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.
Net Investment Income
Net investment income was $3,461,000 in Six Months 2021 compared to $3,278,000 in Six Months 2020, an increase of $183,000, or 5.6%. The average yield on invested assets was 3.45% as of June 30, 2021 compared to 3.53% as of June 30, 2020.
Cash and invested assets were $234,100,000 as of June 30, 2021 compared to $218,739,000 as of June 30, 2020. The $15,361,000 increase in cash and invested assets was primarily attributable to the return of premiums ceded, net of ceding commissions, at the expiration of the 2019/2020 Treaty and by an increase in unrealized gains during the periods after June 30, 2020.
Net Gains and Losses on Investments
Net gains on investments were $5,276,000 in Six Months 2021 compared to net losses of $3,746,000 in Six Months 2020. Unrealized gains on our equity securities and other investments in Six Months 2021 were $3,431,000, compared to unrealized losses of $4,022,000 in Six Months 2020. Realized gains on sales of investments were $1,844,000 in Six Months 2021 compared to a gain of $275,000 in Six Months 2020.
Other Income
Other income was $296,000 in Six Months 2021 compared to $522,000 in Six Months 2020. The decrease of $226,000, or 43.3%, was primarily due to the elimination of fees in our commercial lines business that was in run-off in Six 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 $43,320,000 for Six Months 2021 compared to $29,199,000 for Six Months 2020. The net loss ratio was 61.9% in Six Months 2021 compared to 54.5% in Six Months 2020, an increase of 7.4 percentage points.
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 Six Months 2021, the loss ratio was higher than Six Months 2020 mainly due to an elevated frequency of personal lines liability claims as well as water damage property claims. There were more liability claims reported during Six Month 2021 from both Homeowners and Dwelling Fire lines. Water losses were higher during Six Months 2021 compared to prior year period, but the observed activity was in the historical range.
The impact of catastrophe losses was low for Six Months 2021 due to a mild winter season. There were only four minor winter events classified as catastrophe during 2021 through June. The estimated net catastrophe losses were $106,000, which contributed 0.2 point to the loss ratio. This compares to a 3.2 points impact from catastrophe events from the corresponding period from prior year which also had a relatively mild winter.
Prior year development continued to be stable for Six Months 2021. There was an overall favorable development of $8,000, which had marginal impact on the loss ratio.
See table below under “Additional Financial Information” summarizing net loss ratios by line of business.
Commission Expense
Commission expense was $16,509,000 in Six Months 2021 or 19.5% of direct earned premiums. Commission expense was $15,616,000 in Six Months 2020 or 18.4% of direct earned premiums. The increase of $893,000 is primarily due to an increase in the estimate for annual contingent commissions for Six Months 2021 as compared to Six Months 2020.
Other Underwriting Expenses
Other underwriting expenses were $13,160,000 in Six Months 2021 compared to $13,087,000 in Six Months 2020. The modest increase of $73,000, or 0.6%, was primarily due to an initiative to reduce expenses with the use of technology.
Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $5,079,000 in Six Months 2021 compared to $5,342,000 in Six Months 2020. The decrease of $263,000, or 4.9%, compares favorably with the 3.5% increase in personal lines direct written premiums. The decrease in employment costs was attributable to staff reductions.
Our net underwriting expense ratio in Six Months 2021 was 41.9% compared to 39.0% in Six Months 2020. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:
|
| Six months ended |
|
|
| |||||||
|
| June 30, |
|
| Percentage |
| ||||||
|
| 2021 |
|
| 2020 |
|
| Point Change |
| |||
|
|
|
|
|
|
|
|
|
| |||
Other underwriting expenses |
|
|
|
|
|
|
|
|
| |||
Employment costs |
|
| 7.3 | % |
|
| 10.0 | % |
|
| (2.7 | ) |
Underwriting fees (inspections/data services) |
|
| 1.4 |
|
|
| 3.0 |
|
|
| (1.6 | ) |
IT expenses |
|
| 3.1 |
|
|
| 2.5 |
|
|
| 0.6 |
|
Other expenses |
|
| 6.9 |
|
|
| 9.0 |
|
|
| (2.1 | ) |
Total other underwriting expenses |
|
| 18.7 |
|
|
| 24.5 |
|
|
| (5.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 23.6 |
|
|
| 29.1 |
|
|
| (5.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Provisional |
|
| (0.1 | ) |
|
| (13.4 | ) |
|
| 13.3 |
|
Contingent |
|
| 0.1 |
|
|
| (0.3 | ) |
|
| 0.4 |
|
Total ceding commission revenue |
|
| - |
|
|
| (13.7 | ) |
|
| 13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| (0.4 | ) |
|
| (0.9 | ) |
|
| 0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net underwriting expense ratio |
|
| 41.9 | % |
|
| 39.0 | % |
|
| 2.9 |
|
The overall 13.7 percentage point decrease in the benefit from ceding commissions in Six Months 2020 was driven by the reduction in provisional ceding commission revenue due to the expiration of the 2019/2020 Treaty on December 30, 2020. The components of our net underwriting expense ratio related to other underwriting expenses and commissions decreased in all categories due to more retention after the expiration of the 2019/2020 Treaty on December 30, 2020, resulting in an 11.3 percentage point 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 $2,286,000 for Six Months 2021 compared to $2,326,000 for Six Months 2020. The decrease in Six Months 2021 of $40,000, or 1.7%, as compared to Six Months 2020 was primarily due to a decrease in professional fees, partially offset by an increase in employment costs due to fluctuations in deferred compensation 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).
Depreciation and Amortization
Depreciation and amortization was $1,660,000 in Six Months 2021 compared to $1,360,000 in Six Months 2020. The increase of $300,000, or 22.1%, in depreciation and amortization was primarily due to depreciation of new system platforms for policy and claims management and newly purchased assets used to upgrade our other systems.
Interest Expense
Interest expense was $913,000 for both Six Months 2021 and Six Months 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 expense in Six Months 2021 was $244,000, which resulted in an effective tax expense rate of 19.4%. Income tax benefit in Six Months 2020 was $724,000, which resulted in an effective tax expense rate of 46.4%. Income before taxes was $1,256,000 in Six Months 2021 compared to loss before taxes of $1,560,000 in Six Months 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 2020 NOLs. We will elect on our 2020 federal income tax return to carry back the entire annual 2020 NOL of $5,715,000 to tax year 2015. The corporate tax rate in 2015 was 34%, compared to the corporate tax rate of 21% in 2020.
Net Income (Loss)
Net income was $1,012,000 in Six Months 2021 compared to net loss of $836,000 in Six Months 2020. The increase in net income of $1,848,000 was due to the circumstances described above, which caused the increases in our net premiums earned, net investment income and net gains on investments, partially offset by the increases in net loss ratio, commission expense, other underwriting expenses, other operating expenses, depreciation and amortization, income tax expense and decreased in ceding commission revenue and other income.
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:
|
| Three months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Percent |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct written premiums |
| $ | 44,616 |
|
| $ | 42,650 |
|
| $ | 1,966 |
|
|
| 4.6 | % |
Assumed written premiums |
|
| - |
|
|
| - |
|
|
| - |
|
| na | % | |
|
|
| 44,616 |
|
|
| 42,650 |
|
|
| 1,966 |
|
|
| 4.6 | % |
Ceded written premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded to quota share treaties |
|
| 98 |
|
|
| 8,502 |
|
|
| (8,404 | ) |
|
| (98.8 | )% |
Ceded to excess of loss treaties |
|
| 535 |
|
|
| 452 |
|
|
| 83 |
|
|
| 18.4 | % |
Ceded to catastrophe treaties |
|
| 6,669 |
|
|
| 5,606 |
|
|
| 1,063 |
|
|
| 19.0 | % |
Total ceded written premiums |
|
| 7,302 |
|
|
| 14,560 |
|
|
| (7,258 | ) |
|
| (49.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
| 37,314 |
|
|
| 28,090 |
|
|
| 9,224 |
|
|
| 32.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| (1,852 | ) |
|
| (527 | ) |
|
| (1,325 | ) |
|
| (251.4 | )% |
Ceded to quota share treaties |
|
| (25 | ) |
|
| (926 | ) |
|
| 901 |
|
|
| 97.3 | % |
Change in net unearned premiums |
|
| (1,877 | ) |
|
| (1,453 | ) |
|
| (424 | ) |
|
| (29.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| 42,762 |
|
|
| 42,123 |
|
|
| 639 |
|
|
| 1.5 | % |
Ceded to reinsurance treaties |
|
| (7,326 | ) |
|
| (15,486 | ) |
|
| 8,160 |
|
|
| 52.7 | % |
Net premiums earned |
|
| 35,436 |
|
|
| 26,637 |
|
|
| 8,799 |
|
|
| 33.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue |
|
| 46 |
|
|
| 3,480 |
|
|
| (3,434 | ) |
|
| (98.7 | )% |
Net investment income |
|
| 1,678 |
|
|
| 1,612 |
|
|
| 66 |
|
|
| 4.1 | % |
Net gains on investments |
|
| 2,315 |
|
|
| 2,698 |
|
|
| (383 | ) |
|
| 14.2 | % |
Other income |
|
| 125 |
|
|
| 262 |
|
|
| (137 | ) |
|
| (52.3 | )% |
Total revenues |
|
| 39,600 |
|
|
| 34,689 |
|
|
| 4,911 |
|
|
| 14.2 | % |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 20,940 |
|
|
| 15,109 |
|
|
| 5,831 |
|
|
| 38.6 | % |
Losses from catastrophes (1) |
|
| (123 | ) |
|
| 2,057 |
|
|
| (2,180 | ) |
|
| na | % |
Total direct and assumed loss and loss adjustment expenses |
|
| 20,817 |
|
|
| 17,166 |
|
|
| 3,651 |
|
|
| 21.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 58 |
|
|
| 3,808 |
|
|
| (3,750 | ) |
|
| (98.5 | )% |
Losses from catastrophes (1) |
|
| - |
|
|
| 545 |
|
|
| (545 | ) |
|
| (100.0 | )% |
Total ceded loss and loss adjustment expenses |
|
| 58 |
|
|
| 4,353 |
|
|
| (4,295 | ) |
|
| (98.7 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 20,882 |
|
|
| 11,301 |
|
|
| 9,581 |
|
|
| 84.8 | % |
Losses from catastrophes (1) |
|
| (123 | ) |
|
| 1,512 |
|
|
| (1,635 | ) |
|
| na | % |
Net loss and loss adjustment expenses |
|
| 20,759 |
|
|
| 12,813 |
|
|
| 7,946 |
|
|
| 62.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 8,286 |
|
|
| 7,761 |
|
|
| 525 |
|
|
| 6.8 | % |
Other underwriting expenses |
|
| 6,693 |
|
|
| 6,325 |
|
|
| 368 |
|
|
| 5.8 | % |
Other operating expenses |
|
| 933 |
|
|
| 1,089 |
|
|
| (156 | ) |
|
| (14.3 | )% |
Depreciation and amortization |
|
| 837 |
|
|
| 673 |
|
|
| 164 |
|
|
| 24.4 | % |
Interest expense |
|
| 457 |
|
|
| 457 |
|
|
| - |
|
| - | % | |
Total expenses |
|
| 37,965 |
|
|
| 29,118 |
|
|
| 8,847 |
|
|
| 30.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes |
|
| 1,636 |
|
|
| 5,571 |
|
|
| (3,935 | ) |
|
| (70.6 | )% |
Income tax expense |
|
| 312 |
|
|
| 963 |
|
|
| (651 | ) |
|
| (67.6 | )% |
Net income |
| $ | 1,324 |
|
| $ | 4,608 |
|
| $ | (3,284 | ) |
|
| (71.3 | )% |
|
|
|
| Three months ended June 30, |
| |||||||||||||
|
| 2021 |
|
| 2020 |
|
| Percentage Point Change |
|
| Percent Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Key ratios: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss ratio |
|
| 58.6 | % |
|
| 48.1 | % |
|
| 10.5 |
|
|
| 21.8 | % |
Net underwriting expense ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 3.0 |
|
|
| 7.7 | % |
Net combined ratio |
|
| 100.4 | % |
|
| 86.9 | % |
|
| 13.5 |
|
|
| 15.5 | % |
Direct Written Premiums
Direct written premiums during the three months ended June 30, 2021 (“Three Months 2021”) were $44,616,000 compared to $42,650,000 during the three months ended June 30, 2020 (“Three Months 2020”). The increase of $1,966,000, or 4.6%, was primarily due an increase in premiums from our personal lines business. Direct written premiums from our personal lines business for Three Months 2021 were $42,450,000, an increase of $927,000, or 2.2%, from $41,523,000 in Three Months 2020. Direct written premiums from our livery physical damage business for Three Months 2021 were $2,119,000, an increase of $1,013,000, or 91.6%, from $1,106,000 in Three Months 2020. The increase in livery physical damage direct written premiums is due to the declining effect of the Covid-19 pandemic in our geographic area.
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 $9,002,000 in Three Months 2021 compared to $8,761,000 in Three Months 2020. Direct written premiums from our Core business were $35,614,000 in Three Months 2021 compared to $33,889,000 in Three Months 2020.
Net Written Premiums and Net Premiums Earned
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 30, 2020 (“2019/2020 Treaty”). 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 Three Months 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-Off”). The following table describes the quota share reinsurance ceding rates in effect during Three Months 2021 and Three Months 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.
| |||||||
|
| ||||||
| |||||||
| |||||||
|
| ||||||
|
| ||||||
|
|
|
|
Net written premiums increased $9,224,000, or 32.8%, to $37,314,000 in Three Months 2021 from $28,090,000 in Three Months 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 increase in net written premiums in Three Months 2021 was attributable to the expiration of the 2019/2020 Treaty on December 30, 2020 on a cut-off basis (see table above). In Three Months 2021, our premiums ceded under quota share treaties decreased by $8,404,000 in comparison to ceded premiums in Three Months 2020. Our personal lines business was subject to the 2019/2020 Treaty from December 15, 2019 through December 30, 2020. Our personal lines business was subject to the 2018/2019 Treaty through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force continued to be ceded under the 10% quota share rate until such policies expired (run-off) over the next year. The 2019/2020 run-off period was 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 2021,2022, our ceded excess of loss reinsurance premiums increased by $83,000$333,000 over the comparable ceded premiums for Three Months 2020.2021. The increase was due to an increase in subject premiums subject toand additional coverage obtained. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance.reinsurance treaty covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty.
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 2021,2022, our premiums ceded under catastrophe treaties increased by $1,063,000$395,000 over the comparable ceded premiums in Three Months 2020. The change was due to an increase in reinsurance rates effective July 1, 2020, partially offset by a decrease in our limit effective July 1, 2020. Through June 30, 2020, our ceded catastrophe premiums were paid based on the total direct written premiums subject to the catastrophe reinsurance treaty.2021. Effective July 1, 2020, and continuing through June 30, 2021, our ceded catastrophe premiums were paid based on the total insured value of our risks calculated as of August 31, 2020. Effective July 1, 2021, and continuing through June 30, 2022, our ceded catastrophe premiums will be paid based on the total insured value of our risks as of August 31, 2021.
Net premiums earned
Net premiums earned increased $8,799,000,decreased $7,916,000, or 33.0%22.9%, to $35,436,000$26,673,000 in Three Months 20212022 from $26,637,000$34,589,000 in Three Months 2020.2021. The increasedecrease was due to less retention in Three Months 2022 as a result of the expirationinception of both the 2019/20202021/2023 Treaty on December 30, 2020 on a cut-off basis and31, 2021. The decrease resulting from the 2019/2020 Run-Off as of June 30, 2020.2021/2023 Treaty in Three Months 2022 was partially offset by an increase in direct written premium.
Ceding Commission Revenue
The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:
|
| Three Months ended June 30, |
| Three months ended March 31, | ||||||||||||||||||||||||||||
($ in thousands) |
| 2021 |
|
| 2020 |
|
| Change |
|
| Percent |
| 2022 | 2021 | Change | Percent | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Provisional ceding commissions earned |
| $ | 50 |
| $ | 3,441 |
| $ | (3,391 | ) |
| (98.5 | )% | $ | 4,541 | $ | 45 | $ | 4,496 | 9,991.1 | % | |||||||||||
Contingent ceding commissions earned |
|
| (4 | ) |
|
| 39 |
|
|
| (43 | ) |
| n/a |
| 140 | (46 | ) | 186 | n/a | % | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total ceding commission revenue |
| $ | 46 |
|
| $ | 3,480 |
|
| $ | (3,434 | ) |
| (98.7 | )% | $ | 4,681 | $ | (1 | ) | $ | 4,682 | n/a | % | ||||||||
Ceding commission revenue was $46,000$4,681,000 in Three Months 20212022 compared to $3,480,000$(1,000) in Three Months 2020.2021. The decreaseincrease of $3,434,000$4,682,000 was due to a decreasean increase in both provisional ceding commissions earned and contingent ceding commissions earned. See below for a discussion of provisional ceding commissions earned and contingent ceding commissions earned.
| 43 |
| Table Of Contents |
Provisional Ceding Commissions Earned
Through December 30, 2020,In Three Months 2022 we received a provisional ceding commission based on ceded written premiums. The $3,391,000 decrease inearned provisional ceding commissions from personal lines earned premiums ceded under the 2021/2023 Treaty which was due to the expiration of both the 2019/2020 Treaty on December 30, 2020 on a cut-off basis and the 2019/2020 Run-Offeffective as of June 30, 2020.December 31, 2021. There was no personal lines quota share in effect in Three Months 2021.
Contingent Ceding Commissions Earned
The structure of the 2019/20202021/2023 Treaty and 2019/2020 Run-Off calledcalls for a higher upfrontfixed provisional ceding commission and there was not anwith no opportunity to earn additional contingent ceding commissions under those treaties.commissions. 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.received.
Net Investment Income
Net investment income was $1,678,000$1,359,000 in Three Months 2022 compared to $1,783,000 in Three Months 2021, compared to $1,612,000 in Three Months 2020, an increasea decrease of $66,000,$424,000, or 4.1%23.8%. The average yield on invested assets was 3.45%3.39% as of June 30, 2021March 31, 2022 compared to 3.53%3.52% as of June 30, 2020.March 31, 2021.
Cash and invested assets were $234,100,000$203,888,000 as of June 30, 2021March 31, 2022 compared to $218,739,000$220,726,000 as of June 30, 2020.March 31, 2021 The $15,361,000 increase$16,838,000 decrease in cash and invested assets was primarily attributable to the return of premiums ceded, net of ceding commissions,cash paid to reinsurers at the expirationinception of the 2019/20202021/2023 Treaty, losses paid in connection with catastrophe losses incurred in 2021 and by an increase in unrealized gains during the periods after June 30, 2020.losses on our investment portfolio.
Net Gains and Losses on Investments
Net gainslosses on investments were $2,315,000$4,398,000 in Three Months 20212022 compared to $2,698,000net gains of $2,960,000 in Three Months 2020.2021. Unrealized gainslosses on our equity securities and other investments in Three Months 20212022 were $1,598,000,$4,476,000, compared to $2,732,000net gains of $1,833,000 in Three Months 2020.2021. Realized gains on sales of investments were $717,000$78,000 in Three Months 20212022 compared to $35,000$1,127,000 in Three Months 2020.2021.
Other Income
Other income was $125,000$236,000 in Three Months 2022 compared to $172,000 in Three Months 2021, compared to $262,000 in Three Months 2020. The decreasean increase of $137,000,$64,000, or 52.3%, was primarily due to the elimination of fees in our commercial lines business that was in run-off in Three Months 2020, a result of our decision in July 2019 to no longer underwrite this line of business.37.2%.
Net Loss and LAE
Net loss and LAE was $20,759,000$22,941,000 for Three Months 20212022 compared to $12,813,000$22,561,000 for Three Months 2020.2021. The net loss ratio was 58.6%86.0% in Three Months 2022 compared to 65.2% in Three Months 2021, compared to 48.1% in Three Months 2020, an increase of 10.520.8 percentage points.
| 44 |
| 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 2021,2022, the loss ratio was higher than Three Months 20202021 mainly due to an elevateda higher frequency of liabilitywater damage property claims from personal property lines. Additionally, the frequency of the livery physical damage claims were higher as they returnedrelated to the pre-pandemic level.winter weather.
The impact of catastropheweather-related losses was low for Three Months 2021.2022, both catastrophe and non-catastrophe, were higher than a typical year. There was only one minor wind eventwere four catastrophe events this quarter, two of which were classified as winter events. Net catastrophe duringlosses in Three Months 2021. There was also some favorable development on catastrophe losses occurred during Three Months 2021. The estimated total net catastrophe losses2022 were $(123,000),$3,019,000, which contributed (0.3) point11.3 points to the loss ratio. This comparesAs a comparison, catastrophe events had a loss ratio impact of only 0.7 point for Three Months 2021 due to a 5.7 pointsvery mild winter season last year. The underlying loss ratio (excluding the impact from catastrophe events from the corresponding period for theof catastrophes and prior year which had several small catastrophe events and one larger wind event.development) was 74.7% in Three Months 2022, compared to 64.6% in Three Months 2021, an increase of 10.1 points. This was also driven by many winter-related water damage claims resulting from freezing temperature.
Prior year development continued to be stable for Three Months 2021. The loss estimates from all prior years were adjusted up by $3,000,2022. There was an overall favorable development of $4,000, which had a marginal impact on the loss ratio.
See table below under “Additional Financial Information” summarizing net loss ratios by line of business.
| 45 |
| Table Of Contents |
Commission Expense
Commission expense was $8,286,000$8,351,000 in Three Months 2021Ended 2022 or 19.4%18.4% of direct earned premiums. Commission expense was $7,761,000$8,223,000 in Three Months 20202021 or 18.4%19.6% of direct earned premiums. The increase of $525,000 is$128,000 was primarily due to an increase in the estimate for annualdirect earned premiums resulting in greater commission expenses, offset by a decrease in estimated contingent commissions fordue to the metrics used to calculate the year-to-date amount through March 31, 2022. Commission expense will decline as the percentage rate paid on new policies bound under our new product offering called “Select”, which went live during Three Months 2021 as compared to Three Months 2020.2022, is lower than the commission rate paid in our legacy product offering.
Other Underwriting Expenses
Other underwriting expenses were $6,693,000$6,816,000 in Three Months 20212022 compared to $6,325,000$6,467,000 in Three Months 2020.2021. The increase of $368,000,$349,000, or 5.8%5.4%, was primarily due an increaseincreases in consulting feesexpenses related to our growth in direct earned premiums and IT expense as part of anour continuing initiative to reduce overall expenses with the use of technology. This initiative resultedinvestments in a decrease or modest increase in the remaining other underwriting expenses.technology.
Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $2,540,000$2,549,000 in Three Months 20212022 compared to $2,601,000$2,539,000 in Three Months 2020.2021. The decreasemodest increase of $61,000,$10,000, or 2.3%0.4%, compares favorably with the 4.6%12.7% increase in direct written premiums. The decrease in employment costs was attributable to staff reductions.
Our net underwriting expense ratio in Three Months 20212022 was 41.8%38.5% compared to 38.8%42.0% in Three Months 2020.2021. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:
|
| Three months ended |
|
|
| |||||||||||||||||||
|
| June 30, |
| Percentage |
| Three months ended | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Point Change |
| March 31, | Percentage | |||||||||||||
|
|
|
|
|
|
|
| 2022 | 2021 | Point Change | ||||||||||||||
Other underwriting expenses |
|
|
|
|
|
|
| |||||||||||||||||
Employment costs |
| 7.2 | % |
| 9.8 | % |
| (2.6 | ) | 9.6 | % | 7.3 | % | 2.3 | ||||||||||
Underwriting fees (inspections/data services) |
| 1.4 |
| 2.9 |
| (1.5 | ) | |||||||||||||||||
Underwriting fees (inspections/surveys) | 1.9 | 1.4 | 0.5 | |||||||||||||||||||||
IT expenses |
| 3.1 |
| 2.7 |
| 0.4 |
| 4.1 | 3.0 | 1.1 | ||||||||||||||
Profesional fees | 1.9 | 1.3 | 0.6 | |||||||||||||||||||||
Other expenses |
|
| 7.1 |
|
|
| 8.3 |
|
|
| (1.2 | ) | 8.1 | 5.7 | 2.4 | |||||||||
Total other underwriting expenses |
|
| 18.8 |
|
|
| 23.7 |
|
|
| (4.9 | ) | 25.6 | 18.7 | 6.9 | |||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Commission expense |
|
| 23.4 |
|
|
| 29.1 |
|
|
| (5.7 | ) | 31.3 | 23.8 | 7.5 | |||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Ceding commission revenue |
|
|
|
|
|
|
| |||||||||||||||||
Provisional |
| (0.1 | ) |
| (12.9 | ) |
| 12.8 |
| (17.0 | ) | (0.1 | ) | (16.9 | ) | |||||||||
Contingent |
|
| 0.1 |
|
|
| (0.1 | ) |
|
| 0.2 |
| (0.5 | ) | 0.1 | (0.6 | ) | |||||||
Total ceding commission revenue |
|
| - |
|
|
| (13.0 | ) |
|
| 13.0 |
| (17.5 | ) | - | (17.5 | ) | |||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Other income |
|
| (0.4 | ) |
|
| (1.0 | ) |
|
| 0.6 |
| (0.9 | ) | (0.5 | ) | (0.4 | ) | ||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Net underwriting expense ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 3.0 |
| 38.5 | % | 42.0 | % | (3.5 | ) | ||||||
| Table |
The overall 13.017.5 percentage point decreaseincrease in the benefit from ceding commissions in Three Months 20202022 was driven by the reductionincrease in provisional ceding commission revenue due to the expirationinception of the 2019/20202021/2023 Treaty on December 30, 2020.31, 2021. The components of our net underwriting expense ratio related to other underwriting expenses and commissions decreased in all categoriesincreased due to moreless retention, given the increase of ceded premiums after the expirationinception of the 2019/2020 Treaty on December 30, 2020, resulting in a 10.6 percentage point decrease in these components of the net underwriting expense ratio.2021/2023 Treaty.
Other Operating Expenses
Other operating expenses, related to the expenses of our holding company and Cosi, were $933,000$882,000 for Three Months 20212022 compared to $1,089,000$1,352,000 for Three Months 2020. 2021. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:
|
| Three months ended |
|
|
|
|
| |||||||||
|
| March 31, |
|
|
|
|
| |||||||||
($ in thousands) |
| 2022 |
|
| 2021 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employement costs |
| $ | 6 |
|
| $ | 443 |
|
| $ | (438 | ) |
|
| (98.8 | )% |
Bonuses |
|
| - |
|
|
| - |
|
|
| - |
|
| na |
| |
Equity compensation |
|
| 530 |
|
|
| 495 |
|
|
| 35 |
|
|
| 7.1 |
|
Professional |
|
| 49 |
|
|
| 110 |
|
|
| (61 | ) |
|
| (55.5 | ) |
Directors fees |
|
| 82 |
|
|
| 82 |
|
|
| - |
|
|
| - |
|
Insurance |
|
| 40 |
|
|
| 76 |
|
|
| (36 | ) |
|
| (47.4 | ) |
Other expenses |
|
| 175 |
|
|
| 146 |
|
|
| 30 |
|
|
| 20.4 |
|
Total other operating expenses |
| $ | 882 |
|
| $ | 1,352 |
|
| $ | (470 | ) |
|
| (34.8 | )% |
(Components may not sum to toals due to rounding)
The decrease in Three Months 20212022 of $156,000,$470,000, or 14.3%34.8%, as compared to Three Months 20202021 was primarily due to a decrease in professional feesemployment costs. The decrease in employment costs was due to staff reductions and employment costs.fluctuations in deferred compensation liability related to changes in the underlying invested portfolio.
Depreciation and Amortization
Depreciation and amortization was $837,000$770,000 in Three Months 20212022 compared to $673,000$822,000 in Three Months 2020.2021. The increasedecrease of $164,000,$52,000, or 24.4%6.3%, in depreciation and amortization was primarily due to depreciationassets previously put into service that are currently being utilized and being fully depreciated. Due to the extended useful life of newassets related to our system platforms, for policy and claims management and newly purchased assets usedManagement has determined that such systems, currently put into service, should be depreciated over five years reflecting their expected useful lives as compared to upgrade our other systems.the previous three years.
Interest Expense
Interest expense was $457,000 for both Three Months 20212022 and Three Months 2020.2021. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017.
Income Tax Expense
Income tax expensebenefit in Three Months 20212022 was $312,000,$2,468,000, which resulted in an effective tax expensebenefit rate of 19.1%21.2%. Income expensetax benefit in Three Months 20202021 was $963,000,$68,000, which resulted in an effective tax expensebenefit rate of 17.3%18.0%. IncomeLoss before taxes was $1,636,000$11,666,000 in Three Months 20212022 compared to $5,571,000loss before taxes of $379,000 in Three Months 2020. On March 27, 2020,2021. The difference in effective tax benefit is due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carrybackeffect of 2020 NOLs. We will elect on our 2020 federal income tax return to carry back the entire annual 2020 NOL of $5,715,000 to tax year 2015. The corporate tax ratepermanent differences in 2015 was 34%,Three Months 2022 compared to the corporate tax rate of 21% in 2020.Three Months 2021.
| Table |
Net IncomeLoss
Net incomeloss was $1,324,000$9,198,000 in Three Months 20212022 compared to $4,608,000net loss of $311,000 in Three Months 2020.2021. The decreaseincrease in net incomeloss of $3,284,000$8,887,000 was due to the circumstances described above, which caused the increases in net loss ratio, commission expense, other underwriting expenses, depreciation and amortization, and decreases in ceding commission revenue, net gains on investments and other income, partially offset by increases in our net premiums earned, net investment income and income tax expense.above.
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.
|
| For the Three Months Ended |
| For the Six Months Ended |
| Three Months Ended | ||||||||||||||||||
|
| June 30, |
| June 30, |
| March 31, | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||||
Gross premiums written: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Personal lines(3) |
| $ | 42,449,870 |
| $ | 41,522,768 |
| $ | 78,608,363 |
| $ | 75,957,604 |
| $ | 40,163,149 | $ | 36,158,493 | |||||||
Livery physical damage |
| 2,119,436 |
| 1,106,405 |
| 4,023,428 |
| 3,420,806 |
| 2,773,280 | 1,903,992 | |||||||||||||
Other(1) |
|
| 46,719 |
|
|
| 54,876 |
|
|
| 113,826 |
|
|
| 129,731 |
| 47,468 | 67,107 | ||||||
Total without commercial lines |
| 44,616,025 |
| 42,684,049 |
| 82,745,617 |
| 79,508,141 |
| 42,983,897 | 38,129,592 | |||||||||||||
Commercial lines (in run-off effective July 2019)(2) |
|
| (381 | ) |
|
| (33,572 | ) |
|
| (856 | ) |
|
| (160,735 | ) | - | (475 | ) | |||||
Total gross premiums written |
| $ | 44,615,644 |
|
| $ | 42,650,477 |
|
| $ | 82,744,761 |
|
| $ | 79,347,406 |
| $ | 42,983,897 | $ | 38,129,117 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net premiums written: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Personal lines(3) |
| $ | 35,149,321 |
| $ | 27,103,665 |
| $ | 63,979,133 |
| $ | 48,315,146 |
| $ | 22,110,665 | $ | 28,829,812 | |||||||
Livery physical damage |
| 2,119,436 |
| 1,106,405 |
| 4,023,428 |
| 3,420,806 |
| 2,773,280 | 1,903,992 | |||||||||||||
Other(1) |
|
| 45,903 |
|
|
| 42,579 |
|
|
| 112,184 |
|
|
| 101,158 |
| 34,243 | 66,281 | ||||||
Total without commercial lines |
| 37,314,660 |
| 28,252,649 |
| 68,114,745 |
| 51,837,110 |
| 24,918,188 | 30,800,085 | |||||||||||||
Commercial lines (in run-off effective July 2019)(2) |
|
| (381 | ) |
|
| (162,170 | ) |
|
| (856 | ) |
|
| (555,957 | ) | - | (475 | ) | |||||
Total net premiums written |
| $ | 37,314,279 |
|
| $ | 28,090,479 |
|
| $ | 68,113,889 |
|
| $ | 51,281,153 |
| $ | 24,918,188 | $ | 30,799,610 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net premiums earned: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Personal lines(3) |
| $ | 33,573,620 |
| $ | 23,614,240 |
| $ | 66,338,707 |
| $ | 46,213,874 |
| $ | 24,160,216 | $ | 32,765,087 | |||||||
Livery physical damage |
| 1,804,543 |
| 2,182,438 |
| 3,569,819 |
| 4,789,017 |
| 2,474,565 | 1,765,276 | |||||||||||||
Other(1) |
|
| 58,644 |
|
|
| 48,999 |
|
|
| 117,974 |
|
|
| 99,148 |
| 38,599 | 59,330 | ||||||
Total without commercial lines |
| 35,436,807 |
| 25,845,677 |
| 70,026,500 |
| 51,102,039 |
| 26,673,380 | 34,589,693 | |||||||||||||
Commercial lines (in run-off effective July 2019)(2) |
|
| (381 | ) |
|
| 791,179 |
|
|
| (856 | ) |
|
| 2,476,267 |
| - | (475 | ) | |||||
Total net premiums earned |
| $ | 35,436,426 |
|
| $ | 26,636,856 |
|
| $ | 70,025,644 |
|
| $ | 53,578,306 |
| $ | 26,673,380 | $ | 34,589,218 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loss and loss adjustment expenses(4): |
|
|
|
|
|
|
|
|
| |||||||||||||||
Personal lines |
| $ | 18,638,287 |
| $ | 10,639,057 |
| $ | 39,394,940 |
| $ | 23,153,625 |
| $ | 20,426,641 | $ | 20,756,653 | |||||||
Livery physical damage |
| 1,015,064 |
| 369,120 |
| 1,702,476 |
| 1,149,690 |
| 830,569 | 687,412 | |||||||||||||
Other(1) |
| 223,472 |
| (72,436 | ) |
| 253,821 |
| (23,639 | ) | (23,400 | ) | 30,349 | |||||||||||
Unallocated loss adjustment expenses |
|
| 909,591 |
|
|
| 1,242,516 |
|
|
| 1,915,872 |
|
|
| 2,012,328 |
| 1,578,906 | 1,006,281 | ||||||
Total without commercial lines |
| 20,786,414 |
| 12,178,257 |
| 43,267,109 |
| 26,292,004 |
| 22,812,716 | 22,480,695 | |||||||||||||
Commercial lines (in run-off effective July 2019)(2) |
|
| (27,204 | ) |
|
| 635,374 |
|
|
| 52,773 |
|
|
| 2,907,448 |
| 128,482 | 79,977 | ||||||
Total net loss and loss adjustment expenses |
| $ | 20,759,210 |
|
| $ | 12,813,631 |
|
| $ | 43,319,882 |
|
| $ | 29,199,452 |
| $ | 22,941,198 | $ | 22,560,672 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loss ratio(4): |
|
|
|
|
|
|
|
|
| |||||||||||||||
Personal lines |
| 55.5 | % |
| 45.1 | % |
| 59.4 | % |
| 50.1 | % | 84.5 | % | 63.3 | % | ||||||||
Livery physical damage |
| 56.3 | % |
| 16.9 | % |
| 47.7 | % |
| 24.0 | % | 33.6 | % | 38.9 | % | ||||||||
Other(1) |
| 381.1 | % |
| -147.8 | % |
| 215.1 | % |
| -23.8 | % | -60.6 | % | 51.2 | % | ||||||||
Total without commercial lines |
| 58.7 | % |
| 47.1 | % |
| 61.8 | % |
| 51.5 | % | 85.4 | % | 64.9 | % | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Commercial lines (in run-off effective July 2019)(2) |
| na |
| 80.3 | % |
| 61.9 | % |
| 117.4 | % | na | na | |||||||||||
Total |
| 58.6 | % |
| 48.1 | % |
| 61.9 | % |
| 54.5 | % | 86.0 | % | 65.2 | % | ||||||||
(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 | |
(4) | See discussion above with regard to “Net Loss and LAE”, as to catastrophe losses in the three months ended March 31, 2022 and |
| Table |
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 |
| Six months ended |
| Three Months ended | ||||||||||||||||||
|
| June 30, |
| June 30, |
| March 31, | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
| |||||||||||||||
Net premiums earned |
| $ | 35,436,426 |
| $ | 26,636,856 |
| $ | 70,025,644 |
| $ | 53,578,306 |
| $ | 26,673,380 | $ | 34,589,218 | |||||||
Ceding commission revenue |
| 45,741 |
| 3,480,214 |
| 44,676 |
| 7,311,313 |
| 4,681,396 | (1,065 | ) | ||||||||||||
Net investment income |
| 1,678,075 |
| 1,611,837 |
| 3,461,271 |
| 3,277,230 |
| 1,359,100 | 1,783,196 | |||||||||||||
Net gains (losses) on investments |
| 2,254,299 |
| 2,655,541 |
| 5,166,824 |
| (3,653,643 | ) | |||||||||||||||
Net (losses) gains on investments | (4,351,744 | ) | 2,912,525 | |||||||||||||||||||||
Other income |
|
| 124,243 |
|
|
| 261,145 |
|
|
| 294,552 |
|
|
| 506,119 |
| 228,507 | 170,309 | ||||||
Total revenues |
|
| 39,538,784 |
|
|
| 34,645,593 |
|
|
| 78,992,967 |
|
|
| 61,019,325 |
| 28,590,639 | 39,454,183 | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Expenses |
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss and loss adjustment expenses |
| 20,759,210 |
| 12,813,631 |
| 43,319,882 |
| 29,199,452 |
| 22,941,198 | 22,560,672 | |||||||||||||
Commission expense |
| 8,285,341 |
| 7,760,540 |
| 16,509,180 |
| 15,616,467 |
| 8,351,086 | 8,223,839 | |||||||||||||
Other underwriting expenses |
| 6,692,920 |
| 6,325,472 |
| 13,159,962 |
| 13,087,264 |
| 6,815,949 | 6,467,042 | |||||||||||||
Depreciation and amortization |
|
| 804,462 |
|
|
| 639,968 |
|
|
| 1,593,297 |
|
|
| 1,293,870 |
| 760,015 | 788,835 | ||||||
Total expenses |
|
| 36,541,933 |
|
|
| 27,539,611 |
|
|
| 74,582,321 |
|
|
| 59,197,053 |
| 38,868,248 | 38,040,388 | ||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Income from operations |
| 2,996,851 |
| 7,105,982 |
| 4,410,646 |
| 1,822,272 |
| |||||||||||||||
Income tax expense |
|
| 569,266 |
|
|
| 1,387,003 |
|
|
| 820,831 |
|
|
| 179,034 |
| ||||||||
Net income |
| $ | 2,427,585 |
|
| $ | 5,718,979 |
|
| $ | 3,589,815 |
|
| $ | 1,643,238 |
| ||||||||
(Loss) income from operations | (10,277,609 | ) | 1,413,795 | |||||||||||||||||||||
Income tax (benefit) expense | (2,187,260 | ) | 251,565 | |||||||||||||||||||||
Net (loss) income | $ | (8,090,349 | ) | $ | 1,162,230 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Key Measures: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loss ratio |
| 58.6 | % |
| 48.1 | % |
| 61.9 | % |
| 54.5 | % | 86.0 | % | 65.2 | % | ||||||||
Net underwriting expense ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 41.9 | % |
|
| 39.0 | % | 38.5 | % | 42.0 | % | ||||
Net combined ratio |
|
| 100.4 | % |
|
| 86.9 | % |
|
| 103.8 | % |
|
| 93.5 | % | 124.5 | % | 107.2 | % | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Reconciliation of net underwriting expense ratio: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Acquisition costs and other |
|
|
|
|
|
|
|
|
| |||||||||||||||
underwriting expenses |
| $ | 14,978,261 |
| $ | 14,086,012 |
| $ | 29,669,142 |
| $ | 28,703,731 |
| |||||||||||
Acquisition costs and other underwriting expenses | $ | 15,167,035 | $ | 14,690,881 | ||||||||||||||||||||
Less: Ceding commission revenue |
| (45,741 | ) |
| (3,480,214 | ) |
| (44,676 | ) |
| (7,311,313 | ) | (4,681,396 | ) | 1,065 | |||||||||
Less: Other income |
|
| (124,243 | ) |
|
| (261,145 | ) |
|
| (294,552 | ) |
|
| (506,119 | ) | (228,507 | ) | (170,309 | ) | ||||
Net underwriting expenses |
| $ | 14,808,277 |
|
| $ | 10,344,653 |
|
| $ | 29,329,914 |
|
| $ | 20,886,299 |
| $ | 10,257,132 | $ | 14,521,637 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net premiums earned |
| $ | 35,436,426 |
|
| $ | 26,636,856 |
|
| $ | 70,025,644 |
|
| $ | 53,578,306 |
| $ | 26,673,380 | $ | 34,589,218 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net Underwriting Expense Ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 41.9 | % |
|
| 39.0 | % | 38.5 | % | 42.0 | % | ||||
| Table |
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 | ||||||||||||||||
Six months ended June 30, 2021 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
Written premiums |
| $ | 82,744,761 |
| $ | - |
| $ | (14,630,872 | ) |
| $ | 68,113,889 |
| $ | 42,983,897 | $ | - | $ | (18,065,709 | ) | $ | 24,918,188 | |||||||||
Change in unearned premiums |
|
| 1,936,706 |
|
|
| - |
|
|
| (24,951 | ) |
|
| 1,911,755 |
| 2,392,727 | - | (637,535 | ) | 1,755,192 | |||||||||||
Earned premiums |
| $ | 84,681,467 |
|
| $ | - |
|
| $ | (14,655,823 | ) |
| $ | 70,025,644 |
| $ | 45,376,624 | $ | - | $ | (18,703,244 | ) | $ | 26,673,380 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses exluding |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
the effect of catastrophes |
| $ | 44,096,040 |
| $ | - |
| $ | (881,729 | ) |
| $ | 43,214,311 |
| ||||||||||||||||||
Loss and loss adjustment expenses excluding the effect of catastrophes | $ | 26,508,664 | $ | - | $ | (6,586,890 | ) | $ | 19,921,774 | |||||||||||||||||||||||
Catastrophe loss |
|
| 105,571 |
|
|
| - |
|
|
| - |
|
|
| 105,571 |
| 6,837,400 | - | (3,817,976 | ) | 3,019,424 | |||||||||||
Loss and loss adjustment expenses |
| $ | 44,201,611 |
|
| $ | - |
|
| $ | (881,729 | ) |
| $ | 43,319,882 |
| $ | 33,346,064 | $ | - | $ | (10,404,866 | ) | $ | 22,941,198 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss ratio excluding the effect of catastrophes |
| 52.1 | % |
| 0.0 | % |
| 6.0 | % |
| 61.7 | % | 58.4 | % | 0.0 | % | 35.2 | % | 74.7 | % | ||||||||||||
Catastrophe loss |
|
| 0.1 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.2 | % | 15.1 | % | 0.0 | % | 20.4 | % | 11.3 | % | ||||||||
Loss ratio |
|
| 52.2 | % |
|
| 0.0 | % |
|
| 6.0 | % |
|
| 61.9 | % | 73.5 | % | 0.0 | % | 55.6 | % | 86.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Six months ended June 30, 2020 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three months ended March 31, 2021 | ||||||||||||||||||||||||||||||||
Written premiums |
| $ | 79,347,406 |
| $ | - |
| $ | (28,066,253 | ) |
| $ | 51,281,153 |
| $ | 38,129,117 | $ | - | $ | (7,329,507 | ) | $ | 30,799,610 | |||||||||
Change in unearned premiums |
|
| 5,376,958 |
|
|
| - |
|
|
| (3,079,805 | ) |
|
| 2,297,153 |
| 3,789,478 | - | 130 | 3,789,608 | ||||||||||||
Earned premiums |
| $ | 84,724,364 |
|
| $ | - |
|
| $ | (31,146,058 | ) |
| $ | 53,578,306 |
| $ | 41,918,595 | $ | - | $ | (7,329,377 | ) | $ | 34,589,218 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses exluding |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
the effect of catastrophes |
| $ | 37,080,936 |
| $ | - |
| $ | (9,591,600 | ) |
| $ | 27,489,336 |
| ||||||||||||||||||
Loss and loss adjustment expenses excluding the effect of catastrophes | $ | 23,155,733 | $ | - | $ | (823,856 | ) | $ | 22,331,877 | |||||||||||||||||||||||
Catastrophe loss |
|
| 2,337,948 |
|
|
| - |
|
|
| (627,832 | ) |
|
| 1,710,116 |
| 228,795 | - | - | 228,795 | ||||||||||||
Loss and loss adjustment expenses |
| $ | 39,418,884 |
|
| $ | - |
|
| $ | (10,219,432 | ) |
| $ | 29,199,452 |
| $ | 23,384,528 | $ | - | $ | (823,856 | ) | $ | 22,560,672 | |||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss ratio excluding the effect of catastrophes |
| 43.8 | % |
| 0.0 | % |
| 30.8 | % |
| 51.3 | % | 55.2 | % | 0.0 | % | 11.2 | % | 64.7 | % | ||||||||||||
Catastrophe loss |
|
| 2.8 | % |
|
| 0.0 | % |
|
| 2.0 | % |
|
| 3.2 | % | 0.5 | % | 0.0 | % | 0.1 | % | 0.7 | % | ||||||||
Loss ratio |
|
| 46.6 | % |
|
| 0.0 | % |
|
| 32.8 | % |
|
| 54.5 | % | 55.8 | % | 0.0 | % | 11.2 | % | 65.2 | % | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three months ended June 30, 2021 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Written premiums |
| $ | 44,615,644 |
| $ | - |
| $ | (7,301,365 | ) |
| $ | 37,314,279 |
| ||||||||||||||||||
Change in unearned premiums |
|
| (1,852,772 | ) |
|
| - |
|
|
| (25,081 | ) |
|
| (1,877,853 | ) | ||||||||||||||||
Earned premiums |
| $ | 42,762,872 |
|
| $ | - |
|
| $ | (7,326,446 | ) |
| $ | 35,436,426 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses exluding |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
the effect of catastrophes |
| $ | 20,940,307 |
| $ | - |
| $ | (57,873 | ) |
| $ | 20,882,434 |
| ||||||||||||||||||
Catastrophe loss |
|
| (123,224 | ) |
|
| - |
|
|
| - |
|
|
| (123,224 | ) | ||||||||||||||||
Loss and loss adjustment expenses |
| $ | 20,817,083 |
|
| $ | - |
|
| $ | (57,873 | ) |
| $ | 20,759,210 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss ratio excluding the effect of catastrophes |
| 49.0 | % |
| 0.0 | % |
| 0.8 | % |
| 58.9 | % | ||||||||||||||||||||
Catastrophe loss |
|
| -0.3 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| -0.3 | % | ||||||||||||||||
Loss ratio |
|
| 48.7 | % |
|
| 0.0 | % |
|
| 0.8 | % |
|
| 58.6 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Three months ended June 30, 2020 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Written premiums |
| $ | 42,650,477 |
| $ | - |
| $ | (14,559,998 | ) |
| $ | 28,090,479 |
| ||||||||||||||||||
Change in unearned premiums |
|
| (527,742 | ) |
|
| - |
|
|
| (925,881 | ) |
|
| (1,453,623 | ) | ||||||||||||||||
Earned premiums |
| $ | 42,122,735 |
|
| $ | - |
|
| $ | (15,485,879 | ) |
| $ | 26,636,856 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss and loss adjustment expenses exluding |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
the effect of catastrophes |
| $ | 15,109,585 |
| $ | - |
| $ | (3,807,610 | ) |
| $ | 11,301,975 |
| ||||||||||||||||||
Catastrophe loss |
|
| 2,056,580 |
|
|
| - |
|
|
| (544,924 | ) |
|
| 1,511,656 |
| ||||||||||||||||
Loss and loss adjustment expenses |
| $ | 17,166,165 |
|
| $ | - |
|
| $ | (4,352,534 | ) |
| $ | 12,813,631 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Loss ratio excluding the effect of catastrophes |
| 35.9 | % |
| 0.0 | % |
| 24.5 | % |
| 42.4 | % | ||||||||||||||||||||
Catastrophe loss |
|
| 4.9 | % |
|
| 0.0 | % |
|
| 3.5 | % |
|
| 5.7 | % | ||||||||||||||||
Loss ratio |
|
| 40.8 | % |
|
| 0.0 | % |
|
| 28.1 | % |
|
| 48.1 | % | ||||||||||||||||
(Percent components may not sum to totals due to rounding)
| Table |
The key measures for our insurance underwriting business for the periods indicated are as follows:
|
| Three months ended |
| Six months ended |
| Three Months ended | ||||||||||||||||||
|
| June 30, |
| June 30, |
| March 31, | ||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| 2022 | 2021 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net premiums earned |
| $ | 35,436,426 |
| $ | 26,636,856 |
| $ | 70,025,644 |
| $ | 53,578,306 |
| $ | 26,673,380 | $ | 34,589,218 | |||||||
Ceding commission revenue |
| 45,741 |
| 3,480,214 |
| 44,676 |
| 7,311,313 |
| 4,681,396 | (1,065 | ) | ||||||||||||
Other income |
| 124,243 |
| 261,145 |
| 294,552 |
| 506,119 |
| 228,507 | 170,309 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Loss and loss adjustment expenses (1) |
| 20,759,210 |
| 12,813,631 |
| 43,319,882 |
| 29,199,452 |
| 22,941,198 | 22,560,672 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Acquisition costs and other underwriting expenses: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Commission expense |
| 8,285,341 |
| 7,760,540 |
| 16,509,180 |
| 15,616,467 |
| 8,351,086 | 8,223,839 | |||||||||||||
Other underwriting expenses |
|
| 6,692,920 |
|
|
| 6,325,472 |
|
|
| 13,159,962 |
|
|
| 13,087,264 |
| 6,815,949 | 6,467,042 | ||||||
Total acquisition costs and other |
|
|
|
|
|
|
|
|
| |||||||||||||||
underwriting expenses |
|
| 14,978,261 |
|
|
| 14,086,012 |
|
|
| 29,669,142 |
|
|
| 28,703,731 |
| ||||||||
Total acquisition costs and other underwriting expenses | 15,167,035 | 14,690,881 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Underwriting (loss) income |
| $ | (131,061 | ) |
| $ | 3,478,572 |
|
| $ | (2,624,152 | ) |
| $ | 3,492,555 |
| ||||||||
Underwriting loss | $ | (6,524,950 | ) | $ | (2,493,091 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Key Measures: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Net loss ratio excluding the effect of catastrophes |
| 58.9 | % |
| 42.4 | % |
| 61.7 | % |
| 51.3 | % | 74.7 | % | 64.5 | % | ||||||||
Effect of catastrophe loss on net loss ratio (1) |
|
| -0.3 | % |
|
| 5.7 | % |
|
| 0.2 | % |
|
| 3.2 | % | 11.3 | % | 0.7 | % | ||||
Net loss ratio |
|
| 58.6 | % |
|
| 48.1 | % |
|
| 61.9 | % |
|
| 54.5 | % | 86.0 | % | 65.2 | % | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net underwriting expense ratio excluding the |
|
|
|
|
|
|
|
|
| |||||||||||||||
effect of catastrophes |
| 41.8 | % |
| 38.8 | % |
| 41.9 | % |
| 39.0 | % | ||||||||||||
Effect of catastrophe loss on net underwriting |
|
|
|
|
|
|
|
|
| |||||||||||||||
expense ratio |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % | ||||||||
Net underwriting expense ratio excluding the effect of catastrophes | 38.5 | % | 42.0 | % | ||||||||||||||||||||
Effect of catastrophe loss on net underwriting expense ratio | 0.0 | % | 0.0 | % | ||||||||||||||||||||
Net underwriting expense ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 41.9 | % |
|
| 39.0 | % | 38.5 | % | 42.0 | % | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net combined ratio excluding the effect |
|
|
|
|
|
|
|
|
| |||||||||||||||
of catastrophes |
| 100.7 | % |
| 81.2 | % |
| 103.6 | % |
| 90.3 | % | ||||||||||||
Effect of catastrophe loss on net combined |
|
|
|
|
|
|
|
|
| |||||||||||||||
ratio (1) |
|
| -0.3 | % |
|
| 5.7 | % |
|
| 0.2 | % |
|
| 3.2 | % | ||||||||
Net combined ratio excluding the effect of catastrophes | 113.2 | % | 106.5 | % | ||||||||||||||||||||
| ||||||||||||||||||||||||
Effect of catastrophe loss on net combined ratio (1) | 11.3 | % | 0.7 | % | ||||||||||||||||||||
Net combined ratio |
|
| 100.4 | % |
|
| 86.9 | % |
|
| 103.8 | % |
|
| 93.5 | % | 124.5 | % | 107.2 | % | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Reconciliation of net underwriting expense ratio: |
|
|
|
|
|
|
|
|
| |||||||||||||||
Acquisition costs and other |
|
|
|
|
|
|
|
|
| |||||||||||||||
underwriting expenses |
| $ | 14,978,261 |
| $ | 14,086,012 |
| $ | 29,669,142 |
| $ | 28,703,731 |
| $ | 15,167,035 | $ | 14,690,881 | |||||||
Less: Ceding commission revenue |
| (45,741 | ) |
| (3,480,214 | ) |
| (44,676 | ) |
| (7,311,313 | ) | (4,681,396 | ) | 1,065 | |||||||||
Less: Other income |
|
| (124,243 | ) |
|
| (261,145 | ) |
|
| (294,552 | ) |
|
| (506,119 | ) | (228,507 | ) | (170,309 | ) | ||||
|
| $ | 14,808,277 |
|
| $ | 10,344,653 |
|
| $ | 29,329,914 |
|
| $ | 20,886,299 |
| $ | 10,257,132 | $ | 14,521,637 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net earned premium |
| $ | 35,436,426 |
|
| $ | 26,636,856 |
|
| $ | 70,025,644 |
|
| $ | 53,578,306 |
| $ | 26,673,380 | $ | 34,589,218 | ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net Underwriting Expense Ratio |
|
| 41.8 | % |
|
| 38.8 | % |
|
| 41.9 | % |
|
| 39.0 | % | 38.5 | % | 42.0 | % | ||||
(1) | For the three months ended |
| Table |
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 June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
| |||||||||||||||||||||
|
| 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 |
| $ | 2,008,936 |
|
| $ | 11,844 |
|
| $ | - |
|
| $ | - |
|
| $ | 2,020,780 |
|
|
| 1.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 8,587,648 |
|
|
| 275,691 |
|
|
| (32,208 | ) |
|
| - |
|
|
| 8,831,131 |
|
|
| 6.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 97,021,903 |
|
|
| 8,314,462 |
|
|
| (16,838 | ) |
|
| - |
|
|
| 105,319,527 |
|
|
| 76.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities (1) |
|
| 21,279,363 |
|
|
| 546,118 |
|
|
| (2,560 | ) |
|
| (77,707 | ) |
|
| 21,745,214 |
|
|
| 15.8 | % |
Total |
| $ | 128,897,850 |
|
| $ | 9,148,115 |
|
| $ | (51,606 | ) |
| $ | (77,707 | ) |
| $ | 137,916,652 |
|
|
| 100.0 | % |
|
|
March 31, 2022 | ||||||||||||||||||||||||
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 | ||||||||||||||||||
Political subdivisions of States, | ||||||||||||||||||||||||
Territories and Possessions | $ | 17,227,562 | $ | 5,692 | $ | (1,614,463 | ) | $ | - | $ | 15,618,791 | 10.3 | % | |||||||||||
Corporate and other bonds | ||||||||||||||||||||||||
Industrial and miscellaneous | 85,566,044 | 336,272 | (3,143,378 | ) | - | 82,758,938 | 54.5 | % | ||||||||||||||||
Residential mortgage and other asset backed securities (1) | 56,656,711 | 289,836 | (3,119,931 | ) | (306,849 | ) | 53,519,767 | 35.2 | % | |||||||||||||||
Total fixed-maturity securities | $ | 159,450,317 | $ | 631,800 | $ | (7,877,772 | ) | $ | (306,849 | ) | $ | 151,897,496 | 100.0 | % | ||||||||||
December 31, 2021 | ||||||||||||||||||||||||
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 | ||||||||||||||||||
Political subdivisions of States, | ||||||||||||||||||||||||
Territories and Possessions | $ | 17,236,750 | $ | 246,748 | $ | (197,984 | ) | $ | - | $ | 17,285,514 | 10.9 | % | |||||||||||
Corporate and other bonds | ||||||||||||||||||||||||
Industrial and miscellaneous | 80,534,769 | 2,603,411 | (126,926 | ) | - | 83,011,254 | 52.5 | % | ||||||||||||||||
Residential mortgage and other asset backed securities (1) | 58,036,959 | 355,985 | (489,258 | ) | (120,344 | ) | 57,783,342 | 36.6 | % | |||||||||||||||
Total fixed-maturity securities | $ | 155,808,478 | $ | 3,206,144 | $ | (814,168 | ) | $ | (120,344 | ) | $ | 158,080,110 | 100.0 | % | ||||||||||
| Table |
|
| 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 | % |
|
|
Equity Securities
The following table presents a breakdown of the cost and estimated fair value of, and gross gains and losses on, investments in equity securities as of June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Estimated |
|
| % of |
| |||||
|
|
|
|
| Gross |
|
| Gross |
|
| Fair |
|
| Estimated |
| |||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Fair Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Preferred stocks |
| $ | 18,344,078 |
|
| $ | 1,626,038 |
|
| $ | (87,248 | ) |
| $ | 19,882,868 |
|
|
| 54.7 | % |
Common stocks and exchange traded mutual funds |
|
| 14,335,646 |
|
|
| 2,120,909 |
|
|
| (21,492 | ) |
|
| 16,435,063 |
|
|
| 45.3 | % |
Total |
| $ | 32,679,724 |
|
| $ | 3,746,947 |
|
| $ | (108,740 | ) |
| $ | 36,317,931 |
|
|
| 100.0 | % |
|
| December 31, 2020 |
| March 31, 2022 | ||||||||||||||||||||||||||||||||||||
|
|
|
|
| Estimated |
| % of |
| % of | |||||||||||||||||||||||||||||||
|
|
| Gross |
| Gross |
| Fair |
| Estimated |
| Gross | Gross | Estimated | Estimated | ||||||||||||||||||||||||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Fair Value |
| Cost | Gains | Losses | Fair Value | Fair Value | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Preferred stocks |
| $ | 18,097,942 |
| $ | 853,277 |
| $ | (426,942 | ) |
| $ | 18,524,277 |
| 53.8 | % | $ | 19,944,128 | $ | 333,811 | $ | (1,793,476 | ) | $ | 18,484,463 | 58.2 | % | |||||||||||||
Common stocks and exchange traded mutual funds |
|
| 14,473,224 |
|
|
| 1,820,512 |
|
|
| (404,700 | ) |
|
| 15,889,036 |
|
|
| 46.2 | % | ||||||||||||||||||||
Common stocks and exchange traded funds | 13,145,504 | 837,696 | (702,254 | ) | 13,280,946 | 41.8 | % | |||||||||||||||||||||||||||||||||
Total |
| $ | 32,571,166 |
|
| $ | 2,673,789 |
|
| $ | (831,642 | ) |
| $ | 34,413,313 |
|
|
| 100.0 | % | $ | 33,089,632 | $ | 1,171,507 | $ | (2,495,730 | ) | $ | 31,765,409 | 100.0 | % | |||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
% of | ||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Estimated | Estimated | |||||||||||||||||||||||||||||||||||||
Category | Cost | Gains | Losses | Fair Value | Fair Value | |||||||||||||||||||||||||||||||||||
Equity Securities: | ||||||||||||||||||||||||||||||||||||||||
Preferred stocks | $ | 22,019,509 | $ | 1,007,009 | $ | (184,617 | ) | $ | 22,841,901 | 57.6 | % | |||||||||||||||||||||||||||||
Common stocks and exchange traded funds | 15,451,160 | 1,573,653 | (179,712 | ) | 16,845,101 | 42.4 | % | |||||||||||||||||||||||||||||||||
Total | $ | 37,470,669 | $ | 2,580,662 | $ | (364,329 | ) | $ | 39,687,002 | 100.0 | % | |||||||||||||||||||||||||||||
Other Investments
The following table presents a breakdown of the cost and estimated fair value of, and gross gains on, our other investments as of June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||
|
|
| Gross |
| Estimated |
|
| Gross |
| Estimated |
| Gross | Estimated | Gross | Estimated | |||||||||||||||||||||||||||||||||
Category |
| Cost |
|
| Gains |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Fair Value |
| Cost | Gains | Fair Value | Cost | Gains | Fair Value | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Hedge fund |
| $ | 3,999,381 |
| $ | 2,876,584 |
| $ | 6,875,965 |
| $ | 1,999,381 |
| $ | 1,369,245 |
| $ | 3,368,626 |
| $ | 3,999,381 | $ | 2,626,502 | $ | 6,625,883 | $ | 3,999,381 | $ | 3,562,034 | $ | 7,561,415 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Real estate limited partnership |
|
| 107,092 |
|
|
| - |
|
|
| 107,092 |
|
|
| 150,000 |
|
|
| - |
|
|
| 150,000 |
| ||||||||||||||||||||||||
Total |
| $ | 4,106,473 |
|
| $ | 2,876,584 |
|
| $ | 6,983,057 |
|
| $ | 2,149,381 |
|
| $ | 1,369,245 |
|
| $ | 3,518,626 |
| ||||||||||||||||||||||||
| 53 |
| Table Of Contents |
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 June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| 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 |
| $ | 729,618 |
|
| $ | 211,439 |
|
| $ | - |
|
| $ | - |
|
| $ | 941,057 |
|
|
| 9.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 998,336 |
|
|
| 36,789 |
|
|
| - |
|
|
| - |
|
|
| 1,035,125 |
|
|
| 9.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange traded debt |
|
| 949,142 |
|
|
| 35,289 |
|
|
| (1,684 | ) |
|
| - |
|
|
| 982,747 |
|
|
| 9.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 7,145,703 |
|
|
| 358,265 |
|
|
| (4,580 | ) |
|
| - |
|
|
| 7,499,388 |
|
|
| 71.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 9,822,799 |
|
| $ | 641,782 |
|
| $ | (6,264 | ) |
| $ | - |
|
| $ | 10,458,317 |
|
|
| 100.0 | % |
|
| December 31, 2020 |
| March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
|
| 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 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Held-to-Maturity Securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities |
| $ | 729,595 |
| $ | 319,714 |
| $ | - |
| $ | - |
| $ | 1,049,309 |
| 12.8 | % | $ | 729,654 | $ | 202,788 | $ | (1,177 | ) | $ | - | $ | 931,265 | 12.2 | % | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Political subdivisions of States, Territories and Possessions |
| 998,428 |
| 50,917 |
| - |
| - |
| 1,049,345 |
| 12.8 | % | |||||||||||||||||||||||||||||||||||
Political subdivisions of States, | ||||||||||||||||||||||||||||||||||||||||||||||||
Territories and Possessions | 498,249 | 8,421 | - | - | 506,670 | 6.6 | % | |||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Corporate and other bonds Industrial and miscellaneous |
|
| 5,640,792 |
|
|
| 455,378 |
|
|
| - |
|
|
| - |
|
|
| 6,096,170 |
|
|
| 74.4 | % | ||||||||||||||||||||||||
Exchange traded debt | 304,111 | - | (21,611 | ) | 282,500 | 3.7 | % | |||||||||||||||||||||||||||||||||||||||||
Corporate and other bonds | ||||||||||||||||||||||||||||||||||||||||||||||||
Industrial and miscellaneous | 6,233,124 | 56,601 | (380,860 | ) | - | 5,908,865 | 77.4 | % | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Total |
| $ | 7,368,815 |
|
| $ | 826,009 |
|
| $ | - |
|
| $ | - |
|
| $ | 8,194,824 |
|
|
| 100.0 | % | $ | 7,765,138 | $ | 267,810 | $ | (403,648 | ) | $ | - | $ | 7,629,300 | 100.0 | % | |||||||||||
December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||||||||||||||||||||||||||||||||
Held-to-Maturity Securities: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. Treasury securities | $ | 729,642 | $ | 209,633 | $ | - | $ | - | $ | 939,275 | 10.7 | % | ||||||||||||||||||||||||||||||||||||
Political subdivisions of States, | ||||||||||||||||||||||||||||||||||||||||||||||||
Territories and Possessions | 998,239 | 22,856 | - | - | 1,021,095 | 11.7 | % | |||||||||||||||||||||||||||||||||||||||||
Exchange traded debt | 304,111 | 85 | (13,921 | ) | 290,275 | 3.3 | % | |||||||||||||||||||||||||||||||||||||||||
Corporate and other bonds | ||||||||||||||||||||||||||||||||||||||||||||||||
Industrial and miscellaneous | 6,234,342 | 280,951 | (12,779 | ) | - | 6,502,514 | 74.3 | % | ||||||||||||||||||||||||||||||||||||||||
Total | $ | 8,266,334 | $ | 513,525 | $ | (26,700 | ) | $ | - | $ | 8,753,159 | 100.0 | % | |||||||||||||||||||||||||||||||||||
Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum fund requirements.
| 54 |
| 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 June 30, 2021March 31, 2022 and December 31, 20202021 is shown below:
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
Remaining Time to Maturity |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Less than one year |
| $ | 899,352 |
|
| $ | 916,678 |
|
| $ | - |
|
| $ | - |
|
One to five years |
|
| 1,699,763 |
|
|
| 1,822,853 |
|
|
| 2,598,193 |
|
|
| 2,777,936 |
|
Five to ten years |
|
| 1,508,198 |
|
|
| 1,701,590 |
|
|
| 1,502,603 |
|
|
| 1,727,316 |
|
More than 10 years |
|
| 5,715,486 |
|
|
| 6,017,196 |
|
|
| 3,268,019 |
|
|
| 3,689,572 |
|
Total |
| $ | 9,822,799 |
|
| $ | 10,458,317 |
|
| $ | 7,368,815 |
|
| $ | 8,194,824 |
|
March 31, 2022 | December 31, 2021 | |||||||||||||||
Amortized | Estimated | Amortized | Estimated | |||||||||||||
Remaining Time to Maturity | Cost | Fair Value | Cost | Fair Value | ||||||||||||
Less than one year | $ | 494,595 | $ | 501,795 | $ | 994,712 | $ | 1,008,180 | ||||||||
One to five years | 1,206,159 | 1,262,780 | 1,205,829 | 1,290,465 | ||||||||||||
Five to ten years | 1,516,810 | 1,494,773 | 1,513,942 | 1,648,808 | ||||||||||||
More than 10 years | 4,547,574 | 4,369,952 | 4,551,851 | 4,805,706 | ||||||||||||
Total | $ | 7,765,138 | $ | 7,629,300 | $ | 8,266,334 | $ | 8,753,159 | ||||||||
Credit Rating of Fixed-Maturity Securities
The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of June 30, 2021March 31, 2022 and December 31, 20202021 as rated by Standard & Poor’s (or, if unavailable from Standard & Poor’s, then Moody’s, Fitch, or Fitch)Kroll):
|
| June 30, 2021 |
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
|
| Estimated |
| Percentage of |
| Estimated |
| Percentage of |
| Estimated | Percentage of | Estimated | Percentage of | |||||||||||||||||||
|
| Fair Market |
| Fair Market |
| Fair Market |
| Fair Market |
| Fair | Estimated | Fair | Estimated | |||||||||||||||||||
|
| Value |
|
| Value |
|
| Value |
|
| Value |
| Value | Fair Value | Value | Fair Value | ||||||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Rating |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
U.S. Treasury securities |
| $ | 2,020,780 |
|
|
| 1.5 | % |
| $ | 3,049,900 |
|
|
| 1.9 | % | $ | - | 0.0 | % | $ | - | 0.0 | % | ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Corporate and municipal bonds |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
AAA |
| 2,519,170 |
| 1.8 | % |
| 1,453,924 |
| 0.9 | % | 2,245,760 | 1.5 | % | 1,321,809 | 0.8 | % | ||||||||||||||||
AA |
| 5,233,677 |
| 3.8 | % |
| 3,572,164 |
| 2.3 | % | 12,316,338 | 8.1 | % | 11,532,572 | 7.3 | % | ||||||||||||||||
A |
| 21,332,628 |
| 15.5 | % |
| 23,989,619 |
| 15.2 | % | 32,664,514 | 21.5 | % | 38,272,571 | 24.2 | % | ||||||||||||||||
BBB+ | 20,651,573 | 13.6 | % | 17,936,359 | 11.3 | % | ||||||||||||||||||||||||||
BBB |
| 84,036,791 |
| 61.0 | % |
| 95,814,824 |
| 60.9 | % | 23,866,792 | 15.7 | % | 25,161,776 | 15.9 | % | ||||||||||||||||
Non rated |
|
| 1,028,392 |
|
|
| 0.7 | % |
|
| 1,006,901 |
|
|
| 0.6 | % | ||||||||||||||||
BBB- | 4,867,458 | 3.2 | % | 4,193,401 | 2.7 | % | ||||||||||||||||||||||||||
Total corporate and municipal bonds |
|
| 114,150,658 |
|
|
| 82.8 | % |
|
| 125,837,432 |
|
|
| 79.9 | % | 96,612,435 | 63.6 | % | 98,418,488 | 62.2 | % | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Residential mortgage backed securities |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Residential mortgage backed, asset backed, and other collateralized obligations | ||||||||||||||||||||||||||||||||
AAA |
| 1,997,000 |
| 1.4 | % |
| 5,467,075 |
| 3.5 | % | 17,992,573 | 11.8 | % | 17,350,192 | 11.0 | % | ||||||||||||||||
AA |
| 16,196,173 |
| 11.9 | % |
| 18,865,749 |
| 12.0 | % | 28,895,548 | 19.0 | % | 34,241,907 | 21.7 | % | ||||||||||||||||
A |
| 1,991,531 |
| 1.4 | % |
| 2,451,635 |
| 1.6 | % | 7,142,509 | 4.7 | % | 6,306,161 | 4.0 | % | ||||||||||||||||
BBB |
| 37,105 |
| 0.0 | % |
| 50,276 |
| 0.0 | % | 23,684 | 0.0 | % | 24,254 | 0.0 | % | ||||||||||||||||
CCC |
| 481,770 |
| 0.3 | % |
| 960,042 |
| 0.6 | % | 577,944 | 0.4 | % | 664,628 | 0.4 | % | ||||||||||||||||
CC |
| 58,874 |
| 0.0 | % |
| 62,029 |
| 0.0 | % | - | 0.0 | % | 125,412 | 0.1 | % | ||||||||||||||||
C |
| - |
| 0.0 | % |
| 15,161 |
| 0.0 | % | ||||||||||||||||||||||
D |
| 62,876 |
| 0.0 | % |
| 119,144 |
| 0.1 | % | 77,605 | 0.1 | % | 55,306 | 0.0 | % | ||||||||||||||||
Non rated |
|
| 919,885 |
|
|
| 0.7 | % |
|
| 670,829 |
|
|
| 0.4 | % | 456,119 | 0.3 | % | 893,762 | 0.6 | % | ||||||||||
Total residential mortgage backed securities |
|
| 21,745,214 |
|
|
| 15.7 | % |
|
| 28,661,940 |
|
|
| 18.2 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total |
| $ | 137,916,652 |
|
|
| 100.0 | % |
| $ | 157,549,272 |
|
|
| 100.0 | % | ||||||||||||||||
Total residential mortgage backed, asset backed, and other collateralized obligations | 55,285,061 | 36.4 | % | 59,661,622 | 37.8 | % | ||||||||||||||||||||||||||
| 55 |
| Table Of Contents |
The table below summarizes the average yield by type of fixed-maturity security as of June 30, 2021March 31, 2022 and December 31, 2020:2021:
Category |
| June 30, 2021 |
|
| December 31, 2020 |
| ||
|
|
|
|
|
| |||
|
|
|
|
|
| |||
U.S. Treasury securities and obligations of U.S. government corporations and agencies |
|
| 3.58 | % |
|
| 2.59 | % |
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 3.13 | % |
|
| 3.05 | % |
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 3.59 | % |
|
| 3.52 | % |
|
|
|
|
|
|
|
|
|
Residential mortgage backed securities |
|
| 0.82 | % |
|
| 1.18 | % |
|
|
|
|
|
|
|
|
|
Total |
|
| 3.23 | % |
|
| 3.07 | % |
Category | March 31, 2022 | December 31, 2021 | ||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | 3.09 | % | 3.06 | % | ||||
Political subdivisions of States, Territories and Possessions | 3.05 | % | 2.77 | % | ||||
Corporate and other bonds Industrial and miscellaneous | 3.32 | % | 3.23 | % | ||||
Residential mortgage backed securities | 2.60 | % | 2.77 | % | ||||
Total | 3.05 | % | 2.92 | % | ||||
The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
|
| December 31, 2020 |
| March 31, 2022 | December 31, 2021 | ||||||||
Weighted average effective maturity |
| 5.0 |
| 5.2 |
| 7.0 | 8.0 | |||||||||
|
|
|
|
|
| |||||||||||
Weighted average final maturity |
| 6.6 |
| 6.6 |
| 16.7 | 13.8 | |||||||||
|
|
|
|
|
| |||||||||||
Effective duration |
| 4.7 |
| 4.7 |
| 5.5 | 5.1 | |||||||||
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 June 30, 2021March 31, 2022 and December 31, 2020, 81%2021, 62% of the investment portfolio recorded at fair value was priced based upon quoted market prices.
| 56 |
| 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 June 30, 2021March 31, 2022 and December 31, 2020:2021:
|
| June 30, 2021 |
| March 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 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 |
| 1,073,200 |
| (32,208 | ) |
| 1 |
| - |
| - |
| - |
| 1,073,200 |
| (32,208 | ) | 14,959,121 | (1,614,463 | ) | 12 | - | - | - | 14,959,121 | (1,614,463 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Corporate and other bonds industrial and miscellaneous |
| 1,084,560 |
| (16,838 | ) |
| 1 |
| - |
| - |
| - |
| 1,084,560 |
| (16,838 | ) | 51,973,548 | (3,143,378 | ) | 55 | - | - | - | 51,973,548 | (3,143,378 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage and other asset backed securities |
|
| 3,083,104 |
|
|
| (2,560 | ) |
|
| 3 |
|
|
| 3,237,151 |
|
|
| (77,707 | ) |
|
| 10 |
|
|
| 6,320,255 |
|
|
| (80,267 | ) | 40,310,519 | (3,119,931 | ) | 31 | 2,733,402 | (306,849 | ) | 2 | 43,043,921 | (3,426,780 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total fixed-maturity securities |
| $ | 5,240,864 |
|
| $ | (51,606 | ) |
|
| 5 |
|
| $ | 3,237,151 |
|
| $ | (77,707 | ) |
|
| 10 |
|
| $ | 8,478,015 |
|
| $ | (129,313 | ) | $ | 107,243,188 | $ | (7,877,772 | ) | 98 | $ | 2,733,402 | $ | (306,849 | ) | 2 | $ | 109,976,590 | $ | (8,184,621 | ) | |||||||||||||||
| Table |
|
| December 31, 2020 |
| December 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 |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| 6,768,123 | (197,984 | ) | 5 | - | - | - | 6,768,123 | (197,984 | ) | |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Corporate and other bonds industrial and miscellaneous |
| 1,006,901 |
| (13,216 | ) |
| 1 |
| - |
| - |
| - |
| 1,006,901 |
| (13,216 | ) | 17,593,707 | (126,926 | ) | 15 | - | - | - | 17,593,707 | (126,926 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Residential mortgage and other asset backed securities |
|
| 6,137,522 |
|
|
| (7,371 | ) |
|
| 5 |
|
|
| 3,735,732 |
|
|
| (111,947 | ) |
|
| 10 |
|
|
| 9,873,254 |
|
|
| (119,318 | ) | 45,399,451 | (489,258 | ) | 26 | 2,923,182 | (120,344 | ) | 2 | 48,322,633 | (609,602 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||||||
Total fixed-maturity securities |
| $ | 7,144,423 |
|
| $ | (20,587 | ) |
|
| 6 |
|
| $ | 3,735,732 |
|
| $ | (111,947 | ) |
|
| 10 |
|
| $ | 10,880,155 |
|
| $ | (132,534 | ) | $ | 69,761,281 | $ | (814,168 | ) | 46 | $ | 2,923,182 | $ | (120,344 | ) | 2 | $ | 72,684,463 | $ | (934,512 | ) | |||||||||||||||
| 58 |
| Table Of Contents |
There were 15100 securities at June 30, 2021March 31, 2022 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 1648 securities at December 31, 20202021 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 sixthree months ended June 30, 2021,March 31, 2022, the primary source of cash flow for our holding company was the dividends received from KICO, subject to statutory restrictions. For the sixthree months ended June 30, 2021,March 31, 2022, KICO paid dividends of $2,000,000$1,500,000 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 3KICO currently does not have any securities pledged 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 assetsFHLBNY; as of the end of the previous quarter, which is March 31, 2021, and are due and payable within 90 days of borrowing. The maximum allowable advance as of June 30, 2021, based on the net admitted assets as of March 31, 2021, was approximately $12,480,000. Advances are limited to 85% of the amount of available collateral, which was approximately $9,211,000 as of June 30, 2021. Theresuch, there were no borrowings under this facility during the sixthree months ended June 30,March 31, 2022 and 2021.
On December 19, 2017, we issued $30 million of our 5.50% Senior Unsecured Notes due December 30, 2022. As of June 30, 2021,March 31, 2022, invested assets and cash in our holding company totaledwas approximately $2,053,000.$3,812,000. If the aforementioned sources of cash flow currently available are insufficient to cover our holding company debt service and other cash requirements, we will seek to obtain additional financing. See Notes 2 and 7 to our Condensed Consolidated Financial Statements included in this Quarterly Report for a discussion of our plans in this regard.
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.
| Table |
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:
Six Months Ended June 30, |
| 2021 |
|
| 2020 |
| ||||||||||
Three months ended March 31, | 2022 | 2021 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Cash flows provided by (used in): |
|
|
|
|
| |||||||||||
Cash flows (used in) provided by: | ||||||||||||||||
Operating activities |
| $ | 14,364,315 |
| $ | (9,981,438 | ) | $ | (17,388,078 | ) | $ | 1,392,800 | ||||
Investing activities |
| 11,307,718 |
| (226,785 | ) | (285,069 | ) | 1,963,156 | ||||||||
Financing activities |
|
| (2,076,028 | ) |
|
| (2,029,530 | ) | (783,565 | ) | (639,738 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
| 23,596,005 |
| (12,237,753 | ) | |||||||||||
Net (decrease) increase in cash and cash equivalents | (18,456,712 | ) | 2,716,218 | |||||||||||||
Cash and cash equivalents, beginning of period |
|
| 19,463,742 |
|
|
| 32,391,485 |
| 24,290,598 | 19,463,742 | ||||||
Cash and cash equivalents, end of period |
| $ | 43,059,747 |
|
| $ | 20,153,732 |
| $ | 5,833,886 | $ | 22,179,960 | ||||
Net cash used in operating activities was $17,388,000 in Three Months 2022 as compared to $1,393,000 provided by operating activities was $14,364,000 in SixThree Months 2021 as compared to $9,981,000 used in operating activities in Six Months 2020.2021. The $24,345,000 increase$18,781,000 decrease in cash flows provided by operating activities in SixThree Months 20212022 was primarily the result of an increasea decrease in cash arising from net fluctuations in assets and liabilities, partially offset by net incomeloss (adjusted for non-cash items) of $7,377,000.$3,530,000. The increase of cash used in operating activities is also attributable to the payment of $13,245,000 to reinsurers in Three Months 2022 pursuant to the inception of our quota share reinsurance treaty, effective December 31, 2021. 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, which are described above.
Net cash used in investing activities was $285,000 in Three Months 2022 compared to $1,963,000 provided by investing activities was $11,307,000 in SixThere Months 2021 compared to $227,000 used in investing activities in Six Months 2020.2021. The $11,535,000$2,248,000 increase in net cash provided byused in investing activities was the result of an $5,812,000a $2,305,000 decrease in the acquisition of invested assets, partially offset by a $6,817,000 increase in disposals of invested assets and a $531,000 increase in Sixthe acquisition of property and equipment in Three Months 2021.2022.
Net cash used in financing activities was $2,076,000$784,000 in SixThree Months 20212022 compared to $2,030,000$640,000 used in SixThree Months 2020.2021. The $47,000$144,000 increase in net cash used in financing activities was attributable to a $249,000 reduction in dividends paid offset by a $238,000$211,000 increase in purchaseswithholding taxes paid on the vesting of treasuryrestricted stock awards in SixThree Months 20212022 compared to SixThree Months 2020.2021.
Reinsurance
Effective December 15, 2019,31, 2021, we entered into a quota share reinsurance treaty for our personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 15, 201931, 2021 through December 30, 2020January 1, 2023 (“2019/20202021/2023 Treaty”). 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 Three Months 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-off”).
| 60 |
| Table Of Contents |
We entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2021. Effective October 18, 2021, we entered into a stub catastrophe reinsurance treaty covering the period from October 18, 2021 through December 31, 2021. The treaty provides reinsurance coverage for catastrophe losses of $5,000,000 in excess of $5,000,000. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance treaty covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows:
Treaty Year | ||||||||||||||||
(2021/2023 Treaty) | ||||||||||||||||
July 1, | December 31, | July 1, | December 31, | |||||||||||||
2022 | 2021 | 2021 | 2020 | |||||||||||||
to | to | to | to | |||||||||||||
January 1, | June 30, | December 30, | June 30, | |||||||||||||
Line of Business | 2023 | 2022 | 2021 | 2021 | ||||||||||||
Personal Lines: | ||||||||||||||||
Homeowners, dwelling fire and and canine legal liability | ||||||||||||||||
Quota share treaty: |
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Percent ceded (9) | 30 | % | 30 | % | None (5 | ) | None (5 | ) | ||||||||
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Risk retained on intial $1,000,000 of losses (5) (7) (9) | $ | 700,000 | $ | 700,000 | $ | 1,000,000 | $ | 1,000,000 | ||||||||
Losses per occurrence subject to quota share reinsurance coverage | $ | 1,000,000 | $ | 1,000,000 | None (5 | ) | None (5 | ) | ||||||||
Expiration date | January 1, 2023 | January 1, 2023 | NA (5 | ) | NA (5 | ) | ||||||||||
Excess of loss coverage and facultative facility coverage (1) (7) | $ | 400,000 | $ | 8,400,000 | $ | 8,000,000 | $ | 8,000,000 | ||||||||
in excess of | in excess of | in excess of | in excess of | |||||||||||||
| $ | 600,000 | $ | 600,000 | $ | 1,000,000 | $ | 1,000,000 | |||||||||
Total reinsurance coverage per occurrence (5) (7) (8) | $ | 500,000 | $ | 8,500,000 | $ | 8,000,000 | $ | 8,000,000 | ||||||||
Losses per occurrence subject to reinsurance coverage (5) (8) | $ | 1,000,000 | $ | 9,000,000 | $ | 9,000,000 | $ | 9,000,000 | ||||||||
Expiration date | (8 | ) | June 30, 2022 | June 30, 2022 | June 30, 2021 | |||||||||||
Catastrophe Reinsurance: | ||||||||||||||||
Initial loss subject to personal lines quota share treaty |
|
| 10,000,000 |
|
|
| 10,000,000 |
|
|
| None (5 | ) |
|
| None (5 | ) |
Risk retained per catastrophe occurrence (5) (9) (10) | None (8 | ) | $ | 7,400,000 | $ | 10,000,000 | $ | 10,000,000 | ||||||||
Catastrophe loss coverage in excess of quota share coverage (2) (5) | None (8 | ) | $ | 490,000,000 | $ | 490,000,000 | $ | 475,000,000 | ||||||||
Catastrophe stub coverage for the period from October 18, 2021 through December 31, 2021 (6) | NA | NA | $ | 5,000,000 | NA | |||||||||||
in excess of | ||||||||||||||||
| $ | 5,000,000 | |||||||||||||||
Reinstatement premium protection (3) (4) (8) | None | Yes | Yes | Yes | ||||||||||||
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| Treaty Year |
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| July 1, 2021 |
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| December 31, 2020 |
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| July 1, 2020 |
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| December 15, 2019 |
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| to |
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| to |
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| to |
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| to |
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Line of Business |
| June 30, 2022 |
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| June 30, 2021 |
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| December 30, 2020 |
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| June 30, 2020 |
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Personal Lines: |
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Homeowners, dwelling fire and |
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and canine legal liability |
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Quota share treaty: |
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Risk retained on intial |
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$1,000,000 of losses (7) |
| $ | 1,000,000 |
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| $ | 1,000,000 |
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| $ | 750,000 |
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| $ | 750,000 |
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Losses per occurrence subject |
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to quota share |
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reinsurance coverage |
| None (7) |
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| None (7) |
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| $ | 1,000,000 |
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| $ | 1,000,000 |
| ||
Expiration date |
| NA (7) |
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| NA (7) |
|
| December 30, 2020 |
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| December 30, 2020 |
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Excess of loss coverage and |
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facultative facility |
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coverage (1) |
| $ | 8,000,000 |
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| $ | 8,000,000 |
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| $ | 8,000,000 |
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| $ | 9,000,000 |
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| in excess of |
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| in excess of |
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| in excess of |
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| in excess of |
| ||||
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| $ | 1,000,000 |
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| $ | 1,000,000 |
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| $ | 1,000,000 |
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| $ | 1,000,000 |
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Total reinsurance coverage |
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per occurrence (7) |
| $ | 8,000,000 |
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| $ | 8,000,000 |
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| $ | 8,250,000 |
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| $ | 9,250,000 |
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Losses per occurrence subject |
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to reinsurance coverage |
| $ | 9,000,000 |
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| $ | 9,000,000 |
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| $ | 9,000,000 |
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| $ | 10,000,000 |
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Expiration date (7) |
| June 30, 2022 |
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| June 30, 2021 |
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| June 30, 2021 |
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| June 30, 2020 |
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Catastrophe Reinsurance: |
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Initial loss subject to personal |
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lines quota share treaty |
| None (7) |
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| None (7) |
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| $ | 7,500,000 |
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| $ | 7,500,000 |
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Risk retained per catastrophe |
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occurrence (2) (7) |
| $ | 10,000,000 |
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| $ | 10,000,000 |
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| $ | 8,125,000 |
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| $ | 5,625,000 |
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Catastrophe loss coverage |
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in excess of |
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quota share coverage (3) (7) |
| $ | 490,000,000 |
|
| $ | 475,000,000 |
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| $ | 475,000,000 |
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| $ | 602,500,000 |
|
Reinstatement premium |
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protection (4) (5) (6) |
| Yes |
|
| Yes |
|
| Yes |
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| Yes |
| ||||
(1) | For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to |
| |
(2) |
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| 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. |
| |
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| 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. |