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KINGSTONE COMPANIES, INC. - Quarter Report: 2021 September (Form 10-Q)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended September 30, 2021

 

OR

 

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

 

For the transition period from _________to _________

 

Commission File Number 0-1665

 

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-2476480

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

15 Joys Lane

Kingston, NY 12401
(Address of principal executive offices)

 

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

KINS

Nasdaq Capital Market

 

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

 

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

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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

 

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

 

As of November 12, 2021, there were 10,483,132 shares of the registrant’s common stock outstanding.

 

 

 

KINGSTONE COMPANIES, INC.

 

INDEX

 

 

 

 

 

 

PAGE

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

4

 

 

Item 1 —

 

Financial Statements

 

4

 

 

 

 

Condensed Consolidated Balance Sheets at September 30, 2021 (Unaudited) and December 31, 2020

 

4

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and nine months ended September 30, 2021 (Unaudited) and 2020 (Unaudited)

 

5

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2021 (Unaudited) and 2020 (Unaudited)

 

6-7

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 (Unaudited) and 2020 (Unaudited)

 

8

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

 

 

Item 2 —

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

40

 

 

Item 3 —

 

Quantitative and Qualitative Disclosures About Market Risk

 

72

 

 

Item 4 —

 

Controls and Procedures

 

72

 

 

 

 

 

 

 

 

PART II — OTHER INFORMATION

 

74

 

 

Item 1 —

 

Legal Proceedings

 

74

 

 

Item 1A —

 

Risk Factors

 

74

 

 

Item 2 —

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

 

 

Item 3 —

 

Defaults Upon Senior Securities

 

74

 

 

Item 4 —

 

Mine Safety Disclosures

 

74

 

 

Item 5 —

 

Other Information

 

74

 

 

Item 6 —

 

Exhibits

 

75

 

Signatures

 

76

 

 

 
2

Table of Contents

 

Forward-Looking Statements

 

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

 

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

 

 
3

Table of Contents

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of

 

 

 

 

 

 

$9,699,504 at September 30, 2021 and $8,194,824 at December 31, 2020)

 

$9,166,983

 

 

$7,368,815

 

Fixed-maturity securities, available-for-sale, at fair value (amortized cost of

 

 

 

 

 

 

 

 

$145,435,406 at September 30, 2021 and $145,045,584 at December 31, 2020)

 

 

153,289,242

 

 

 

157,549,272

 

Equity securities, at fair value (cost of $37,545,241 at September 30, 2021 and

 

 

 

 

 

 

 

 

$32,571,166 at December 31, 2020)

 

 

40,060,872

 

 

 

34,413,313

 

Other investments

 

 

7,379,111

 

 

 

3,518,626

 

Total investments

 

 

209,896,208

 

 

 

202,850,026

 

Cash and cash equivalents

 

 

36,108,088

 

 

 

19,463,742

 

Premiums receivable, net

 

 

11,309,319

 

 

 

11,819,639

 

Reinsurance receivables, net

 

 

22,962,014

 

 

 

45,460,729

 

Deferred policy acquisition costs

 

 

21,261,916

 

 

 

20,142,515

 

Intangible assets

 

 

500,000

 

 

 

500,000

 

Property and equipment, net

 

 

8,526,162

 

 

 

8,083,123

 

Other assets

 

 

9,662,834

 

 

 

9,262,493

 

Total assets

 

$320,226,541

 

 

$317,582,267

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$101,044,118

 

 

$82,801,228

 

Unearned premiums

 

 

92,653,778

 

 

 

90,009,272

 

Advance premiums

 

 

5,325,514

 

 

 

2,660,354

 

Reinsurance balances payable

 

 

4,266,092

 

 

 

6,979,735

 

Deferred ceding commission revenue

 

 

87,846

 

 

 

93,519

 

Accounts payable, accrued expenses and other liabilities

 

 

8,700,342

 

 

 

8,433,233

 

Deferred income taxes, net

 

 

537,848

 

 

 

4,156,913

 

Long-term debt, net

 

 

29,779,746

 

 

 

29,647,611

 

Total liabilities

 

 

242,395,284

 

 

 

224,781,865

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value; authorized 2,500,000 shares

 

 

-

 

 

 

-

 

Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,947,619 shares

 

 

 

 

 

 

 

 

at September 30, 2021 and 11,871,307 shares at December 31, 2020; outstanding

 

 

 

 

 

 

 

 

10,476,213 shares at September 30, 2021 and 10,616,815 shares at December 31, 2020

 

 

119,476

 

 

 

118,713

 

Capital in excess of par

 

 

72,025,035

 

 

 

70,769,165

 

Accumulated other comprehensive income

 

 

6,206,680

 

 

 

9,880,062

 

Retained earnings

 

 

5,047,547

 

 

 

15,928,345

 

 

 

 

83,398,738

 

 

 

96,696,285

 

Treasury stock, at cost, 1,471,406 shares at September 30, 2021

 

 

 

 

 

 

 

 

and 1,254,492 shares at December 31, 2020

 

 

(5,567,481)

 

 

(3,895,883)

Total stockholders' equity

 

 

77,831,257

 

 

 

92,800,402

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$320,226,541

 

 

$317,582,267

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
4

Table of Contents

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

Ceding commission revenue

 

 

(7,276)

 

 

3,448,774

 

 

 

37,400

 

 

 

10,760,087

 

Net investment income

 

 

1,676,596

 

 

 

1,494,086

 

 

 

5,137,867

 

 

 

4,771,936

 

Net gains (losses) on investments

 

 

204,534

 

 

 

2,107,876

 

 

 

5,480,202

 

 

 

(1,638,674)

Other income

 

 

280,869

 

 

 

250,654

 

 

 

577,261

 

 

 

772,672

 

Total revenues

 

 

38,957,974

 

 

 

34,822,471

 

 

 

118,061,625

 

 

 

95,765,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

 

35,740,235

 

 

 

20,117,975

 

 

 

79,060,117

 

 

 

49,317,427

 

Commission expense

 

 

8,201,935

 

 

 

8,036,298

 

 

 

24,711,115

 

 

 

23,652,765

 

Other underwriting expenses

 

 

6,562,743

 

 

 

6,346,846

 

 

 

19,722,705

 

 

 

19,434,110

 

Other operating expenses

 

 

855,499

 

 

 

1,038,453

 

 

 

3,141,077

 

 

 

3,364,483

 

Depreciation and amortization

 

 

820,091

 

 

 

710,181

 

 

 

2,480,085

 

 

 

2,070,435

 

Interest expense

 

 

456,545

 

 

 

456,545

 

 

 

1,369,635

 

 

 

1,369,635

 

Total expenses

 

 

52,637,048

 

 

 

36,706,298

 

 

 

130,484,734

 

 

 

99,208,855

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

 

(13,679,074)

 

 

(1,883,827)

 

 

(12,423,109)

 

 

(3,443,447)

Income tax benefit

 

 

(3,060,809)

 

 

(655,971)

 

 

(2,817,108)

 

 

(1,379,578)

Net loss

 

 

(10,618,265)

 

 

(1,227,856)

 

 

(9,606,001)

 

 

(2,063,869)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross change in unrealized (losses) gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on available-for-sale-securities

 

 

(829,297)

 

 

1,778,478

 

 

 

(3,578,413)

 

 

5,938,600

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

included in net loss

 

 

(335,669)

 

 

(606,969)

 

 

(1,071,439)

 

 

(560,696)

Net change in unrealized (losses) gains

 

 

(1,164,966)

 

 

1,171,509

 

 

 

(4,649,852)

 

 

5,377,904

 

Income tax benefit (expense) related to items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of other comprehensive (loss) income

 

 

244,643

 

 

 

(246,017)

 

 

976,470

 

 

 

(1,129,359)

Other comprehensive (loss) income, net of tax

 

 

(920,323)

 

 

925,492

 

 

 

(3,673,382)

 

 

4,248,545

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$(11,538,588)

 

$(302,364)

 

$(13,279,383)

 

$2,184,676

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$(1.01)

 

$(0.12)

 

$(0.90)

 

$(0.19)

Diluted

 

$(1.01)

 

$(0.12)

 

$(0.90)

 

$(0.19)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,523,515

 

 

 

10,673,077

 

 

 

10,622,988

 

 

 

10,737,853

 

Diluted

 

 

10,523,515

 

 

 

10,673,077

 

 

 

10,622,988

 

 

 

10,737,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$0.0400

 

 

$0.0400

 

 

$0.1200

 

 

$0.1425

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
5

Table of Contents

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Three months ended September 30, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, July 1, 2020

 

 

-

 

 

$-

 

 

 

11,866,254

 

 

$118,662

 

 

$69,951,549

 

 

$8,091,923

 

 

$14,973,684

 

 

 

1,196,109

 

 

$(3,514,340)

 

 

89,621,478

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430,896

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430,896

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

6,790

 

 

 

69

 

 

 

(69)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(1,737)

 

 

(18)

 

 

(9,577)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,595)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(426,990)

 

 

-

 

 

 

-

 

 

 

(426,990)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,227,856)

 

 

-

 

 

 

-

 

 

 

(1,227,856)

Change in unrealized gains on available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for-sale securities, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

925,492

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

925,492

 

Balance, September 30, 2020

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,372,799

 

 

$9,017,415

 

 

$13,318,838

 

 

 

1,196,109

 

 

$(3,514,340)

 

$89,313,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income (Loss)

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, July 1, 2021

 

 

-

 

 

$-

 

 

 

11,944,220

 

 

$119,442

 

 

$71,567,797

 

 

$7,127,003

 

 

$16,086,337

 

 

 

1,383,077

 

 

$(4,935,933)

 

$89,964,646

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

466,658

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

466,658

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

4,907

 

 

 

49

 

 

 

(49)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(1,508)

 

 

(15)

 

 

(9,371)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,386)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

88,329

 

 

 

(631,548)

 

 

(631,548)
Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(420,525)

 

 

-

 

 

 

-

 

 

 

(420,525)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(10,618,265)

 

 

-

 

 

 

-

 

 

 

(10,618,265)

Change in unrealized losses on available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for-sale securities, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(920,323)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(920,323)
Balance, September 30, 2021

 

 

-

 

 

$-

 

 

 

11,947,619

 

 

$119,476

 

 

$72,025,035

 

 

$6,206,680

 

 

$5,047,547

 

 

 

1,471,406

 

 

$(5,567,481)

 

$77,831,257

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
6

Table of Contents

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Nine months ended September 30, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, January 1, 2020

 

 

-

 

 

$-

 

 

 

11,824,889

 

 

$118,248

 

 

$69,133,918

 

 

$4,768,870

 

 

$16,913,097

 

 

 

1,027,439

 

 

$(2,712,552)

 

 

88,221,581

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,373,283

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,373,283

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

67,686

 

 

 

676

 

 

 

(676)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(21,268)

 

 

(211)

 

 

(133,726)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(133,937)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

168,670

 

 

 

(801,788)

 

 

(801,788)
Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,530,390)

 

 

-

 

 

 

-

 

 

 

(1,530,390)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,063,869)

 

 

-

 

 

 

-

 

 

 

(2,063,869)

Change in unrealized gains on available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for-sale securities, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,248,545

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,248,545

 

Balance, September 30, 2020

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,372,799

 

 

$9,017,415

 

 

$13,318,838

 

 

 

1,196,109

 

 

$(3,514,340)

 

$89,313,425

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income (Loss)

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, January 1, 2021

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,769,165

 

 

$9,880,062

 

 

$15,928,345

 

 

 

1,254,492

 

 

$(3,895,883)

 

$92,800,402

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,447,725

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,447,725

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

104,030

 

 

 

1,040

 

 

 

(1,040)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(27,718)

 

 

(277)

 

 

(190,815)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(191,092)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216,914

 

 

 

(1,671,598)

 

 

(1,671,598)
Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,274,797)

 

 

-

 

 

 

-

 

 

 

(1,274,797)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,606,001)

 

 

-

 

 

 

-

 

 

 

(9,606,001)

Change in unrealized losses on available-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

for-sale securities, net of tax

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,673,382)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,673,382)
Balance, September 30, 2021

 

 

-

 

 

$-

 

 

 

11,947,619

 

 

$119,476

 

 

$72,025,035

 

 

$6,206,680

 

 

$5,047,547

 

 

 

1,471,406

 

 

$(5,567,481)

 

$77,831,257

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
7

Table of Contents

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

 

 

 

 

 

Nine months ended September 30,

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(9,606,001)

 

$(2,063,869)

Adjustments to reconcile net loss to net cash flows provided by (used in)

 

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

 

Net gains on sale of investments

 

 

(2,793,522)

 

 

(857,650)

Net unrealized gains on equity investments

 

 

(592,397)

 

 

2,740,489

 

Net unrealized gains of other investments

 

 

(2,094,283)

 

 

(244,165)

Depreciation and amortization

 

 

2,480,085

 

 

 

2,070,435

 

Bad debt expense

 

 

150,024

 

 

 

70,666

 

Amortization of bond premium, net

 

 

165,413

 

 

 

518,146

 

Amortization of discount and issuance costs on long-term debt

 

 

132,135

 

 

 

132,135

 

Stock-based compensation

 

 

1,447,725

 

 

 

1,373,283

 

Deferred income tax (benefit) expense

 

 

(2,642,595)

 

 

1,154,475

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Premiums receivable, net

 

 

360,296

 

 

 

(1,247,963)

Reinsurance receivables, net

 

 

22,498,715

 

 

 

(14,778,870)

Deferred policy acquisition costs

 

 

(1,119,401)

 

 

718,053

 

Other assets

 

 

(406,756)

 

 

(2,010,253)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

 

18,242,890

 

 

 

4,480,413

 

Unearned premiums

 

 

2,644,506

 

 

 

(2,215,602)

Advance premiums

 

 

2,665,160

 

 

 

1,727,744

 

Reinsurance balances payable

 

 

(2,713,643)

 

 

(1,652,075)

Deferred ceding commission revenue

 

 

(5,673)

 

 

(528,256)

Accounts payable, accrued expenses and other liabilities

 

 

267,109

 

 

 

1,147,858

 

Net cash flows provided by (used in) operating activities

 

 

29,079,787

 

 

 

(9,465,006)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase - fixed-maturity securities held-to-maturity

 

 

(3,175,686)

 

 

(4,041,750)

Purchase - fixed-maturity securities available-for-sale

 

 

(32,753,786)

 

 

(12,447,259)

Purchase - equity securities

 

 

(17,834,076)

 

 

(15,614,675)

Purchase - other investments

 

 

(2,000,000)

 

 

-

 

Redemption - fixed-maturity securities held-to-maturity

 

 

1,312,500

 

 

 

500,000

 

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

 

 

33,335,036

 

 

 

29,666,158

 

Sale - equity securities

 

 

14,507,384

 

 

 

8,103,697

 

Sale - real estate partnership

 

 

233,798

 

 

 

-

 

Acquisition of property and equipment

 

 

(2,923,124)

 

 

(2,238,432)

Net cash flows (used in) provided by investing activities

 

 

(9,297,954)

 

 

3,927,739

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Withholding taxes paid on vested retricted stock awards

 

 

(191,092)

 

 

(133,937)

Purchase of treasury stock

 

 

(1,671,598)

 

 

(801,788)

Dividends paid

 

 

(1,274,797)

 

 

(1,530,390)

Net cash flows used in financing activities

 

 

(3,137,487)

 

 

(2,466,115)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

$16,644,346

 

 

$(8,003,382)

Cash and cash equivalents, beginning of period

 

 

19,463,742

 

 

 

32,391,485

 

Cash and cash equivalents, end of period

 

$36,108,088

 

 

$24,388,103

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$-

 

 

$388,000

 

Cash paid for interest

 

$825,000

 

 

$825,000

 

  

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
8

Table of Contents

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 - Nature of Business and Basis of Presentation

 

Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its wholly owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance exclusively through retail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut continue to be growing markets for the Company, 79.4% and 77.5% of KICO’s direct written premiums for the three months and nine months ended September 30, 2021, respectively, came from the New York policies. Kingstone, through its wholly owned subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, accesses alternate forms of distribution outside of the independent agent and broker network, through which KICO currently distributes its various products.

 

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

 

Certain prior year balances were reclassified to conform with the current year presentation.

 

Note 2 – Accounting Policies

 

Use of Estimates

 

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

 

 
9

Table of Contents

 

Principles of Consolidation

 

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

 

Accounting Changes

 

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. The Company adopted this ASU as of January 1, 2021, and it did not have a material impact on the Company's condensed consolidated financial statements.

 

Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company is currently evaluating the effect the updated guidance will have on its condensed consolidated financial statements.

 

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

 

 
10

Table of Contents

 

Note 3 - Investments

 

Fixed-Maturity Securities

 

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

 

 

 

September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$2,002,935

 

 

$3,945

 

 

$-

 

 

$-

 

 

$2,006,880

 

 

$3,945

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

14,384,428

 

 

 

259,721

 

 

 

(89,844)

 

 

-

 

 

 

14,554,305

 

 

 

169,877

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

88,059,505

 

 

 

7,391,053

 

 

 

(27,577)

 

 

-

 

 

 

95,422,981

 

 

 

7,363,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

40,988,538

 

 

 

561,035

 

 

 

(243,639)

 

 

(858)

 

 

41,305,076

 

 

 

316,538

 

Total

 

$145,435,406

 

 

$8,215,754

 

 

$(361,060)

 

$(858)

 

$153,289,242

 

 

$7,853,836

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$3,020,710

 

 

$29,190

 

 

$-

 

 

$-

 

 

$3,049,900

 

 

$29,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

5,287,561

 

 

 

355,541

 

 

 

-

 

 

 

-

 

 

$5,643,102

 

 

 

355,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

108,573,422

 

 

 

11,634,123

 

 

 

(13,216)

 

 

-

 

 

$120,194,329

 

 

 

11,620,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities (1)

 

 

28,163,891

 

 

 

617,368

 

 

 

(7,371)

 

 

(111,947)

 

$28,661,941

 

 

 

498,050

 

Total

 

$145,045,584

 

 

$12,636,222

 

 

$(20,587)

 

$(111,947)

 

$157,549,272

 

 

$12,503,688

 

 

(1)

KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of September 30, 2021 KICO did not have any securities pledged as collateral. As of December 31, 2020, the estimated fair value of the eligible investments was approximately $11,391,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2020, there was no outstanding balance on the FHLBNY credit line.

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$4,161,386

 

 

$4,184,568

 

 

$8,559,005

 

 

$8,668,064

 

One to five years

 

 

40,877,043

 

 

 

43,947,314

 

 

 

44,137,567

 

 

 

47,745,430

 

Five to ten years

 

 

42,375,537

 

 

 

46,545,324

 

 

 

55,508,712

 

 

 

63,159,775

 

More than 10 years

 

 

17,032,902

 

 

 

17,306,960

 

 

 

8,676,409

 

 

 

9,314,062

 

Residential mortgage and other asset backed securities

 

 

40,988,538

 

 

 

41,305,076

 

 

 

28,163,891

 

 

 

28,661,941

 

Total

 

$145,435,406

 

 

$153,289,242

 

 

$145,045,584

 

 

$157,549,272

 

 

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

 

Equity Securities

 

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

 

 

 

September 30, 2021

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$21,934,910

 

 

$1,123,310

 

 

$(157,431)

 

$22,900,789

 

Common stocks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and exchange traded funds

 

 

15,610,331

 

 

 

1,620,343

 

 

 

(70,591)

 

 

17,160,083

 

Total

 

$37,545,241

 

 

$2,743,653

 

 

$(228,022)

 

$40,060,872

 

 

 

 

December 31, 2020

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$18,097,942

 

 

$853,277

 

 

$(426,942)

 

$18,524,277

 

Common stocks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and exchange traded funds

 

 

14,473,224

 

 

 

1,820,512

 

 

 

(404,700)

 

 

15,889,036

 

Total

 

$32,571,166

 

 

$2,673,789

 

 

$(831,642)

 

$34,413,313

 

 

Other Investments

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 

 

Gross

 

 

Estimated

 

 

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Fair Value

 

 

Cost

 

 

Gains

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge fund

 

$3,999,381

 

 

$3,379,730

 

 

$7,379,111

 

 

$1,999,381

 

 

$1,369,245

 

 

$3,368,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate limited partnership

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150,000

 

 

 

-

 

 

 

150,000

 

Total

 

$3,999,381

 

 

$3,379,730

 

 

$7,379,111

 

 

$2,149,381

 

 

$1,369,245

 

 

$3,518,626

 

 

Held-to-Maturity Securities


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

 

 

 

September 30, 2021

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

Held-to-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$729,630

 

 

$210,466

 

 

$-

 

 

$-

 

 

$940,096

 

 

$210,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

998,296

 

 

 

29,744

 

 

 

-

 

 

 

-

 

 

 

1,028,040

 

 

 

29,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange traded debt

 

 

304,111

 

 

 

-

 

 

 

(16,611)

 

 

 

 

 

 

287,500

 

 

 

(16,611)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

7,134,946

 

 

 

315,285

 

 

 

(6,363)

 

 

-

 

 

 

7,443,868

 

 

 

308,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$9,166,983

 

 

$555,495

 

 

$(22,974)

 

$-

 

 

$9,699,504

 

 

$532,521

 

 

 
12

Table of Contents

 

 

 

December 31, 2020

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

Held-to-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$729,595

 

 

$319,714

 

 

$-

 

 

$-

 

 

$1,049,309

 

 

$319,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

998,428

 

 

 

50,917

 

 

 

-

 

 

 

-

 

 

 

1,049,345

 

 

 

50,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

5,640,792

 

 

 

455,378

 

 

 

-

 

 

 

-

 

 

 

6,096,170

 

 

 

455,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$7,368,815

 

 

$826,009

 

 

$-

 

 

$-

 

 

$8,194,824

 

 

$826,009

 

 

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

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$1,394,102

 

 

$1,420,414

 

 

$-

 

 

$-

 

One to five years

 

 

1,205,500

 

 

 

1,301,973

 

 

 

2,598,193

 

 

 

2,777,936

 

Five to ten years

 

 

1,511,072

 

 

 

1,686,289

 

 

 

1,502,603

 

 

 

1,727,316

 

More than 10 years

 

 

5,056,309

 

 

 

5,290,828

 

 

 

3,268,019

 

 

 

3,689,572

 

Total

 

$9,166,983

 

 

$9,699,504

 

 

$7,368,815

 

 

$8,194,824

 

 

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

 

 
13

Table of Contents

 

Investment Income

 

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities

 

$1,288,277

 

 

$1,264,633

 

 

$4,238,746

 

 

$4,106,404

 

Equity securities

 

 

436,833

 

 

 

290,834

 

 

 

1,145,244

 

 

 

787,702

 

Cash and cash equivalents

 

 

9,636

 

 

 

1,834

 

 

 

11,194

 

 

 

89,993

 

Other investments

 

 

42,908

 

 

 

-

 

 

 

-

 

 

 

 

 

Total

 

 

1,777,654

 

 

 

1,557,301

 

 

 

5,395,184

 

 

 

4,984,099

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment expenses

 

 

101,058

 

 

 

63,215

 

 

 

257,317

 

 

 

212,163

 

Net investment income

 

$1,676,596

 

 

$1,494,086

 

 

$5,137,867

 

 

$4,771,936

 

 

Proceeds from the redemption of fixed-maturity securities held-to-maturity were $1,312,500 for the nine months ended September 30, 2021 and $500,000 for the nine months ended September 30, 2020.

 

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $33,335,036 and $29,666,158for the nine months ended September 30, 2021 and 2020, respectively.

 

Proceeds from the sale of equity securities were $14,507,384and $8,103,697for the nine months ended September 30, 2021 and 2020, respectively.

 

 
14

Table of Contents

 

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Realized Gains (Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

$343,773

 

 

$714,162

 

 

$1,121,068

 

 

$864,814

 

Gross realized losses

 

 

(8,103)

 

 

(107,193)

 

 

(49,601)

 

 

(304,118)

 

 

 

335,670

 

 

 

606,969

 

 

 

1,071,467

 

 

 

560,696

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

639,626

 

 

 

199,439

 

 

 

2,015,574

 

 

 

644,111

 

Gross realized losses

 

 

(26,031)

 

 

(209,069)

 

 

(293,519)

 

 

(449,916)

 

 

 

613,595

 

 

 

(9,630)

 

 

1,722,055

 

 

 

194,195

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

83,798

 

 

 

-

 

 

 

83,798

 

 

 

-

 

Gross realized losses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

83,798

 

 

 

-

 

 

 

83,798

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized gains

 

 

1,033,063

 

 

 

597,339

 

 

 

2,877,320

 

 

 

754,891

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross gains

 

 

(1,331,675)

 

 

1,223,779

 

 

 

592,397

 

 

 

-

 

Gross losses

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(2,637,730)

 

 

 

(1,331,675)

 

 

1,223,779

 

 

 

592,397

 

 

 

(2,637,730)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross gains

 

 

503,146

 

 

 

286,758

 

 

 

2,010,485

 

 

 

244,165

 

Gross losses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

503,146

 

 

 

286,758

 

 

 

2,010,485

 

 

 

244,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses)

 

 

(828,529)

 

 

1,510,537

 

 

 

2,602,882

 

 

 

(2,393,565)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on investments

 

$204,534

 

 

$2,107,876

 

 

$5,480,202

 

 

$(1,638,674)

 

Impairment Review

 

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

 

 
15

Table of Contents

 

OTTI losses are recorded in the consolidated statements of operations and comprehensive income (loss) as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At September 30, 2021 and December 31, 2020, there were 25 and 16 fixed-maturity securities, respectively, that accounted for the gross unrealized losses. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of investments for the nine months ended September 30, 2021 and 2020. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to hold the investment for a period of time sufficient to allow for an anticipated recovery of estimated fair value to the Company’s cost basis.

 

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at September 30, 2021 as follows:

 

 

 

September 30, 2021

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

9,106,494

 

 

 

(89,844)

 

 

6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,106,494

 

 

 

(89,844)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

1,071,100

 

 

 

(27,577)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,071,100

 

 

 

(27,577)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

27,039,698

 

 

 

(243,639)

 

 

17

 

 

 

12,436

 

 

 

(858)

 

 

1

 

 

 

27,052,134

 

 

 

(244,497)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$37,217,292

 

 

$(361,060)

 

 

24

 

 

$12,436

 

 

$(858)

 

 

1

 

 

$37,229,728

 

 

$(361,918)

 

 
16

Table of Contents

 

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

 

 

 

December 31, 2020

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

1,006,901

 

 

 

(13,216)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,006,901

 

 

 

(13,216)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

6,137,522

 

 

 

(7,371)

 

 

5

 

 

 

3,735,732

 

 

 

(111,947)

 

 

10

 

 

 

9,873,254

 

 

 

(119,318)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$7,144,423

 

 

$(20,587)

 

 

6

 

 

$3,735,732

 

 

$(111,947)

 

 

10

 

 

$10,880,155

 

 

$(132,534)

 

 
17

Table of Contents

 

Note 4 - Fair Value Measurements

 

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

 

 

 

September 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

Fixed-maturity securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$2,006,880

 

 

$-

 

 

$-

 

 

$2,006,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

-

 

 

 

14,554,305

 

 

 

-

 

 

 

14,554,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

94,403,401

 

 

 

1,019,580

 

 

 

-

 

 

 

95,422,981

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage backed securities

 

 

-

 

 

 

41,305,076

 

 

 

-

 

 

 

41,305,076

 

Total fixed maturities

 

 

96,410,281

 

 

 

56,878,961

 

 

 

-

 

 

 

153,289,242

 

Equity securities

 

 

40,060,872

 

 

 

-

 

 

 

-

 

 

 

40,060,872

 

Total investments

 

$136,471,153

 

 

$56,878,961

 

 

$-

 

 

$193,350,114

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

Fixed-maturity securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$3,049,900

 

 

$-

 

 

$-

 

 

$3,049,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

-

 

 

 

5,643,102

 

 

 

-

 

 

 

5,643,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

118,123,890

 

 

 

2,070,439

 

 

 

-

 

 

 

120,194,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other asset backed securities

 

 

-

 

 

 

28,661,941

 

 

 

-

 

 

 

28,661,941

 

Total fixed maturities

 

 

121,173,790

 

 

 

36,375,482

 

 

 

-

 

 

 

157,549,272

 

Equity securities

 

 

34,413,313

 

 

 

-

 

 

 

-

 

 

 

34,413,313

 

Total investments

 

$155,587,103

 

 

$36,375,482

 

 

$-

 

 

$191,962,585

 

 

 
18

Table of Contents

 

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

 

Category

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

Hedge fund

 

$7,379,111

 

 

$3,368,626

 

 

 

 

 

 

 

 

 

 

Real estate limited partnership

 

 

-

 

 

 

150,000

 

Total

 

$7,379,111

 

 

$3,518,626

 

 

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

 

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

 

 

 

September 30, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Notes due 2022

 

$-

 

 

$27,296,810

 

 

$-

 

 

$27,296,810

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Notes due 2022

 

$-

 

 

$27,272,727

 

 

$-

 

 

$27,272,727

 

 

Note 5 - Fair Value of Financial Instruments and Real Estate

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

 

 

Value

 

 

Fair Value

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities-held-to maturity

 

$9,166,983

 

 

$9,699,504

 

 

$7,368,815

 

 

$8,194,824

 

Cash and cash equivalents

 

$36,108,088

 

 

$36,108,088

 

 

$19,463,742

 

 

$19,463,742

 

Premiums receivable, net

 

$11,309,319

 

 

$11,309,319

 

 

$11,819,639

 

 

$11,819,639

 

Reinsurance receivables, net

 

$22,962,014

 

 

$22,962,014

 

 

$45,460,729

 

 

$45,460,729

 

Real estate, net of accumulated depreciation

 

$2,162,899

 

 

$3,025,000

 

 

$2,219,999

 

 

$2,705,000

 

Reinsurance balances payable

 

$4,266,092

 

 

$4,266,092

 

 

$6,979,735

 

 

$6,979,735

 

 

 
19

Table of Contents

   

Note 6 – Property and Casualty Insurance Activity

 

Premiums Earned

 

Premiums written, ceded and earned are as follows:

 

 

 

Direct

 

 

Assumed

 

 

Ceded

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

Premiums written

 

$131,609,930

 

 

$-

 

 

$(21,854,398)

 

$109,755,532

 

Change in unearned premiums

 

 

(2,911,439)

 

 

-

 

 

 

(15,198)

 

 

(2,926,637)

Premiums earned

 

$128,698,491

 

 

$-

 

 

$(21,869,596)

 

$106,828,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums written

 

$125,089,571

 

 

$-

 

 

$(43,813,468)

 

$81,276,103

 

Change in unearned premiums

 

 

2,215,602

 

 

 

-

 

 

 

(2,392,318)

 

 

(176,716)

Premiums earned

 

$127,305,173

 

 

$-

 

 

$(46,205,786)

 

$81,099,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums written

 

$48,865,169

 

 

$-

 

 

$(7,223,526)

 

$41,641,643

 

Change in unearned premiums

 

 

(4,848,145)

 

 

-

 

 

 

9,753

 

 

 

(4,838,392)

Premiums earned

 

$44,017,024

 

 

$-

 

 

$(7,213,773)

 

$36,803,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums written

 

$45,742,165

 

 

$-

 

 

$(15,747,215)

 

$29,994,950

 

Change in unearned premiums

 

 

(3,161,356)

 

 

-

 

 

 

687,487

 

 

 

(2,473,869)

Premiums earned

 

$42,580,809

 

 

$-

 

 

$(15,059,728)

 

$27,521,081

 

 

Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of September 30, 2021 and December 31, 2020 was $5,325,514 and $2,660,354, respectively.

 

Loss and Loss Adjustment Expense Reserves

 

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

 

 
20

Table of Contents

 

 

 

Nine months ended

 

 

 

September 30, 2021

 

 

 

2021

 

 

2020

 

 

 

 

 

 

Balance at beginning of period

 

$82,801,228

 

 

$80,498,611

 

Less reinsurance recoverables

 

 

(20,154,251)

 

 

(15,728,224)

Net balance, beginning of period

 

 

62,646,977

 

 

 

64,770,387

 

 

 

 

 

 

 

 

 

 

Incurred related to:

 

 

 

 

 

 

 

 

Current year

 

 

79,070,646

 

 

 

49,597,154

 

Prior years

 

 

(10,529)

 

 

(279,727)

Total incurred

 

 

79,060,117

 

 

 

49,317,427

 

 

 

 

 

 

 

 

 

 

Paid related to:

 

 

 

 

 

 

 

 

Current year

 

 

35,408,412

 

 

 

29,845,049

 

Prior years

 

 

17,586,958

 

 

 

24,068,492

 

Total paid

 

 

52,995,370

 

 

 

53,913,541

 

 

 

 

 

 

 

 

 

 

Net balance at end of period

 

 

88,711,724

 

 

 

60,174,273

 

Add reinsurance recoverables

 

 

12,332,394

 

 

 

24,804,751

 

Balance at end of period

 

$101,044,118

 

 

$84,979,024

 

 

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $1,220,970 and $23,826,986 for the nine months ended September 30, 2021 and 2020, respectively.

 

Prior year incurred loss and LAE development is based upon estimates by line of business and accident year. Prior year loss and LAE development incurred during the nine months ended September 30, 2021 and 2020 was $10,529 favorable and $279,727 favorable, respectively. Management periodically performs a review of open liability claims to assess carried case and incurred but not reported (“IBNR”) reserve levels, giving consideration to both Company and industry trends.

 

Loss and LAE reserves

 

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

 

 
21

Table of Contents

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 
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Table of Contents

 

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

 

COVID-19 has introduced additional uncertainty to recent claim trends. The Company reviews the carried reserves levels at a regular basis as additional information becomes available and makes adjustments in the periods in which such adjustments are determined to be necessary. The Company is not aware of any other claim trends that have emerged or that would cause future adverse development that have not already been contemplated in setting current carried reserves levels.

 

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

 

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

 

 
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Table of Contents

  

All Lines of Business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands, except reported claims data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

 

Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance

 

 

September 30, 2021

 

 

 

For the Years Ended December 31,

 

 

 

 

 

 

 

 

Cumulative

 

Accident Year

 

2012

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

 

Nine months ended

September 30, 2021 

 

 

IBNR

 Number of Reported

Claims by Accident Year

 

 

 

(Unaudited 2012 - 2020)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

$9,539

 

 

$9,344

 

 

$10,278

 

 

$10,382

 

 

$10,582

 

 

$10,790

 

 

$10,791

 

 

$11,015

 

 

$10,885

 

 

$10,881

 

 

$11

 

 

 

4,704

(1)

2013

 

 

 

 

 

 

10,728

 

 

 

9,745

 

 

 

9,424

 

 

 

9,621

 

 

 

10,061

 

 

 

10,089

 

 

 

10,607

 

 

 

10,495

 

 

 

10,498

 

 

 

19

 

 

 

1,564

 

2014

 

 

 

 

 

 

 

 

 

 

14,193

 

 

 

14,260

 

 

 

14,218

 

 

 

14,564

 

 

 

15,023

 

 

 

16,381

 

 

 

16,428

 

 

 

16,420

 

 

 

141

 

 

 

2,138

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,340

 

 

 

21,994

 

 

 

22,148

 

 

 

22,491

 

 

 

23,386

 

 

 

23,291

 

 

 

23,466

 

 

 

123

 

 

 

2,558

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26,062

 

 

 

24,941

 

 

 

24,789

 

 

 

27,887

 

 

 

27,966

 

 

 

27,520

 

 

 

391

 

 

 

2,880

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

31,605

 

 

 

32,169

 

 

 

35,304

 

 

 

36,160

 

 

 

36,337

 

 

 

370

 

 

 

3,393

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54,455

 

 

 

56,351

 

 

 

58,441

 

 

 

59,289

 

 

 

1,174

 

 

 

4,221

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,092

 

 

 

72,368

 

 

 

71,837

 

 

 

7,377

 

 

 

4,471

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

63,083

 

 

 

62,858

 

 

 

6,644

 

 

 

5,822

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

74,958

 

 

 

18,813

 

 

 

4,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$394,064

 

 

 

 

 

 

 

 

 

 

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

 

All Lines of Business

(in thousands)

 

 

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

 

 

 

For the Years Ended December 31,

 

 

Nine months ended September

 

Accident Year

 

2012

 

 

2013

 

 

2014

 

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

2020

 

30, 2021

 

 

 

(Unaudited 2012 - 2020)

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

 

$3,950

 

 

$5,770

 

 

$7,127

 

 

$8,196

 

 

$9,187

 

 

$10,236

 

 

$10,323

 

 

$10,428

 

 

$10,451

 

 

$10,544

 

2013

 

 

 

 

 

 

3,405

 

 

 

5,303

 

 

 

6,633

 

 

 

7,591

 

 

 

8,407

 

 

 

9,056

 

 

 

9,717

 

 

 

10,016

 

 

 

10,140

 

2014

 

 

 

 

 

 

 

 

 

 

5,710

 

 

 

9,429

 

 

 

10,738

 

 

 

11,770

 

 

 

13,819

 

 

 

14,901

 

 

 

15,491

 

 

 

15,706

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,295

 

 

 

16,181

 

 

 

18,266

 

 

 

19,984

 

 

 

21,067

 

 

 

22,104

 

 

 

22,285

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15,364

 

 

 

19,001

 

 

 

21,106

 

 

 

23,974

 

 

 

25,234

 

 

 

25,639

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,704

 

 

 

24,820

 

 

 

28,693

 

 

 

31,393

 

 

 

32,161

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,383

 

 

 

44,516

 

 

 

50,553

 

 

 

51,676

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

40,933

 

 

 

54,897

 

 

 

57,594

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,045

 

 

 

49,945

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$308,999

 

 

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

 

$85,065

 

All outstanding liabilities before 2011, net of reinsurance

 

 

110

 

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

 

$85,175

 

 

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

 

 
24

Table of Contents

 

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

 

 

 

As of

 

(in thousands)

 

September 30, 2021

 

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

 

$85,175

 

Total reinsurance recoverable on unpaid losses

 

 

12,332

 

Unallocated loss adjustment expenses

 

 

3,537

 

Total gross liability for loss and LAE reserves

 

$101,044

 

 

Reinsurance

 

Effective December 15, 2019, the Company entered into a quota share reinsurance treaty for its personal lines business, which primarily consisted of homeowners’ policies, 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. The Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2021. Effective October 18, 2021, the Company 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. Losses from freeze are excluded from the treaty. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows:

  

 
25

Table of Contents

 

 

 

Treaty Year

 

 

 

December 15, 2019

 

 

 

to

 

Line of Business

 

December 30, 2020

 

 

 

 

 

Personal Lines:

 

 

 

Homeowners, dwelling fire and

 

 

 

and canine legal liability

 

 

 

Quota share treaty:

 

 

 

Percent ceded

 

 

25%

 

 

Treaty Year

 

 

 

July 1, 2021

 

 

December 31, 2020

 

 

July 1, 2020

 

 

December 15, 2019

 

 

 

to

 

 

to

 

 

to

 

 

to

 

Line of Business

 

June 30, 2022

 

 

June 30, 2021

 

 

December 30, 2020

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Lines:

 

 

 

 

 

 

 

 

 

 

 

 

Homeowners, dwelling fire and

 

 

 

 

 

 

 

 

 

 

 

 

and canine legal liability

 

 

 

 

 

 

 

 

 

 

 

 

Quota share treaty:

 

 

 

 

 

 

 

 

 

 

 

 

Risk retained on intial

 

 

 

 

 

 

 

 

 

 

 

 

$1,000,000 of losses (7)

 

$1,000,000

 

 

$1,000,000

 

 

$750,000

 

 

$750,000

 

Losses per occurrence subject

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to quota share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reinsurance coverage

 

None (7)

 

 

None (7)

 

 

$1,000,000

 

 

$1,000,000

 

Expiration date

 

NA (7)

 

 

NA (7)

 

 

December 30, 2020

 

 

December 30, 2020

 

Excess of loss coverage and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

facultative facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

coverage (1)

 

$8,000,000

 

 

$8,000,000

 

 

$8,000,000

 

 

$9,000,000

 

 

 

in excess of

 

 

in excess of

 

 

in excess of

 

 

in excess of

 

 

 

$1,000,000

 

 

$1,000,000

 

 

$1,000,000

 

 

$1,000,000

 

Total reinsurance coverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

per occurrence (7)

 

$8,000,000

 

 

$8,000,000

 

 

$8,250,000

 

 

$9,250,000

 

Losses per occurrence subject

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

to reinsurance coverage

 

$9,000,000

 

 

$9,000,000

 

 

$9,000,000

 

 

$10,000,000

 

Expiration date (7)

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Catastrophe Reinsurance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial loss subject to personal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

lines quota share treaty

 

None (7)

 

 

None (7)

 

 

$7,500,000

 

 

$7,500,000

 

Risk retained per catastrophe

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

occurrence (2) (7)

 

$10,000,000

 

 

$10,000,000

 

 

$8,125,000

 

 

$5,625,000

 

Catastrophe loss coverage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in excess of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

quota share coverage (3) (7)

 

$490,000,000

 

 

$475,000,000

 

 

$475,000,000

 

 

$602,500,000

 

Catastrophe stub coverage for the period from

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 18, 2021 through December 31, 2021 (8)

 

$5,000,000

 

 

NA

 

 

NA

 

 

NA

 

 

 

in excess of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$5,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Reinstatement premium

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

protection (4) (5) (6)

 

Yes

 

 

Yes

 

 

Yes

 

 

Yes

 

 

 
26

Table of Contents

 

(1)

For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000 through June 30, 2020. For the period July 1, 2020 through June 30, 2022, direct losses are covered up to $9,000,000.

 

 

(2)

Plus losses in excess of catastrophe coverage. For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note (7) below).

 

 

(3)

Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.

 

 

(4)

For the period July 1, 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.

 

 

(5)

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.

 

 

(6)

For the period July 1, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.

 

 

(7)

The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through June 30, 2022 is only for excess of loss and catastrophe reinsurance.

 

 

(8)

Excludes freeze and freeze related claims.

 

 

 

Treaty Year

 

 

 

July 1, 2021

 

 

July 1, 2020

 

 

July 1, 2019

 

 

 

to

 

 

to

 

 

to

 

Line of Business

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Personal Lines:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Umbrella

 

 

 

 

 

 

 

 

 

Quota share treaty:

 

 

 

 

 

 

 

 

 

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

 

 

90%

 

 

90%

 

 

90%

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

 

 

95%

 

 

95%

 

 

100%

Risk retained

 

$300,000

 

 

$300,000

 

 

$100,000

 

Total reinsurance coverage per occurrence

 

$4,700,000

 

 

$4,700,000

 

 

$4,900,000

 

Losses per occurrence subject to quota share reinsurance coverage

 

$5,000,000

 

 

$5,000,000

 

 

$5,000,000

 

Expiration date

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Lines (1):

 

 

 

 

 

 

 

 

 

 

 

 

General liability commercial policies

 

 

 

 

 

 

 

 

 

 

 

 

Quota share treaty

 

 

 

 

 

None

 

 

None

 

Risk retained

 

 

 

 

 

$750,000

 

 

$750,000

 

Excess of loss coverage above risk retained

 

 

 

 

 

$3,750,000

 

 

$3,750,000

 

 

 

 

 

 

 

in excess of

 

 

in excess of

 

 

 

 

 

 

 

$750,000

 

 

$750,000

 

Total reinsurance coverage per occurrence

 

 

 

 

 

$3,750,000

 

 

$3,750,000

 

Losses per occurrence subject to reinsurance coverage

 

 

 

 

 

$4,500,000

 

 

$4,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Umbrella

 

 

 

 

 

 

 

 

 

 

 

 

Quota share treaty

 

 

 

 

 

None

 

 

None

 

 

(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.

 

Ceding Commission Revenue

 

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.

 

 
27

Table of Contents

 

The Company’s estimated ultimate treaty year loss ratios (the “Loss Ratio(s)”) for treaties in effect during the three months and nine months ended September 30, 2020 are attributable to contracts under the 2019/2020 Treaty. There was no treaty in effect during the three months and nine months ended September 30, 2021. In addition to the treaty that was in effect during the three months and nine months ended September 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

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

Provisional ceding commissions earned

 

$40,578

 

 

$3,460,768

 

 

$135,666

 

 

$10,621,804

 

Contingent ceding commissions earned

 

 

(47,854)

 

 

(11,994)

 

 

(98,266)

 

 

138,283

 

 

 

$(7,276)

 

$3,448,774

 

 

$37,400

 

 

$10,760,087

 

 

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. As discussed above, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods develop, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. As of September 30, 2021 and December 31, 2020, net contingent ceding commissions payable to reinsurers under all treaties was approximately $3,083,000 and $2,604,000, respectively, which is recorded in reinsurance balances payable on the accompanying 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 September 30, 2021 and December 31, 2020, no impairment has been recognized. FHLBNY members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances, which are to be fully collateralized. Eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. As of September 30, 2021 KICO did not have any securities pledged to FHLBNY; furthermore, there were no borrowings under this facility during the nine months ended September 30, 2021 and 2020.

 

 
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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 September 30, 2021 and December 31, 2020 is as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

5.50% Senior Unsecured Notes

 

$30,000,000

 

 

$30,000,000

 

Discount

 

 

(40,552)

 

 

(64,883)

Issuance costs

 

 

(179,702)

 

 

(287,506)

Long-term debt, net

 

$29,779,746

 

 

$29,647,611

 

 

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

 

The Company has used an aggregate $28,256,335 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.

 

Note 8 – Stockholders’ Equity

 

Dividends Declared and Paid

 

Dividends declared and paid on Common Stock were $1,274,797 and $1,530,390 for the nine months ended September 30, 2021 and 2020, respectively. The Company’s Board of Directors approved a quarterly dividend on October 30, 2021 of $.04 per share payable in cash on December 15, 2021 to stockholders of record as of November 30, 2021 (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.

 

 
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The results of operations for the three months ended September 30, 2021 and 2020 include stock-based compensation expense for stock options totaling approximately $14,000 for both periods. The results of operations for the nine months ended September 30, 2021 and 2020 include stock-based compensation expense for stock options totaling approximately $43,000 and $52,000, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of approximately 16% for the three months and nine months ended September 30, 2021 and 2020. Such amounts have been included in the condensed consolidated statements of operations and comprehensive income (loss) within other operating expenses.

 

No options were granted during the nine months ended September 30, 2021. The weighted average estimated fair value of stock options granted during the nine months ended September 30, 2020 was $2.40 per share. The fair value of stock options at the grant date was estimated using the Black-Scholes option-pricing model.

 

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

 

 

 

Nine months ended

 

 

 

Septemebr 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Dividend Yield

 

 

n/a

 

 

 

3.14%

Volatility

 

 

n/a

 

 

 

37.69%

Risk-Free Interest Rate

 

 

n/a

 

 

 

1.40%

Expected Life

 

 

n/a

 

 

 

2.75%

 

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.

 

A summary of stock option activity under the Company’s 2014 Plan for the nine months ended September 30, 2021 is as follows:

 

 
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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

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

Exercised

 

 

-

 

 

$-

 

 

 

-

 

 

$-

 

Expired

 

 

(12,000)

 

$7.85

 

 

 

-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2021

 

 

107,966

 

 

$8.31

 

 

 

3.18

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and Exercisable at September 30, 2021

 

 

40,000

 

 

$8.67

 

 

 

2.79

 

 

$-

 

 

The aggregate intrinsic value of options outstanding and options exercisable at September 30, 2021 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $6.64 closing price of the Company’s Common Stock on September 30, 2021. No options were exercised during the nine months ended September 30, 2021. The total intrinsic value of options expired during the nine months ended September 30, 2021 was $-0-, 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 September 30, 2021, the estimated fair value of unamortized compensation cost related to unvested stock option awards was approximately $21,000. Unamortized compensation cost as of September 30, 2021 is expected to be recognized over a remaining weighted-average vesting period of 0.63 years.

 

As of September 30, 2021, there were 510,749 shares reserved for grants under the 2014 Plan.

 

Restricted Stock Awards

 

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

 

 
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Restricted Stock Awards

 

Shares

 

 

Weighted Average Grant Date Fair Value per Share

 

 

Aggregate Fair Value

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

370,964

 

 

$9.96

 

 

$3,990,999

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Granted

 

 

321,335

 

 

$6.95

 

 

$2,233,366

 

Vested

 

 

(104,870)

 

$9.60

 

 

$(1,006,771)

Forfeited

 

 

(14,745)

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2021

 

 

572,684

 

 

$8.70

 

 

$5,217,594

 

 

Fair value was calculated using the closing price of the Company’s Common Stock on the grant date. For the three months ended September 30, 2021 and 2020, stock-based compensation for these grants was approximately $452,000 and $416,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss). For the nine months ended September 30, 2021 and 2020, stock-based compensation for these grants was approximately $1,405,000 and $1,321,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (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 Employee Stock Purchase Plan (the “Purchase Plan”), subject to stockholder approval. Such approval was obtained on August 10, 2021. The purpose of the Purchase Plan 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 Purchase Plan is 750,000, subject to adjustment as provided for in the Purchase Plan. The Plan was effective November 1, 2021.

 

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.

 

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

 

 
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Table of Contents

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Deferred tax asset:

 

 

 

 

 

 

Net operating loss carryovers (1)

 

$2,714,766

 

 

$-

 

Claims reserve discount

 

 

1,186,698

 

 

 

838,030

 

Unearned premium

 

 

4,115,130

 

 

 

3,880,275

 

Deferred ceding commission revenue

 

 

18,448

 

 

 

19,639

 

Other

 

 

693,141

 

 

 

648,691

 

Total deferred tax assets

 

 

8,728,183

 

 

 

5,386,635

 

 

 

 

 

 

 

 

 

 

Deferred tax liability:

 

 

 

 

 

 

 

 

Investment in KICO (2)

 

 

759,543

 

 

 

759,543

 

Deferred acquisition costs

 

 

4,465,002

 

 

 

4,229,928

 

Intangible asset

 

 

105,000

 

 

 

105,000

 

Depreciation and amortization

 

 

697,742

 

 

 

954,446

 

Net unrealized gains of securities - available-for-sale

 

 

3,238,744

 

 

 

3,494,631

 

Total deferred tax liabilities

 

 

9,266,031

 

 

 

9,543,548

 

 

 

 

 

 

 

 

 

 

Net deferred income tax liability

 

$(537,848)

 

$(4,156,913)

 

(1)

The deferred tax assets from net operating loss carryovers (“NOL”) are as follows:

  

 

 

September 30,

 

 

December 31,

 

 

 

Type of NOL

 

2021

 

 

2020

 

 

Expiration

 

 

 

 

 

 

 

 

 

 

 

Federal only, current year (A)

 

$2,714,766

 

 

$1,200,056

 

 

 

 

NOL carried back

 

 

-

 

 

 

(1,200,056)

 

 

 

Federal only, current year

 

$2,714,766

 

 

$-

 

 

None

 

 

 

 

 

 

 

 

 

 

 

 

 

State only (B)

 

 

2,049,485

 

 

 

1,815,546

 

 

December 31, 2040

 

Valuation allowance

 

 

(2,049,485)

 

 

(1,815,546)

 

 

 

State only, net of valuation allowance

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total deferred tax asset from net operating loss carryovers

 

$2,714,766

 

 

$-

 

 

 

 

 

(A)

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

 

 

(B)

Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of September 30, 2021 and December 31, 2020 was approximately $31,531,000 and $27,931,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax, which is included in the consolidated statements of operations and comprehensive loss within other underwriting expenses. Kingstone has recorded a valuation allowance due to the uncertainty of generating enough state taxable income to utilize 100% of the available state NOLs over their remaining lives, which expire between 2027 and 2041.

 

 

(2)

Deferred tax liability – Investment in KICO

 

 

 
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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 nine months ended September 30, 2021 and 2020. If any had been recognized these would have been reported in income tax expense.

 

Generally, taxing authorities may examine the Company’s tax returns for the three years from the date of filing. The Company’s tax returns for the years ended December 31, 2018 through December 31, 2020 remain subject to examination.

 

Note 10 –Earnings/(Loss) Per Common Share

 

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

 

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

 

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

 

 
34

Table of Contents

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding

 

 

10,523,515

 

 

 

10,673,077

 

 

 

10,622,988

 

 

 

10,737,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities, common share equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Restricted stock awards

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

used for computing diluted earnings per share

 

 

10,523,515

 

 

 

10,673,077

 

 

 

10,622,988

 

 

 

10,737,853

 

 

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 has a term of seven years and two months expiring December 31, 2026.

 

Additional information regarding the Company’s office operating leases is as follows:

 

 
35

Table of Contents

 

 

 

Three months ended

 

 

Nine months ended

 

Lease cost

 

September 30, 2021

 

 

September 30, 2021

 

Operating leases

 

$57,459

 

 

$172,377

 

Short-term leases

 

 

-

 

 

 

-

 

Total lease cost (1)

 

$57,459

 

 

$172,377

 

 

 

 

 

 

 

 

 

 

Other information on operating leases

 

 

 

 

 

 

 

 

Cash payments included in the measurement of lease

 

 

 

 

 

 

 

 

liability reported in operating cash flows

 

$66,531

 

 

$198,040

 

Discount rate

 

 

5.50%

 

 

5.50%

Remaining lease term in years

 

6 years

 

 

6 years

 

 

(1)

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

  

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

 

For the Year

 

 

Ending

 

 

December 31,

 

Total

 

Remainder of 2021

 

$66,531

 

2022

 

 

273,831

 

2023

 

 

283,415

 

2024

 

 

140,739

 

2025

 

 

94,799

 

Thereafter

 

 

98,117

 

Total undiscounted lease payments

 

 

957,432

 

Less: present value adjustment

 

 

104,438

 

Operating lease liability

 

$852,994

 

 

Rent expense for the three months ended September 30, 2021 and 2020 amounted to $57,459 and $61,297, respectively. Rent expense for the nine months ended September 30, 2021 and 2020 amounted to $172,377 and $183,891, respectively. Rent expense is included in the accompanying condensed consolidated statements of operations and comprehensive income (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 is effective as of January 1, 2020 and expires on December 31, 2022. The Amended Employment Agreement extends the expiration date of the employment agreement in effect for Mr. Goldstein from December 31, 2021 to December 31, 2022.

 

 
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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 the first anniversary 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 vesting 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 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 vesting 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 the first anniversary 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 vesting date. In January 2021, Mr. Goldstein was granted 21,000 shares of restricted stock pursuant to the provision. This grant 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 vesting date. The 2022 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.

 

 
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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 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.

 

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, pursuant to the Golden Employment Agreement as amended, Ms. Golden was granted 30,000 shares of restricted Common Stock pursuant to the 2014 Plan and will be entitled to receive in January 2022 an additional grant of 30,000 shares of restricted Common Stock pursuant to the 2014 Plan. Each such grant will vest in three equal installments on each of the first, second and third anniversaries of the grant date.

 

COVID-19

 

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

 

 
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Note 12 – Deferred Compensation Plan

 

On June 18, 2018, the Company adopted the Kingstone Companies, Inc. Deferred Compensation Plan (the "Deferred Compensation Plan"). The Deferred Compensation Plan is offered to a select group (“Participants”), consisting of management and highly compensated employees as a method of recognizing and retaining such Participants. The Deferred Compensation Plan provides for eligible Participants to elect to defer up to 75% of their base compensation and up to 100% of bonuses and other compensation and to have such deferred amounts deemed to be invested in specified investment options. In addition to the Participant deferrals, the Company may choose to make matching contributions to some or all of the Participants in the Deferred Compensation Plan to the extent the Participant did not receive the maximum matching or non-elective contributions permissible under the Company’s 401(k) Plan due to limitations under the Internal Revenue Code or the 401(k) Plan. Participants may elect to receive payment of their account balances in a single cash payment or in annual installments for a period of up to ten years. The deferred compensation liability as of September 30, 2021 and December 31, 2020 amounted to $831,441 and $763,789, respectively, and is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. The Company did not make any voluntary contributions for the nine months ended September 30, 2021 and 2020.

 

Note 13 – Subsequent Events

 

The Company has evaluated events that occurred subsequent to September 30, 2021 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 October 18, 2021, the Company 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. Losses from freeze are excluded from the treaty (see Note 6 – Property and Casualty Insurance Activity - “Reinsurance”).

 

Dividends Declared

 

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

 

Nor’easter

 

The Company received 86 claims from a nor’easter that occurred during the month of October 2021 and does not expect a material amount of additional claims, if any, to be filed subsequent to November 15, 2021. 

 

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

 

We offer property and casualty insurance products to individuals through our wholly owned subsidiary, Kingstone Insurance Company (“KICO”). KICO’s insureds are located primarily in downstate New York, consisting of New York City, Long Island and Westchester County, although we are actively writing business in New Jersey, Rhode Island, Connecticut and Massachusetts. We are licensed in the States of New York, New Jersey, Rhode Island, Connecticut, Massachusetts, Pennsylvania, Maine, and New Hampshire. For the three months and nine months ended September 30, 2021, respectively, 79.4% and 77.5% 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.

 

Product Lines

 

Our product lines include the following:

 

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

 

 
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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 September 30, 2021, there are no commercial liability policies in-force. As of September 30, 2021, these expired policies represent approximately 20.3% 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.

 

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.

 

 
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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.

 

Consolidated Results of Operations

 

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

 

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

 

 

 

Nine months ended September 30,

 

($ in thousands)

 

2021

 

 

2020

 

 

Change

 

 

Percent

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Direct written premiums

 

$131,610

 

 

$125,090

 

 

$6,520

 

 

 

5.2%

Assumed written premiums

 

 

-

 

 

 

-

 

 

 

-

 

 

na

%

 

 

 

131,610

 

 

 

125,090

 

 

 

6,520

 

 

 

5.2%

Ceded written premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded to quota share treaties

 

 

374

 

 

 

24,562

 

 

 

(24,188)

 

 

(98.5)%

Ceded to excess of loss treaties

 

 

2,057

 

 

 

1,482

 

 

 

575

 

 

 

38.8%

Ceded to catastrophe treaties

 

 

19,423

 

 

 

17,770

 

 

 

1,653

 

 

 

9.3%

Total ceded written premiums

 

 

21,854

 

 

 

43,814

 

 

 

(21,960)

 

 

(50.1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

109,756

 

 

 

81,276

 

 

 

28,480

 

 

 

35.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unearned premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed

 

 

(2,911)

 

 

2,216

 

 

 

(5,127)

 

 

na

Ceded to quota share treaties

 

 

(15)

 

 

(2,392)

 

 

2,377

 

 

 

99.4%

Change in net unearned premiums

 

 

(2,926)

 

 

(176)

 

 

(2,750)

 

 

(1,562.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums earned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed

 

 

128,698

 

 

 

127,305

 

 

 

1,393

 

 

 

1.1%

Ceded to reinsurance treaties

 

 

(21,869)

 

 

(46,206)

 

 

24,337

 

 

 

52.7%

Net premiums earned

 

 

106,829

 

 

 

81,099

 

 

 

25,730

 

 

 

31.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceding commission revenue

 

 

37

 

 

 

10,760

 

 

 

(10,723)

 

 

(99.7)%

Net investment income

 

 

5,138

 

 

 

4,772

 

 

 

366

 

 

 

7.7%

Net gains (losses) on investments

 

 

5,480

 

 

 

(1,639)

 

 

7,119

 

 

na

%

Other income

 

 

577

 

 

 

773

 

 

 

(196)

 

 

(25.4)%

Total revenues

 

 

118,062

 

 

 

95,765

 

 

 

22,296

 

 

 

23.3%

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

67,739

 

 

 

52,737

 

 

 

15,002

 

 

 

28.4%

Losses from catastrophes (1)

 

 

12,541

 

 

 

20,407

 

 

 

(7,866)

 

 

(38.5)%

Total direct and assumed loss and loss adjustment expenses

 

 

80,280

 

 

 

73,144

 

 

 

7,136

 

 

 

9.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded loss and loss adjustment expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

860

 

 

 

13,794

 

 

 

(12,934)

 

 

(93.8)%

Losses from catastrophes (1)

 

 

360

 

 

 

10,033

 

 

 

(9,673)

 

 

(96.4)%

Total ceded loss and loss adjustment expenses

 

 

1,220

 

 

 

23,827

 

 

 

(22,607)

 

 

(94.9)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and loss adjustment expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

66,879

 

 

 

38,943

 

 

 

27,936

 

 

 

71.7%

Losses from catastrophes (1)

 

 

12,181

 

 

 

10,374

 

 

 

1,807

 

 

 

17.4%

Net loss and loss adjustment expenses

 

 

79,060

 

 

 

49,317

 

 

 

29,743

 

 

 

60.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission expense

 

 

24,711

 

 

 

23,653

 

 

 

1,058

 

 

 

4.5%

Other underwriting expenses

 

 

19,723

 

 

 

19,434

 

 

 

289

 

 

 

1.5%

Other operating expenses

 

 

3,141

 

 

 

3,364

 

 

 

(223)

 

 

(6.6)%

Depreciation and amortization

 

 

2,480

 

 

 

2,070

 

 

 

410

 

 

 

19.8%

Interest expense

 

 

1,370

 

 

 

1,370

 

 

 

-

 

 

-

%

Total expenses

 

 

130,485

 

 

 

99,209

 

 

 

31,277

 

 

 

31.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

 

(12,423)

 

 

(3,443)

 

 

(8,980)

 

 

(260.8)%

Income tax benefit

 

 

(2,817)

 

 

(1,379)

 

 

(1,438)

 

 

(104.3)%

Net loss

 

$(9,606)

 

$(2,064)

 

$(7,542)

 

 

(365.4)%

 

(1)

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

 

 
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Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

Percentage Point Change

 

 

Percent Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key ratios:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio

 

 

74.0%

 

 

60.8%

 

 

13.2

 

 

 

21.7%

Net underwriting expense ratio

 

 

41.0%

 

 

38.9%

 

 

2.1

 

 

 

5.4%

Net combined ratio

 

 

115.0%

 

 

99.7%

 

 

15.3

 

 

 

15.3%

 

Direct Written Premiums

 

Direct written premiums during the nine months ended September 30, 2021 (“Nine Months 2021”) were $131,610,000 compared to $125,090,000 during the nine months ended September 30, 2020 (“Nine Months 2020”). The increase of $6,520,000, or 5.2%, was primarily due an increase in premiums from our personal lines business. Direct written premiums from our personal lines business for Nine Months 2021 were $124,593,000, an increase of $4,995,000, or 4.2%, from $119,598,000 in Nine Months 2020. Direct written premiums from our livery physical damage business for Nine Months 2021 were $6,837,000, an increase of $1,370,000, or 25.1%, from $5,467,000 in Nine 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 $29,620,000 in Nine Months 2021 compared to $24,293,000 in Nine Months 2020. Direct written premiums from our Core business were $101,990,000 in Nine Months 2021 compared to $100,796,000 in Nine 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 Nine 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 Nine Months 2021 and Nine 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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Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

Quota share reinsurance rates

 

 

 

Personal lines

 

 

 

 

 

 

2019/2020 Treaty

 

 

n/a

 

 

25% (1)

 

2018/2019 Treaty

 

 

n/a

 

 

10% (2)

 

 

 

(1)

The 2019/2020 Treaty was effective from December 15, 2019 through December 30, 2020 with a quota share reinsurance rate of 25%.

 

 

 

 

(2)

The 2018/2019 Treaty expired on a run-off basis from July 1, 2019 through June 30, 2020.

   

Net written premiums increased $28,480,000, or 35.0%, to $109,756,000 in Nine Months 2021 from $81,276,000 in Nine 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 Nine 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 Nine Months 2021, our premiums ceded under quota share treaties decreased by $24,188,000 in comparison to ceded premiums in Nine 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 Nine Months 2021, our ceded excess of loss reinsurance premiums increased by $575,000 over the comparable ceded premiums for Nine 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 Nine Months 2021, our premiums ceded under catastrophe treaties increased by $1,653,000 over the comparable ceded premiums in Nine 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 September 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. Effective July 1, 2021, and continuing through September 30, 2021, our ceded catastrophe premiums were paid based on the total insured value of our risks projected as of August 31, 2021.

 

 
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Net premiums earned

 

Net premiums earned increased $25,730,000, or 31.7%, to $106,829,000 in Nine Months 2021 from $81,099,000 in Nine 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.

 

Ceding Commission Revenue

 

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

 

 

 

Nine Months ended September 30,

 

($ in thousands)

 

2021

 

 

2020

 

 

Change

 

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisional ceding commissions earned

 

$136

 

 

$10,622

 

 

$(10,486)

 

 

(98.7)%

Contingent ceding commissions earned

 

 

(99)

 

 

138

 

 

 

(237)

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ceding commission revenue

 

$37

 

 

$10,760

 

 

$(10,723)

 

 

(99.7)%

 

Ceding commission revenue was $37,000 in Nine Months 2021 compared to $10,760,000 in Nine Months 2020. The decrease of $10,723,000 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 $10,486,000 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 $5,138,000 in Nine Months 2021 compared to $4,772,000 in Nine Months 2020, an increase of $366,000, or 7.7%. The average yield on invested assets was 3.42% as of September 30, 2021 compared to 3.51% as of September 30, 2020.

 

Cash and invested assets were $246,004,000 as of September 30, 2021 compared to $220,749,000 as of September 30, 2020. The $25,255,000 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 September 30, 2020.

 

 
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Net Gains and Losses on Investments

 

Net gains on investments were $5,480,000 in Nine Months 2021 compared to net losses of $1,639,000 in Nine Months 2020. Unrealized gains on our equity securities and other investments in Nine Months 2021 were $2,603,000, compared to unrealized losses of $2,394,000 in Nine Months 2020. Realized gains on sales of investments were $2,877,000 in Nine Months 2021 compared to a gain of $755,000 in Nine Months 2020.

 

Other Income

 

Other income was $577,000 in Nine Months 2021 compared to $773,000 in Nine Months 2020. The decrease of $196,000, or 25.4%, was primarily due to the elimination of fees in our commercial lines business that was in run-off in Nine 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 $79,060,000 for Nine Months 2021 compared to $49,317,000 for Nine Months 2020. The net loss ratio was 74.0% in Nine Months 2021 compared to 60.8% in Nine Months 2020, an increase of 13.2 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:

  

kins_10qimg58.jpg

 

(Components may not sum to totals due to rounding)

 

 
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The loss ratio during Nine Months 2021 was higher than Nine Months 2020 due to an elevated frequency of liability claims, as well as a higher impact from large fire losses and water damage claims. The elevated reported liability claim frequency began in early 2021 for both Homeowners and Dwelling Fire lines. Liability frequency has improved since June 2021 for Homeowners, our largest line of business, but remains elevated for Dwelling Fire. This is suspected to be related to the COVID-19 pandemic and is expected to return to a more typical level as people return to work. The impact of water damage claims during Nine Months 2021 was higher than the prior year period but was in line with the long-term average.

 

The impact of catastrophe losses was high for Nine Months 2021. The winter was mild, but there were five catastrophe events during the three months ended September 30, 2021, including three named storms, Elsa, Henri and Ida. Ida was one of the largest catastrophe events in the company’s history, resulting in over 1,500 reported claims. The estimated net impact of Ida is $9,600,000, or a 9.0-point impact on the year-to-date loss ratio. The total impact of all catastrophe events on the loss ratio is 11.5 points for Nine Months 2021. This compares to a 12.8 points impact from catastrophe events for Nine Months 2020, which also had a mild winter but was heavily impacted by Tropical Storm Isaias in the three months ended September 30, 2020.

 

Prior year development continued to be stable for Nine Months 2021. There was an overall favorable development of $11,000, which had a marginal impact on the loss ratio.

 

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

 

Commission Expense

 

Commission expense was $24,711,000 in Nine Months 2021 or 19.2% of direct earned premiums. Commission expense was $23,653,000 in Nine Months 2020 or 18.6% of direct earned premiums. The increase in the rate is due to an increase in the estimate for annual contingent commissions for Nine Months 2021 as compared to Nine Months 2020.

 

Other Underwriting Expenses

 

Other underwriting expenses were $19,723,000 in Nine Months 2021 compared to $19,434,000 in Nine Months 2020. The modest increase of $289,000, or 1.5%, 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 $7,592,000 in Nine Months 2021 compared to $8,177,000 in Nine Months 2020. The decrease of $585,000, or 7.2%, compares favorably with the 4.2% increase in personal lines direct written premiums. The decrease in employment costs was attributable to staff reductions.

 

Our net underwriting expense ratio in Nine Months 2021 was 41.0% compared to 38.9% in Nine Months 2020. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

 

 
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Nine months ended

 

 

 

 

 

 

September 30,

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

Point Change

 

 

 

 

 

 

 

 

 

 

 

Other underwriting expenses

 

 

 

 

 

 

 

 

 

Employment costs

 

 

7.1%

 

 

10.1%

 

 

(3.0)

Underwriting fees (inspections/data services)

 

 

1.4

 

 

 

2.8

 

 

 

(1.4)

IT expenses

 

 

3.0

 

 

 

2.6

 

 

 

0.4

 

Other expenses

 

 

7.0

 

 

 

8.4

 

 

 

(1.4)

Total other underwriting expenses

 

 

18.5

 

 

 

23.9

 

 

 

(5.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission expense

 

 

23.1

 

 

 

29.2

 

 

 

(6.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceding commission revenue

 

 

 

 

 

 

 

 

 

 

 

 

Provisional

 

 

(0.1)

 

 

(13.1)

 

 

13.0

 

Contingent

 

 

0.1

 

 

 

(0.2)

 

 

0.3

 

Total ceding commission revenue

 

 

-

 

 

 

(13.3)

 

 

13.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

(0.6)

 

 

(0.9)

 

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net underwriting expense ratio

 

 

41.0%

 

 

38.9%

 

 

2.1

 

 

The overall 13.3 percentage point decrease in the benefit from ceding commissions in Nine 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, given the reduction of ceded premiums after the expiration of the 2019/2020 Treaty on December 30, 2020, resulting in an 11.5 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 $3,141,000 for Nine Months 2021 compared to $3,364,000 for Nine Months 2020. The decrease in Nine Months 2021 of $223,000, or 6.6%, as compared to Nine Months 2020 was primarily due to a decrease in professional fees. This aforementioned decrease was 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 $2,480,000 in Nine Months 2021 compared to $2,070,000 in Nine Months 2020. The increase of $410,000, or 19.8%, 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 $1,370,000 for both Nine Months 2021 and Nine Months 2020. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017.

 

 
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Income Tax Expense

 

Income tax benefit in Nine Months 2021 was $2,817,000, which resulted in an effective tax expense rate of 22.7%. Income tax benefit in Nine Months 2020 was $1,379,000, which resulted in an effective tax expense rate of 40.1%. Loss before taxes was $12,423,000 in Nine Months 2021 compared to loss before taxes of $3,443,000 in Nine 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 elected 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 Loss

 

Net loss was $9,606,000 in Nine Months 2021 compared to net loss of $2,064,000 in Nine Months 2020. The increase in net loss of $7,542,000 was due to the circumstances described above, which caused the increases in net loss ratio, commission expense, other underwriting expenses, depreciation and amortization, and decrease in ceding commission revenue and other income, partially offset by the increases in our net premiums earned, net investment income, net gains on investments, and income tax benefit, and decreases in other operating expenses.

 

Three Months Ended September 30, 2021Compared to Three Months Ended September 30, 2020

 

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

 

 
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Three months ended September 30,

 

($ in thousands)

 

2021

 

 

2020

 

 

Change

 

 

Percent

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Direct written premiums

 

$48,865

 

 

$45,743

 

 

$3,122

 

 

 

6.8%

Assumed written premiums

 

 

-

 

 

 

-

 

 

 

-

 

 

na

%

 

 

 

48,865

 

 

 

45,743

 

 

 

3,122

 

 

 

6.8%

Ceded written premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded to quota share treaties

 

 

139

 

 

 

8,962

 

 

 

(8,823)

 

 

(98.4)%

Ceded to excess of loss treaties

 

 

998

 

 

 

535

 

 

 

463

 

 

 

86.5%

Ceded to catastrophe treaties

 

 

6,086

 

 

 

6,251

 

 

 

(165)

 

 

(2.6)%

Total ceded written premiums

 

 

7,223

 

 

 

15,748

 

 

 

(8,525)

 

 

(54.1)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net written premiums

 

 

41,642

 

 

 

29,995

 

 

 

11,647

 

 

 

38.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unearned premiums

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed

 

 

(4,848)

 

 

(3,161)

 

 

(1,687)

 

 

(53.4)%

Ceded to quota share treaties

 

 

10

 

 

 

688

 

 

 

(678)

 

 

(98.5)%

Change in net unearned premiums

 

 

(4,838)

 

 

(2,473)

 

 

(2,365)

 

 

(95.6)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums earned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed

 

 

44,017

 

 

 

42,581

 

 

 

1,436

 

 

 

3.4%

Ceded to reinsurance treaties

 

 

(7,214)

 

 

(15,060)

 

 

7,846

 

 

 

52.1%

Net premiums earned

 

 

36,803

 

 

 

27,521

 

 

 

9,282

 

 

 

33.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceding commission revenue

 

 

(7)

 

 

3,449

 

 

 

(3,456)

 

na

%

Net investment income

 

 

1,677

 

 

 

1,494

 

 

 

183

 

 

 

12.2%

Net gains on investments

 

 

204

 

 

 

2,107

 

 

 

(1,903)

 

 

(90.3)%

Other income

 

 

281

 

 

 

251

 

 

 

30

 

 

 

12.0%

Total revenues

 

 

38,958

 

 

 

34,822

 

 

 

4,136

 

 

 

11.9%

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct and assumed:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

23,643

 

 

 

15,656

 

 

 

7,987

 

 

 

51.0%

Losses from catastrophes (1)

 

 

12,435

 

 

 

18,069

 

 

 

(5,634)

 

na

%

Total direct and assumed loss and loss adjustment expenses

 

 

36,078

 

 

 

33,725

 

 

 

2,353

 

 

 

7.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceded loss and loss adjustment expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

(22)

 

 

4,202

 

 

 

(4,224)

 

na

%

Losses from catastrophes (1)

 

 

360

 

 

 

9,405

 

 

 

(9,045)

 

 

(96.2)%

Total ceded loss and loss adjustment expenses

 

 

338

 

 

 

13,607

 

 

 

(13,269)

 

 

(97.5)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and loss adjustment expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses excluding the effect of catastrophes

 

 

23,665

 

 

 

11,454

 

 

 

12,211

 

 

 

106.6%

Losses from catastrophes (1)

 

 

12,075

 

 

 

8,664

 

 

 

3,411

 

 

 

39.4%

Net loss and loss adjustment expenses

 

 

35,740

 

 

 

20,118

 

 

 

15,622

 

 

 

77.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission expense

 

 

8,202

 

 

 

8,036

 

 

 

166

 

 

 

2.1%

Other underwriting expenses

 

 

6,563

 

 

 

6,347

 

 

 

216

 

 

 

3.4%

Other operating expenses

 

 

855

 

 

 

1,038

 

 

 

(183)

 

 

(17.6)%

Depreciation and amortization

 

 

820

 

 

 

710

 

 

 

110

 

 

 

15.5%

Interest expense

 

 

457

 

 

 

457

 

 

 

-

 

 

-

%

Total expenses

 

 

52,637

 

 

 

36,706

 

 

 

15,931

 

 

 

43.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

 

(13,679)

 

 

(1,884)

 

 

(11,795)

 

 

(626.1)%

Income tax benefit

 

 

(3,061)

 

 

(656)

 

 

(2,405)

 

 

(366.6)%

Net loss

 

$(10,618)

 

$(1,228)

 

$(9,390)

 

 

(764.7)%

 

(1)

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

 

 
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kins_10qimg119.jpg

 

Direct Written Premiums

 

Direct written premiums during the three months ended September 30, 2021 (“Three Months 2021”) were $48,865,000 compared to $45,743,000 during the three months ended September 30, 2020 (“Three Months 2020”). The increase of $3,122,000, or 6.8%, 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 $45,985,000, an increase of $2,344,000, or 5.4%, from $43,641,000 in Three Months 2020. Direct written premiums from our livery physical damage business for Three Months 2021 were $2,814,000, an increase of $768,000, or 37.5%, from $2,046,000 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 $10,049,000 in Three Months 2021 compared to $9,197,000 in Three Months 2020. Direct written premiums from our Core business were $38,816,000 in Three Months 2021 compared to $36,545,000 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. 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.

 

 

 

Three months ended September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

Quota share reinsurance rates

 

 

 

Personal lines

 

 

 

 

 

 

2019/2020 Treaty

 

 

n/a

 

 

25% (1)

 

 

 

(1)

The 2019/2020 Treaty was effective from December 15, 2019 through December 30, 2020 with a quota share reinsurance rate of 25%.

 

 
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Net written premiums increased $11,647,000, or 38.8%, to $41,642,000 in Three Months 2021 from $29,995,000 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 $8,823,000 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.

 

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, our ceded excess of loss reinsurance premiums increased by $463,000 over the comparable ceded premiums for Three 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 Three Months 2021, our premiums ceded under catastrophe treaties decreased by $165,000 over the comparable ceded premiums in Three Months 2020. The change was due to a decrease in reinsurance rates effective July 1, 2021, partially offset by an increase in our limit effective July 1, 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 September 30, 2021, our ceded catastrophe premiums were paid based on the total insured value of our risks projected as of August 31, 2021.

 

Net premiums earned

 

Net premiums earned increased $9,282,000, or 33.7%, to $36,803,000 in Three Months 2021 from $27,521,000 in Three Months 2020. The increase was due to the expiration of the 2019/2020 Treaty on December 30, 2020 on a cut-off basis.

 

Ceding Commission Revenue

 

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

 

 

 

Three Months ended September 30,

 

($ in thousands)

 

2021

 

 

2020

 

 

Change

 

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisional ceding commissions earned

 

$41

 

 

$3,461

 

 

$(3,420)

 

 

(98.8)%

Contingent ceding commissions earned

 

 

(48)

 

 

(12)

 

 

(36)

 

 

(300.0)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ceding commission revenue

 

$(7)

 

$3,449

 

 

$(3,456)

 

 

na

 

 
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Ceding commission revenue was $(7,000) in Three Months 2021 compared to $3,449,000 in Three Months 2020. The decrease of $3,456,000 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 $3,420,000 decrease in provisional ceding commissions earned was due to the expiration of the 2019/2020 Treaty on December 30, 2020 on a cut-off basis.

 

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 $1,677,000 in Three Months 2021 compared to $1,494,000 in Three Months 2020, an increase of $183,000, or 12.2%. The average yield on invested assets was 3.42% as of September 30, 2021 compared to 3.51% as of September 30, 2020.

 

Cash and invested assets were $246,004,000 as of September 30, 2021 compared to $220,749,000 as of September 30, 2020. The $25,255,000 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 September 30, 2020.

 

Net Gains and Losses on Investments

 

Net gains on investments were $204,000 in Three Months 2021 compared to $2,107,000 in Three Months 2020. Unrealized losses on our equity securities and other investments in Three Months 2021 were $829,000, compared to a gain of $1,501,000 in Three Months 2020. Realized gains on sales of investments were $1,033,000 in Three Months 2021 compared to $597,000 in Three Months 2020.

 

Other Income

 

Other income was $281,000 in Three Months 2021 compared to $251,000 in Three Months 2020. The increase of $30,000, or 12.0%, was primarily due to additional fees income related to the growth in direct written premiums.

 

Net Loss and LAE

 

Net loss and LAE was $35,740,000 for Three Months 2021 compared to $20,118,000 for Three Months 2020. The net loss ratio was 97.1% in Three Months 2021 compared to 73.1% in Three Months 2020, an increase of 24.0 percentage points.

 

 
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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:

 

kins_10qimg120.jpg

 

(Components may not sum to totals due to rounding)

 

During Three Months 2021, the loss ratio was higher than Three Months 2020 mainly due to the impact of catastrophe events, an elevated frequency of liability claims from the Dwelling Fire line, and a higher frequency of large fire losses.

 

The impact of catastrophe losses was significant for Three Months 2021. There were five catastrophe events during Three Months 2021, including three named storms, Elsa, Henri and Ida. Ida was one of the largest catastrophe events in the company’s history, resulting in over 1,500 reported claims. The estimated net impact of Ida is $9.6 million, or a 26.1 point impact on the quarterly loss ratio. The total impact of all catastrophe events on the loss ratio is 33.1 points for the quarter. This compares to a 31.5-point impact from catastrophe events in Three Months 2020, which was heavily impacted by Tropical Storm Isaias.

 

Prior year development continued to be stable for Three Months 2021. The loss estimates from all prior years were adjusted down by $2,000, which had a marginal impact on the loss ratio.

 

The underlying loss ratio (loss ratio excluding the impact of catastrophe and prior year development) was 64.0% for Three Months 2021, an increase of 22.0 points from the 42.0% underlying loss ratio recorded for Three Months 2020. The higher 2021 loss ratio was primarily due to large fire claims and an increase in liability claims frequency for the Dwelling Fire line, which is suspected to be related to the COVID-19 pandemic.

 

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

 

Commission Expense

 

Commission expense was $8,202,000 in Three Months 2021 or 18.6% of direct earned premiums. Commission expense was $8,036,000 in Three Months 2020 or 18.9% of direct earned premiums. The increase in the rate is due to an increase in the estimate for annual contingent commissions for Three Months 2021 as compared to Three Months 2020.

 

Other Underwriting Expenses

 

Other underwriting expenses were $6,563,000 in Three Months 2021 compared to $6,347,000 in Three Months 2020. The increase of $216,000, or 3.4%, was primarily due an increase in consulting fees and IT expense as part of an initiative to reduce overall expenses with the use of technology. This initiative resulted in a decrease or modest increase in the remaining other underwriting expenses.

 

Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $2,513,000 in Three Months 2021 compared to $2,835,000 in Three Months 2020. The decrease of $322,000, or 11.4%, compares favorably with the 5.4% increase in personal lines direct written premiums. The decrease in employment costs was attributable to staff reductions.

 

Our net underwriting expense ratio in Three Months 2021 was 39.3% compared to 38.8% in Three Months 2020. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

 

 

 

Three months ended

 

 

 

 

 

 

September 30,

 

 

Percentage

 

 

 

2021

 

 

2020

 

 

Point Change

 

 

 

 

 

 

 

 

 

 

 

Other underwriting expenses

 

 

 

 

 

 

 

 

 

Employment costs

 

 

6.8%

 

 

10.3%

 

 

(3.5)

Underwriting fees (inspections/data services)

 

 

1.3

 

 

 

2.4

 

 

 

(1.1)

IT expenses

 

 

2.9

 

 

 

2.7

 

 

 

0.2

 

Other expenses

 

 

6.9

 

 

 

7.7

 

 

 

(0.8)

Total other underwriting expenses

 

 

17.9

 

 

 

23.1

 

 

 

(5.2)

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission expense

 

 

22.3

 

 

 

29.2

 

 

 

(6.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

Ceding commission revenue

 

 

 

 

 

 

 

 

 

 

 

 

Provisional

 

 

(0.1)

 

 

(12.6)

 

 

12.5

 

Contingent

 

 

0.1

 

 

 

-

 

 

 

0.1

 

Total ceding commission revenue

 

 

-

 

 

 

(12.6)

 

 

12.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income

 

 

(0.9)

 

 

(0.9)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net underwriting expense ratio

 

 

39.3%

 

 

38.8%

 

 

0.5

 

 

 
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The overall 12.6 percentage point decrease in the benefit from ceding commissions in Three Months 2021 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 a 12.1 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 $855,000 for Three Months 2021 compared to $1,038,000 for Three Months 2020. The decrease in Three Months 2021 of $183,000, or 17.6%, as compared to Three Months 2020 was primarily due to a decrease in professional fees and employment costs.

 

Depreciation and Amortization

 

Depreciation and amortization was $820,000 in Three Months 2021 compared to $710,000 in Three Months 2020. The increase of $110,000, or 15.5%, 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 $457,000 for both Three Months 2021 and Three 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 benefit in Three Months 2021 was $3,061,000, which resulted in an effective tax expense rate of 22.4%. Income tax benefit in Three Months 2020 was $656,000, which resulted in an effective tax expense rate of 34.8%. Loss before taxes was $13,679,000 in Three Months 2021 compared to loss before taxes of $1,884,000 in Three 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 elected 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 Loss

 

Net loss was $10,618,000 in Three Months 2021 compared to net loss of $1,228,000 in Three Months 2020. The increase in net loss of $9,390,000 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 and net gains on investments, partially offset by increases in our net premiums earned, net investment income, other income and income tax benefit and a decrease in other operating expenses.

 

Additional Financial Information

 

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

 

 
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For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Gross premiums written:

 

 

 

 

 

 

 

 

 

 

 

 

Personal lines(3)

 

$45,984,939

 

 

$43,640,603

 

 

$124,593,302

 

 

$119,598,207

 

Livery physical damage

 

 

2,813,571

 

 

 

2,045,746

 

 

 

6,836,999

 

 

 

5,466,552

 

Other(1)

 

 

66,659

 

 

 

62,664

 

 

 

180,485

 

 

 

192,395

 

Total without commercial lines

 

 

48,865,169

 

 

 

45,749,013

 

 

 

131,610,786

 

 

 

125,257,154

 

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

 

 

-

 

 

 

(6,848)

 

 

(856)

 

 

(167,583)

Total gross premiums written

 

$48,865,169

 

 

$45,742,165

 

 

$131,609,930

 

 

$125,089,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal lines(3)

 

$38,762,235

 

 

$27,916,850

 

 

$102,741,368

 

 

$76,231,996

 

Livery physical damage

 

 

2,813,571

 

 

 

2,045,746

 

 

 

6,836,999

 

 

 

5,466,552

 

Other(1)

 

 

65,837

 

 

 

50,625

 

 

 

178,021

 

 

 

151,783

 

Total without commercial lines

 

 

41,641,643

 

 

 

30,013,221

 

 

 

109,756,388

 

 

 

81,850,331

 

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

 

 

-

 

 

 

(18,271)

 

 

(856)

 

 

(574,228)

Total net premiums written

 

$41,641,643

 

 

$29,994,950

 

 

$109,755,532

 

 

$81,276,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal lines(3)

 

$34,715,708

 

 

$25,220,883

 

 

$101,054,415

 

 

$71,434,757

 

Livery physical damage

 

 

2,028,786

 

 

 

2,014,458

 

 

 

5,598,605

 

 

 

6,803,475

 

Other(1)

 

 

58,757

 

 

 

49,939

 

 

 

176,731

 

 

 

149,087

 

Total without commercial lines

 

 

36,803,251

 

 

 

27,285,280

 

 

 

106,829,751

 

 

 

78,387,319

 

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

 

 

-

 

 

 

235,801

 

 

 

(856)

 

 

2,712,068

 

Total net premiums earned

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss and loss adjustment expenses(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal lines

 

$32,958,728

 

 

$18,657,325

 

 

$72,353,668

 

 

$41,810,950

 

Livery physical damage

 

 

1,766,989

 

 

 

648,520

 

 

 

3,469,465

 

 

 

1,798,210

 

Other(1)

 

 

180,995

 

 

 

29,104

 

 

 

434,816

 

 

 

5,465

 

Unallocated loss adjustment expenses

 

 

867,675

 

 

 

827,031

 

 

 

2,783,547

 

 

 

2,839,359

 

Total without commercial lines

 

 

35,774,387

 

 

 

20,161,980

 

 

 

79,041,496

 

 

 

46,453,984

 

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

 

 

(34,152)

 

 

(44,005)

 

 

18,621

 

 

 

2,863,443

 

Total net loss and loss adjustment expenses

 

$35,740,235

 

 

$20,117,975

 

 

$79,060,117

 

 

$49,317,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio(4):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal lines

 

 

94.9%

 

 

74.0%

 

 

71.6%

 

 

58.5%

Livery physical damage

 

 

87.1%

 

 

32.2%

 

 

62.0%

 

 

26.4%

Other(1)

 

 

308.0%

 

 

58.3%

 

 

246.0%

 

 

3.7%

Total without commercial lines

 

 

97.2%

 

 

73.9%

 

 

74.0%

 

 

59.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

na

 

 

 

-18.7%

 

 

74.0%

 

 

105.6%

Total

 

 

97.1%

 

 

73.1%

 

 

74.0%

 

 

60.8%

 

(1)

“Other” includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.

(2)

In July 2019, we decided that we will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.

(3)

See discussion above with regard to “Net Written Premiums and Net Premiums Earned”, as to changes in quota share ceding rates, effective December 31, 2020, December 15, 2019 and July 1, 2019.

(4)

See discussion above with regard to “Net Loss and LAE”, as to catastrophe losses in the three months and nine months ended September 30, 2021 and 2020.

 

 
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Insurance Underwriting Business on a Standalone Basis

 

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

Ceding commission revenue

 

 

(7,276)

 

 

3,448,774

 

 

 

37,400

 

 

 

10,760,087

 

Net investment income

 

 

1,676,596

 

 

 

1,494,086

 

 

 

5,137,867

 

 

 

4,771,316

 

Net gains (losses) on investments

 

 

214,085

 

 

 

2,073,245

 

 

 

5,380,909

 

 

 

(1,580,398)

Other income

 

 

322,705

 

 

 

248,824

 

 

 

617,257

 

 

 

754,943

 

Total revenues

 

 

39,009,361

 

 

 

34,786,010

 

 

 

118,002,328

 

 

 

95,805,335

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

 

35,740,235

 

 

 

20,117,975

 

 

 

79,060,117

 

 

 

49,317,427

 

Commission expense

 

 

8,201,935

 

 

 

8,036,298

 

 

 

24,711,115

 

 

 

23,652,765

 

Other underwriting expenses

 

 

6,562,743

 

 

 

6,346,846

 

 

 

19,722,705

 

 

 

19,434,110

 

Depreciation and amortization

 

 

780,906

 

 

 

676,989

 

 

 

2,374,203

 

 

 

1,970,859

 

Total expenses

 

 

51,285,819

 

 

 

35,178,108

 

 

 

125,868,140

 

 

 

94,375,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

 

(12,276,458)

 

 

(392,098)

 

 

(7,865,812)

 

 

1,430,174

 

Income tax benefit

 

 

(2,633,026)

 

 

(203,922)

 

 

(1,812,195)

 

 

(24,888)

Net (loss) income

 

$(9,643,432)

 

$(188,176)

 

$(6,053,617)

 

$1,455,062

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Measures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio

 

 

97.1%

 

 

73.1%

 

 

74.0%

 

 

60.8%

Net underwriting expense ratio

 

 

39.3%

 

 

38.8%

 

 

41.0%

 

 

38.9%

Net combined ratio

 

 

136.4%

 

 

111.9%

 

 

115.0%

 

 

99.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of net underwriting expense ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

underwriting expenses

 

$14,764,678

 

 

$14,383,144

 

 

$44,433,820

 

 

$43,086,875

 

Less: Ceding commission revenue

 

 

7,276

 

 

 

(3,448,774)

 

 

(37,400)

 

 

(10,760,087)

Less: Other income

 

 

(322,705)

 

 

(248,824)

 

 

(617,257)

 

 

(754,943)

Net underwriting expenses

 

$14,449,249

 

 

$10,685,546

 

 

$43,779,163

 

 

$31,571,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Underwriting Expense Ratio

 

 

39.3%

 

 

38.8%

 

 

41.0%

 

 

38.9%

 

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

 

 
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Table of Contents

 

 

 

Direct

 

 

Assumed

 

 

Ceded

 

 

Net

 

Nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Written premiums

 

$131,609,930

 

 

$-

 

 

$(21,854,398)

 

$109,755,532

 

Change in unearned premiums

 

 

(2,911,439)

 

 

-

 

 

 

(15,198)

 

 

(2,926,637)

Earned premiums

 

$128,698,491

 

 

$-

 

 

$(21,869,596)

 

$106,828,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses exluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the effect of catastrophes

 

$67,633,915

 

 

$-

 

 

$(860,490)

 

$66,773,425

 

Catastrophe loss

 

 

12,647,172

 

 

 

-

 

 

 

(360,480)

 

 

12,286,692

 

Loss and loss adjustment expenses

 

$80,281,087

 

 

$-

 

 

$(1,220,970)

 

$79,060,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss ratio excluding the effect of catastrophes

 

 

52.6%

 

 

0.0%

 

 

3.9%

 

 

62.5%

Catastrophe loss

 

 

9.8%

 

 

0.0%

 

 

1.6%

 

 

11.5%

Loss ratio

 

 

62.4%

 

 

0.0%

 

 

5.5%

 

 

74.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written premiums

 

$125,089,571

 

 

$-

 

 

$(43,813,468)

 

$81,276,103

 

Change in unearned premiums

 

 

2,215,602

 

 

 

-

 

 

 

(2,392,318)

 

 

(176,716)

Earned premiums

 

$127,305,173

 

 

$-

 

 

$(46,205,786)

 

$81,099,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses exluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the effect of catastrophes

 

$52,736,775

 

 

$-

 

 

$(13,794,461)

 

$38,942,314

 

Catastrophe loss

 

 

20,407,638

 

 

 

-

 

 

 

(10,032,525)

 

 

10,375,113

 

Loss and loss adjustment expenses

 

$73,144,413

 

 

$-

 

 

$(23,826,986)

 

$49,317,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss ratio excluding the effect of catastrophes

 

 

41.4%

 

 

0.0%

 

 

29.9%

 

 

48.0%

Catastrophe loss

 

 

16.0%

 

 

0.0%

 

 

21.7%

 

 

12.8%

Loss ratio

 

 

57.4%

 

 

0.0%

 

 

51.6%

 

 

60.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written premiums

 

$48,865,169

 

 

$-

 

 

$(7,223,526)

 

$41,641,643

 

Change in unearned premiums

 

 

(4,848,145)

 

 

-

 

 

 

9,753

 

 

 

(4,838,392)

Earned premiums

 

$44,017,024

 

 

$-

 

 

$(7,213,773)

 

$36,803,251

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses exluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the effect of catastrophes

 

$23,537,875

 

 

$-

 

 

$21,239

 

 

$23,559,114

 

Catastrophe loss

 

 

12,541,601

 

 

 

-

 

 

 

(360,480)

 

 

12,181,121

 

Loss and loss adjustment expenses

 

$36,079,476

 

 

$-

 

 

$(339,241)

 

$35,740,235

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss ratio excluding the effect of catastrophes

 

 

53.5%

 

 

0.0%

 

 

-0.3%

 

 

64.0%

Catastrophe loss

 

 

28.5%

 

 

0.0%

 

 

5.0%

 

 

33.1%

Loss ratio

 

 

82.0%

 

 

0.0%

 

 

4.7%

 

 

97.1%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Written premiums

 

$45,742,165

 

 

$-

 

 

$(15,747,215)

 

$29,994,950

 

Change in unearned premiums

 

 

(3,161,356)

 

 

-

 

 

 

687,487

 

 

 

(2,473,869)

Earned premiums

 

$42,580,809

 

 

$-

 

 

$(15,059,728)

 

$27,521,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses exluding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

the effect of catastrophes

 

$15,655,839

 

 

$-

 

 

$(4,202,861)

 

$11,452,978

 

Catastrophe loss

 

 

18,069,690

 

 

 

-

 

 

 

(9,404,693)

 

 

8,664,997

 

Loss and loss adjustment expenses

 

$33,725,529

 

 

$-

 

 

$(13,607,554)

 

$20,117,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss ratio excluding the effect of catastrophes

 

 

36.8%

 

 

0.0%

 

 

27.9%

 

 

91.6%

Catastrophe loss

 

 

42.4%

 

 

0.0%

 

 

62.4%

 

 

31.5%

Loss ratio

 

 

79.2%

 

 

0.0%

 

 

90.3%

 

 

73.1%

 

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

 

 
59

Table of Contents

 

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net premiums earned

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

Ceding commission revenue

 

 

(7,276)

 

 

3,448,774

 

 

 

37,400

 

 

 

10,760,087

 

Other income

 

 

322,705

 

 

 

248,824

 

 

 

617,257

 

 

 

754,943

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses (1)

 

 

35,740,235

 

 

 

20,117,975

 

 

 

79,060,117

 

 

 

49,317,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs and other underwriting expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commission expense

 

 

8,201,935

 

 

 

8,036,298

 

 

 

24,711,115

 

 

 

23,652,765

 

Other underwriting expenses

 

 

6,562,743

 

 

 

6,346,846

 

 

 

19,722,705

 

 

 

19,434,110

 

Total acquisition costs and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

underwriting expenses

 

 

14,764,678

 

 

 

14,383,144

 

 

 

44,433,820

 

 

 

43,086,875

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underwriting (loss) income

 

$(13,386,233)

 

$(3,282,440)

 

$(16,010,385)

 

$210,115

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Measures:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss ratio excluding the effect of catastrophes

 

 

64.0%

 

 

41.6%

 

 

62.5%

 

 

48.0%

Effect of catastrophe loss on net loss ratio (1)

 

 

33.1%

 

 

31.5%

 

 

11.5%

 

 

12.8%

Net loss ratio

 

 

97.1%

 

 

73.1%

 

 

74.0%

 

 

60.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net underwriting expense ratio excluding the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

effect of catastrophes

 

 

39.3%

 

 

38.8%

 

 

41.0%

 

 

38.9%

Effect of catastrophe loss on net underwriting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expense ratio

 

 

0.0%

 

 

0.0%

 

 

0.0%

 

 

0.0%

Net underwriting expense ratio

 

 

39.3%

 

 

38.8%

 

 

41.0%

 

 

38.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net combined ratio excluding the effect

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of catastrophes

 

 

103.3%

 

 

80.4%

 

 

103.5%

 

 

86.9%

Effect of catastrophe loss on net combined

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ratio (1)

 

 

33.1%

 

 

31.5%

 

 

11.5%

 

 

12.8%

Net combined ratio

 

 

136.4%

 

 

111.9%

 

 

115.0%

 

 

99.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of net underwriting expense ratio:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition costs and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

underwriting expenses

 

$14,764,678

 

 

$14,383,144

 

 

$44,433,820

 

 

$43,086,875

 

Less: Ceding commission revenue

 

 

7,276

 

 

 

(3,448,774)

 

 

(37,400)

 

 

(10,760,087)

Less: Other income

 

 

(322,705)

 

 

(248,824)

 

 

(617,257)

 

 

(754,943)

 

 

$14,449,249

 

 

$10,685,546

 

 

$43,779,163

 

 

$31,571,845

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earned premium

 

$36,803,251

 

 

$27,521,081

 

 

$106,828,895

 

 

$81,099,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Underwriting Expense Ratio

 

 

39.3%

 

 

38.8%

 

 

41.0%

 

 

38.9%

 

(1)

For the three months ended September 30, 2021 and 2020, includes the sum of net catastrophe losses and loss adjustment expenses of $12,181,121 and $8,664,997, respectively. For the nine months ended September 30, 2021 and 2020, includes the sum of net catastrophe losses and loss adjustment expenses of $12,286,692 and $10,375,113, respectively.

 

 
60

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Investments

 

Portfolio Summary

 

Fixed-Maturity Securities

 

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

 

 

 

September 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

 

$2,002,935

 

 

$3,945

 

 

$-

 

 

$-

 

 

$2,006,880

 

 

 

1.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

14,384,428

 

 

 

259,721

 

 

 

(89,844)

 

 

-

 

 

 

14,554,305

 

 

 

9.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

88,059,505

 

 

 

7,391,053

 

 

 

(27,577)

 

 

-

 

 

 

95,422,981

 

 

 

62.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

40,988,538

 

 

 

561,035

 

 

 

(243,639)

 

 

(858)

 

 

41,305,076

 

 

 

26.9%

Total

 

$145,435,406

 

 

$8,215,754

 

 

$(361,060)

 

$(858)

 

$153,289,242

 

 

 

100.0%

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

% of

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$3,020,710

 

 

$29,190

 

 

$-

 

 

$-

 

 

$3,049,900

 

 

 

1.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

5,287,561

 

 

 

355,541

 

 

 

-

 

 

 

-

 

 

 

5,643,102

 

 

 

3.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

108,573,422

 

 

 

11,634,123

 

 

 

(13,216)

 

 

-

 

 

 

120,194,329

 

 

 

76.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities (1)

 

 

28,163,891

 

 

 

617,368

 

 

 

(7,371)

 

 

(111,947)

 

 

28,661,941

 

 

 

18.2%

Total fixed-maturity securities

 

$145,045,584

 

 

$12,636,222

 

 

$(20,587)

 

$(111,947)

 

$157,549,272

 

 

 

100.0%

 

(1)

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

 

 
61

Table of Contents

   

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 September 30, 2021 and December 31, 2020:

 

 

 

September 30, 2021

 

 

 

 

 

 

 

 

 

Estimated

 

 

% of

 

 

 

 

 

Gross

 

 

Gross

 

 

Fair

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$21,934,910

 

 

$1,123,310

 

 

$(157,431)

 

$22,900,789

 

 

 

57.2%

Common stocks and exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

traded funds

 

 

15,610,331

 

 

 

1,620,343

 

 

 

(70,591)

 

 

17,160,083

 

 

 

42.8%

Total

 

$37,545,241

 

 

$2,743,653

 

 

$(228,022)

 

$40,060,872

 

 

 

100.0%

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Estimated

 

 

% of

 

 

 

 

 

Gross

 

 

Gross

 

 

Fair

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$18,097,942

 

 

$853,277

 

 

$(426,942)

 

$18,524,277

 

 

 

53.8%

Common stocks and exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

traded funds

 

 

14,473,224

 

 

 

1,820,512

 

 

 

(404,700)

 

 

15,889,036

 

 

 

46.2%

Total

 

$32,571,166

 

 

$2,673,789

 

 

$(831,642)

 

$34,413,313

 

 

 

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 September 30, 2021 and December 31, 2020:

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

 

 

Gross

 

 

Estimated

 

 

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Fair Value

 

 

Cost

 

 

Gains

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge fund

 

$3,999,381

 

 

$3,379,730

 

 

$7,379,111

 

 

$1,999,381

 

 

$1,369,245

 

 

$3,368,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate limited partnership

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150,000

 

 

 

-

 

 

 

150,000

 

Total

 

$3,999,381

 

 

$3,379,730

 

 

$7,379,111

 

 

$2,149,381

 

 

$1,369,245

 

 

$3,518,626

 

 

 
62

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 September 30, 2021 and December 31, 2020:

 

 

 

September 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

 

$729,630

 

 

$210,466

 

 

$-

 

 

$-

 

 

$940,096

 

 

 

9.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

998,296

 

 

 

29,744

 

 

 

-

 

 

 

-

 

 

 

1,028,040

 

 

 

10.6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange traded debt

 

 

304,111

 

 

 

-

 

 

 

(16,611)

 

 

-

 

 

 

287,500

 

 

 

3.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

7,134,946

 

 

 

315,285

 

 

 

(6,363)

 

 

-

 

 

 

7,443,868

 

 

 

76.7%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$9,166,983

 

 

$555,495

 

 

$(22,974)

 

$-

 

 

$9,699,504

 

 

 

100.0%

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

% of

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$729,595

 

 

$319,714

 

 

$-

 

 

$-

 

 

$1,049,309

 

 

 

12.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

998,428

 

 

 

50,917

 

 

 

-

 

 

 

-

 

 

 

1,049,345

 

 

 

12.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

5,640,792

 

 

 

455,378

 

 

 

-

 

 

 

-

 

 

 

6,096,170

 

 

 

74.4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$7,368,815

 

 

$826,009

 

 

$-

 

 

$-

 

 

$8,194,824

 

 

 

100.0%

 

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

 

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

 

 
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September 30, 2021

 

 

December 31, 2020

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$1,394,102

 

 

$1,420,414

 

 

$-

 

 

$-

 

One to five years

 

 

1,205,500

 

 

 

1,301,973

 

 

 

2,598,193

 

 

 

2,777,936

 

Five to ten years

 

 

1,511,072

 

 

 

1,686,289

 

 

 

1,502,603

 

 

 

1,727,316

 

More than 10 years

 

 

5,056,309

 

 

 

5,290,828

 

 

 

3,268,019

 

 

 

3,689,572

 

Total

 

$9,166,983

 

 

$9,699,504

 

 

$7,368,815

 

 

$8,194,824

 

 

Credit Rating of Fixed-Maturity Securities

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

 

 

Estimated

 

 

Percentage of

 

 

Estimated

 

 

Percentage of

 

 

 

Fair Market

 

 

Fair Market

 

 

Fair Market

 

 

Fair Market

 

 

 

Value

 

 

Value

 

 

Value

 

 

Value

 

 

 

 

 

 

 

 

 

 

Rating

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$2,006,880

 

 

 

1.3%

 

$3,049,900

 

 

 

1.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and municipal bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

 

2,417,351

 

 

 

1.6%

 

 

1,453,924

 

 

 

0.9%

AA

 

 

10,258,737

 

 

 

6.7%

 

 

3,572,164

 

 

 

2.3%

A

 

 

23,227,866

 

 

 

15.2%

 

 

23,989,619

 

 

 

15.2%

BBB

 

 

73,042,960

 

 

 

47.7%

 

 

95,814,824

 

 

 

60.9%

Non rated

 

 

1,030,372

 

 

 

0.7%

 

 

1,006,901

 

 

 

0.6%

Total corporate and municipal bonds

 

 

109,977,286

 

 

 

71.9%

 

 

125,837,432

 

 

 

79.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage backed securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AAA

 

 

2,000,580

 

 

 

1.3%

 

 

5,467,075

 

 

 

3.5%

AA

 

 

36,854,164

 

 

 

23.9%

 

 

18,865,749

 

 

 

12.0%

A

 

 

996,406

 

 

 

0.7%

 

 

2,451,635

 

 

 

1.6%

BBB

 

 

30,927

 

 

 

0.0%

 

 

50,276

 

 

 

0.0%

CCC

 

 

824,310

 

 

 

0.5%

 

 

960,042

 

 

 

0.6%

CC

 

 

-

 

 

 

0.0%

 

 

62,029

 

 

 

0.0%

C

 

 

-

 

 

 

0.0%

 

 

15,161

 

 

 

0.0%

D

 

 

58,117

 

 

 

0.0%

 

 

119,144

 

 

 

0.1%

Non rated

 

 

540,572

 

 

 

0.4%

 

 

670,829

 

 

 

0.4%

Total residential mortgage backed securities

 

 

41,305,076

 

 

 

26.8%

 

 

28,661,940

 

 

 

18.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$153,289,242

 

 

 

100.0%

 

$157,549,272

 

 

 

100.0%

 

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

 

 
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Table of Contents

 

Category

 

September 30, 2021

 

 

December 31, 2020

 

U.S. Treasury securities and

 

 

 

 

 

 

obligations of U.S. government

 

 

 

 

 

 

corporations and agencies

 

 

3.60%

 

 

2.59%

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

2.99%

 

 

3.05%

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

3.58%

 

 

3.52%

 

 

 

 

 

 

 

 

 

Residential mortgage backed securities

 

 

2.18%

 

 

1.18%

 

 

 

 

 

 

 

 

 

Total

 

 

3.17%

 

 

3.07%

 

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

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Weighted average effective maturity

 

 

5.7

 

 

 

5.2

 

 

 

 

 

 

 

 

 

 

Weighted average final maturity

 

 

10.2

 

 

 

6.6

 

 

 

 

 

 

 

 

 

 

Effective duration

 

 

4.8

 

 

 

4.7

 

 

Fair Value Consideration

 

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

 

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

 

 
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September 30, 2021

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

9,106,494

 

 

 

(89,844)

 

 

6

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,106,494

 

 

 

(89,844)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

1,071,100

 

 

 

(27,577)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,071,100

 

 

 

(27,577)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

27,039,698

 

 

 

(243,639)

 

 

17

 

 

 

12,436

 

 

 

(858)

 

 

1

 

 

 

27,052,134

 

 

 

(244,497)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$37,217,292

 

 

$(361,060)

 

 

24

 

 

$12,436

 

 

$(858)

 

 

1

 

 

$37,229,728

 

 

$(361,918)

 

 
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December 31, 2020

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

1,006,901

 

 

 

(13,216)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,006,901

 

 

 

(13,216)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

6,137,522

 

 

 

(7,371)

 

 

5

 

 

 

3,735,732

 

 

 

(111,947)

 

 

10

 

 

 

9,873,254

 

 

 

(119,318)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$7,144,423

 

 

$(20,587)

 

 

6

 

 

$3,735,732

 

 

$(111,947)

 

 

10

 

 

$10,880,155

 

 

$(132,534)

 

 
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There were 25 securities at September 30, 2021 that accounted for the gross unrealized loss of our fixed-maturity securities available-for-sale, none of which were deemed by us to be other than temporarily impaired. There were 16 securities at December 31, 2020 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. Significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of fair value to our cost basis.

 

Liquidity and Capital Resources

 

Cash Flows

 

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

 

For the nine months ended September 30, 2021, the primary source of cash flow for our holding company was the dividends received from KICO, subject to statutory restrictions. For the nine months ended September 30, 2021, KICO paid dividends of $3,500,000 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. KICO currently does not have any securities pledged to FHLBNY, as such, there were no borrowings under this facility during the nine months ended September 30, 2021 and 2020.

 

As of September 30, 2021, invested assets and cash in our holding company totaled approximately $2,341,000. If the aforementioned sources of cash flow currently available are insufficient to cover our holding company cash requirements, we will seek to obtain additional financing.

 

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

 

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

 

Nine Months ended September 30,

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Cash flows provided by (used in):

 

 

 

 

 

 

Operating activities

 

$29,079,787

 

 

$(9,465,006)

Investing activities

 

 

(9,297,954)

 

 

3,927,739

 

Financing activities

 

 

(3,137,487)

 

 

(2,466,115)

Net increase (decrease) in cash and cash equivalents

 

 

16,644,346

 

 

 

(8,003,382)

Cash and cash equivalents, beginning of period

 

 

19,463,742

 

 

 

32,391,485

 

Cash and cash equivalents, end of period

 

$36,108,088

 

 

$24,388,103

 

 

Net cash provided by operating activities was $29,080,000 in Nine Months 2021 as compared to $9,465,000 used in operating activities in Nine Months 2020. The $38,545,000 increase in cash flows provided by operating activities in Nine Months 2021 was primarily the result of an increase in cash arising from net fluctuations in assets and liabilities, partially offset by net loss (adjusted for non-cash items) of $18,247,000. The net fluctuations in assets and liabilities are related to operating activities of KICO as affected by growth or declines in its operations, payments on claims and other changes, which are described above.

 

Net cash used in investing activities was $9,298,000 in Nine Months 2021 compared to $3,928,000 provided by investing activities in Nine Months 2020. The $13,226,000 increase in net cash used in investing activities was the result of a $23,660,000 increase in the acquisition of invested assets, partially offset by an $11,119,000 increase in disposals of invested assets in Nine Months 2021.

 

Net cash used in financing activities was $3,137,000 in Nine Months 2021 compared to $2,466,000 used in Nine Months 2020. The $671,000 increase in net cash used in financing activities was attributable to a $870,000 increase in purchases of treasury stock offset by a $256,000 reduction in dividends paid in Nine Months 2021 compared to Nine Months 2020.

 

Reinsurance

 

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”). 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. Losses from freeze are excluded from the treaty. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows:

 

 
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Table of Contents

 kins_10qimg122.jpg

 

 

(1)

For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000 through June 30, 2020. For the period July 1, 2020 through June 30, 2022, direct losses are covered up to $9,000,000.

(2)

Plus losses in excess of catastrophe coverage. For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note (7) below).

(3)

Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.

 

 
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(4)

For the period July 1, 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.

(5)

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.

(6)

For the period July 1, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.

(7)

The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through June 30, 2022 is only for excess of loss and catastrophe reinsurance.

(8)

Excludes freeze and freeze related claims.

 

 

 

Treaty Year

 

 

 

July 1, 2021

 

 

July 1, 2020

 

 

July 1, 2019

 

 

 

to

 

 

to

 

 

to

 

Line of Business

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Personal Lines:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal Umbrella

 

 

 

 

 

 

 

 

 

Quota share treaty:

 

 

 

 

 

 

 

 

 

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

 

 

90%

 

 

90%

 

 

90%

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

 

 

95%

 

 

95%

 

 

100%

Risk retained

 

$300,000

 

 

$300,000

 

 

$100,000

 

Total reinsurance coverage per occurrence

 

$4,700,000

 

 

$4,700,000

 

 

$4,900,000

 

Losses per occurrence subject to quota share reinsurance coverage

 

$5,000,000

 

 

$5,000,000

 

 

$5,000,000

 

Expiration date

 

June 30, 2022

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Lines (1):

 

 

 

 

 

 

 

 

 

 

 

 

General liability commercial policies

 

 

 

 

 

 

 

 

 

 

 

 

Quota share treaty

 

 

 

 

 

None

 

 

None

 

Risk retained

 

 

 

 

 

$750,000

 

 

$750,000

 

Excess of loss coverage above risk retained

 

 

 

 

 

$3,750,000

 

 

$3,750,000

 

 

 

 

 

 

 

in excess of

 

 

in excess of

 

 

 

 

 

 

 

$750,000

 

 

$750,000

 

Total reinsurance coverage per occurrence

 

 

 

 

 

$3,750,000

 

 

$3,750,000

 

Losses per occurrence subject to reinsurance coverage

 

 

 

 

 

$4,500,000

 

 

$4,500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Umbrella

 

 

 

 

 

 

 

 

 

 

 

 

Quota share treaty

 

 

 

 

 

None

 

 

None

 

 

(1)

Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss.

   

Inflation

 

Premiums are established before we know the amount of losses and loss adjustment expenses or the extent to which inflation may affect such amounts. We attempt to anticipate the potential impact of inflation in establishing our reserves, especially as it relates to medical and hospital rates where historical inflation rates have exceeded the general level of inflation. Inflation in excess of the levels we have assumed could cause loss and loss adjustment expenses to be higher than we anticipated, which would require us to increase reserves and reduce earnings.

 

Fluctuations in rates of inflation also influence interest rates, which in turn impact the market value of our investment portfolio and yields on new investments. Operating expenses, including salaries and benefits, generally are impacted by inflation.

 

 
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Off-Balance Sheet Arrangements

 

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

 

Outlook

 

The impacts of COVID-19 and related economic conditions on our results are highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate. The impact of COVID-19 on our results for the period ended September 30, 2021 may not be indicative of its impact on our results for the remainder of 2021. For additional information on the risks posed by COVID-19, see “The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity” included in Part II, Item 1A— “Risk Factors” in this Quarterly Report.

 

Our net premiums earned may be impacted by a number of factors. Net premiums earned are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. Net written premiums from both renewal and new business are impacted by competitive market conditions as well as general economic conditions. As a result of COVID-19, economic conditions in the United States rapidly deteriorated. The decreased levels of economic activity have negatively impacted, and may continue to negatively impact, premium volumes generated by new business. We began to experience this impact in March 2020 and it became more significant in the second and third quarters of 2020. We also expect this impact will further persist but to a lesser extent for the remainder of 2021, but the degree of the impact will depend on the extent and duration of the economic contraction and could be material. We have also made underwriting changes to emphasize profitability over growth and have culled out the type of risks that do not generate an acceptable level of return. This action has led, and may continue to lead, to a slowdown in premium growth, particularly in new business.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

This item is not applicable to smaller reporting companies.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

We maintain a system of disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to assure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer have concluded that, as of September 30, 2021, our disclosure controls and procedures were: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act, and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

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

 

s of the date of this report, there have been no misstatements identified. nd the g that were assessed as a material weakness

 

Changes in Internal Control over Financial Reporting

 

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


Inherent Limitation on Effectiveness of Controls

 

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

 

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

 

 
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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

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

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

(a) None.

 

(b) Not applicable.

 

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

 

Period

 

Total

Number of Shares Purchased(1)

 

 

Average

Price Paid

per Share

 

 

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

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7/1/21 – 7/31/21

 

 

19,190

 

 

$7.66

 

 

 

19,190

 

 

 

1,337,302

 

8/1/21 – 8/31/21

 

 

36,699

 

 

$7.00

 

 

 

36,699

 

 

 

1,298,617

 

9/1/21 – 9/30/21

 

 

32,440

 

 

$6.92

 

 

 

32,440

 

 

 

1,264,826

 

Total

 

 

88,329

 

 

$7.11

 

 

 

88,329

 

 

 

1,264,826

 

 

 

(1)

Purchases were made by us in open market transactions.

 

(2)

Up to $10,000,000 of common stock may be purchased pursuant to our repurchase plan announced on March 18, 2021; the maximum number of shares shown is based on the September 30, 2021 closing stock price.

  

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

 
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Item 6. Exhibits.

 

3(a)

 

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

 

 

 

3(b)

 

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

 

 

 

31(a)

 

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

 

 

 

31(b)

 

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

 

 

 

32+

 

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

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

101.SCH XBRL Taxonomy Extension Schema.

 

 

 

101.CAL

 

101.CAL XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF

 

101.DEF XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB

 

101.LAB XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE

 

101.PRE XBRL Taxonomy Extension Presentation Linkbase.

 

 

 

+

 

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

 

 
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SIGNATURES

 

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

 

 KINGSTONE COMPANIES, INC.
    
Dated: November 15, 2021By:/s/ Barry B. Goldstein

 

 

Barry B. Goldstein 
  Chief Executive Officer  

 

Dated: November 15, 2021By:/s/ Richard Swartz

 

 

Richard Swartz 
  Principal Financial Officer 

 

 
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