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 SeptemberJune 30, 2017
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of November 9, 2017,August 14, 2023, there were 10,626,40210,756,156 shares of the registrant’s common stock outstanding.
KINGSTONE COMPANIES, INC.
INDEX
PAGE | ||||||||
4 | ||||||||
4 | ||||||||
5 | ||||||||
6-7 | ||||||||
8-9 | ||||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 10 | |||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 43 | |||||||
77 | ||||||||
77 | ||||||||
78 | ||||||||
78 | ||||||||
78 | ||||||||
78 | ||||||||
78 | ||||||||
78 | ||||||||
79 | ||||||||
80 |
2 | ||||||||
Table of Contents | ||||||||
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-lookingforward‑looking statements as that term is defined inwithin the federal securities laws.meaning of the Private Securities Litigation Reform Act of 1995. The events described in forward-lookingforward‑looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated benefitsresults or other consequences of our plans or strategies, projected or anticipated benefitsresults 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,"“may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and "continue,"“continue,” and their opposites and similar expressions are intended to identify forward-lookingforward‑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, thatwhich may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect ourcause 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 71A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended December 31, 2016 under “Factors That May Affect Future Results2022, Part I, Item 2 of this Quarterly Report and Financial Condition.”
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-lookingforward‑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-lookingforward‑looking statements. We undertake no obligation to publicly update or revise any forward-lookingforward‑looking statements, whether from new information, future events or otherwise.
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, | |
2017 | 2016 | |
(unaudited) | ||
Assets | ||
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of | ||
$5,181,159 at September 30, 2017 and $5,298,119 at December 31, 2016) | $4,846,349 | $5,094,902 |
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of | ||
$110,315,798 at September 30, 2017 and $80,596,628 at December 31, 2016) | 111,789,752 | 80,428,828 |
Equity securities, available-for-sale, at fair value (cost of $12,706,538 | ||
at September 30, 2017 and $9,709,385 at December 31, 2016) | 13,221,116 | 9,987,686 |
Total investments | 129,857,217 | 95,511,416 |
Cash and cash equivalents | 25,880,306 | 12,044,520 |
Premiums receivable, net | 13,394,800 | 11,649,398 |
Reinsurance receivables, net | 24,971,272 | 32,197,765 |
Deferred policy acquisition costs | 14,381,976 | 12,239,781 |
Intangible assets, net | 1,095,000 | 1,350,000 |
Property and equipment, net | 4,187,325 | 3,011,373 |
Other assets | 1,638,899 | 1,442,209 |
Total assets | $215,406,795 | $169,446,462 |
Liabilities | ||
Loss and loss adjustment expense reserves | $42,290,797 | $41,736,719 |
Unearned premiums | 63,442,903 | 54,994,375 |
Advance premiums | 2,086,589 | 1,421,560 |
Reinsurance balances payable | 1,812,348 | 2,146,017 |
Deferred ceding commission revenue | 3,953,749 | 6,851,841 |
Accounts payable, accrued expenses and other liabilities | 6,874,636 | 5,448,448 |
Deferred income taxes | 1,128,088 | 166,949 |
Total liabilities | 121,589,110 | 112,765,909 |
Commitments and Contingencies | ||
Stockholders' Equity | ||
Preferred stock, $.01 par value; authorized 2,500,000 shares | - | - |
Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,610,216 shares | ||
at September 30, 2017 and 8,896,335 at December 31, 2016; outstanding | ||
10,623,407 shares at September 30, 2017 and 7,921,866 shares at December 31, 2016 | 116,102 | 88,963 |
Capital in excess of par | 68,306,831 | 37,950,401 |
Accumulated other comprehensive income | 1,312,431 | 72,931 |
Retained earnings | 26,254,620 | 20,563,720 |
95,989,984 | 58,676,015 | |
Treasury stock, at cost, 986,809 shares at September 30, 2017 | ||
and 974,469 shares at December 31, 2016 | (2,172,299) | (1,995,462) |
Total stockholders' equity | 93,817,685 | 56,680,553 |
Total liabilities and stockholders' equity | $215,406,795 | $169,446,462 |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||
Condensed Consolidated Balance Sheets |
|
|
|
|
|
| ||
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
| (unaudited) |
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $6,266,115 at June 30, 2023 and $6,600,388 at December 31, 2022) |
| $ | 7,305,031 |
|
| $ | 7,766,140 |
|
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of$156,710,463 at June 30, 2023 and $174,918,427 at December 31, 2022) |
|
| 137,855,117 |
|
|
| 154,715,163 |
|
Equity securities, at fair value (cost of $17,986,783 at June 30, 2023 and $18,086,700 at December 31, 2022) |
|
| 14,410,482 |
|
|
| 13,834,390 |
|
Other investments |
|
| 3,549,540 |
|
|
| 2,771,652 |
|
Total investments |
|
| 163,120,170 |
|
|
| 179,087,345 |
|
Cash and cash equivalents |
|
| 12,286,424 |
|
|
| 11,958,228 |
|
Premiums receivable, net |
|
| 12,572,834 |
|
|
| 13,880,504 |
|
Reinsurance receivables, net |
|
| 76,579,488 |
|
|
| 66,465,061 |
|
Deferred policy acquisition costs |
|
| 21,440,158 |
|
|
| 23,819,453 |
|
Intangible assets |
|
| 500,000 |
|
|
| 500,000 |
|
Property and equipment, net |
|
| 9,853,831 |
|
|
| 10,541,935 |
|
Deferred income taxes, net |
|
| 11,338,476 |
|
|
| 10,331,158 |
|
Other assets |
|
| 3,657,664 |
|
|
| 3,748,847 |
|
Total assets |
| $ | 311,349,045 |
|
| $ | 320,332,531 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
| $ | 117,561,610 |
|
| $ | 118,339,513 |
|
Unearned premiums |
|
| 101,914,895 |
|
|
| 107,492,777 |
|
Advance premiums |
|
| 6,511,181 |
|
|
| 2,839,028 |
|
Reinsurance balances payable |
|
| 13,684,595 |
|
|
| 13,061,966 |
|
Deferred ceding commission revenue |
|
| 9,690,160 |
|
|
| 10,619,569 |
|
Accounts payable, accrued expenses and other liabilities |
|
| 4,699,562 |
|
|
| 6,651,723 |
|
Debt, net |
|
| 25,201,826 |
|
|
| 25,158,523 |
|
Total liabilities |
|
| 279,263,829 |
|
|
| 284,163,099 |
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized 2,500,000 shares |
|
| - |
|
|
| - |
|
Common stock, $0.01 par value; authorized 20,000,000 shares; issued 12,227,562 shares at June 30, 2023 and 12,171,512 shares at December 31, 2022; outstanding 10,756,156 shares at June 30, 2023 and 10,700,106 shares at December 31, 2022 |
|
| 122,275 |
|
|
| 121,715 |
|
Capital in excess of par |
|
| 74,946,685 |
|
|
| 74,519,590 |
|
Accumulated other comprehensive loss |
|
| (14,893,572 | ) |
|
| (15,958,428 | ) |
Accumulated deficit |
|
| (22,522,691 | ) |
|
| (16,945,964 | ) |
|
|
| 37,652,697 |
|
|
| 41,736,913 |
|
Treasury stock, at cost, 1,471,406 shares at June 30, 2023 and December 31, 2022 |
|
| (5,567,481 | ) |
|
| (5,567,481 | ) |
Total stockholders' equity |
|
| 32,085,216 |
|
|
| 36,169,432 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 311,349,045 |
|
| $ | 320,332,531 |
|
See accompanying notes to condensed consolidated financial statements.
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) | ||||
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Revenues | ||||
Net premiums earned | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Ceding commission revenue | 1,717,610 | 2,934,928 | 8,208,000 | 8,274,290 |
Net investment income | 1,033,307 | 709,072 | 2,917,111 | 2,286,199 |
Net realized gains on investments | 20,998 | 241,035 | 96,915 | 604,903 |
Other income | 328,330 | 297,181 | 926,189 | 831,036 |
Total revenues | 24,614,653 | 19,828,397 | 66,986,098 | 57,185,159 |
Expenses | ||||
Loss and loss adjustment expenses | 7,073,323 | 5,134,854 | 22,821,241 | 20,405,545 |
Commission expense | 5,500,483 | 4,603,755 | 15,491,027 | 13,400,029 |
Other underwriting expenses | 4,475,455 | 4,039,209 | 12,887,488 | 10,981,784 |
Other operating expenses | 1,069,005 | 530,261 | 2,731,499 | 1,292,196 |
Depreciation and amortization | 378,518 | 262,387 | 1,023,390 | 835,388 |
Total expenses | 18,496,784 | 14,570,466 | 54,954,645 | 46,914,942 |
Income from operations before taxes | 6,117,869 | 5,257,931 | 12,031,453 | 10,270,217 |
Income tax expense | 2,043,948 | 1,797,305 | 3,976,560 | 3,426,298 |
Net income | 4,073,921 | 3,460,626 | 8,054,893 | 6,843,919 |
Other comprehensive income, net of tax | ||||
Gross change in unrealized gains | ||||
on available-for-sale-securities | 499,077 | 60,391 | 1,974,946 | 2,418,305 |
Reclassification adjustment for gains | ||||
included in net income | (20,998) | (241,035) | (96,915) | (604,903) |
Net change in unrealized gains (losses) | 478,079 | (180,644) | 1,878,031 | 1,813,402 |
Income tax (expense) benefit related to items | ||||
of other comprehensive income (loss) | (162,547) | 61,419 | (638,531) | (616,557) |
Other comprehensive income (loss), net of tax | 315,532 | (119,225) | 1,239,500 | 1,196,845 |
Comprehensive income | $4,389,453 | $3,341,401 | $9,294,393 | $8,040,764 |
Earnings per common share: | ||||
Basic | $0.38 | $0.44 | $0.78 | $0.89 |
Diluted | $0.38 | $0.43 | $0.77 | $0.89 |
Weighted average common shares outstanding | ||||
Basic | 10,626,242 | 7,911,353 | 10,307,689 | 7,676,887 |
Diluted | 10,832,739 | 7,972,925 | 10,500,272 | 7,729,712 |
Dividends declared and paid per common share | $0.0800 | $0.0625 | $0.2225 | $0.1875 |
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 Six Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
| |||||||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| |||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Net premiums earned |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
| |||||
Ceding commission revenue |
|
| 5,412,210 |
|
|
| 4,715,587 |
|
|
| 10,857,617 |
|
|
| 9,396,983 |
| |||||
Net investment income |
|
| 1,451,356 |
|
|
| 634,325 |
|
|
| 2,992,848 |
|
|
| 1,993,425 |
| |||||
Net gains (losses) on investments |
|
| 197,142 |
|
|
| (4,517,373 | ) |
|
| 1,422,013 |
|
|
| (8,915,778 | ) | |||||
Other income |
|
| 151,084 |
|
|
| 244,643 |
|
|
| 312,124 |
|
|
| 480,467 |
| |||||
Total revenues |
|
| 36,719,988 |
|
|
| 28,979,250 |
|
|
| 73,347,751 |
|
|
| 57,530,545 |
| |||||
|
|
|
|
|
|
|
|
|
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|
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|
|
| |||||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss and loss adjustment expenses |
|
| 19,580,702 |
|
|
| 18,656,041 |
|
|
| 44,620,112 |
|
|
| 41,597,239 |
| |||||
Commission expense |
|
| 8,471,182 |
|
|
| 8,481,031 |
|
|
| 17,010,944 |
|
|
| 16,832,117 |
| |||||
Other underwriting expenses |
|
| 6,683,638 |
|
|
| 6,624,997 |
|
|
| 13,555,257 |
|
|
| 13,440,946 |
| |||||
Other operating expenses |
|
| 763,414 |
|
|
| 665,815 |
|
|
| 1,426,048 |
|
|
| 1,547,770 |
| |||||
Depreciation and amortization |
|
| 778,502 |
|
|
| 877,263 |
|
|
| 1,586,632 |
|
|
| 1,647,373 |
| |||||
Interest expense |
|
| 1,005,974 |
|
|
| 456,545 |
|
|
| 2,015,865 |
|
|
| 913,090 |
| |||||
Total expenses |
|
| 37,283,412 |
|
|
| 35,761,692 |
|
|
| 80,214,858 |
|
|
| 75,978,535 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Loss from operations before taxes |
|
| (563,424 | ) |
|
| (6,782,442 | ) |
|
| (6,867,107 | ) |
|
| (18,447,990 | ) | |||||
Income tax benefit |
|
| (41,407 | ) |
|
| (1,402,823 | ) |
|
| (1,290,380 | ) |
|
| (3,870,839 | ) | |||||
Net loss |
|
| (522,017 | ) |
|
| (5,379,619 | ) |
|
| (5,576,727 | ) |
|
| (14,577,151 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Other comprehensive (loss) income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Gross change in unrealized (losses) gains on available-for-sale-securities |
|
| (1,132,528 | ) |
|
| (7,642,863 | ) |
|
| 1,334,898 |
|
|
| (17,508,640 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Reclassification adjustment for losses included in net loss |
|
| 10,381 |
|
|
| 10,356 |
|
|
| 13,020 |
|
|
| 51,680 |
| |||||
Net change in unrealized (losses) gains, on available-for-sale-securities |
|
| (1,122,147 | ) |
|
| (7,632,507 | ) |
|
| 1,347,918 |
|
|
| (17,456,960 | ) | |||||
Income tax benefit (expense) related to items of other comprehensive (loss) income |
|
| 235,651 |
|
|
| 1,602,827 |
|
|
| (283,062 | ) |
|
| 3,665,963 |
| |||||
Other comprehensive (loss) income, net of tax |
|
| (886,496 | ) |
|
| (6,029,680 | ) |
|
| 1,064,856 |
|
|
| (13,790,997 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Comprehensive loss |
| $ | (1,408,513 | ) |
| $ | (11,409,299 | ) |
| $ | (4,511,871 | ) |
| $ | (28,368,148 | ) | |||||
|
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| |||||
Loss per common share: |
|
|
|
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|
|
|
|
|
|
|
|
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| |||||
Basic |
| $ | (0.05 | ) |
| $ | (0.51 | ) |
| $ | (0.52 | ) |
| $ | (1.37 | ) | |||||
Diluted |
| $ | (0.05 | ) |
| $ | (0.51 | ) |
| $ | (0.52 | ) |
| $ | (1.37 | ) | |||||
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Weighted average common shares outstanding |
|
|
|
|
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|
|
|
|
|
|
|
| |||||
Basic |
|
| 10,755,848 |
|
|
| 10,644,578 |
|
|
| 10,753,974 |
|
|
| 10,637,553 |
| |||||
Diluted |
|
| 10,755,848 |
|
|
| 10,644,578 |
|
|
| 10,753,974 |
|
|
| 10,637,553 |
| |||||
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| |||||
Dividends declared and paid per common share |
| $ | - |
|
| $ | 0.04 |
|
| $ | - |
|
| $ | 0.08 |
|
See accompanying notes to condensed consolidated financial statements.
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||||
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) | ||||||||||
Nine months ended September 30, 2017 | ||||||||||
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, 2017 | - | $- | 8,896,335 | $88,963 | $37,950,401 | $72,931 | $20,563,720 | 974,469 | $(1,995,462) | $56,680,553 |
Proceeds from public offering, net of | ||||||||||
offering costs of $2,173,000 | - | - | 2,692,500 | 26,925 | 30,109,774 | - | - | - | - | 30,136,699 |
Stock-based compensation | - | - | - | - | 198,046 | - | - | - | - | 198,046 |
Vesting of restricted stock awards | - | - | 8,966 | 90 | (90) | - | - | - | - | - |
Shares deducted from restricted stock | ||||||||||
awards for payment of withholding taxes | (1,163) | (12) | (17,681) | (17,693) | ||||||
Exercise of stock options | - | - | 13,578 | 136 | 66,381 | - | - | - | - | 66,517 |
Acquisition of treasury stock | - | - | - | - | - | - | - | 12,340 | (176,837) | (176,837) |
Dividends | - | - | - | - | - | - | (2,363,993) | - | - | (2,363,993) |
Net income | - | - | - | - | - | - | 8,054,893 | - | - | 8,054,893 |
Change in unrealized gains on available- | ||||||||||
for-sale securities, net of tax | - | - | - | - | - | 1,239,500 | - | - | - | 1,239,500 |
Balance, September 30, 2017 | - | $- | 11,610,216 | $116,102 | $68,306,831 | $1,312,431 | $26,254,620 | 986,809 | $(2,172,299) | $93,817,685 |
5 |
Table of Contents |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | ||||||||||||||||||||||||||||||||||||||||
Three months ended June 30, 2023 and 2022 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Capital |
|
| Other |
|
|
|
|
|
|
|
|
| ||||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| in Excess |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||
Balance, April 1, 2022 |
|
| - |
|
| $ | - |
|
|
| 12,109,307 |
|
| $ | 121,093 |
|
| $ | 72,638,286 |
|
| $ | (5,964,578 | ) |
| $ | (2,767,126 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 58,460,194 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 486,029 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 486,029 |
|
Vesting of restricted stock awards |
|
| - |
|
|
| - |
|
|
| 12,149 |
|
|
| 121 |
|
|
| (121 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares deducted from restricted stock awards for payment of withholding taxes |
|
| - |
|
|
| - |
|
|
| (4,375 | ) |
|
| (43 | ) |
|
| (21,681 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (21,724 | ) |
Dividends |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (425,776 | ) |
|
| - |
|
|
| - |
|
|
| (425,776 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,379,619 | ) |
|
| - |
|
|
| - |
|
|
| (5,379,619 | ) |
Change in unrealized losses on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6,029,680 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (6,029,680 | ) |
Balance, June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| 12,117,081 |
|
| $ | 121,171 |
|
| $ | 73,102,513 |
|
| $ | (11,994,258 | ) |
| $ | (8,572,521 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 47,089,424 |
|
| ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Preferred Stock |
|
| Common Stock |
|
| in Excess |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
| ||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||
Balance, April 1, 2023 |
|
| - |
|
| $ | - |
|
|
| 12,231,965 |
|
| $ | 122,320 |
|
| $ | 74,734,915 |
|
| $ | (14,007,076 | ) |
| $ | (22,000,674 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 33,282,004 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 212,288 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 212,288 |
|
Vesting of restricted stock awards |
|
| - |
|
|
| - |
|
|
| (3,974 | ) |
|
| (41 | ) |
|
| 41 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares deducted from restricted stock awards for payment of withholding taxes |
|
| - |
|
|
| - |
|
|
| (429 | ) |
|
| (4 | ) |
|
| (559 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (563 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (522,017 | ) |
|
| - |
|
|
| - |
|
|
| (522,017 | ) |
Change in unrealized gains on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (886,496 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (886,496 | ) |
Balance, June 30, 2023 |
|
| - |
|
| $ | - |
|
|
| 12,227,562 |
|
| $ | 122,275 |
|
| $ | 74,946,685 |
|
| $ | (14,893,572 | ) |
| $ | (22,522,691 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 32,085,216 |
|
See accompanying notes to condensed consolidated financial statements.
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||
Condensed Consolidated Statements of Cash Flows (Unaudited) | ||
Nine months ended September 30, | 2017 | 2016 |
Cash flows from operating activities: | ||
Net income | $8,054,893 | $6,843,919 |
Adjustments to reconcile net income to net cash flows provided by operating activities: | ||
Net realized gains on sale of investments | (96,915) | (604,903) |
Depreciation and amortization | 1,023,390 | 835,388 |
Amortization of bond premium, net | 405,832 | 310,838 |
Stock-based compensation | 198,046 | 89,814 |
Deferred income tax expense (benefit) | 322,608 | (172,835) |
(Increase) decrease in operating assets: | ||
Premiums receivable, net | (1,745,402) | (894,774) |
Reinsurance receivables, net | 7,226,493 | 57,259 |
Deferred policy acquisition costs | (2,142,195) | (1,197,101) |
Other assets | (219,189) | (308,505) |
Increase (decrease) in operating liabilities: | ||
Loss and loss adjustment expense reserves | 554,078 | (74,177) |
Unearned premiums | 8,448,528 | 4,873,607 |
Advance premiums | 665,029 | 846,905 |
Reinsurance balances payable | (333,669) | 2,307,504 |
Deferred ceding commission revenue | (2,898,092) | 217,786 |
Accounts payable, accrued expenses and other liabilities | 1,426,188 | 343,707 |
Net cash flows provided by operating activities | 20,889,623 | 13,474,432 |
Cash flows from investing activities: | ||
Purchase - fixed-maturity securities available-for-sale | (38,612,403) | (33,295,669) |
Purchase - equity securities available-for-sale | (5,298,781) | (6,728,540) |
Redemption - fixed-maturity securities held-to-maturity | 200,000 | - |
Sale or maturity - fixed-maturity securities available-for-sale | 8,385,874 | 16,374,028 |
Sale - equity securities available-for-sale | 2,571,122 | 6,065,744 |
Acquisition of fixed assets | (1,944,342) | (521,533) |
Other investing activities | - | 250,448 |
Net cash flows used in investing activities | (34,698,530) | (17,855,522) |
Cash flows from financing activities: | ||
Net proceeds from issuance of common stock | 30,136,699 | 4,807,631 |
Proceeds from exercise of stock options | 66,517 | 12,725 |
Purchase of treasury stock | (176,837) | (113,267) |
Withholding taxes paid on vested retricted stock awards | (17,693) | - |
Dividends paid | (2,363,993) | (1,446,684) |
Net cash flows provided by financing activities | 27,644,693 | 3,260,405 |
Increase (decrease) in cash and cash equivalents | $13,835,786 | $(1,120,685) |
Cash and cash equivalents, beginning of period | 12,044,520 | 13,551,372 |
Cash and cash equivalents, end of period | $25,880,306 | $12,430,687 |
Supplemental disclosures of cash flow information: | ||
Cash paid for income taxes | $3,936,000 | $3,799,671 |
6 |
Table of Contents |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | ||||||||||||||||||||||||||||||||||||||||
Six months ended June 30, 2023 and 2022 | ||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
| Retained |
|
|
|
|
|
|
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Capital |
|
| Other |
|
| Earnings |
|
|
|
|
|
|
| |||||||||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| in Excess |
|
| Comprehensive |
|
| (Accumulated |
|
| Treasury Stock |
|
|
| ||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Income (Loss) |
|
| Deficit) |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||
Balance, January 1, 2022 |
|
| - |
|
| $ | - |
|
|
| 11,955,660 |
|
| $ | 119,557 |
|
| $ | 72,467,483 |
|
| $ | 1,796,739 |
|
| $ | 6,855,896 |
|
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 75,672,194 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,016,443 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,016,443 |
|
Vesting of restricted stock awards |
|
| - |
|
|
| - |
|
|
| 234,219 |
|
|
| 2,342 |
|
|
| (2,342 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares deducted from restricted stock awards for payment of withholding taxes |
|
| - |
|
|
| - |
|
|
| (72,798 | ) |
|
| (728 | ) |
|
| (379,071 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (379,799 | ) |
Dividends |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (851,266 | ) |
|
| - |
|
|
| - |
|
|
| (851,266 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (14,577,151 | ) |
|
| - |
|
|
| - |
|
|
| (14,577,151 | ) |
Change in unrealized losses on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (13,790,997 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (13,790,997 | ) |
Balance, June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| 12,117,081 |
|
| $ | 121,171 |
|
| $ | 73,102,513 |
|
| $ | (11,994,258 | ) |
| $ | (8,572,521 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 47,089,424 |
|
|
| |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Preferred Stock |
|
| Common Stock |
|
| in Excess |
|
| Comprehensive |
|
| Accumulated |
|
| Treasury Stock |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Loss |
|
| Deficit |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||
Balance, January 1, 2023 |
|
| - |
|
| $ | - |
|
|
| 12,171,512 |
|
| $ | 121,715 |
|
| $ | 74,519,590 |
|
| $ | (15,958,428 | ) |
| $ | (16,945,964 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 36,169,432 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 429,055 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 429,055 |
|
Vesting of restricted stock awards |
|
| - |
|
|
| - |
|
|
| 56,977 |
|
|
| 569 |
|
|
| (569 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares deducted from restricted stock awards for payment of withholding taxes |
|
| - |
|
|
| - |
|
|
| (927 | ) |
|
| (9 | ) |
|
| (1,391 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (1,400 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (5,576,727 | ) |
|
| - |
|
|
| - |
|
|
| (5,576,727 | ) |
Change in unrealized gains on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,064,856 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,064,856 |
|
Balance, June 30, 2023 |
|
| - |
|
| $ | - |
|
|
| 12,227,562 |
|
| $ | 122,275 |
|
| $ | 74,946,685 |
|
| $ | (14,893,572 | ) |
| $ | (22,522,691 | ) |
|
| 1,471,406 |
|
| $ | (5,567,481 | ) |
| $ | 32,085,216 |
|
See accompanying notes to condensed consolidated financial statements.
7 |
Table of Contents |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||
|
|
|
|
| ||||
Condensed Consolidated Statements of Cash Flows (Unaudited) |
|
|
|
| ||||
Six Months ended June 30, |
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (5,576,727 | ) |
| $ | (14,577,151 | ) |
Adjustments to reconcile net loss to net cash flows used in operating activities: |
|
|
|
|
|
|
|
|
Net losses on investments |
|
| 13,020 |
|
|
| 210,900 |
|
Net unrealized (gains) losses on equity investments |
|
| (657,145 | ) |
|
| 6,417,045 |
|
Net unrealized (gains) losses on other investments |
|
| (777,888 | ) |
|
| 2,287,833 |
|
Depreciation and amortization |
|
| 1,586,632 |
|
|
| 1,647,373 |
|
Bad debt expense |
|
| 38,400 |
|
|
| 42,226 |
|
Amortization of bond premium, net |
|
| (51,548 | ) |
|
| 248,650 |
|
Amortization of discount and issuance costs on debt |
|
| 593,839 |
|
|
| 88,090 |
|
Stock-based compensation |
|
| 429,055 |
|
|
| 1,016,443 |
|
Deferred income tax benefit |
|
| (1,290,380 | ) |
|
| (3,485,876 | ) |
Decrease (increase) in operating assets: |
|
|
|
|
|
|
|
|
Premiums receivable, net |
|
| 1,269,270 |
|
|
| 281,845 |
|
Reinsurance receivables, net |
|
| (10,114,427 | ) |
|
| (14,359,733 | ) |
Deferred policy acquisition costs |
|
| 2,379,295 |
|
|
| 213,049 |
|
Other assets |
|
| 91,182 |
|
|
| 2,437,007 |
|
Increase (decrease) in operating liabilities: |
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves |
|
| (777,903 | ) |
|
| 3,954,315 |
|
Unearned premiums |
|
| (5,577,882 | ) |
|
| 393,352 |
|
Advance premiums |
|
| 3,672,153 |
|
|
| 3,079,978 |
|
Reinsurance balances payable |
|
| 622,629 |
|
|
| (2,084,455 | ) |
Deferred ceding commission revenue |
|
| (929,409 | ) |
|
| 10,832 |
|
Accounts payable, accrued expenses and other liabilities |
|
| (1,952,161 | ) |
|
| (1,538,353 | ) |
Net cash flows used in operating activities |
|
| (17,009,995 | ) |
|
| (13,716,630 | ) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase - fixed-maturity securities held-to-maturity |
|
| - |
|
|
| (498,711 | ) |
Purchase - fixed-maturity securities available-for-sale |
|
| (13,167,937 | ) |
|
| (14,386,410 | ) |
Purchase - equity securities |
|
| - |
|
|
| (589,317 | ) |
Redemption - fixed-maturity securities held-to-maturity |
|
| 500,000 |
|
|
| 1,000,000 |
|
Sale and maturity - fixed-maturity securities available-for-sale |
|
| 31,375,538 |
|
|
| 13,228,270 |
|
Sale - equity securities |
|
| 81,054 |
|
|
| 7,644,267 |
|
Acquisition of property and equipment |
|
| (898,528 | ) |
|
| (2,540,874 | ) |
Net cash flows provided by investing activities |
|
| 17,890,127 |
|
|
| 3,857,225 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Principal payments on equipment financing |
|
| (536,237 | ) |
|
| - |
|
Issue costs on 2022 Notes |
|
| (14,299 | ) |
|
| - |
|
Withholding taxes paid on vested restricted stock awards |
|
| (1,400 | ) |
|
| (379,799 | ) |
Dividends paid |
|
| - |
|
|
| (851,266 | ) |
Net cash flows used in financing activities |
|
| (551,936 | ) |
|
| (1,231,065 | ) |
See accompanying notes to condensed consolidated financial statements.
8 |
Table of Contents |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||
|
|
|
|
| ||||
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued) |
|
|
|
| ||||
Six Months ended June 30, |
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Increase (decrease) in cash and cash equivalents |
| $ | 328,196 |
|
| $ | (11,090,470 | ) |
Cash and cash equivalents, beginning of period |
|
| 11,958,228 |
|
|
| 24,290,598 |
|
Cash and cash equivalents, end of period |
| $ | 12,286,424 |
|
| $ | 13,200,128 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | - |
|
| $ | - |
|
Cash paid for interest |
| $ | 1,730,905 |
|
| $ | 825,000 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
| $ | 1,064,856 |
|
| $ | (13,790,997 | ) |
See accompanying notes to condensed consolidated financial statements.
9 |
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” or, on a standalone basis for the parent company only, the “Holding Company”), through its wholly ownedwholly-owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance to small businesses and individuals exclusively through independentretail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Connecticut, Pennsylvania, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and Texas.New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Pennsylvania. AlthoughConnecticut. For the three months ended June 30, 2023 and 2022, 88.6% and 79.8%, respectively, of KICO’s direct written premiums came from the New Jersey is nowYork policies. For the six months ended June 30, 2023 and 2022, 87.8% and 80.2%, respectively, of KICO’s direct written premiums came from the New York policies. Kingstone, through its wholly owned subsidiary, Cosi Agency, Inc. (“Cosi”), a growing expansion marketmulti-state licensed general agency, receives commission revenue from KICO for the Company, the majority of KICO’s business is written in the State of New York. In October 2017, a homeowners rate, rule,policies it places with others and form filing was approved for use by the State of Rhode Island. KICO anticipates writing business there in the fourth quarter of 2017.
The accompanying unaudited condensed consolidated financial statements included in this report have been prepared in accordance with U.S. generally accepted accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8-03 of SEC Regulation S-X.. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principlesGAAP 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, 20162022 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SECSecurities and Exchange Commission (the “SEC”) on March 16, 2017.31, 2023. 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 statementpresentation of the Company’s financial position and results of operations. The results of operations for the ninesix months ended SeptemberJune 30, 20172023 may not be indicative of the results that may be expected for the year ending December 31, 2017.
Certain prior year balances were reclassified to conform with the current year presentation. The reclassification had no effect on the Company’s previously reported financial condition, results of operations or cash flows.
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. SuchActual results could differ from these estimates and assumptions, which include the reserves for losses and loss adjustment expenses,LAE, which are subject to considerable estimation errorerrors due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of severalmany years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require considerable judgmentjudgments by management. On an on-goingongoing basis, management reevaluates its assumptions and the methods offor calculating itsthese estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the condensed consolidated financial statements.
10 |
Table of Contents |
Principles of Consolidation
The condensed consolidated financial statements consistinclude the accounts of Kingstone and its wholly ownedwholly-owned subsidiaries: (1) KICO and its wholly ownedwholly-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.operates, and (2) Cosi. All significant inter-company account balances and transactions have been eliminated in consolidation.
Recent Accounting Changes
In May 2015,June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-09, Financial Services – Insurance (Topic 944): Disclosures About Short-Duration Contracts. The updated accounting guidance requires expanded disclosures for insurance entities that issue short-duration contracts. The expanded disclosures are designed to provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with insurance claims. The disclosures include information about incurred and paid claims development by accident year, on a net basis after reinsurance, for the number of years claims incurred that typically remain outstanding, not to exceed ten years. Each period presented in the disclosure about claims development that precedes the current reporting period is considered required supplementary information. The expanded disclosures also include information about significant changes in methodologies and assumptions, a reconciliation of incurred and paid claims development to the carrying amount of the liability for unpaid claims and claim adjustment expenses, the total amount of incurred but not reported liabilities plus expected development, claims frequency information including the methodology used to determine claim frequency and any changes to that methodology, and claim duration. The guidance became effective for annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2016, and has been applied retrospectively. The new guidance affected disclosures only and had no impact on the Company’s results of operations or financial position.
The allowance for credit losses is a valuation account that is reported as a reduction of a financial asset’s cost basis and is measured on a pool basis when similar risk characteristics exist. Management estimates the allowance using relevant available information from both internal and external sources. Historical credit loss experience provides the basis for the estimation of expected credit losses for financial assets held at the reporting date based on historical experience,and adjustments may be made to reflect current conditions and reasonable and supportable forecasts and requires enhanced disclosures relatedforecasts. Adjustments to historical loss information are made for any additional factors that come to the Company’s attention. This could include significant estimatesshifts in counterparty financial strength ratings, aging of past due receivables, amounts sent to collection agencies, or other underlying portfolio changes. Amounts are considered past due when payments have not been received according to contractual terms. The Company also considers current and judgments used in estimatingforecasted economic conditions, using a variety of economic metrics and forecast indices. The sensitivity of expected credit losses relative to changes to these forecasted economic conditions can vary by financial asset class. The Company considers a reasonable and supportable forecast period to be up to 24 months from the balance sheet date. After the forecast period, the Company reverts to historical credit experience. The Company uses collateral arrangements such as well asletters of credit and amounts held in beneficiary trusts to mitigate credit risk, which are considered in the credit qualityestimate of net amount expected to be collected.
The Company has made a policy election to present accrued interest balances separately from the amortized cost basis of assets and underwriting standards ofhas elected the practical expedient to exclude the accrued interest from the tabular disclosures for available-for-sale and held-to-maturity securities. The Company has elected not to estimate an organization’s portfolio. In addition, ASU 2016-13 amends the accountingallowance for credit losses on accrued interest receivable. The accrual of available-for-sale debt securitiesinterest income is discontinued and purchased financialthe asset is placed on nonaccrual status in the quarter that payment becomes delinquent. Interest accrued but not received for assets with credit deterioration. ASU 2016-13 will be effective on January 1, 2020.nonaccrual status is reversed through investment income. Interest received for assets that are on nonaccrual status is recognized as payment is received. The Companyasset is currently evaluatingreturned to accrual status when the effectprincipal and interest amounts contractually due are brought current and future payments are expected. Interest receivable is presented as a component of other assets on the updated guidance will have on itscondensed consolidated balance sheet.
11 |
Table of Contents |
See Note 3 and Note 6 to the 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.
Note 3 - Investments
Fixed-Maturity Securities
The amortized cost, andestimated fair value, ofand gross unrealized gains and losses on investments in available-for-sale fixed-maturity securities and equity securitiesclassified as available-for-sale for which an allowance for credit loss has not been recorded, as of
September 30, 2017 | ||||||
Net | ||||||
Cost or | Gross | Gross Unrealized Losses | Unrealized | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Gains/ | |
Category | Cost | Gains | Months | Months | Value | (Losses) |
Fixed-Maturity Securities: | ||||||
Political subdivisions of States, | ||||||
Territories and Possessions | $11,428,403 | $286,360 | $(21,223) | $- | $11,693,540 | $265,137 |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 77,734,988 | 1,416,060 | (204,904) | (109,623) | 78,836,521 | 1,101,533 |
Residential mortgage and other | ||||||
asset backed securities (1) | 21,152,407 | 291,172 | (120,346) | (63,542) | 21,259,691 | 107,284 |
Total fixed-maturity securities | 110,315,798 | 1,993,592 | (346,473) | (173,165) | 111,789,752 | 1,473,954 |
Equity Securities: | ||||||
Preferred stocks | 6,056,783 | 59,374 | (26,360) | (107,477) | 5,982,320 | (74,463) |
Common stocks and exchange | ||||||
traded mutual funds | 6,649,755 | 725,638 | (77,429) | (59,168) | 7,238,796 | 589,041 |
Total equity securities | 12,706,538 | 785,012 | (103,789) | (166,645) | 13,221,116 | 514,578 |
Total | $123,022,336 | $2,778,604 | $(450,262) | $(339,810) | $125,010,868 | $1,988,532 |
December 31, 2016 | ||||||
Net | ||||||
Cost or | Gross | Gross Unrealized Losses | Unrealized | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Gains/ | |
Category | Cost | Gains | Months | Months | Value | (Losses) |
Fixed-Maturity Securities: | ||||||
Political subdivisions of States, | ||||||
Territories and Possessions | $8,053,449 | $199,028 | $(46,589) | $- | $8,205,888 | $152,439 |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 53,728,395 | 600,519 | (638,113) | (5,612) | 53,685,189 | (43,206) |
Residential mortgage backed | ||||||
securities | 18,814,784 | 70,682 | (309,273) | (38,442) | 18,537,751 | (277,033) |
Total fixed-maturity securities | 80,596,628 | 870,229 | (993,975) | (44,054) | 80,428,828 | (167,800) |
Equity Securities: | ||||||
Preferred stocks | 5,986,588 | 10,317 | (241,333) | (70,571) | 5,685,001 | (301,587) |
Common stocks and | ||||||
exchange traded mutual funds | 3,722,797 | 691,324 | (13,968) | (97,468) | 4,302,685 | 579,888 |
Total equity securities | 9,709,385 | 701,641 | (255,301) | (168,039) | 9,987,686 | 278,301 |
Total | $90,306,013 | $1,571,870 | $(1,249,276) | $(212,093) | $90,416,514 | $110,501 |
|
| June 30, 2023 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| Net |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Unrealized |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| Losses |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Fixed-Maturity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies (1) |
| $ | 8,192,900 |
|
| $ | 67 |
|
| $ | (59,420 | ) |
| $ | - |
|
| $ | 8,133,547 |
|
| $ | 59,353 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Political subdivisions of States, Territories and Possessions |
|
| 17,089,668 |
|
|
| - |
|
|
| (2,652 | ) |
|
| (3,489,849 | ) |
|
| 13,597,167 |
|
|
| (3,492,501 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 79,190,654 |
|
|
| - |
|
|
| (270,230 | ) |
|
| (7,511,387 | ) |
|
| 71,409,037 |
|
|
| (7,781,617 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities (2) |
|
| 52,237,241 |
|
|
| 72,673 |
|
|
| (1,621 | ) |
|
| (7,592,927 | ) |
|
| 44,715,366 |
|
|
| (7,521,875 | ) |
Total fixed-maturity securities |
| $ | 156,710,463 |
|
| $ | 72,740 |
|
| $ | (333,923 | ) |
| $ | (18,594,163 | ) |
| $ | 137,855,117 |
|
| $ | (18,855,346 | ) |
|
| December 31, 2022 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| Net |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Unrealized |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| Losses |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Fixed-Maturity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies (1) |
| $ | 23,874,545 |
|
| $ | 1,479 |
|
| $ | (6,928 | ) |
| $ | - |
|
| $ | 23,869,096 |
|
| $ | (5,449 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 17,108,154 |
|
|
| - |
|
|
| (2,195,273 | ) |
|
| 1,771,494 | ) |
|
| 13,141,387 |
|
|
| (3,966,767 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 80,338,464 |
|
|
| - |
|
|
| (5,796,994 | ) |
|
| (2,458,985 | ) |
|
| 72,082,485 |
|
|
| (8,255,979 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities (2) |
|
| 53,597,264 |
|
|
| 58,398 |
|
|
| (882,664 | ) |
|
| (7,150,803 | ) |
|
| 45,622,195 |
|
|
| (7,975,069 | ) |
Total fixed-maturity securities |
| $ | 174,918,427 |
|
| $ | 59,877 |
|
| $ | (8,881,859 | ) |
| $ | (11,381,282 | ) |
| $ | 154,715,163 |
|
| $ | (20,203,264 | ) |
(1) | In October 2022, KICO placed certain U.S. Treasury securities to fulfill the required collateral for a sale leaseback transaction in a designated custodian account (see Note 7 – Debt - “Equipment Financing”). As of June 30, 2023 and December 31, 2022, the amount of required collateral was approximately $7,986,000 and $8,691,000, respectively. As of June 30, 2023 and December 31, 2022, the estimated fair value of the eligible collateral was approximately $8,134,000 and $8,691,000, respectively. | |
(2) | KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7 – Debt – “Federal Home Loan Bank”). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of June 30, 2023 and December 31, 2022, the estimated fair value of the eligible investments was approximately $11,799,000 and $12,199,000, respectively. KICO will retain all rights regarding all securities if pledged as collateral. As of June 30, 2023 and December 31, 2022 there was no outstanding balance on the FHLBNY credit line. |
A summary of the amortized cost and estimated fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of
September 30, 2017 | December 31, 2016 | |||
Amortized | Amortized | |||
Remaining Time to Maturity | Cost | Fair Value | Cost | Fair Value |
Less than one year | $2,366,279 | $2,376,210 | $1,752,501 | $1,765,795 |
One to five years | 31,925,436 | 32,558,980 | 29,541,568 | 29,913,308 |
Five to ten years | 52,234,361 | 52,888,971 | 30,487,775 | 30,211,974 |
More than 10 years | 2,637,315 | 2,705,900 | - | - |
Residential mortgage and other asset backed securities | 21,152,407 | 21,259,691 | 18,814,784 | 18,537,751 |
Total | $110,315,798 | $111,789,752 | $80,596,628 | $80,428,828 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
Remaining Time to Maturity |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Less than one year |
| $ | 8,423,779 |
|
| $ | 8,326,751 |
|
| $ | 16,359,100 |
|
| $ | 16,307,991 |
|
One to five years |
|
| 47,874,105 |
|
|
| 45,362,923 |
|
|
| 18,605,987 |
|
|
| 14,085,113 |
|
Five to ten years |
|
| 31,220,830 |
|
|
| 26,281,376 |
|
|
| 54,559,158 |
|
|
| 52,230,283 |
|
More than 10 years |
|
| 16,954,508 |
|
|
| 13,168,701 |
|
|
| 31,796,918 |
|
|
| 26,469,581 |
|
Residential mortgage and other asset backed securities |
|
| 52,237,241 |
|
|
| 44,715,366 |
|
|
| 53,597,264 |
|
|
| 45,622,195 |
|
Total |
| $ | 156,710,463 |
|
| $ | 137,855,117 |
|
| $ | 174,918,427 |
|
| $ | 154,715,163 |
|
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.
12 |
Table of Contents |
Equity Securities
The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of June 30, 2023 and December 31, 2022 are as follows:
|
| June 30, 2023 |
| |||||||||||||
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| |||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
|
|
|
|
|
| ||||||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stocks |
| $ | 13,583,942 |
|
| $ | - |
|
| $ | (3,122,556 | ) |
| $ | 10,461,386 |
|
Common stocks, mutual funds, and exchange traded funds |
|
| 4,402,841 |
|
|
| 268,887 |
|
|
| (722,632 | ) |
|
| 3,949,096 |
|
Total |
| $ | 17,986,783 |
|
| $ | 268,887 |
|
| $ | (3,845,188 | ) |
| $ | 14,410,482 |
|
|
| December 31, 2022 |
| |||||||||||||
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
| |||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
|
|
|
|
|
|
| ||||||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred stocks |
| $ | 13,583,942 |
|
| $ | - |
|
| $ | (3,589,313 | ) |
| $ | 9,994,629 |
|
Common stocks, mutual funds, and exchange traded funds |
|
| 4,502,758 |
|
|
| 158,635 |
|
|
| (821,632 | ) |
|
| 3,839,761 |
|
Total |
| $ | 18,086,700 |
|
| $ | 158,635 |
|
| $ | (4,410,945 | ) |
| $ | 13,834,390 |
|
Other Investments
The cost and estimated fair value of, and gross gains on, the Company’s other investments as of June 30, 2023 and December 31, 2022 are as follows:
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
|
|
|
| Gross |
|
| Estimated |
|
|
|
| Gross |
|
| Estimated |
| ||||||||
Category |
| Cost |
|
| Gains |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Fair Value |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Hedge fund |
| $ | 1,987,040 |
|
| $ | 1,562,500 |
|
| $ | 3,549,540 |
|
| $ | 1,987,040 |
|
| $ | 784,612 |
|
| $ | 2,771,652 |
|
13 |
Table of Contents |
Held-to-Maturity Securities
The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses on, investments in held-to-maturity fixed-maturity securities as of
September 30, 2017 | ||||||
Cost or | Gross | Gross Unrealized Losses | Net | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Unrealized | |
Category | Cost | Gains | Months | Months | Value | Gains |
U.S. Treasury securities | $606,456 | $147,583 | $- | $- | $754,039 | $147,583 |
Political subdivisions of States, | ||||||
Territories and Possessions | 1,099,032 | 68,375 | - | - | 1,167,407 | 68,375 |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 3,140,861 | 124,122 | (5,270) | - | 3,259,713 | 118,852 |
Total | $4,846,349 | $340,080 | $(5,270) | $- | $5,181,159 | $334,810 |
December 31, 2016 | ||||||
Cost or | Gross | Gross Unrealized Losses | Net | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Unrealized | |
Category | Cost | Gains | Months | Months | Value | Gains |
U.S. Treasury securities | $606,427 | $147,612 | $- | $- | $754,039 | $147,612 |
Political subdivisions of States, | ||||||
Territories and Possessions | 1,349,916 | 37,321 | - | - | 1,387,237 | 37,321 |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 3,138,559 | 72,784 | (7,619) | (46,881) | 3,156,843 | 18,284 |
Total | $5,094,902 | $257,717 | $(7,619) | $(46,881) | $5,298,119 | $203,217 |
|
| June 30, 2023 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| Net |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Unrealized |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| Losses |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Held-to-Maturity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities |
| $ | 1,228,708 |
|
| $ | 27,347 |
|
| $ | (36,008 | ) |
| $ | - |
|
| $ | 1,220,047 |
|
| $ | (8,661 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 498,902 |
|
|
| - |
|
|
| (142 | ) |
|
| - |
|
|
| 498,760 |
|
|
| (142 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange traded debt |
|
| 304,111 |
|
|
| - |
|
|
| (62,411 | ) |
|
| - |
|
|
| 241,700 |
|
|
| (62,411 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 5,273,310 |
|
|
| - |
|
|
| (4,554 | ) |
|
| (963,148 | ) |
|
| 4,305,608 |
|
|
| (967,702 | ) |
Total |
| $ | 7,305,031 |
|
| $ | 27,347 |
|
| $ | (103,115 | ) |
| $ | (963,148 | ) |
| $ | 6,266,115 |
|
| $ | (1,038,916 | ) |
|
| December 31, 2022 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| Unrealized |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Gains/ |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| (Losses) |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
Held-to-Maturity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities |
| $ | 1,228,560 |
|
| $ | 28,400 |
|
| $ | (34,077 | ) |
| $ | - |
|
| $ | 1,222,883 |
|
| $ | (5,677 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 498,638 |
|
|
| 2,092 |
|
|
| - |
|
|
| - |
|
|
| 500,730 |
|
|
| 2,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange traded debt |
|
| 304,111 |
|
|
| - |
|
|
| (29,111 | ) |
|
| - |
|
|
| 275,000 |
|
|
| (29,111 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 5,734,831 |
|
|
| 36,968 |
|
|
| (809,746 | ) |
|
| (360,278 | ) |
|
| 4,601,775 |
|
|
| (1,133,056 | ) |
Total |
| $ | 7,766,140 |
|
| $ | 67,460 |
|
| $ | (872,934 | ) |
| $ | (360,278 | ) |
| $ | 6,600,388 |
|
| $ | (1,165,752 | ) |
Held-to-maturity U.S. Treasury securities are held in trust pursuant to the New York State Department of Financial Services’various states’ minimum funds requirement.
14 |
Table of Contents |
A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of SeptemberJune 30, 20172023 and December 31, 20162022 is shown below:
September 30, 2017 | December 31, 2016 | |||
Amortized | Amortized | |||
Remaining Time to Maturity | Cost | Fair Value | Cost | Fair Value |
Less than one year | $- | $- | $- | $- |
One to five years | 1,745,332 | 1,806,484 | 650,000 | 642,455 |
Five to ten years | 2,494,561 | 2,620,636 | 3,838,475 | 3,901,625 |
More than 10 years | 606,456 | 754,039 | 606,427 | 754,039 |
Total | $4,846,349 | $5,181,159 | $5,094,902 | $5,298,119 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
Remaining Time to Maturity |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Less than one year |
| $ | 249,927 |
|
| $ | 249,473 |
|
| $ | 708,535 |
|
| $ | 743,575 |
|
One to five years |
|
| 1,120,894 |
|
|
| 1,084,744 |
|
|
| 1,120,507 |
|
|
| 1,088,522 |
|
Five to ten years |
|
| 1,408,731 |
|
|
| 1,210,185 |
|
|
| 1,402,704 |
|
|
| 1,200,720 |
|
More than 10 years |
|
| 4,525,479 |
|
|
| 3,721,713 |
|
|
| 4,534,394 |
|
|
| 3,567,571 |
|
Total |
| $ | 7,305,031 |
|
| $ | 6,266,115 |
|
| $ | 7,766,140 |
|
| $ | 6,600,388 |
|
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.
Investment Income
Major categories of the Company’s net investment income are summarized as follows:
Three months ended | Nine months ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Income: | ||||
Fixed-maturity securities | $926,170 | $602,337 | $2,607,166 | $1,952,589 |
Equity securities | 143,826 | 135,809 | 408,812 | 416,412 |
Cash and cash equivalents | 5,772 | 5,674 | 14,446 | 14,852 |
Total | 1,075,768 | 743,820 | 3,030,424 | 2,383,853 |
Expenses: | ||||
Investment expenses | 42,461 | 34,748 | 113,313 | 97,654 |
Net investment income | $1,033,307 | $709,072 | $2,917,111 | $2,286,199 |
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Fixed-maturity securities |
| $ | 1,319,511 |
|
| $ | 457,941 |
|
| $ | 2,737,220 |
|
| $ | 1,598,130 |
|
Equity securities |
|
| 176,893 |
|
|
| 279,562 |
|
|
| 353,770 |
|
|
| 624,730 |
|
Cash and cash equivalents |
|
| 39,394 |
|
|
| 2,983 |
|
|
| 72,252 |
|
|
| 3,166 |
|
Total |
|
| 1,535,798 |
|
|
| 740,486 |
|
|
| 3,163,242 |
|
|
| 2,226,026 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment expenses |
|
| 84,442 |
|
|
| 106,161 |
|
|
| 170,394 |
|
|
| 232,601 |
|
Net investment income |
| $ | 1,451,356 |
|
| $ | 634,325 |
|
| $ | 2,992,848 |
|
| $ | 1,993,425 |
|
Proceeds from the redemption of fixed-maturity securities held-to-maturity were $200,000$500,000 and $-0-$1,000,000 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
Proceeds from the sale andor maturity of fixed-maturity securities available-for-sale were $8,385,874$31,375,538 and $16,347,028$22,276,142 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
Proceeds from the sale of equity securities available-for-sale were $2,571,122$81,054 and $6,065,744$7,644,267 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
15 |
Table of Contents |
The Company’s net realized gains (losses) on investments are summarized as follows:
Three months ended | Nine months ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Fixed-maturity securities: | ||||
Gross realized gains | $5,542 | $21,173 | $67,260 | $333,066 |
Gross realized losses (1) | (56,783) | (51,085) | (167,340) | (222,056) |
(51,241) | (29,912) | (100,080) | 111,010 | |
Equity securities: | ||||
Gross realized gains | 229,792 | 270,947 | 386,057 | 586,564 |
Gross realized losses | (107,553) | - | (139,062) | (22,760) |
122,239 | 270,947 | 246,995 | 563,804 | |
Other-than-temporary impairment losses: | ||||
Fixed-maturity securities | (50,000) | - | (50,000) | (69,911) |
Net realized gains | $20,998 | $241,035 | $96,915 | $604,903 |
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Realized Gains (Losses) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Fixed-maturity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Gross realized gains |
| $ | 526 |
|
| $ | 17,311 |
|
| $ | 944 |
|
| $ | 102,411 |
|
Gross realized losses |
|
| (10,907 | ) |
|
| (27,667 | ) |
|
| (13,964 | ) |
|
| (154,091 | ) |
|
|
| (10,381 | ) |
|
| (10,356 | ) |
|
| (13,020 | ) |
|
| (51,680 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
| - |
|
|
| 29,047 |
|
|
| - |
|
|
| 477,353 |
|
Gross realized losses |
|
| - |
|
|
| (307,352 | ) |
|
| - |
|
|
| (636,573 | ) |
|
|
| - |
|
|
| (278,305 | ) |
|
| - |
|
|
| (159,220 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized gains |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Gross realized losses |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized losses |
|
| (10,381 | ) |
|
| (288,661 | ) |
|
| (13,020 | ) |
|
| (210,900 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains (Losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains |
|
| - |
|
|
| - |
|
|
| 657,145 |
|
|
| - |
|
Gross losses |
|
| (206,568 | ) |
|
| (2,856,411 | ) |
|
| - |
|
|
| (6,417,045 | ) |
|
|
| (206,568 | ) |
|
| (2,856,411 | ) |
|
| 657,145 |
|
|
| (6,417,045 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross gains |
|
| 414,091 |
|
|
| - |
|
|
| 777,888 |
|
|
| - |
|
Gross losses |
|
| - |
|
|
| (1,372,301 | ) |
|
| - |
|
|
| (2,287,833 | ) |
|
|
| 414,091 |
|
|
| 1,372,301 | ) |
|
| 777,888 |
|
|
| (2,287,833 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses) |
|
| 207,523 |
|
|
| (4,228,712 | ) |
|
| 1,435,033 |
|
|
| (8,704,878 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) on investments |
| $ | 197,142 |
|
| $ | (4,517,373 | ) |
| $ | 1,422,013 |
|
| $ | (8,915,778 | ) |
Allowance for Credit Loss
For available-for-sale fixed maturity securities, a credit loss exists if the nine months ended September 30, 2017 include $747present value of loss from the redemption of fixed-maturity securities held-to-maturity.
At SeptemberJune 30, 20172023 and December 31, 2016,2022, there were 67146 and 85155 fixed-maturity securities, respectively, that accounted for the gross unrealized loss. As of September 30, 2017, the Company’s held-to-maturity debt securities included an investment in one bond issued by the Commonwealth of Puerto Rico (“PR”). In July 2016, PR defaulted on its interest payment to bondholders. Due to the credit deterioration of PR, the Company recorded its first credit loss component of OTTI on this investment as of June 30, 2016. As of December 31, 2016, the full amount of the write-down was recognized as a credit component of OTTI in the amount of $69,911. In September 2017, Hurricane Maria significantly affected Puerto Rico. The impact of this event further contributed to the credit deterioration of PR and, as a result, the Company recorded an additional credit loss component of OTTI on this investment for the amount of $50,000 during the three months ended September 30, 2017. The total of the two OTTI write-downs of this investment as of September 30, 2017 was $119,911.losses. The Company determined that none of the other unrealized losses were deemed to be OTTIcredit losses for its portfolio of fixed-maturity investments and equity securities for the ninesix months ended SeptemberJune 30, 20172023 and 2016.2022. Significant factors influencing the Company’s determination that unrealized losses were temporary included credit quality considerations, the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and interest rate environment factors, and management’s intent and ability to retainhold the investment for a period of time sufficient to allow for an anticipated recovery of estimated fair value to the Company’s cost basis.
16 |
Table of Contents |
The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at SeptemberJune 30, 2017 and2023 as follows:
|
| June 30, 2023 |
| |||||||||||||||||||||||||||||
|
| 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 |
| $ | 5,927,580 |
|
| $ | (59,420 | ) |
|
| 1 |
|
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | 5,927,580 |
|
| $ | (59,420 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 148,703 |
|
|
| (2,652 | ) |
|
| 1 |
|
|
| 13,448,464 |
|
|
| 3,489,849 | ) |
|
| 13 |
|
|
| 13,597,167 |
|
|
| (3,492,501 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds industrial and miscellaneous |
|
| 6,860,908 |
|
|
| (270,230 | ) |
|
| 12 |
|
|
| 64,548,129 |
|
|
| (7,511,387 | ) |
|
| 77 |
|
|
| 71,409,037 |
|
|
| (7,781,617 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage and other asset backed securities |
|
| 101,701 |
|
|
| (1,621 | ) |
|
| 4 |
|
|
| 41,865,274 |
|
|
| (7,592,927 | ) |
|
| 38 |
|
|
| 41,966,975 |
|
|
| (7,594,548 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities |
| $ | 13,038,892 |
|
| $ | (333,923 | ) |
|
| 18 |
|
| $ | 119,861,867 |
|
| $ | (18,594,163 | ) |
|
| 128 |
|
| $ | 132,900,759 |
|
| $ | (18,928,086 | ) |
17 |
Table of Contents |
The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 20162022 as follows:
September 30, 2017 | ||||||||
Less than 12 months | 12 months or more | Total | ||||||
No. of | No. of | Aggregate | ||||||
Fair | Unrealized | Positions | Fair | Unrealized | Positions | Fair | Unrealized | |
Category | Value | Losses | Held | Value | Losses | Held | Value | Losses |
Fixed-Maturity Securities: | ||||||||
Political subdivisions of | ||||||||
States, Territories and | ||||||||
Possessions | $2,183,221 | $(21,223) | 4 | $- | $- | - | $2,183,221 | $(21,223) |
Corporate and other | ||||||||
bonds industrial and | ||||||||
miscellaneous | 11,306,993 | (204,904) | 20 | 4,967,629 | (109,623) | 9 | 16,274,622 | (314,527) |
Residential mortgage and other | ||||||||
asset backed securities | 13,999,289 | (120,346) | 16 | 1,241,754 | (63,542) | 5 | 15,241,043 | (183,888) |
Total fixed-maturity | ||||||||
securities | $27,489,503 | $(346,473) | 40 | $6,209,383 | $(173,165) | 14 | $33,698,886 | $(519,638) |
Equity Securities: | ||||||||
Preferred stocks | $1,738,380 | $(26,360) | 6 | $1,786,150 | $(107,477) | 3 | $3,524,530 | $(133,837) |
Common stocks and | ||||||||
exchange traded mutual funds | 1,612,300 | (77,429) | 3 | 299,250 | (59,168) | 1 | 1,911,550 | (136,597) |
Total equity securities | $3,350,680 | $(103,789) | 9 | $2,085,400 | $(166,645) | 4 | $5,436,080 | $(270,434) |
Total | $30,840,183 | $(450,262) | 49 | $8,294,783 | $(339,810) | 18 | $39,134,966 | $(790,072) |
December 31, 2016 | ||||||||
Less than 12 months | 12 months or more | Total | ||||||
No. of | No. of | Aggregate | ||||||
Fair | Unrealized | Positions | Fair | Unrealized | Positions | Fair | Unrealized | |
Category | Value | Losses | Held | Value | Losses | Held | Value | Losses |
Fixed-Maturity Securities: | ||||||||
Political subdivisions of | ||||||||
States, Territories and | ||||||||
Possessions | $1,067,574 | $(46,589) | 3 | $- | $- | - | $1,067,574 | $(46,589) |
Corporate and other | ||||||||
bonds industrial and | ||||||||
miscellaneous | 19,859,293 | (638,113) | 34 | 239,970 | (5,612) | 1 | 20,099,263 | (643,725) |
Residential mortgage | ||||||||
backed securities | 15,918,090 | (309,273) | 30 | 675,316 | (38,442) | 6 | 16,593,406 | (347,715) |
Total fixed-maturity | ||||||||
securities | $36,844,957 | $(993,975) | 67 | $915,286 | $(44,054) | 7 | $37,760,243 | $(1,038,029) |
Equity Securities: | ||||||||
Preferred stocks | $3,759,850 | $(241,333) | 8 | $660,750 | $(70,571) | 1 | $4,420,600 | $(311,904) |
Common stocks and | ||||||||
exchange traded mutual funds | 288,075 | (13,968) | 1 | 424,550 | (97,468) | 1 | 712,625 | (111,436) |
Total equity securities | $4,047,925 | $(255,301) | 9 | $1,085,300 | $(168,039) | 2 | $5,133,225 | $(423,340) |
Total | $40,892,882 | $(1,249,276) | 76 | $2,000,586 | $(212,093) | 9 | $42,893,468 | $(1,461,369) |
|
| December 31, 2022 |
| |||||||||||||||||||||||||||||
|
| 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 |
| $ | 18,918,196 |
|
| $ | (6,928 | ) |
|
| 3 |
|
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | 18,918,196 |
|
| $ | (6,928 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 7,970,633 |
|
|
| (2,195,273 | ) |
|
| 9 |
|
|
| 5,170,753 |
|
|
| (1,771,494 | ) |
|
| 5 |
|
|
| 13,141,386 |
|
|
| (3,966,767 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Corporate and other bonds industrial and miscellaneous |
|
| 56,910,104 |
|
|
| (5,796,994 | ) |
|
| 75 |
|
|
| 15,172,381 |
|
|
| (2,458,985 | ) |
|
| 15 |
|
|
| 72,082,485 |
|
|
| (8,255,979 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Residential mortgage and other asset backed securities |
|
| 10,145,880 |
|
|
| 882,664 | ) |
|
| 22 |
|
|
| 34,753,178 |
|
|
| (7,150,803 | ) |
|
| 26 |
|
|
| 44,899,058 |
|
|
| (8,033,467 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Total fixed-maturity securities |
| $ | 93,944,813 |
|
| $ | (8,881,859 | ) |
|
| 109 |
|
| $ | 55,096,312 |
|
| $ | (11,381,282 | ) |
|
| 46 |
|
| $ | 149,041,125 |
|
| $ | (20,263,141 | ) |
18 |
Table of Contents |
Note 4 - Fair Value Measurements
The following table presents information about the priceCompany’s investments that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participantsare measured at the measurement date. The valuation technique used by the Company to fair value its financial instruments ison a recurring basis at June 30, 2023 and December 31, 2022 indicating the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets.
|
| June 30, 2023 |
| |||||||||||||
|
| 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 |
| $ | 8,133,547 |
|
| $ | - |
|
| $ | - |
|
| $ | 8,133,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Political subdivisions of States, Territories and Possessions |
|
| - |
|
|
| 13,597,167 |
|
|
| - |
|
|
| 13,597,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Corporate and other bonds industrial and miscellaneous |
|
| 71,409,037 |
|
|
| - |
|
|
| - |
|
|
| 71,409,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities |
|
| - |
|
|
| 44,715,366 |
|
|
| - |
|
|
| 44,715,366 |
|
Total fixed maturities |
|
| 79,542,584 |
|
|
| 58,312,533 |
|
|
| - |
|
|
| 137,855,117 |
|
Equity securities |
|
| 14,410,482 |
|
|
| - |
|
|
| - |
|
|
| 14,410,482 |
|
Total investments |
| $ | 93,953,066 |
|
| $ | 58,312,533 |
|
| $ | - |
|
| $ | 152,265,599 |
|
|
| December 31, 2022 |
| |||||||||||||
|
| 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 |
| $ | 23,869,096 |
|
| $ | - |
|
| $ | - |
|
| $ | 23,869,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| - |
|
|
| 13,141,387 |
|
|
| - |
|
|
| 13,141,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds industrial and miscellaneous |
|
| 71,585,115 |
|
|
| 497,370 |
|
|
| - |
|
|
| 72,082,485 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities |
|
| - |
|
|
| 45,622,195 |
|
|
| - |
|
|
| 45,622,195 |
|
Total fixed maturities |
|
| 95,454,211 |
|
|
| 59,260,952 |
|
|
| - |
|
|
| 154,715,163 |
|
Equity securities |
|
| 13,834,390 |
|
|
| - |
|
|
| - |
|
|
| 13,834,390 |
|
Total investments |
| $ | 109,288,601 |
|
| $ | 59,260,952 |
|
| $ | - |
|
| $ | 168,549,553 |
|
19 |
Table of Contents |
The following table sets forth the Company’s investment in active marketsa hedge fund measured at Net Asset Value (“NAV”) per share as of June 30, 2023 and December 31, 2022. The Company measures this investment at fair value on a recurring basis. Fair value using NAV per share is as follows as of the dates indicated:
Category |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
Other Investments |
|
|
|
|
|
| ||
Hedge fund |
| $ | 3,549,540 |
|
| $ | 2,771,652 |
|
The hedge fund investment is generally redeemable with at least 45 days prior written notice. The hedge fund investment is accounted for identical assets or liabilities (Level 1)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 lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levelslevel of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurementhierarchy of the asset or liability. ClassificationCompany’s long-term debt as of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded, including during period of market disruption, and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:
September 30, 2017 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Fixed-maturity securities available-for-sale | ||||
Political subdivisions of | ||||
States, Territories and | ||||
Possessions | $- | $11,693,540 | $- | $11,693,540 |
Corporate and other | ||||
bonds industrial and | ||||
miscellaneous | 74,017,938 | 4,818,583 | - | 78,836,521 |
Residential mortgage and other asset backed securities | - | 21,259,691 | - | 21,259,691 |
Total fixed maturities | 74,017,938 | 37,771,814 | - | 111,789,752 |
Equity securities | 13,221,116 | - | - | 13,221,116 |
Total investments | $87,239,054 | $37,771,814 | $- | $125,010,868 |
December 31, 2016 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Fixed-maturity securities available-for-sale | ||||
Political subdivisions of | ||||
States, Territories and | ||||
Possessions | $- | $8,205,888 | $- | $8,205,888 |
Corporate and other | ||||
bonds industrial and | ||||
miscellaneous | 48,356,317 | 5,328,872 | - | 53,685,189 |
Residential mortgage backed securities | - | 18,537,751 | - | 18,537,751 |
Total fixed maturities | 48,356,317 | 32,072,511 | - | 80,428,828 |
Equity securities | 9,987,686 | - | - | 9,987,686 |
Total investments | $58,344,003 | $32,072,511 | $- | $90,416,514 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Senior Notes due 2024 |
| $ | - |
|
| $ | 16,831,230 |
|
| $ | - |
|
| $ | 16,831,230 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 | ||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes due 2024 |
| $ | - |
|
| $ | 15,829,096 |
|
| $ | - |
|
| $ | 15,829,096 |
|
Note 5 - Fair Value of Financial Instruments and Real Estate
The estimated fair values of the Company’s financial instruments and real estate, including their fair value level as of SeptemberJune 30, 20172023 and December 31, 20162022 are as follows:
September 30, 2017 | December 31, 2016 | |||
Carrying Value | Fair Value | Carrying Value | Fair Value | |
Fixed-maturity securities held-to-maturity | $4,846,349 | $5,181,159 | $5,094,902 | $5,298,119 |
Cash and cash equivalents | $25,880,306 | $25,880,306 | $12,044,520 | $12,044,520 |
Premiums receivable | $13,394,800 | $13,394,800 | $11,649,398 | $11,649,398 |
Reinsurance receivables | $24,971,272 | $24,971,272 | $32,197,765 | $32,197,765 |
Real estate, net of accumulated depreciation | $1,848,264 | $1,925,000 | $1,659,405 | $1,925,000 |
Reinsurance balances payable | $1,812,348 | $1,812,348 | $2,146,017 | $2,146,017 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Fixed-maturity securities-held-to maturity, Level 1 |
| $ | 7,305,031 |
|
| $ | 6,266,115 |
|
| $ | 7,766,140 |
|
| $ | 6,600,388 |
|
Cash and cash equivalents, Level 1 |
| $ | 12,286,424 |
|
| $ | 12,286,424 |
|
| $ | 11,958,228 |
|
| $ | 11,958,228 |
|
Premiums receivable, net, Level 1 |
| $ | 12,572,834 |
|
| $ | 12,572,834 |
|
| $ | 13,880,504 |
|
| $ | 13,880,504 |
|
Reinsurance receivables, net, Level 3 |
| $ | 76,579,488 |
|
| $ | 76,579,488 |
|
| $ | 66,465,061 |
|
| $ | 66,465,061 |
|
Real estate, net of accumulated depreciation, Level 3 |
| $ | 2,033,848 |
|
| $ | 2,800,000 |
|
| $ | 2,050,644 |
|
| $ | 2,800,000 |
|
Reinsurance balances payable, Level 3 |
| $ | 13,684,595 |
|
| $ | 13,684,595 |
|
| $ | 13,061,966 |
|
| $ | 13,061,966 |
|
20 |
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, 2017 | ||||
Premiums written | $89,423,758 | $18,203 | $(20,719,037) | $68,722,924 |
Change in unearned premiums | (8,456,690) | 8,162 | (5,436,513) | (13,885,041) |
Premiums earned | $80,967,068 | $26,365 | $(26,155,550) | $54,837,883 |
Nine months ended September 30, 2016 | ||||
Premiums written | $76,375,159 | $14,631 | $(27,542,953) | $48,846,837 |
Change in unearned premiums | (4,875,664) | 2,058 | 1,215,500 | (3,658,106) |
Premiums earned | $71,499,495 | $16,689 | $(26,327,453) | $45,188,731 |
Three months ended September 30, 2017 | ||||
Premiums written | $32,839,891 | $11,910 | $(590,482) | $32,261,319 |
Change in unearned premiums | (4,407,894) | (165) | (6,338,852) | (10,746,911) |
Premiums earned | $28,431,997 | $11,745 | $(6,929,334) | $21,514,408 |
Three months ended September 30, 2016 | ||||
Premiums written | $27,170,743 | $(1,367) | $(9,937,096) | $17,232,280 |
Change in unearned premiums | (2,302,119) | (1,479) | 717,499 | (1,586,099) |
Premiums earned | $24,868,624 | $(2,846) | $(9,219,597) | $15,646,181 |
|
| Direct |
|
| Assumed |
|
| Ceded |
|
| Net |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Premiums written |
| $ | 95,244,390 |
|
| $ | - |
|
| $ | (42,692,915 | ) |
| $ | 52,551,475 |
|
Change in unearned premiums |
|
| 5,577,883 |
|
|
| - |
|
|
| (366,209 | ) |
|
| 5,211,674 |
|
Premiums earned |
| $ | 100,822,273 |
|
| $ | - |
|
| $ | (43,059,124 | ) |
| $ | 57,763,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written |
| $ | 92,762,360 |
|
| $ | - |
|
| $ | (37,818,392 | ) |
| $ | 54,943,968 |
|
Change in unearned premiums |
|
| (393,353 | ) |
|
| - |
|
|
| 24,833 |
|
|
| (368,520 | ) |
Premiums earned |
| $ | 92,369,007 |
|
| $ | - |
|
| $ | (37,793,559 | ) |
| $ | 54,575,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written |
| $ | 47,646,944 |
|
| $ | - |
|
| $ | (19,064,216 | ) |
| $ | 28,582,728 |
|
Change in unearned premiums |
|
| 3,244,999 |
|
|
| - |
|
|
| (2,319,531 | ) |
|
| 925,468 |
|
Premiums earned |
| $ | 50,891,943 |
|
| $ | - |
|
| $ | (21,383,747 | ) |
| $ | 29,508,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums written |
| $ | 49,778,463 |
|
| $ | - |
|
| $ | (19,752,683 | ) |
| $ | 30,025,780 |
|
Change in unearned premiums |
|
| 2,786,080 | ) |
|
| - |
|
|
| 662,368 |
|
|
| (2,123,712 | ) |
Premiums earned |
| $ | 46,992,383 |
|
| $ | - |
|
| $ | (19,090,315 | ) |
| $ | 27,902,068 |
|
Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of SeptemberJune 30, 20172023 and December 31, 20162022 was approximately $2,087,000$6,511,181 and $1,422,000,$2,839,028, respectively.
21 |
Table of Contents |
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:
Nine months ended | ||
September 30, | ||
2017 | 2016 | |
Balance at beginning of period | $41,736,719 | $39,876,500 |
Less reinsurance recoverables | (15,776,880) | (16,706,364) |
Net balance, beginning of period | 25,959,839 | 23,170,136 |
Incurred related to: | ||
Current year | 23,071,466 | 20,572,367 |
Prior years | (250,225) | (166,822) |
Total incurred | 22,821,241 | 20,405,545 |
Paid related to: | ||
Current year | 12,955,928 | 11,855,911 |
Prior years | 8,176,715 | 7,359,828 |
Total paid | 21,132,643 | 19,215,739 |
Net balance at end of period | 27,648,437 | 24,359,942 |
Add reinsurance recoverables | 14,642,360 | 15,442,381 |
Balance at end of period | $42,290,797 | $39,802,323 |
|
| Six months ended |
| |||||
|
| June 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
| ||||
Balance at beginning of period |
| $ | 118,339,513 |
|
| $ | 94,948,745 |
|
Less reinsurance recoverables |
|
| (27,659,500 | ) |
|
| (10,637,679 | ) |
Net balance, beginning of period |
|
| 90,680,013 |
|
|
| 84,311,066 |
|
|
|
|
|
|
|
|
|
|
Incurred related to: |
|
|
|
|
|
|
|
|
Current year |
|
| 44,639,365 |
|
|
| 41,326,838 |
|
Prior years |
|
| (19,253 | ) |
|
| 270,401 |
|
Total incurred |
|
| 44,620,112 |
|
|
| 41,597,239 |
|
|
|
|
|
|
|
|
|
|
Paid related to: |
|
|
|
|
|
|
|
|
Current year |
|
| 22,840,144 |
|
|
| 23,188,157 |
|
Prior years |
|
| 25,346,289 |
|
|
| 21,700,500 |
|
Total paid |
|
| 48,186,433 |
|
|
| 44,888,657 |
|
|
|
|
|
|
|
|
|
|
Net balance at end of period |
|
| 87,113,692 |
|
|
| 81,019,648 |
|
Add reinsurance recoverables |
|
| 30,447,918 |
|
|
| 17,883,412 |
|
Balance at end of period |
| $ | 117,561,610 |
|
| $ | 98,903,060 |
|
Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $8,503,237$23,510,756 and $8,676,621$18,267,384 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, 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 ninesix months ended SeptemberJune 30, 20172023 and 20162022 was $(250,225)$19,253 favorable and $(166,822) favorable,$270,401 unfavorable, respectively. The Company’s management continually monitorsManagement, on a quarterly basis, performs a review of open liability claims activity to assess the appropriateness of carried case and incurred but not reported (“IBNR”) reserves,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.
22 |
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 year’speriod’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 monthlyquarterly 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 years.periods. Several methods are used, varying by product line of business and accident year, in order to determineselect the required IBNRestimated 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.
23 |
Table of Contents |
Management’s best estimate of required reserves is generally based on an average of the methods above, with appropriate weighting of the various methods based on the line of business and accident year being projected. In some cases, additional methods or historical data from industry sources are employed to supplement the projections derived from the methods listed above.
Three key assumptions that materially affect the estimate of loss reserves are the loss ratio estimate for the current accident year used in the BF methods, described above, and 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 Company reviews the carried reserves levels on 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 claimsclaim trends that have emerged or that would cause future adverse development that have not already been consideredcontemplated in existing casesetting current carried reserves and in its current loss development factors.
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’(“pure” IBNR) for accident dates of SeptemberJune 30, 20142020 and prior is limited, although there remains the possibility of adverse development on reported claims (‘(“case development’development” IBNR).
The following is information about incurred and paid claims development as of SeptemberJune 30, 2017,2023, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of SeptemberJune 30, 20172023 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, 20082014 to December 31, 20152022 is presented as supplementary unaudited information.
24 |
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 |
|
| June 30, 2023 |
| ||||||||||||||||||||||||||||||||||||||||||
|
| For the Years Ended December 31, |
|
| Six Months Ended June 30, |
|
|
|
|
| Cumulative Number of Reported Claims by |
| ||||||||||||||||||||||||||||||||||||
Accident Year |
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
|
2023 |
|
| IBNR | Accident Year |
| ||||||||||||||
|
| (Unaudited 2014 - 2022) |
|
| (Unaudited) |
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
2014 |
| $ | 14,193 |
|
| $ | 14,260 |
|
| $ | 14,218 |
|
| $ | 14,564 |
|
| $ | 15,023 |
|
| $ | 16,381 |
|
| $ | 16,428 |
|
| $ | 16,434 |
|
| $ | 16,486 |
|
| $ | 16,486 |
|
| $ | 17 |
|
|
| 2,138 |
|
2015 |
|
|
|
|
|
| 22,340 |
|
|
| 21,994 |
|
|
| 22,148 |
|
|
| 22,491 |
|
|
| 23,386 |
|
|
| 23,291 |
|
|
| 23,528 |
|
|
| 23,533 |
|
|
| 23,528 |
|
|
| 318 |
|
|
| 2,559 |
|
2016 |
|
|
|
|
|
|
|
|
|
| 26,062 |
|
|
| 24,941 |
|
|
| 24,789 |
|
|
| 27,887 |
|
|
| 27,966 |
|
|
| 27,417 |
|
|
| 27,352 |
|
|
| 27,259 |
|
|
| 117 |
|
|
| 2,881 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 31,605 |
|
|
| 32,169 |
|
|
| 35,304 |
|
|
| 36,160 |
|
|
| 36,532 |
|
|
| 36,502 |
|
|
| 36,499 |
|
|
| 337 |
|
|
| 3,400 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 54,455 |
|
|
| 56,351 |
|
|
| 58,441 |
|
|
| 59,404 |
|
|
| 61,237 |
|
|
| 61,064 |
|
|
| 1,203 |
|
|
| 4,231 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 75,092 |
|
|
| 72,368 |
|
|
| 71,544 |
|
|
| 71,964 |
|
|
| 72,666 |
|
|
| 1,343 |
|
|
| 4,501 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 63,083 |
|
|
| 62,833 |
|
|
| 63,217 |
|
|
| 63,394 |
|
|
| 2,015 |
|
|
| 5,879 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 96,425 |
|
|
| 96,673 |
|
|
| 95,865 |
|
|
| 4,903 |
|
|
| 5,800 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 79,835 |
|
|
| 80,137 |
|
|
| 9,336 |
|
|
| 4,658 |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 42,521 |
|
|
| 9,917 |
|
|
| 1,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
| $ | 519,418 |
|
|
|
|
|
|
|
|
|
All Lines of Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
|
| Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance |
| |||||||||||||||||||||||||||||||||||||
|
| For the Years Ended December 31, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||
Accident Year |
| 2014 |
|
| 2015 |
|
| 2016 |
|
| 2017 |
|
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
|
| 2022 |
|
| 2023 |
| ||||||||||
|
| (Unaudited 2014 - 2022) |
|
| (Unaudited) |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
2014 |
| $ | 5,710 |
|
| $ | 9,429 |
|
| $ | 10,738 |
|
| $ | 11,770 |
|
| $ | 13,819 |
|
| $ | 14,901 |
|
| $ | 15,491 |
|
| $ | 15,770 |
|
| $ | 16,120 |
|
| $ | 16,131 |
|
2015 |
|
|
|
|
|
| 12,295 |
|
|
| 16,181 |
|
|
| 18,266 |
|
|
| 19,984 |
|
|
| 21,067 |
|
|
| 22,104 |
|
|
| 22,318 |
|
|
| 22,473 |
|
|
| 22,508 |
|
2016 |
|
|
|
|
|
|
|
|
|
| 15,364 |
|
|
| 19,001 |
|
|
| 21,106 |
|
|
| 23,974 |
|
|
| 25,234 |
|
|
| 25,750 |
|
|
| 26,382 |
|
|
| 26,629 |
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 16,704 |
|
|
| 24,820 |
|
|
| 28,693 |
|
|
| 31,393 |
|
|
| 32,529 |
|
|
| 33,522 |
|
|
| 34,400 |
|
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 32,383 |
|
|
| 44,516 |
|
|
| 50,553 |
|
|
| 52,025 |
|
|
| 54,424 |
|
|
| 55,272 |
|
2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 40,933 |
|
|
| 54,897 |
|
|
| 58,055 |
|
|
| 60,374 |
|
|
| 62,281 |
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 39,045 |
|
|
| 50,719 |
|
|
| 53,432 |
|
|
| 55,325 |
|
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 56,282 |
|
|
| 77,756 |
|
|
| 79,510 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 45,856 |
|
|
| 62,714 |
|
2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 21,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
| $ | 436,209 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented | $ | 83,209 | ||||||||||||||||||||||||||||||||||||||
All outstanding liabilities before 2014, net of reinsurance | 166 | |||||||||||||||||||||||||||||||||||||||
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance | $ | 83,375 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Components may not sum to totals due to rounding) |
25 |
Table of Contents |
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.
As of | ||||||||||||
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance | September 30, 2017 | |||||||||||
For the Years Ended December 31, | ||||||||||||
Accident Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | Nine Months Ended September 30,2017 | IBNR | Cumulative Number of Reported Claims by Accident Year |
(Unaudited 2008 - 2015) | (Unaudited) | |||||||||||
2008 | $4,505 | $4,329 | $4,223 | $4,189 | $4,068 | $4,055 | $4,056 | $4,040 | $4,038 | $4,035 | $1 | 1,133 |
2009 | 4,403 | 4,254 | 4,287 | 4,384 | 4,511 | 4,609 | 4,616 | 4,667 | 4,674 | 11 | 1,136 | |
2010 | 5,598 | 5,707 | 6,429 | 6,623 | 6,912 | 6,853 | 6,838 | 6,846 | 9 | 1,616 | ||
2011 | 7,603 | 7,678 | 8,618 | 9,440 | 9,198 | 9,066 | 9,155 | 27 | 1,913 | |||
2012 | 9,539 | 9,344 | 10,278 | 10,382 | 10,582 | 10,805 | 91 | 4,702(1) | ||||
2013 | 10,728 | 9,745 | 9,424 | 9,621 | 9,936 | 300 | 1,556 | |||||
2014 | 14,193 | 14,260 | 14,218 | 14,511 | 935 | 2,123 | ||||||
2015 | 22,340 | 21,994 | 21,974 | 1,640 | 2,523 | |||||||
2016 | 26,062 | 24,940 | 3,320 | 2,829 | ||||||||
2017 | 21,572 | 5,078 | 2,259 | |||||||||
Total | $128,448 |
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance | ||||||||||
For the Years Ended December 31, | Nine Months Ended September 30, | |||||||||
Accident Year | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
(Unaudited 2008 - 2015) | (Unaudited) | |||||||||
2008 | $2,406 | $3,346 | $3,730 | $3,969 | $4,003 | $4,029 | $4,028 | $4,031 | $4,031 | $4,031 |
2009 | 2,298 | 3,068 | 3,607 | 3,920 | 4,134 | 4,362 | 4,424 | 4,468 | 4,475 | |
2010 | 2,566 | 3,947 | 4,972 | 5,602 | 6,323 | 6,576 | 6,720 | 6,771 | ||
2011 | 3,740 | 5,117 | 6,228 | 7,170 | 8,139 | 8,540 | 8,691 | |||
2012 | 3,950 | 5,770 | 7,127 | 8,196 | 9,187 | 10,116 | ||||
2013 | 3,405 | 5,303 | 6,633 | 7,591 | 8,086 | |||||
2014 | 5,710 | 9,429 | 10,738 | 11,628 | ||||||
2015 | 12,295 | 16,181 | 17,473 | |||||||
2016 | 15,364 | 18,867 | ||||||||
2017 | 12,047 | |||||||||
Total | $102,185 | |||||||||
Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented | $26,264 | |||||||||
All outstanding liabilities before 2008, net of reinsurance | 274 | |||||||||
Liabilities for loss and allocted loss adjustment expenses, net of reinsurance | $26,538 |
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:
Reconciliation of the Disclosure of Incurred and Paid Loss Development | ||||
to the Liability for Loss and LAE Reserves | ||||
|
|
|
| |
|
| As of |
| |
(in thousands) |
| June 30, 2023 |
| |
Liabilities for allocated loss and loss adjustment expenses, net of reinsurance |
| $ | 83,375 |
|
Total reinsurance recoverable on unpaid losses |
|
| 30,448 |
|
Unallocated loss adjustment expenses |
|
| 3,739 |
|
Total gross liability for loss and LAE reserves |
| $ | 117,562 |
|
|
|
|
|
|
(Components may not sum to totals due to rounding) |
|
|
|
|
Reinsurance
Effective December 31, 2021, the Company entered into a quota share reinsurance treaties are on a July 1 through June 30 fiscal year basis; therefore, for year to date fiscal periods after June 30, two separate treaties will be included in such periods.
The Company’s excess of loss and catastrophe reinsurance treaties expired on June 30, 2023 and the Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2016/June 30, 20172023. Effective January 1, 2022, the Company entered into an underlying excess of loss reinsurance treaty year (“2016/2017Underlying XOL Treaty”) and Julycovering the period from January 1, 2017/June 30, 20182022 through January 1, 2023. The treaty year (“2017/2019 Treaty”) (two year treaty as described below). The Company’s quota shareprovides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. Material terms for reinsurance treaties in effect for the nine months ended September 30, 2016 were covered under the July 1, 2015/June 30, 2016 treaty year (“2015/2016 Treaty”) and the 2016/2017 Treaty.
Treaty Year | |||
July 1, 2017 | July 1, 2016 | July 1, 2015 | |
to | to | to | |
Line of Business | June 30, 2018 | June 30, 2017 | June 30, 2016 |
Personal Lines: | |||
Homeowners, dwelling fire and canine legal liability | |||
Quota share treaty: | |||
Percent ceded | 20% | 40% | 40% |
Risk retained | $800,000 | $500,000 | $450,000 |
Losses per occurrence subject to quota share reinsurance coverage | $1,000,000 | $833,333 | $750,000 |
Excess of loss coverage and facultative facility above quota share coverage (1) | $9,000,000 | $3,666,667 | $3,750,000 |
in excess of | in excess of | in excess of | |
$1,000,000 | $833,333 | $750,000 | |
Total reinsurance coverage per occurrence | $9,200,000 | $4,000,000 | $4,050,000 |
Losses per occurrence subject to reinsurance coverage | $10,000,000 | $4,500,000 | $4,500,000 |
Expiration date | June 30, 2019 | June 30, 2017 | June 30, 2016 |
Personal Umbrella | |||
Quota share treaty: |
Percent ceded - first $1,000,000 of coverage | 90% | 90% | 90% |
Percent ceded - excess of $1,000,000 dollars of coverage | 100% | 100% | 100% |
Risk retained | $100,000 | $100,000 | $100,000 |
Total reinsurance coverage per occurrence | $4,900,000 | $4,900,000 | $2,900,000 |
Losses per occurrence subject to quota share reinsurance coverage | $5,000,000 | $5,000,000 | $3,000,000 |
Expiration date | June 30, 2018 | June 30, 2017 | June 30, 2016 |
Commercial Lines: | |||
General liability commercial policies, except for commercial auto | |||
Quota share treaty: | |||
Percent ceded (terminated effective July 1, 2014) | None | None | None |
Risk retained | $750,000 | $500,000 | $425,000 |
Losses per occurrence subject to quota share reinsurance coverage | None | None | None |
Excess of loss coverage above quota share coverage | $3,750,000 | $4,000,000 | $4,075,000 |
in excess of | in excess of | in excess of | |
$750,000 | $500,000 | $425,000 | |
Total reinsurance coverage per occurrence | $3,750,000 | $4,000,000 | $4,075,000 |
Losses per occurrence subject to reinsurance coverage | $4,500,000 | $4,500,000 | $4,500,000 |
Commercial Umbrella | |||
Quota share treaty: | |||
Percent ceded - first $1,000,000 of coverage | 90% | 90% | |
Percent ceded - excess of $1,000,000 of coverage | 100% | 100% | |
Risk retained | $100,000 | $100,000 | |
Total reinsurance coverage per occurrence | $4,900,000 | $4,900,000 | |
Losses per occurrence subject to quota share reinsurance coverage | $5,000,000 | $5,000,000 | |
Expiration date | June 30, 2018 | June 30, 2017 | |
Commercial Auto: | |||
Risk retained | $300,000 | ||
Excess of loss coverage in excess of risk retained | $1,700,000 | ||
in excess of | |||
$300,000 | |||
Catastrophe Reinsurance: | |||
Initial loss subject to personal lines quota share treaty | $5,000,000 | $5,000,000 | $4,000,000 |
Risk retained per catastrophe occurrence (2) | $4,000,000 | $3,000,000 | $2,400,000 |
Catastrophe loss coverage in excess of quota share coverage (3) (4) | $315,000,000 | $247,000,000 | $176,000,000 |
Severe winter weather aggregate (4) | No | No | Yes |
Reinstatement premium protection (5) | Yes | Yes | Yes |
Table of Contents |
|
| Treaty Period |
| |||||||||||||||||
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|
|
|
| 2023/2024 Treaty |
|
| 2021/2023 Treaty |
| |||||||||||
|
| January 2, |
|
| July 1, |
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| January 1, |
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| July 1, |
|
| December 31, |
| |||||
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| 2024 |
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| 2023 |
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| 2023 |
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| 2022 |
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| 2021 |
| |||||
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| to |
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| to |
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| to |
|
| to |
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| to |
| |||||
|
| June 30, |
|
| January 1, |
|
| June 30, |
|
| January 1, |
|
| June 30, |
| |||||
Line of Business |
| 2024 |
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| 2024 |
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| 2023 |
|
| 2023 |
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| 2022 |
| |||||
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Personal Lines: |
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| |||||
Homeowners, dwelling fire and canine legal liability Quota share treaty: |
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|
|
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| |||||
Percent ceded (7) |
|
| (6 | ) |
|
| 30 | % |
|
| 30 | % |
|
| 30 | % |
|
| 30 | % |
Risk retained on initial $1,000,000 of losses (5) (6) (7) |
| $ | 1,000,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
Losses per occurrence subject to quota share reinsurance coverage |
|
| (6 | ) |
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
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|
|
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|
Expiration date |
|
| (6 | ) |
| January 1, 2024 |
|
| January 1, 2024 |
|
| January 1, 2023 |
|
| January 1, 2023 |
| ||||
Excess of loss coverage and facultative facility coverage (1) (5) (6) |
| $ | 8,000,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
|
| in excess of |
|
| in excess of |
|
| in excess of |
|
| in excess of |
|
| in excess of |
| |||||
|
| $ | 1,000,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
Total reinsurance coverage per occurrence (5) (6) |
| $ | 7,000,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
Losses per occurrence subject to reinsurance coverage |
| $ | 8,000,000 |
|
| $ | 8,000,000 |
|
| $ | 8,000,000 |
|
| $ | 9,000,000 |
|
| $ | 9,000,000 |
|
Expiration date (6) |
| June 30, 2024 |
|
| June 30, 2024 |
|
| June 30, 2023 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| |||||
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Catastrophe Reinsurance: |
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|
|
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|
|
|
|
|
|
|
|
Initial loss subject to personal lines quota share treaty (6) |
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
Risk retained per catastrophe occurrence (6) (7) (8) |
| $ | 10,000,000 |
|
| $ | 8,750,000 |
|
| $ | 8,750,000 |
|
| $ | 7,400,000 |
|
| $ | 7,400,000 |
|
Catastrophe loss coverage in excess of quota share coverage (2) (6) |
| $ | 315,000,000 |
|
| $ | 315,000,000 |
|
| $ | 335,000,000 |
|
| $ | 335,000,000 |
|
| $ | 490,000,000 |
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|
Reinstatement premium protection (3) (4) |
| Yes |
|
| Yes |
|
| Yes |
|
| Yes |
|
| Yes |
|
(1) | For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2024. | |||
(2) | 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. | |||
(3) | For the period December 31, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. | |||
(4) | For the period July 1, 2022 through June 30, 2023, reinstatement premium protection for $9,800,000 of catastrophe coverage in excess of $10,000,000. For the period July 1, 2023 through June 30, 2024, reinstatement premium protection for $12,500,000 of catastrophe coverage in excess of $10,000,000 | |||
(5) | For the period January 1, 2022 through January 1, 2024, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty and 2023/2024 Treaty. Excludes losses from named storms. | |||
(6) | Personal lines quota share (homeowners, dwelling fire and canine liability) and underlying excess of loss reinsurance will expire on January 1, 2024; reinsurance coverage in effect from January 2, 2024 through June 30, 2024 is only for excess of loss and catastrophe reinsurance treaties. | |||
(7) | For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. | |||
(8) | Plus losses in excess of catastrophe coverage |
Table of Contents |
|
| Treaty Year |
| |||||
|
| July 1, 2022 |
|
| July 1, 2021 |
| ||
|
| to |
|
| to |
| ||
Line of Business |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
|
|
|
|
|
|
| ||
Personal Lines: |
|
|
|
|
|
| ||
Personal Umbrella |
|
|
|
|
|
| ||
Quota share treaty: |
|
|
|
|
|
| ||
Percent ceded - first $1,000,000 of coverage |
|
| 90 | % |
|
| 90 | % |
Percent ceded - excess of $1,000,000 dollars of coverage |
|
| 95 | % |
|
| 95 | % |
Risk retained |
| $ | 300,000 |
|
| $ | 300,000 |
|
Total reinsurance coverage per occurrence |
| $ | 4,700,000 |
|
| $ | 4,700,000 |
|
Losses per occurrence subject to quota share reinsurance coverage |
| $ | 5,000,000 |
|
| $ | 5,000,000 |
|
Expiration date |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
|
|
|
|
|
|
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|
|
Commercial Lines (1) |
|
|
|
|
|
|
|
|
(1) | Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss. | |||
July 1, 2016 - June 30, 2017 | July 1, 2015 - June 30, 2016 | |||||||
Treaty | Extent of Loss | Risk Retained | Extent of Loss | Risk Retained | ||||
Personal Lines | Initial $833,333 | $500,000 | Initial $750,000 | $450,000 | ||||
$833,333 - $4,500,000 | None(1) | $750,000 - $4,500,000 | None(1) | |||||
Over $4,500,000 | 100% | Over $4,500,000 | 100% | |||||
Personal Umbrella | Initial $1,000,000 | $100,000 | Initial $1,000,000 | $100,000 | ||||
$1,000,000 - $5,000,000 | None | $1,000,000 - $3,000,000 | None | |||||
Over $5,000,000 | 100% | Over $3,000,000 | 100% | |||||
Commercial Lines | Initial $500,000 | $500,000 | Initial $425,000 | $425,000 | ||||
$500,000 - $4,500,000 | None(1) | $425,000 - $4,500,000 | None(1) | |||||
Over $4,500,000 | 100% | Over $4,500,000 | 100% | |||||
Commercial Umbrella | Initial $1,000,000 | $100,000 | ||||||
$1,000,000 - $5,000,000 | None | |||||||
Over $5,000,000 | 100% | |||||||
Catastrophe (2) | Initial $5,000,000 | $3,000,000 | Initial $4,000,000 | $2,400,000 | ||||
$5,000,000 - $252,000,000 | None | $4,000,000 - $180,000,000 | None | |||||
Over $252,000,000 | 100% | Over $180,000,000 | 100% |
The Company’s reinsurance program ishas been structured to enable the Company to significantly 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 earnsearned ceding commission revenue under the 2023/2024 Treaty for the three months and six months ended June 30, 2023, and under the 2021/2023 Treaty for the three months and six months ended June 30, 2022, based on a fixed provisional commission rate at which provisional ceding commissions are earned. 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 arewere 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 increasesincrease when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decreasesdecrease when the estimated ultimate loss ratio increases.
28 |
Table of Contents |
Ceding commission revenue consists of the following:
Three months ended | Nine months ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Provisional ceding commissions earned | $1,921,457 | $3,185,748 | $8,689,803 | $9,508,213 |
Contingent ceding commissions earned | (203,847) | (250,820) | (481,803) | (1,233,923) |
$1,717,610 | $2,934,928 | $8,208,000 | $8,274,290 |
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Provisional ceding commissions earned |
| $ | 5,294,025 |
|
| $ | 4,692,931 |
|
| $ | 10,740,833 |
|
| $ | 9,234,464 |
|
Contingent ceding commissions earned |
|
| 118,185 |
|
|
| 22,656 |
|
|
| 116,784 |
|
|
| 162,519 |
|
|
| $ | 5,412,210 |
|
| $ | 4,715,587 |
|
| $ | 10,857,617 |
|
| $ | 9,396,983 |
|
Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled annuallyperiodically based on the loss ratioLoss Ratio of each treaty year that ends on June 30.
Expected Credit Losses – Uncollectible Reinsurance
The Company reviews reinsurance receivables which relate to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The Company has not recorded an allowance for uncollectible reinsurance as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. Changes in the allowance are presented as a component of other underwriting expenses on the condensed consolidated statements of operations and comprehensive income (loss).
Note 7 – Credit Facility
Federal Home Loan Bank
In July 2017, KICO became a member of, and invested in, the Federal Home Loan Bank of New York (“FHLBNY”). The aggregateKICO is required to maintain an investment in capital stock of dividend bearing commonFHLBNY. Based on redemption provisions of FHLBNY, the stock was $22,500 ashas 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 Septemberthe cost basis in the stock. At June 30, 2017. Members2023 and December 31, 2022, 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. Advancesadvances, which are to be fully collateralized; eligiblecollateralized. Eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backedmortgage-backed securities, along with U.S. Treasury and agency securities. See Note 3 – Investments for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of December 31, 2016the previous quarter and are due and payable within one year of borrowing. TheKICO is currently able to borrow on an overnight basis. If KICO has collateral, based on KICO’s net admitted assets, the maximum allowable advance is approximately $6,212,000 as of SeptemberJune 30, 2017.2023 and December 31, 2022 was approximately $13,268,000 and $13,192,000, respectively. Available collateral as of June 30, 2023 and December 31, 2022 was approximately $11,799,000 and $12,228,000, respectively. Advances are limited to 85% of the amount of available collateral. There were no borrowings under this facility during the three months ended June 30, 2023 and 2022.
29 |
Table of Contents |
Debt
Debt as of June 30, 2023 and December 31, 2022 consists of the following:
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
2022 Notes, net |
| $ | 17,832,408 |
|
| $ | 17,252,868 |
|
Equipment financing |
|
| 7,369,418 |
|
|
| 7,905,655 |
|
Balance at end of period |
| $ | 25,201,826 |
|
| $ | 25,158,523 |
|
Note and Warrant Exchange
On December 9, 2022, the Company entered into a Note and Warrant Exchange Agreement (the “Exchange Agreement”) with several holders (the “Exchanging Noteholders”) of the Company’s outstanding 5.50% Senior Notes due 2022 (the “2017 Notes”). On the date of the Exchange Agreement, the Exchanging Noteholders held 2017 Notes in the aggregate principal amount of $21,545,000 of the $30,000,000 aggregate principal amount of the 2017 Notes then outstanding. Pursuant to the Exchange Agreement, on December 15, 2022, the Exchanging Noteholders exchanged their respective 2017 Notes for the following: (i) new 12.0% Senior Notes due December 30, 2024 of the Company in the aggregate approximate principal amount of $19,950,000 (the “2022 Notes”); (ii) cash in the aggregate approximate amount of $1,595,000, together with accrued interest on the 2017 Notes; and (iii) three-year warrants for the purchase of an aggregate of 969,525 shares of Common Stock of the Company, exercisable at an exercise price of $1.00 per share (the “Warrants”). The remaining $8,455,000 principal amount of the 2017 Notes, together with accrued interest thereon, was paid on the maturity date of the 2017 Notes of December 30, 2022.
2022 Notes
On December 15, 2022, the Company issued $19,950,000 of its 2022 Notes pursuant to the Exchange Agreement. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, which will begin on June 30, 2023 at the rate of 12.0% per annum. Warrants were issued with a fair value of $993,200 (see Note 8 – Stockholders’ Equity) and transaction costs were $1,758,112, for an effective yield of 13.92% per annum. The balance of the 2022 Notes as of June 30, 2023 and December 31, 2022 is as follows:
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
12.0% Senior Unsecured Notes |
| $ | 19,950,000 |
|
| $ | 19,950,000 |
|
Warrants |
|
| (816,403 | ) |
|
| (979,684 | ) |
Issuance costs |
|
| (1,301,189 | ) |
|
| (1,717,448 | ) |
2022 Notes, net |
| $ | 17,832,408 |
|
| $ | 17,252,868 |
|
The Company is required to make a mandatory redemption of the 2022 Notes on December 30, 2023, in an amount such that the aggregate principal amount of the 2022 Notes to be redeemed plus accrued and unpaid interest thereon shall be equal to the amount by which the maximum Ordinary Dividend Paying Capacity of KICO (as defined below) measured as of December 15, 2023 exceeds the Company’s Holding Company Expenses (as defined below) for the calendar year ended December 31, 2023. “Ordinary Dividend Paying Capacity” means the sum, as measured on December 15, 2023, of (i) the maximum allowable amount of dividends that KICO is permitted to pay without seeking any regulatory approval in accordance with New York insurance regulations based on its statutory annual and quarterly financial statements filed with the National Association of Insurance Commissioners as of and for the thirty-six (36) month period ended September 30, 2017.
30 |
Table of Contents |
The 2022 Notes are unsecured obligations of the Company and are not the obligations of or guaranteed by any of the Company’s subsidiaries. The 2022 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 2022 Notes. The Notes rank equally in right of payment to all of the Company’s existing and future senior indebtedness, but are effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the 2022 Notes are structurally subordinated to the indebtedness and other obligations of the Company’s subsidiaries.
The 2022 Notes are redeemable, at the Company’s option, in whole or in part, at any time or in part from time to time, upon not less than fifteen (15) nor more than sixty (60) days’ notice, at the following redemption prices (expressed as percentages of the principal amount thereof) if redeemed during the respective period set forth below, plus, in each case, accrued and unpaid interest, if any, to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date):
Period: | Percentage | |||
December 30, 2022 to December 29, 2023 | 102.00 | % | ||
December 30, 2023 to September 29, 2024 | 101.00 | % | ||
September 30, 2024 to December 29, 2024 | 100.00 | % |
As of the end of each calendar quarter, commencing with the calendar quarter ending December 31, 2022, the Company is subject to a leverage maintenance test (“Leverage Maintenance Test”), which requires that the Total Consolidated Indebtedness (as defined below) of the Company not be greater than 30% of Total Consolidated Capitalization (as defined below). As of June 30, 2023 and December 31, 2022, the ratio as defined under the Leverage Maintenance Test was 29.8% and 26.7%, respectively. “Total Consolidated Indebtedness” is the aggregate principal amount (or accreted value in the case of any Indebtedness issued with more than de minimis original issue discount) of all outstanding long-term of the Company except for the sale leaseback transaction described below under “Equipment Financing”, any refinancing or any future sale leaseback transaction. “Total Consolidated Capitalization” is the amount equal to the sum of (x) Total Consolidated Indebtedness outstanding as of such date and (y) the total consolidated shareholders’ equity of the Company, excluding accumulated other comprehensive (loss) income, as recorded on the Company’s condensed consolidated balance sheet.
31 |
Table of Contents |
Equipment Financing
On October 27, 2022, KICO entered into a sale leaseback transaction, whereby KICO sold $8,096,824 of fixed assets to a bank. Under GAAP, the sale leaseback transaction is recorded as equipment financing (“Financing”). The provisions of the Financing require KICO to pay a monthly payment of principal and interest at the rate of 5.86% per annum totaling $126,877 for a term of 60 months, which commenced on October 27, 2022. The terms of the Financing provide buyout options to KICO at the end of the 60 month term, which are as follows:
· | At the end of the lease, KICO may purchase the fixed assets for a purchase price of $2,024,206, which is 25% of the original fixed asset cost of $8,096,824; or | |
· | KICO may renew the lease for 16 months at the same rental rate, which totals $2,030,036. |
A provision of the Financing requires KICO to pledge collateral for the lease obligation. As of June 30, 2023 and December 31, 2022, the amount of required collateral was approximately $7,845,000 and $8,691,000, respectively. As of June 30, 2023 and December 31, 2022, the fair value of KICO’s pledged collateral was approximately $8,134,000 and $8,691,000, respectively, in United States Treasury securities.
Future contractual payment obligations under the Financing as of June 30, 2023 are as follows:
For the Year |
|
|
| |
Ending |
|
|
| |
December 31, |
| Total |
| |
Remainder of 2023 |
| $ | 552,135 |
|
2024 |
|
| 1,153,862 |
|
2025 |
|
| 1,223,293 |
|
2026 |
|
| 1,296,901 |
|
2027 |
|
| 1,119,021 |
|
|
|
| 5,345,212 |
|
2027 purchase price |
|
| 2,024,206 |
|
Total |
| $ | 7,369,418 |
|
Note 8 – Stockholders’ Equity
Dividends Declared and Paid
Dividends declared and paid on Common Stock were $2,363,993$-0- and $1,446,684$851,266 for the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively. TheOn November 11, 2022, the Company’s Board of Directors approved adetermined to suspend regular quarterly dividends. Future dividend on November 8, 2017 of $.08 per share payable in cash on December 15, 2017 to stockholders of record as of November 30, 2017 (see Note 12).
2014 Equity Participation Plan
Effective August 12, 2014, the Company’sCompany adopted the 2014 Equity Participation Plan (the “2014 Plan”), pursuant to which a maximum of 700,000 shares of Common Stock of the Company arewere 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 and 2005 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 of the Board determines the expiration date with respect to non-statutory stock options and the vesting provisions for restricted stock awards granted under the 2014 Plan, and 2005subject to the provisions of the 2014 Plan.
32 |
Table of Contents |
Stock Options
The results of operations for the three months ended SeptemberJune 30, 20172023 and 20162022 include stock-based stock option compensation expense for stock options totaling approximately $5,000$-0- and $23,000, respectively, which is recorded in other operating expenses on the accompanying condensed consolidated statements of income and comprehensive income.$2,000, respectively. The results of operations for the ninesix months ended SeptemberJune 30, 20172023 and 20162022 include stock-based stock option compensation expense for stock options totaling approximately $35,000$-0- and $90,000,$8,000, respectively. Stock-based compensation expense related to stock options for the six months ended June 30, 2022 is net of estimated forfeitures of 17% for the three months and nine months ended September 30, 2017 and 2016.approximately 18%. Such amounts have been included in the condensed consolidated statements of incomeoperations and comprehensive income (loss) within other operating expenses.
No options were granted during the ninesix months ended SeptemberJune 30, 2017. The weighted average estimated fair value of stock options granted during the nine months ended September 30, 2016 was $1.87 per share.2023 and 2022. The fair value of stock options at the grant date wasare estimated using the Black-Scholes option-pricing model. The following weighted average assumptions were used for grants during the following periods:
Nine months ended | |||
September 30, | |||
2017 | 2016 | ||
Dividend Yield | n/a | 2.74% - 3.18% | |
Volatility | n/a | 31.61% - 31.81% | |
Risk-Free Interest Rate | n/a | 1.01% - 1.11% | |
Expected Life | n/a | 3.25 years |
A summary of stock option activity under the Company’s 2014 Plan and 2005 Plan for the ninesix months ended SeptemberJune 30, 20172023 is as follows:
Stock Options | Number of Shares | Weighted Average Exercise Price per Share | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value |
Outstanding at January 1, 2017 | 362,750 | $6.62 | 2.61 | $2,586,748 |
Granted | - | $- | $- | |
Exercised | (14,500) | $5.55 | $133,058 | |
Forfeited | - | $- | $- | |
Outstanding at September 30, 2017 | 348,250 | $6.66 | 1.90 | $3,355,953 |
Vested and Exercisable at September 30, 2017 | 278,250 | $6.53 | 1.78 | $2,717,978 |
Stock Options |
| Number of Shares |
|
| Weighted Average Exercise Price per Share |
|
| Weighted Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding at January 1, 2023 |
|
| 107,201 |
|
| $ | 8.31 |
|
|
| 1.92 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Exercised |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
Expired/Forfeited |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2023 |
|
| 107,201 |
|
| $ | 8.31 |
|
|
| 1.40 |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and Exercisable at June 30, 2023 |
|
| 107,201 |
|
| $ | 8.31 |
|
|
| 1.40 |
|
| $ | - |
|
The aggregate intrinsic value of options outstanding and options exercisable at SeptemberJune 30, 20172023 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 $16.30$1.17 closing price of the Company’s Common Stock on SeptemberJune 30, 2017.
Participants in the 2005 and 2014 PlansPlan may exercise
33 |
Table of Contents |
As of SeptemberJune 30, 2017, the fair value of unamortized compensation cost related to2023, there were no unvested stock option awards was approximately $9,000. Unamortized compensation cost as of September 30, 2017 is expected to be recognized over a remaining weighted-average vesting period of 0.87 years.
As of SeptemberJune 30, 2017,2023, there were 551,75885,778 shares reserved for grants under the 2014 Plan.
Restricted Stock Awards
A summary of the Company granted a total of 8,000 shares of restricted Common Stock activity under the 2014 Plan to its then four non-employee directors. In January 2016, the Company granted a total of 6,000 shares of restricted Common Stock under the 2014 Plan to its three then non-employee directors. In March 2016, the Company granted 1,500 shares of restricted Common Stock under the 2014 Plan to a newly elected non-employee director. In May 2017 and August 2017, the Company granted 1,250 shares and 795 shares, respectively, of restricted Common Stock under the 2014 Plan to two newly elected non-employee directors. One-third of the shares granted will vest on each of the three annual anniversaries following the grant date.
Restricted Stock Awards |
| Shares |
|
| Weighted Average Grant Date Fair Value per Share |
|
| Aggregate Fair Value |
| |||
|
|
|
|
|
|
|
|
|
| |||
Balance at January 1, 2023 |
|
| 366,597 |
|
| $ | 6.97 |
|
| $ | 2,555,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
| 272,682 |
|
| $ | 1.37 |
|
| $ | 373,499 |
|
Vested |
|
| (56,977 | ) |
| $ | 6.67 |
|
| $ | (380,199 | ) |
Forfeited |
|
| (7,015 | ) |
| $ | 5.02 |
|
| $ | (35,214 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2023 |
|
| 575,287 |
|
| $ | 3.83 |
|
| $ | 2,203,349 |
|
Fair value was calculated using the closing price of the Company’s Common Stock on the grant date. For the three months ended June 30, 2023 and nine months ended September 30, 2017,2022, stock-based compensation of approximately $65,000 and $163,000, respectively, for these grants was approximately $212,000 and $479,000, respectively, which is included in
Employee Stock Purchase Plan
On June 19, 2021, the Company’s Board of Directors adopted the Kingstone Companies, Inc. Employee Stock Purchase Plan (the “ESPP”), subject to stockholder approval. Such approval was obtained on August 10, 2021. The purpose of the ESPP is to provide eligible employees of the Company with an opportunity to use payroll deductions to purchase shares of Common Stock of the Company. The maximum number of shares of Common Stock that may be purchased under the ESPP is 750,000, subject to adjustment as provided for in the ESPP. The ESPP was effective August 10, 2021 and expires on August 10, 2031. A maximum of 5,000 shares of Common Stock may be purchased by an employee during any offering period.
The initial offering period under the ESPP was from November 1, 2021 through October 31, 2022 (“2021/2022 Offering”). There is currently no offering pursuant to the ESPP subsequent to October 31, 2022. For the three months and six months ended June 30, 2022, stock-based compensation under the 2021/2022 Offering was approximately $5,000 and 11,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss).
At the end of the 2021/2022 Offering period, 33,222 shares of Common Stock were issued at $1.82 per share to participating employees for a total purchase price of $60,464.
Warrants
In connection with the Exchange Agreement (see Note 7 – Debt – “Note and Warrant Exchange”), as additional consideration, on December 15, 2022, the Company issued warrants to the Exchanging Noteholders to purchase 969,525 shares of Common Stock. The fair value of the warrants, using the Black-Scholes valuation formula, was $993,200, which has been capitalized as a deferred financing cost of the 2022 Notes. The fair value of the warrants is being amortized over the life of the warrants, which is 36.5 months.
The warrants are exercisable through December 30, 2025 at an exercise price of $1.00 per share. Holders of the warrants may exercise their outstanding warrants in cash, or, 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 warrants being exercised.
As of June 30, 2023, all warrants for the purchase of an aggregate of 969,525 shares of Common Stock were outstanding.
No warrants were granted during the six months ended June 30, 2023 and 2022.
Note 9 – Income Taxes
The Company files a consolidated U.S. federal income tax return that includes all wholly ownedwholly-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 condensed 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 sheetsheets 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.
34 |
Table of Contents |
Significant components of the Company’s deferred tax assets and liabilities are as follows:
September 30, | December 31, | |
2017 | 2016 | |
Deferred tax asset: | ||
Net operating loss carryovers (1) | $112,760 | $131,626 |
Claims reserve discount | 444,517 | 417,349 |
Unearned premium | 3,866,770 | 2,877,365 |
Deferred ceding commission revenue | 1,344,275 | 2,329,626 |
Other | 504,338 | 188,675 |
Total deferred tax assets | 6,272,660 | 5,944,641 |
Deferred tax liability: | ||
Investment in KICO (2) | 1,169,000 | 1,169,000 |
Deferred acquisition costs | 4,889,872 | 4,161,526 |
Intangibles | 372,300 | 459,000 |
Depreciation and amortization | 287,861 | 265,671 |
Net unrealized appreciation of securities - available for sale | 681,715 | 56,393 |
Total deferred tax liabilities | 7,400,748 | 6,111,590 |
Net deferred income tax liability | $(1,128,088) | $(166,949) |
Type of NOL | September 30, 2017 | December 31, 2016 | Expiration |
State only (A) | $786,240 | $655,719 | December 31, 2037 |
Valuation allowance | (680,280) | (534,293) | |
State only, net of valuation allowance | 105,960 | 121,426 | |
Amount subject to Annual Limitation, federal only (B) | 6,800 | 10,200 | December 31, 2019 |
Total deferred tax asset from net operating loss carryovers | $112,760 | $131,626 |
|
| June 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Deferred tax asset: |
|
|
|
|
|
| ||
Net operating loss carryovers (1) |
| $ | 5,108,128 |
|
| $ | 3,828,947 |
|
Claims reserve discount |
|
| 1,189,834 |
|
|
| 1,238,544 |
|
Unearned premium |
|
| 3,510,180 |
|
|
| 3,574,840 |
|
Deferred ceding commission revenue |
|
| 2,034,934 |
|
|
| 2,230,109 |
|
Net unrealized losses on securities |
|
| 4,191,215 |
|
|
| 4,920,837 |
|
Other |
|
| 794,410 |
|
|
| 503,692 |
|
Total deferred tax assets |
|
| 16,828,701 |
|
|
| 16,296,969 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liability: |
|
|
|
|
|
|
|
|
Investment in KICO (2) |
|
| 759,543 |
|
|
| 759,543 |
|
Deferred acquisition costs |
|
| 4,502,433 |
|
|
| 5,002,085 |
|
Intangibles |
|
| 105,000 |
|
|
| 105,000 |
|
Depreciation and amortization |
|
| 123,249 |
|
|
| 99,183 |
|
Total deferred tax liabilities |
|
| 5,490,225 |
|
|
| 5,965,811 |
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset |
| $ | 11,338,476 |
|
| $ | 10,331,158 |
|
(1) | The deferred tax assets from net operating loss carryovers (“NOL”) are as follows: |
|
| June 30, |
|
| December 31, |
|
| ||||
Type of NOL |
| 2023 |
|
| 2022 |
|
| Expiration | |||
|
|
|
|
|
|
|
|
| |||
Federal only, NOL from 2021 - 2023 |
| $ | 5,108,128 |
|
| $ | 3,828,947 |
|
| None | |
|
|
|
|
|
|
|
|
|
|
| |
State only (A) |
|
| 2,479,077 |
|
|
| 2,276,595 |
|
| December 2027 - December 2043 | |
Valuation allowance |
|
| (2,479,077 | ) |
|
| (2,276,595 | ) |
|
| |
State only, net of valuation allowance |
|
| - |
|
|
| - |
|
|
| |
|
|
|
|
|
|
|
|
|
|
| |
Total deferred tax asset from net operating loss carryovers |
| $ | 5,108,128 |
|
| $ | 3,828,947 |
|
|
|
(A) Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of SeptemberJune 30, 20172023 and December 31, 20162022 was approximately
35 |
Table of Contents |
(2)
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 $1,169,000$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 ninesix months ended SeptemberJune 30, 20172023 and 2016.2022. 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, 20142019 through December 31, 20162021 remain subject to examination.
Note 10 – EarningsLoss Per Common Share
Basic net earningsloss per common share is computed by dividing income available to common shareholdersnet loss by the weighted-average number of common shares of Common Stock outstanding. Diluted earningsloss per common share reflect,reflects, in periods in which they haveit has a dilutive effect, the impact of common shares issuable upon exercise of stock options.options and warrants as well as non-vested restricted stock awards. The computation of diluted earningsloss per common share excludes those options and warrants with an exercise price in excess of the average market price of the Company’s common sharesCommon Stock during the periods presented.
The computation of diluted earningsloss per common share excludes outstanding options, warrants and non-vested restricted stock awards in periods where the exercise of such options and warrants or vesting of such restricted stock awards would be anti-dilutive. For the three months and six months ended SeptemberJune 30,, 2017 2023 and 2016, the inclusion of -0- and 27,5002022, no options, respectively,warrants or restricted stock awards were included in the computation of diluted earningsloss per common share as they would have been anti-dilutive for the relevant periods and, as a result, the weighted average number of common shares of Common Stock used in the calculation of diluted earningsloss per common share has not been adjusted for the effect of such options. For the nine months ended September 30, 2017options, warrants and 2016, the inclusion of -0- and 22,664 options, respectively, in the computation of diluted earnings per common share would have been anti-dilutive for the periods and, as a result, the weighted average number of common shares used in the calculation of diluted earnings per common share has not been adjusted for the effect of such options.
36 |
Table of Contents |
The reconciliation of the weighted average number of common shares of Common Stock used in the calculation of basic and diluted earningsloss per common share follows:
Three months ended | Nine months ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Weighted average number of shares outstanding | 10,626,242 | 7,911,353 | 10,307,689 | 7,676,887 |
Effect of dilutive securities, common share equivalents: | ||||
Stock options | 197,133 | - | 189,211 | - |
Restricted stock awards | 9,364 | 61,572 | 3,373 | 52,825 |
Weighted average number of shares outstanding, | ||||
used for computing diluted earnings per share | 10,832,739 | 7,972,925 | 10,500,272 | 7,729,712 |
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average number of shares outstanding |
|
| 10,755,848 |
|
|
| 10,644,578 |
|
|
| 10,753,974 |
|
|
| 10,637,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities, common share equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Restricted stock awards |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, used for computing diluted loss per share |
|
| 10,755,848 |
|
|
| 10,644,578 |
|
|
| 10,753,974 |
|
|
| 10,637,553 |
|
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 not subject to any other pending legal proceedings that management believesprimarily used for office space in the ordinary course of business. These leases are likely to haveaccounted for as operating leases, whereby lease expense is recognized on a material adverse effect onstraight-line basis over the condensed consolidated financial statements.
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. In June 2016,York expiring March 31, 2024.
On July 8, 2019, the Company entered into a lease modification agreement.agreement for an additional office facility for Cosi located in Valley Stream, New York under a non-cancelable operating lease. The original lease had a term of seven years and nine months. two months expiring December 31, 2026. During January 2022, pursuant to a mutual agreement with the landlord at a cost of $40,000, the Cosi lease was terminated effective as of January 31, 2022.
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Additional information regarding the Company’s office operating leases is as follows:
(1) | KICO rent expense is included in the condensed consolidated statements of operations and comprehensive income (loss) within other underwriting expenses. | |
(2) | Cosi rent expense is included in the condensed consolidated statements of operations and comprehensive income (loss) within other operating expenses. |
The following table presents the contractual maturities of the Company’s lease modification increasedliabilities as of June 30, 2023:
|
| Three months ended |
|
| Six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
Lease cost |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating lease (1) (2) |
| $ | 41,342 |
|
| $ | 41,342 |
|
| $ | 82,684 |
|
| $ | 89,810 |
|
Total lease cost (1) (2) |
| $ | 41,342 |
|
| $ | 41,342 |
|
| $ | 82,684 |
|
| $ | 89,810 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information on operating leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments included in the measurement of lease liability reported in operating cash flows |
| $ | 49,145 |
|
| $ | 47,483 |
|
| $ | 96,629 |
|
| $ | 100,486 |
|
Discount rate |
|
| 5.50 | % |
|
| 5.50 | % |
|
| 5.50 | % |
|
| 5.50 | % |
Remaining lease term in years |
|
| 0.75 |
|
|
| 1.75 |
|
|
| 0.75 |
|
|
| 1.75 |
|
(1) | The operating lease liability is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. |
The following table presents the space occupied by KICOcontractual maturities of the Company’s lease liabilities as of June 30, 2023:
For the Six Months |
|
|
| |
Ending |
|
|
| |
June 30, |
| Total |
| |
Remainder of 2023 |
| $ | 98,291 |
|
2024 |
|
| 49,145 |
|
Total undiscounted lease payments |
|
| 147,436 |
|
Less: present value adjustment |
|
| 10,115 |
|
Operating lease liability (1) |
| $ | 137,321 |
|
(1) | The operating lease liability is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. |
Rent expense for the three months ended June 30, 2023 and 2022 amounted to $41,342 for both periods and is included in the accompanying condensed consolidated statements of operations and comprehensive income (loss) within other underwriting expenses. Rent expense for the six months ended June 30, 2023 and 2022 amounted to $82,684 and $89,810, respectively, and is included in the accompanying condensed consolidated statements of operations and comprehensive income (loss) within other underwriting expenses.
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Employment Agreements
Barry Goldstein, President, Chief Executive Officer and Executive Chairman of the Board
Employment Agreement effective as of January 1, 2020
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 “Second Amended Goldstein Employment Agreement”). The Second Amended Goldstein Employment Agreement became effective as of January 1, 2020 and expired on December 31, 2022. The Second Amended Goldstein Employment Agreement extended the lease termexpiration date of the employment agreement in effect for Mr. Goldstein from December 31, 2021 to seven yearsDecember 31, 2022.
Pursuant to the Second Amended Goldstein Employment Agreement, Mr. Goldstein was entitled to receive an annual base salary of $500,000 and ninean 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 Second Amended Goldstein Employment Agreement, Mr. Goldstein was 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 Second Amended Goldstein 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 was at least 14%). Pursuant to the Third Amended Goldstein Employment Agreement (discussed below), Mr. Goldstein relinquished the right to receive the LTC. Pursuant to the Second Amended Goldstein Employment Agreement, in the event that Mr. Goldstein’s employment was terminated by the Company without cause or he resigned for good reason (each as defined in the Second Amended Goldstein Employment Agreement), Mr. Goldstein would have been entitled to receive his base salary and the 6% bonus for the remainder of the term. In addition, in the event of Mr. Goldstein’s death, his estate would have been entitled to receive his base salary and accrued bonus through the date of death. Further, in the event that Mr. Goldstein’s employment was terminated by the Company without cause or he resigned 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 would have vested. Mr. Goldstein would have been entitled, under certain circumstances, to a payment equal to 3.82 times his then annual salary 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 be measured from the additional premises commencement date. The additional premises commencementSecond Amended Goldstein Employment Agreement, in January 2020, Mr. Goldstein received a grant of 157,431 shares of restricted stock under the terms of the Company’s 2014 Plan determined by dividing $1,250,000 by the fair market value of the Company’s Common Stock on the date of grant. This 2020 grant vested with respect to one-third of the award on each of the first and second anniversaries of the grant date and will vest with respect to one-sixth of the award on each of December 29, 2023 and December 30, 2024 based on the continued provision of services through such dates. Also pursuant to the Second Amended Goldstein Employment Agreement, Mr. Goldstein received a grant, under the terms of the 2014 Plan, during January 2021, of 230,769 shares of restricted stock determined by dividing $1,500,000 by the fair market value of the Company’s Common Stock on the date of grant. This 2021 grant vested with respect to one-half of the award on the first anniversary of the grant date and will vest with respect to one-fourth of the award on each of December 29, 2023 and December 30, 2024 based on the continued provision of services through such dates. Further, pursuant to the Second Amended Goldstein Employment Agreement, Mr. Goldstein received in 2020, 2021, and 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 September 19, 2016,granted 17,191 shares of restricted stock pursuant to this provision. This grant vested with respect to one-third of the award on each of the first and additional rentsecond anniversaries of the grant date and will vest with respect to one-sixth of the award on each of December 29, 2023 and December 30, 2024 based on the continued provision of services through such dates. In January 2021, Mr. Goldstein was payable beginning March 19, 2017. The original lease commencementgranted 21,000 shares of restricted stock pursuant to this provision. This grant vested with respect to one-half of the award on the first anniversary of the grant date and will vest with respect to one-fourth of the award on each of December 29, 2023 and December 30, 2024 based on the continued provision of services through such dates. In January 2022, Mr. Goldstein was July 1, 2015granted 27,300 shares of restricted stock pursuant to this provision. This grant will vest with respect to one-half of the award on each of December 29, 2023 and rent commencement beganDecember 30, 2024 based on the continued provision of services through such dates. Pursuant to the 2014 Plan, Mr. Goldstein’s unvested restricted stock awards will vest in the event of a change in control of the Company. In addition, in the event of the termination of Mr. Goldstein’s employment with the Company for any reason, his unvested restricted stock will vest.
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Employment Agreement effective as of January 1, 2016.
On June 27, 2022, the Company and Mr. Goldstein entered into a third amended and restated employment agreement which took effect as of January 1, 2023, and expires on December 31, 2024 (the “Third Amended Goldstein Employment Agreement”).
Pursuant to the Third Amended Goldstein Employment Agreement, Mr. Goldstein is entitled to receive an annual base salary of $500,000 and an annual bonus equal to 3% 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 1.25 times his base salary. Pursuant to the Third Amended Goldstein Employment Agreement, Mr. Goldstein would be entitled to receive, under certain circumstances, a payment equal to 1.5 times his then annual base salary and his accrued bonus in the event of the termination of his employment within eighteen months following a change of control of the Company.
See Note 13 – Subsequent Events-Management Succession.
Meryl Golden, Chief Operating Officer
Employment Agreement effective as of January 1, 2021
On September 16, 2019, the Company and Meryl Golden entered into an employment agreement (the “Golden Employment Agreement”) pursuant to which Ms. Golden serves as the Company’s Chief Operating Officer. Ms. Golden also serves as KICO’s President and Chief Operating Officer. The Golden Employment Agreement became effective as of September 25, 2019 (amended on December 24, 2020) and expired on December 31, 2022.
Pursuant to the Golden Employment Agreement, Ms. Golden was entitled to receive an annual salary of $500,000. The Golden Employment Agreement also provided 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 vested 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. Pursuant to the Golden Employment Agreement, as amended, in each of January 2021 and January 2022, Ms. Golden was granted 30,000 shares of restricted Common Stock pursuant to the 2014 Plan. Each such grant will vest in three equal installments on each of the first, second and third anniversaries of the grant date. Pursuant to the 2014 Plan, Ms. Golden’s outstanding stock options and restricted stock awards will vest in the event of a change in control of the Company.
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Employment Agreement effective as of January 1, 2023
On June 27, 2022, the Company and Ms. Golden entered into a second amended and restated employment agreement which took effect as of January 1, 2023, and expires on December 31, 2024 (the “Second Amended Golden Employment Agreement”).
Pursuant to the Second Amended Golden Employment Agreement, Ms. Golden is entitled to receive an annual base salary of $500,000 and an annual bonus equal to 3% 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 1.25 times her base salary. In addition, pursuant to the base rental costs, occupancy lease agreements generally provide for rent escalations resulting from increased assessments from real estate taxes and other charges. Rent expenseSecond Amended Golden Employment Agreement, Ms. Golden is entitled to receive a grant, under the leaseterms of the 2014 Plan, during each of January 2023 and January 2024, under certain circumstances, 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 2023, Ms. Golden was granted 101,111 shares of restricted stock pursuant to this provision. The 2023 grant will vest with respect to one-half of the award on the first anniversary of the grant date and one-half of the award on December 31, 2024, based on the continued provision of services through such dates. The 2024 grant will vest on December 31, 2024, based on the continued provision of services through such date. In the event that the Company is recognized onprecluded from making a straight-line basis overgrant in 2024, then instead Ms. Golden shall be entitled to receive a cash bonus of $136,500 for such year. Further, pursuant to the lease term. At SeptemberSecond Amended Golden Employment Agreement, Ms. Golden would be entitled to receive, under certain circumstances, a payment equal to 1.5 times her then annual base salary and her accrued bonus in the event of the termination of her employment within eighteen months following a change of control of the Company.
See Note 13 – Subsequent Events-Management Succession.
Note 12 – Employee Benefit Plans
Employee Bonus Plan
For the six months ended June 30, 2017, cumulative rent2023 and 2022 the Company did not accrue for, or pay, bonuses related to an employee bonus plan.
401(k) Plan
The Company maintains a salary reduction plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”) for its qualified employees. The Company matches 100% of each participant’s contribution up to 4% of the participant’s eligible contribution. The Company incurred approximately $75,000 and $74,000, respectively, of expense exceeded cumulative rent payments by $89,219. This differencefor the three months ended June 30, 2023 and 2022, related to the 401(k) Plan, which is recorded in other underwriting expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss). The Company incurred approximately $159,000 and $136,000, respectively, of expense for the six months ended June 30, 2023 and 2022, related to the 401(k) Plan, which is recorded in other underwriting expenses on the accompanying condensed consolidated statements of operations and comprehensive income (loss).
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Deferred Compensation Plan
On June 18, 2018, the Company adopted the Kingstone Companies, Inc. Deferred Compensation Plan (the "Deferred Compensation Plan"). Effective December 22, 2022, the Company terminated the Deferred Compensation Plan. The assets of the Deferred Compensation Plan will be liquidated by making payments to Participants in full satisfaction of their interest in the Deferred Compensation Plan (“Termination Payments”), which Termination Payments will be made no earlier than December 22, 2023 and will be completed no later than December 22, 2024.
The deferred compensation liability as deferred rentof June 30, 2023 and December 31, 2022 amounted to $898,790 and $1,155,860, respectively, and is includedrecorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets.
For the Year | |
Ending | |
December 31, | Total |
2017 (three months) | $39,980 |
2018 | 164,117 |
2019 | 169,861 |
2020 | 175,806 |
2021 | 181,959 |
Thereafter | 432,392 |
Total | $1,164,115 |
Note 1213 – Subsequent Events
The Company has evaluated events that occurred subsequent to SeptemberJune 30, 20172023 through the date these condensed consolidated financial statements were issued for matters that required disclosure or adjustment in these condensed consolidated financial statements.
Reinsurance
Effective July 1, 2023, the Company entered into new excess of loss and catastrophe reinsurance treaties (see Note 6 – Property and Casualty Insurance Activity - “Reinsurance”).
A.M. Best
On November 8, 2017,July 6, 2023, A.M. Best withdrew KICO’s ratings as KICO requested to no longer participate in A.M. Best’s interactive rating process.
Equity Participation Plan
On August 9, 2023, the Company’s stockholders approved an amendment to the 2014 Plan to increase the maximum number of shares of Common Stock of the Company that are authorized to be issued pursuant to the 2014 Plan to 1,900,000 (see Note 8 – Stockholders’ Equity).
Management Succession
On August 9, 2023, the Company announced that, effective as of October 1, 2023, Meryl Golden, the Company’s Chief Operating Officer, has been appointed to the position of President and Chief Executive Officer of the Company to succeed Barry Goldstein and that Mr. Goldstein will continue as the Chairman of the Board of Directors approved a quarterly dividend of $.08 per share payable in cash on December 15, 2017 to stockholders of record asthe Company.
The foregoing description of the closemanagement succession does not purport to be complete and is qualified in its entirety by reference to the full texts of business on November 30, 2017.
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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 and small businesses in New York State and other markets 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.County, although we are writing business in New Jersey, Rhode Island, Connecticut and Massachusetts. We are also licensed in the States of New York, New Jersey, Connecticut, Pennsylvania, Rhode Island, Connecticut, Massachusetts, Pennsylvania, Maine, and Texas. We began writing homeowners business in New Jersey on May 4, 2017. Although New Jersey is now a growing expansion market for us,Hampshire. For the majoritythree months and six months ended June 30, 2023, respectively, 88.6% and 87.8% of KICO’s direct written premiums came from the New York policies.
In addition, our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, 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. Cosi-related operating expenses are minimal and are included in other operating expenses. Cosi-related operating expenses are not included in our stand-alone insurance underwriting business is writtenand, accordingly, Cosi’s expenses are not included in the State of New York. In October 2017, a homeowners rate, rule, and form filing was approved for use by the State of Rhode Island. We anticipate writing business there in the fourth quarter of 2017. In October 2017, KICO received tentative approval for a Massachusetts insurance license. KICO expects to have final approval and file a Massachusetts homeowners rate, rule, and form filing in the fourth quarter of 2017.
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 yearone-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 yearone-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 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 commonly 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. These corporate expenses include legal and auditing fees, executive employment costs, and other costs directly associated with being a public company.
Product Lines
Our active product lines include the following:
Personal lines:
Our largest line of business is personal lines, consisting of homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies.Commercial liability:
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In May 2019, due to the poor performance of this line we placed a moratorium on new commercial lines and new commercial umbrella submissions while we further reviewed this business. In July 2019, due to the continuing poor performance of these lines, we made the decision to no longer underwrite commercial lines or commercial umbrella risks. In-force policies as of July 31, 2019 for these lines were non-renewed at the end of their annual terms. As of June 30, 2023 and December 31, 2022, there were no commercial liability policies in-force. As of June 30, 2023 and December 31, 2022, these expired policies represent approximately 16.3% and 17.9%, respectively, 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 andKey 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 andNet 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 in44 |
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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 accounting principles generally accepted in the United StatesGAAP 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 forof 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. However, applicationApplication of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of similar companies.
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 yet 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 impairmentallowance for credit losses of investment securities, intangible assets and the valuation of stock-based compensation.warrants. See Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022 and Note 2 of the condensed consolidated financial statements - “Accounting Policies”included in this Quarterly Report for information relatedaccounting policies regarding the adoption of ASU 2016-13 effective January 1, 2023.
Kingstone 2.0 (completed) and Kingstone 3.0 (underway)
Beginning in the fourth quarter of 2019, a series of strategic initiatives, coined “Kingstone 2.0” were commenced to updated accounting policies.
1. | Strengthen the management team by adding highly qualified professionals with deep domain experience and diverse backgrounds; | |
2. | Reduce expenses and increase efficiency by embracing technology including converting to a new policy management system, retiring multiple legacy systems and starting up a new claims system, among other technology initiatives; | |
3. | Develop and implement a new, more highly segmented product suite (Kingstone Select) which better matches rate to risk using advanced analytics and an abundance of data; and | |
4. | Better manage the Company’s catastrophe exposure in order to reduce loss cost and the growth rate of our Probable Maximum Loss (“PML”) in order to mitigate the impact of the emerging “hard market” in catastrophe reinsurance. |
We announced the substantive completion of Kingstone 2.0 in late 2022 and embarked on a new strategy to optimize our in-force business, which we coined as “Kingstone 3.0”. The four pillars of this new strategy entail:
1. | Aggressively reducing the book of business in non-New York states, which has had a disproportionately negative impact on underwriting results, by slowing new business, re-underwriting the book, culling the agent base, reducing commissions, or other means, subject to regulatory constraints; | |
2. | Adjusting pricing to stay ahead of loss trends, including inflation, by filing the maximum annual rate change that can be supported in each state and product and ensuring all policyholders are insured to value; | |
3. | Tightly managing reinsurance requirements and costs, using risk selection and other underwriting capabilities to manage the growth rate of our PML; and | |
4. | Continuing expense reduction focus with a goal of reducing the net expense ratio to 33% by year-end 2024. |
We believe that the actions taken will have the intended effect and will result in a return to profitability for the Company.
Consolidated Results of Operations
Six Months Ended SeptemberJune 30, 20172023 Compared to NineSix Months Ended SeptemberJune 30, 2016
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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) | 2017 | 2016 | Change | Percent |
Revenues | ||||
Direct written premiums | $89,424 | $76,375 | $13,049 | 17.1% |
Assumed written premiums | 18 | 15 | 3 | 20.0% |
89,442 | 76,390 | 13,052 | 17.1% | |
Ceded written premiums | ||||
Ceded to quota share treaties in force during the period | 18,943 | 19,463 | (520) | (2.7)% |
Return of premiums previously ceded to prior quota share treaties (1) | (7,140) | - | (7,140) | na |
Ceded to quota share treaties | 11,803 | 19,463 | (7,660) | (39.4)% |
Ceded to excess of loss treaties | 903 | 1,078 | (175) | (16.2)% |
Ceded to catastrophe treaties | 8,013 | 7,002 | 1,011 | 14.4% |
Total ceded written premiums | 20,719 | 27,543 | (6,824) | (24.8)% |
Net written premiums | 68,723 | 48,847 | 19,876 | 40.7% |
Change in unearned premiums | ||||
Direct and assumed | (8,448) | (4,874) | (3,574) | 73.3% |
Ceded to quota share treaties | (5,437) | 1,216 | (6,653) | (547.1)% |
Change in net unearned premiums | (13,885) | (3,658) | (10,227) | 279.6% |
Premiums earned | ||||
Direct and assumed | 80,994 | 71,516 | 9,478 | 13.3% |
Ceded to quota share treaties | (26,156) | (26,327) | 171 | (0.6)% |
Net premiums earned | 54,838 | 45,189 | 9,649 | 21.4% |
Ceding commission revenue | 8,208 | 8,274 | (66) | (0.8)% |
Net investment income | 2,917 | 2,286 | 631 | 27.6% |
Net realized gain on investments | 97 | 605 | (508) | (84.0)% |
Other income | 926 | 831 | 95 | 11.4% |
Total revenues | 66,986 | 57,185 | 9,801 | 17.1% |
Nine months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Total revenues (continued) | 66,986 | 57,185 | 9,801 | 17.1% |
Expenses | ||||
Loss and loss adjustment expenses | ||||
Direct and assumed: | ||||
Loss and loss adjustment expenses excluding the effect of catastrophes | 31,324 | 26,746 | 4,578 | 17.1% |
Losses from catastrophes (1) | - | 2,337 | (2,337) | (100.0)% |
Total direct and assumed loss and loss adjustment expenses | 31,324 | 29,083 | 2,241 | 7.7% |
Ceded loss and loss adjustment expenses: | ||||
Loss and loss adjustment expenses excluding the effect of catastrophes | 8,503 | 7,742 | 761 | 9.8% |
Losses from catastrophes (1) | - | 935 | (935) | (100.0)% |
Total ceded loss and loss adjustment expenses | 8,503 | 8,677 | (174) | (2.0)% |
Net loss and loss adjustment expenses: | ||||
Loss and loss adjustment expenses excluding the effect of catastrophes | 22,821 | 19,004 | 3,817 | 20.1% |
Losses from catastrophes (1) | - | 1,402 | (1,402) | (100.0)% |
Net loss and loss adjustment expenses | 22,821 | 20,406 | 2,415 | 11.8% |
Commission expense | 15,491 | 13,400 | 2,091 | 15.6% |
Other underwriting expenses | 12,887 | 10,982 | 1,905 | 17.3% |
Other operating expenses | 2,731 | 1,292 | 1,439 | 111.4% |
Depreciation and amortization | 1,023 | 835 | 188 | 22.5% |
Total expenses | 54,954 | 46,915 | 8,038 | 17.1% |
Income from operations before taxes | 12,031 | 10,270 | 1,761 | 17.1% |
Provision for income tax | 3,976 | 3,426 | 550 | 16.1% |
Net income | $8,055 | $6,844 | $1,211 | 17.7% |
Nine months ended September 30, | ||||
2017 | 2016 | Percentage Point Change | Percent Change | |
Key ratios: | ||||
Net loss ratio | 41.6% | 45.2% | (3.6) | (8.0)% |
Net underwriting expense ratio | 35.2% | 33.8% | 1.4 | 4.1% |
Net combined ratio | 76.8% | 79.0% | (2.2) | (2.8)% |
|
| Six months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct written premiums |
| $ | 95,244 |
|
| $ | 92,762 |
|
| $ | 2,482 |
|
|
| 2.7 | % |
Assumed written premiums |
|
| - |
|
|
| - |
|
|
| - |
|
| na | % | |
|
|
| 95,244 |
|
|
| 92,762 |
|
|
| 2,482 |
|
|
| 2.7 | % |
Ceded written premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded to quota share treaties (1) |
|
| 26,622 |
|
|
| 21,949 |
|
|
| 4,673 |
|
|
| 21.3 | % |
Ceded to excess of loss treaties |
|
| 2,135 |
|
|
| 1,743 |
|
|
| 392 |
|
|
| 22.5 | % |
Ceded to catastrophe treaties |
|
| 13,936 |
|
|
| 14,126 |
|
|
| (190 | ) |
|
| (1.3 | )% |
Total ceded written premiums |
|
| 42,693 |
|
|
| 37,818 |
|
|
| 4,875 |
|
|
| 12.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
| 52,551 |
|
|
| 54,944 |
|
|
| (2,393 | ) |
|
| (4.4 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| 5,578 |
|
|
| (393 | ) |
|
| 5,971 |
|
| na | % | |
Ceded to quota share treaties (1) |
|
| (366 | ) |
|
| 25 |
|
|
| (391 | ) |
| na | % | |
Change in net unearned premiums |
|
| 5,212 |
|
|
| (368 | ) |
|
| 5,580 |
|
| na | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| 100,822 |
|
|
| 92,369 |
|
|
| 8,453 |
|
|
| 9.2 | % |
Ceded to reinsurance treaties |
|
| (43,059 | ) |
|
| (37,794 | ) |
|
| (5,265 | ) |
|
| (13.9 | )% |
Net premiums earned |
|
| 57,763 |
|
|
| 54,575 |
|
|
| 3,188 |
|
|
| 5.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue (1) |
|
| 10,858 |
|
|
| 9,397 |
|
|
| 1,461 |
|
|
| 15.5 | % |
Net investment income |
|
| 2,993 |
|
|
| 1,993 |
|
|
| 1,000 |
|
|
| 50.2 | % |
Net gains (losses) on investments |
|
| 1,422 |
|
|
| (8,916 | ) |
|
| 10,338 |
|
| na | % | |
Other income |
|
| 312 |
|
|
| 480 |
|
|
| (168 | ) |
|
| (35.0 | )% |
Total revenues |
|
| 73,348 |
|
|
| 57,530 |
|
|
| 15,819 |
|
|
| 27.5 | % |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 60,256 |
|
|
| 52,832 |
|
|
| 7,424 |
|
|
| 14.1 | % |
Losses from catastrophes (2) |
|
| 7,875 |
|
|
| 7,032 |
|
|
| 843 |
|
|
| 12.0 | % |
Total direct and assumed loss and loss adjustment expenses |
|
| 68,131 |
|
|
| 59,864 |
|
|
| 8,267 |
|
|
| 13.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 20,761 |
|
|
| 14,367 |
|
|
| 6,394 |
|
|
| 44.5 | % |
Losses from catastrophes (2) |
|
| 2,749 |
|
|
| 3,901 |
|
|
| (1,152 | ) |
|
| (29.5 | )% |
Total ceded loss and loss adjustment expenses |
|
| 23,510 |
|
|
| 18,268 |
|
|
| 5,242 |
|
|
| 28.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 39,494 |
|
|
| 38,465 |
|
|
| 1,029 |
|
|
| 2.7 | % |
Losses from catastrophes (2) |
|
| 5,126 |
|
|
| 3,132 |
|
|
| 1,994 |
|
|
| 63.7 | % |
Net loss and loss adjustment expenses |
|
| 44,620 |
|
|
| 41,597 |
|
|
| 3,023 |
|
|
| 7.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 17,011 |
|
|
| 16,832 |
|
|
| 179 |
|
|
| 1.1 | % |
Other underwriting expenses |
|
| 13,555 |
|
|
| 13,441 |
|
|
| 114 |
|
|
| 0.8 | % |
Other operating expenses |
|
| 1,426 |
|
|
| 1,548 |
|
|
| (122 | ) |
|
| (7.9 | )% |
Depreciation and amortization |
|
| 1,587 |
|
|
| 1,647 |
|
|
| (60 | ) |
|
| (3.6 | )% |
Interest expense |
|
| 2,016 |
|
|
| 913 |
|
|
| 1,103 |
|
|
| 120.8 | % |
Total expenses |
|
| 80,215 |
|
|
| 75,978 |
|
|
| 4,237 |
|
|
| 5.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
| (6,867 | ) |
|
| (18,448 | ) |
|
| 11,581 |
|
|
| 62.8 | % |
Income tax benefit |
|
| (1,290 | ) |
|
| (3,871 | ) |
|
| 2,581 |
|
|
| 66.7 | % |
Net loss |
| $ | (5,577 | ) |
| $ | (14,577 | ) |
| $ | 9,000 |
|
|
| 61.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Columns in the table above may not sum to totals due to rounding) |
(1) | Effective December 31, 2021, we entered into a 30% personal lines quota share treaty. | |
(2) | The six months ended June 30, 2023 and 2022 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. |
46 |
Table of Contents |
|
| Six months ended June 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
|
| Percentage Point Change |
|
| Percent Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Key ratios: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss ratio |
|
| 77.2 | % |
|
| 76.2 | % |
|
| 1.0 |
|
|
| 1.3 | % |
Net underwriting expense ratio |
|
| 33.6 | % |
|
| 37.4 | % |
|
| (3.8 | ) |
|
| (10.2 | )% |
Net combined ratio |
|
| 110.8 | % |
|
| 113.6 | % |
|
| (2.8 | ) |
|
| (2.5 | )% |
Direct Written Premiums
Direct written premiums during the ninesix months ended SeptemberJune 30, 20172023 (“2017”Six Months 2023”) were
Direct written premiums from our personal lines business for Six Months 2023 were $88,182,000, an increase of $1,227,000, or 1.4%, from $86,955,000 in Six Months 2022. The 1.4% increase in premiums from our personal lines business was primarily due to rate increases offset by the decrease in premiums associated with a 8.6% decrease in policies in-force during 2017in force as of June 30, 2023 compared to 2016 driven by continued growthJune 30, 2022. The rate increases achieved along with a decrease in new business. We wrote more new policies as a resultin force is in accordance with both our Kingstone 2.0 and Kingstone 3.0 strategic plans.
Direct written premiums from our livery physical damage business for Six Months 2023 were $7,016,000, an increase of continued demand for our products$1,289,000, or 22.5%, from $5,727,000 in Six Months 2022. The increase in livery physical damage direct written premiums was due to an increasing number of policies and an increase in the markets that we serve. We believe that a portionvalues of our growththe autos insured.
Beginning in new policies is attributable to our upgraded A.M. Best rating of A- that we received in April 2017. In May 2017, we started writing Homeowners’personal lines policies in New Jersey. Policies in-force increased by 14.6%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 September 30, 2017New York as our “non-New York” business. Direct written premiums from our Core business were $83,639,000 in Six Months 2023 compared to
47 |
Table of Contents |
Net Written Premiums and Net Premiums Earned
Effective December 31, 2021, we entered into a quota share reinsurance ceding rates in effect during 2017 and 2016. For purposes of the discussion herein, the change in quota share ceding rates on July 1, 2017 will be referred to as “the Cut-off”. This table should be referred to in conjunction with the discussionstreaty for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | |||
January 1, | July 1, | January 1, | July 1, | |
to | to | to | to | |
June 30, | September 30, | June 30, | September 30, | |
("2016/2017 Treaty") | ("2017/2019 Treaty") | ("2015/2016 Treaty") | ("2016/2017 Treaty") | |
Quota share reinsurance rates | ||||
Personal lines | 40% | 20% | 40% | 40% |
Nine months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Net written premiums | $68,723 | $48,847 | $19,876 | 40.7% |
Return of premiums previously ceded to prior quota share treaties | 7,140 | - | 7,140 | na |
Net written premiums without the effect of the July 1, 2017 Cut-off | $61,583 | $48,847 | $12,736 | 26.1% |
Excess of loss reinsurance treaties
An increase in written premiums will also increase the premiums ceded under our excess of loss treaties, which incrementally reduces our net written premiums.treaties. In 2017,Six Months 2023, our ceded excess of loss reinsurance premiums decreasedincreased by $175,000$392,000 over the comparable ceded premiums for 2016.Six Months 2022. The decreaseincrease was due to more favorable reinsurance rates in 2017, partially offset by an increase in subject premiums subject toand the heightened cost of coverage obtained. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance.
Catastrophe reinsurance treaty
Most of the premiums written under our personal lines policies are also subject to our catastrophe treaty.treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums forceded under catastrophe insurancetreaties will increase. ThisAn increase in our personal lines business results in an increase in premiums ceded under our catastrophe treaty, which reduces net written premiums.treaties if reinsurance rates are stable or are increasing. In 2017,accordance with our Kingstone 2.0 and Kingstone 3.0 goals, we have reduced our PML, and in the Six Months 2023, our premiums ceded under catastrophe reinsurance premiums increasedtreaties decreased by $1,011,000 over$190,000 as compared to the comparable ceded premiums for 2016.in Six Months 2022, in spite of a large catastrophe reinsurance rate increase on our book effective July 1, 2022.
Net premiums earned
Net premiums earned increased $3,188,000, or 5.8%, to $57,763,000 in Six Months 2023 from $54,575,000 in Six Months 2022. The increase was due in part to anthe 2.7% increase in our catastrophe coverage and an increase in premiums subject to catastrophe reinsurance, partially offset by more favorable reinsurance rates in 2017
48 |
Table of Contents |
Ceding Commission Revenue
Nine months ended September 30, 2017 | Nine months ended September 30, 2016 | ||||||
January 1, | July 1, | January 1, | July 1, | ||||
to | to | to | to | ||||
June 30, | September 30, | June 30, | September 30, | ||||
("2016/2017 Treaty") | ("2017/2019 Treaty") | ("2015/2016 Treaty") | ("2016/2017 Treaty") | ||||
Provisional ceding commission rate on quota share treaty | |||||||
Personal lines | 52% | 53% | 55% | 52% |
The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:
Nine months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Provisional ceding commissions earned | $8,690 | $9,508 | $(818) | (8.6)% |
Contingent ceding commissions earned | (482) | (1,234) | 752 | 60.9% |
Total ceding commission revenue | $8,208 | $8,274 | $(66) | (0.8)% |
|
| Six months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provisional ceding commissions earned |
| $ | 10,741 |
|
| $ | 9,234 |
|
| $ | 1,507 |
|
|
| 16.3 | % |
Contingent ceding commissions earned |
|
| 117 |
|
|
| 163 |
|
|
| (46 | ) |
|
| (28.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ceding commission revenue |
| $ | 10,858 |
|
| $ | 9,397 |
|
| $ | 1,461 |
|
|
| 15.5 | % |
(Columns in the table above may not sum to totals due to rounding)
Ceding commission revenue was
Provisional Ceding Commissions Earned
In Six Months 2023 we earned provisional ceding commission based oncommissions of $10,741,000 from personal lines earned premiums ceded written premiums. In 2017 ourunder the 2023/2024 Treaty, and in Six Months 2022 we earned provisional ceding rate was 52%commissions of $9,234,000 from January 1, 2017 through June 30, 2017personal lines earned premiums ceded under the 2016/2017 Treaty and was increased to 53% effective July 1, 2017 under the 2017/2019 Treaty. In 2016 our provisional ceding rate was 55% from January 1, 2016 through June 30, 2016 under the 2015/2016 Treaty and was decreased to 52% effective July 1, 2016 under the 2016/20172021/2023 Treaty. The $818,000 decreaseincrease of $1,507,000 in provisional ceding commissions earned is primarilywas due to the decrease in quota share ceding rate effective July 1, 2017increase premiums ceded under these treaties during Six Months 2023 compared to 20%, fromSix Months 2022.
Contingent Ceding Commissions Earned
The structure of the 40% rate in effect from January 1, 2016 through June 30, 2017; thus there was less ceded premiums beginning July 1, 2017 available to earn ceding commissions than there was in 2016. The decrease was partially offset by an increase in personal lines direct written premiums subject to2023/2024 Treaty and the quota share and by the increase in our2021/2023 Treaty calls for a fixed provisional ceding commission rate as discussed above.
Net Investment Income
Net investment income was
Cash and invested assets were $155,738,000$175,407,000 as of SeptemberJune 30, 2017,2023 compared to $108,968,000$193,784,000 as of SeptemberJune 30, 2016.2022. The $46,770,000 increase$18,377,000 decrease in cash and invested assets resultedwas primarily fromattributable to increased disbursements of losses in connection with higher severity and inflation’s impact on losses along with catastrophe losses incurred in 2023 and prior periods. An increase in unrealized losses on our investment portfolio also contributed to the reduction.
49 |
Table of Contents |
Net Gains (Losses) on Investments
Net gains on investments were $1,422,000 in Six Months 2023 compared to net proceeds(losses) of approximately $30,137,000 that we received$(8,916,000) in JanuarySix Months 2022. Unrealized gains on our equity securities and February 2017 from our public offering and increased operating cash flows for the period after
Other Income
Other income was $926,000$312,000 in 2017Six Months 2023 compared to $831,000$480,000 in 2016. The increaseSix Months 2022, a decrease of $95,000,$168,000, or 11.4%, was primarily due to an increase in installment and finance fees earned in our insurance underwriting business.
Net Loss and LAE
Net loss and LAE was $22,821,000 in 2017$44,620,000 for Six Months 2023 compared to $20,406,000 in 2016.$41,597,000 for Six Months 2022. The net loss ratio was 41.6%77.2% in 2017Six Months 2023 compared to 45.2%76.2% in 2016, a decreaseSix Months 2022, an increase of 3.61.0 percentage points.
The following graph summarizes the changes in the components of net loss ratio for the periods indicated:
(Percent components may not sum to totals due to rounding)
50 |
Table of Contents |
For Six Months 2023, the net loss ratio decreased comparedwas higher than for Six Months 2022 mainly due to 2016 due primarilya bigger impact from catastrophe losses.
The net catastrophe losses were $5,125,000 for Six Months 2023, which contributed 8.9 points to the reduced impact from severeloss ratio. There were two winter weather. We recordstorm events and three wind events classified as catastrophe for Six Months 2023, including a major freezing event at the beginning of February. As a comparison, catastrophe impact for this component if losses incurred from winter weather claims exceed those expected in an average winter. The 2017 winter season was milder than average, and we did not recordevents had a catastrophe impact. In 2016 through three quarters, we recorded a 3.1 point catastrophe impact, resulting in a reduction in the overall loss ratio from 2016 to 2017 of 3.1 points. In addition, we have recorded 0.5 points of favorable prior year loss development in 2017 compared to 0.4 points of favorable prior year development in 2016, or an increase in the favorable impact of 0.15.7 points year to date. Finally, the corefor Six Months 2022.
The underlying loss ratio (loss ratio excluding the impact of severe winter weathercatastrophe and prior year developmentdevelopment) was 42.1% in 2017, compared to 42.4% in 2016,68.4% for Six Months 2023, a decrease of 0.3 points. Overall claim1.6 points from the 70.0% underlying loss ratio recorded for Six Months 2022. The underlying loss experience in Six Months 2023 was improved due to lower frequency excludingbut was offset by increasing severity resulting from an elevated number of large losses.
Prior year development was stable for Six Months 2023. There was an overall favorable development of $19,000, which had marginal impact on the impact of severe winter weather has declined during 2017, contributing to the reduction in the core loss ratio.
See table below under “Additional Financial Information” summarizing net loss ratios by line of business.
Commission Expense
Commission expense was $15,491,000$17,011,000 in 2017Six Months 2023 or 19.1%16.9% of direct earned premiums. Commission expense was $13,400,000$16,832,000 in 2016Six Months 2022 or 18.7%18.2% of direct earned premiums. The increase of $2,091,000 is$179,000 was primarily due to thean increase in direct earned premiums of $8,453,000 to $100,822,000 but offset in 2017part by a reduction of commission rates on our legacy policies in accordance with Kingstone 3.0 as well as the lower commission rate paid on Select products as compared to 2016.
Other Underwriting Expenses
Other underwriting
expenses wereOur largest single component of other underwriting expenses is salaries and employment costs, with costs of $5,875,000 in Six Months 2023 compared to $5,066,000 in Six Months 2022. The increase of $809,000, or 16.0%, is greater than the 2.7% increase in direct written premiums. We are also incurring expenses relatedIn the periods following Six Months 2022, we continued to expansion intostrengthen our professional team by investing in the states where we are newly licensedhiring of higher-level and higher compensated managers and staff needed to writemanage the business (“Expansion Expenses”). Expenses directly related to the increase in direct written premiums primarily consist of underwriting expenses, software usage fees, and state premium taxes. Expenses indirectly related to the increase in direct written premiums primarily consist of salaries along with related other employment costs. Expansion Expenses were $710,000 in 2017 compared to $272,000 in 2016. The increase of $438,000 includes the costs of salaries and employment costs, professional fees, IT and data services specifically attributable to the expansion into new states.
51 |
Table of Contents |
Our net underwriting expense ratio in 2017, including the impact of ceding commissions,Six Months 2023 was 35.2%33.6% compared with 33.8%to 37.4% in 2016.Six Months 2022. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:
Nine months ended | |||
September 30, | Percentage | ||
2017 | 2016 | Point Change | |
Ceding commission revenue - provisional | (15.8)% | (21.0)% | 5.2 |
Ceding commission revenue - contingent | 0.9 | 2.7 | (1.8) |
Other income | (1.6) | (1.8) | 0.2 |
Acquisition costs and other underwriting expenses: | |||
Commission expense | 28.2 | 29.7 | (1.5) |
11.7 | 9.6 | 2.1 | |
Other underwriting expenses | |||
Employment costs attributable to core NY business | 9.9 | 11.0 | (1.1) |
Expansion Expenses | 1.3 | 0.6 | 0.7 |
IT expenses | 2.0 | 1.7 | 0.3 |
Other expenses | 10.3 | 10.9 | (0.6) |
Total other underwriting expenses | 23.5 | 24.2 | (0.7) |
Net underwriting expense ratio | 35.2% | 33.8% | 1.4 |
|
| Six months ended |
|
|
|
| ||||||
|
| June 30, |
|
| Percentage |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Point Change |
| |||
Other underwriting expenses |
|
|
|
|
|
|
|
|
| |||
Employment costs |
|
| 10.2 | % |
|
| 9.3 | % |
|
| 0.9 |
|
Underwriting fees (inspections/surveys) |
|
| 1.7 |
|
|
| 1.8 |
|
|
| (0.1 | ) |
IT expenses |
|
| 3.1 |
|
|
| 4.2 |
|
|
| (1.1 | ) |
Professional fees |
|
| 1.0 |
|
|
| 1.6 |
|
|
| (0.6 | ) |
Other expenses |
|
| 7.5 |
|
|
| 7.7 |
|
|
| (0.2 | ) |
Total other underwriting expenses |
|
| 23.5 |
|
|
| 24.6 |
|
|
| (1.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 29.4 |
|
|
| 30.8 |
|
|
| (1.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Provisional |
|
| (18.6 | ) |
|
| (16.9 | ) |
|
| (1.7 | ) |
Contingent |
|
| (0.2 | ) |
|
| (0.3 | ) |
|
| 0.1 |
|
Total ceding commission revenue |
|
| (18.8 | ) |
|
| (17.2 | ) |
|
| (1.6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| (0.5 | ) |
|
| (0.9 | ) |
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net underwriting expense ratio |
|
| 33.6 | % |
|
| 37.4 | % |
|
| (3.8 | ) |
(Components may not sum to 23.5% in 2017. This decrease is driven by a decline in the impact from employment costs attributabletotals due to our growing core New York business and other expenses, partially offset by the impact from increased costs related to expansion and IT expenses.
52 |
Table of Contents |
Other Operating Expenses
Other operating expenses, related to the expenses of our holding company and Cosi, were $2,731,000 in 2017$1,426,000 for Six Months 2023 compared to $1,292,000$1,548,000 for Six Months 2022. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:
|
| Six months ended |
|
|
|
|
| |||||||||
|
| June 30, |
|
|
|
|
| |||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employement costs |
| $ | 198 |
|
| $ | (96 | ) |
| $ | 294 |
|
| na | % | |
Bonuses |
|
| - |
|
|
| - |
|
|
| - |
|
| na |
| |
Equity compensation |
|
| 429 |
|
|
| 1,016 |
|
|
| (587 | ) |
|
| (57.8 | ) |
Professional |
|
| 232 |
|
|
| 147 |
|
|
| 85 |
|
|
| 57.8 |
|
Directors fees |
|
| 139 |
|
|
| 164 |
|
|
| (25 | ) |
|
| (15.2 | ) |
Insurance |
|
| 87 |
|
|
| 77 |
|
|
| 10 |
|
|
| 13.0 |
|
Other expenses |
|
| 341 |
|
|
| 240 |
|
|
| 101 |
|
|
| 42.1 |
|
Total other operating expenses |
| $ | 1,426 |
|
| $ | 1,548 |
|
| $ | (122 | ) |
|
| (7.9 | )% |
(Components may not sum to totals due to rounding)
The decrease in 2016. The increase in 2017Six Months 2023 of $1,439,000,$122,000, or 111.4%7.9%, as compared to Six Months 2022 was primarily due to increasesa decrease in executive bonus compensation, executive compensation due to annual rate increases and hiring of additional staff, equity compensation, and professional fees.partially offset by an increase in employment costs. The increase in executive bonus compensation includes $709,000 of accrued long-term bonus compensation pursuantemployment costs was due to the three year employment agreement effective January 1, 2017 withhiring of our new Chief Executive Officer. In 2016 there was no long-term bonusFinancial Officer in Six Months 2023 and fluctuations in deferred compensation planliability related to changes in place.
Depreciation and Amortization
Depreciation and amortization was $1,023,000$1,587,000 in 2017Six Months 2023 compared to $835,000$1,647,000 in 2016.Six Months 2022. The increasedecrease of $188,000,$60,000, or 22.5%3.6%, in depreciation and amortization was primarily due to depreciationthe completion and deployment of our newcustomized policy management software as planned for in Kingstone 2.0, now allowing us to consolidate multiple legacy systems into one efficient system platform for handling business being writtenand retire those older more costly and less reliable systems. Depreciation on older assets that were retired, which had a shorter useful life, is greater than the depreciation on newly acquired assets which have a longer useful life.
Interest Expense
Interest expense in expansion states. TheSix Months 2023 was $2,016,000 compared to $913,000 in Six Months 2022, an increase was also impacted by newly purchased assets used to upgrade our systems infrastructure and improvementsof $1,103,000 or 120.8%. In Six Months 2023, as disclosed in Note 7 to the Kingston, New York home office building fromcondensed consolidated financial statements, we incurred increased interest expense in connection with the 2022 Notes, which provide for interest at the rate of 12% per annum, and the 2022 equipment financing. In Six Months 2022, we operate.
Income Tax Expense
Income tax expensebenefit in 2017Six Months 2023 was $3,976,000,$1,290,000, which resulted in an effective tax benefit rate of 18.8%. Income tax benefit in Six Months 2022 was $3,871,000, which resulted in an effective tax rate of 33.1%21.0%. Income tax expenseLoss before taxes was $6,867,000 in 2016 was $3,426,000, which resultedSix Months 2023 compared to $18,448,000 in anSix Months 2022. The difference in effective tax rate is due to the effect of 33.4%. Income before taxes was $12,031,000permanent differences in 2017Six Months 2023 compared to $10,270,000Six Months 2022.
Net Loss
Net loss was $5,577,000 in 2016.
53 |
Table of Contents |
Three Months Ended
The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:
Three months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Revenues | ||||
Direct written premiums | $32,840 | $27,171 | $5,669 | 20.9% |
Assumed written premiums | 12 | (1) | 13 | (1,300.0)% |
32,852 | 27,170 | 5,682 | 20.9% | |
Ceded written premiums | ||||
Ceded to quota share treaties in force during the period | 4,635 | 7,082 | (2,447) | (34.6)% |
Return of premiums previously ceded to prior quota share treaties (1) | (7,140) | - | (7,140) | na |
Ceded to quota share treaties | (2,505) | 7,082 | (9,587) | (135.4)% |
Ceded to excess of loss treaties | 267 | 429 | (162) | (37.8)% |
Ceded to catastrophe treaties | 2,829 | 2,427 | 402 | 16.6% |
Total ceded written premiums | 591 | 9,938 | (9,347) | (94.1)% |
Net written premiums | 32,261 | 17,232 | 15,029 | 87.2% |
Change in unearned premiums | ||||
Direct and assumed | (4,409) | (2,304) | (2,105) | 91.4% |
Ceded to quota share treaties | (6,339) | 718 | (7,057) | (982.9)% |
Change in net unearned premiums | (10,748) | (1,586) | (9,162) | 577.7% |
Premiums earned | ||||
Direct and assumed | 28,445 | 24,866 | 3,579 | 14.4% |
Ceded to quota share treaties | (6,931) | (9,220) | 2,289 | (24.8)% |
Net premiums earned | 21,514 | 15,646 | 5,868 | 37.5% |
Ceding commission revenue | 1,718 | 2,935 | (1,217) | (41.5)% |
Net investment income | 1,033 | 709 | 324 | 45.7% |
Net realized gain on investments | 21 | 241 | (220) | (91.3)% |
Other income | 328 | 297 | 31 | 10.4% |
Total revenues | 24,614 | 19,828 | 4,786 | 24.1% |
|
| Three months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Direct written premiums |
| $ | 47,647 |
|
| $ | 49,778 |
|
| $ | (2,131 | ) |
|
| (4.3 | )% |
Assumed written premiums |
|
| - |
|
|
| - |
|
|
| - |
|
| na | % | |
|
|
| 47,647 |
|
|
| 49,778 |
|
|
| (2,131 | ) |
|
| (4.3 | )% |
Ceded written premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded to quota share treaties (1) |
|
| 11,034 |
|
|
| 11,803 |
|
|
| (769 | ) |
|
| (6.5 | )% |
Ceded to excess of loss treaties |
|
| 1,062 |
|
|
| 886 |
|
|
| 176 |
|
|
| 19.9 | % |
Ceded to catastrophe treaties |
|
| 6,969 |
|
|
| 7,063 |
|
|
| (94 | ) |
|
| (1.3 | )% |
Total ceded written premiums |
|
| 19,064 |
|
|
| 19,752 |
|
|
| (687 | ) |
|
| (3.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net written premiums |
|
| 28,583 |
|
|
| 30,026 |
|
|
| (1,443 | ) |
|
| (4.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unearned premiums |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| 3,245 |
|
|
| (2,786 | ) |
|
| 6,031 |
|
| na | % | |
Ceded to quota share treaties (1) |
|
| (2,320 | ) |
|
| 663 |
|
|
| (2,983 | ) |
| na | % | |
Change in net unearned premiums |
|
| 925 |
|
|
| (2,123 | ) |
|
| 3,048 |
|
| na | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed |
|
| 50,892 |
|
|
| 46,992 |
|
|
| 3,900 |
|
|
| 8.3 | % |
Ceded to reinsurance treaties |
|
| (21,384 | ) |
|
| (19,090 | ) |
|
| (2,294 | ) |
|
| (12.0 | )% |
Net premiums earned |
|
| 29,508 |
|
|
| 27,902 |
|
|
| 1,606 |
|
|
| 5.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue (1) |
|
| 5,412 |
|
|
| 4,716 |
|
|
| 696 |
|
|
| 14.8 | % |
Net investment income |
|
| 1,451 |
|
|
| 634 |
|
|
| 817 |
|
|
| 128.9 | % |
Net gains (losses) on investments |
|
| 197 |
|
|
| (4,517 | ) |
|
| 4,714 |
|
| na | % | |
Other income |
|
| 151 |
|
|
| 245 |
|
|
| (94 | ) |
|
| (38.4 | )% |
Total revenues |
|
| 36,720 |
|
|
| 28,979 |
|
|
| 7,739 |
|
|
| 26.7 | % |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and assumed: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 28,346 |
|
|
| 26,323 |
|
|
| 2,023 |
|
|
| 7.7 | % |
Losses from catastrophes (2) |
|
| 2,489 |
|
|
| 195 |
|
|
| 2,294 |
|
|
| 1,176.4 | % |
Total direct and assumed loss and loss adjustment expenses |
|
| 30,835 |
|
|
| 26,519 |
|
|
| 4,317 |
|
|
| 16.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 10,148 |
|
|
| 7,780 |
|
|
| 2,368 |
|
|
| 30.4 | % |
Losses from catastrophes (2) |
|
| 1,107 |
|
|
| 83 |
|
|
| 1,024 |
|
|
| 1,233.7 | % |
Total ceded loss and loss adjustment expenses |
|
| 11,254 |
|
|
| 7,863 |
|
|
| 3,392 |
|
|
| 43.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding the effect of catastrophes |
|
| 18,198 |
|
|
| 18,544 |
|
|
| (346 | ) |
|
| (1.9 | )% |
Losses from catastrophes (2) |
|
| 1,383 |
|
|
| 112 |
|
|
| 1,271 |
|
|
| 1,134.8 | % |
Net loss and loss adjustment expenses |
|
| 19,581 |
|
|
| 18,656 |
|
|
| 925 |
|
|
| 5.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 8,471 |
|
|
| 8,481 |
|
|
| (10 | ) |
|
| (0.1 | )% |
Other underwriting expenses |
|
| 6,684 |
|
|
| 6,625 |
|
|
| 59 |
|
|
| 0.9 | % |
Other operating expenses |
|
| 763 |
|
|
| 666 |
|
|
| 97 |
|
|
| 14.6 | % |
Depreciation and amortization |
|
| 779 |
|
|
| 877 |
|
|
| (98 | ) |
|
| (11.2 | )% |
Interest expense |
|
| 1,006 |
|
|
| 457 |
|
|
| 549 |
|
|
| 120.1 | % |
Total expenses |
|
| 37,283 |
|
|
| 35,762 |
|
|
| 1,522 |
|
|
| 4.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxes |
|
| (563 | ) |
|
| (6,782 | ) |
|
| 6,219 |
|
|
| 91.7 | % |
Income tax benefit |
|
| (41 | ) |
|
| (1,403 | ) |
|
| 1,362 |
|
|
| 97.1 | % |
Net loss |
| $ | (522 | ) |
| $ | (5,380 | ) |
| $ | 4,858 |
|
|
| 90.3 | % |
(Columns in the quota share ceding rate in our personal lines quota share treaty from 40%table above may not sum to 20%. The Cut-off of this treaty on July 1, 2017 resulted in a $7,140,000 return of unearned premiums from our reinsurers that were previously ceded under the expiring personal lines quota share treaty.
Three months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Total revenues (continued) | 24,614 | 19,828 | 4,786 | 24.1% |
Expenses | ||||
Loss and loss adjustment expenses | ||||
Direct and assumed | 8,150 | 6,708 | 1,442 | 21.5% |
Ceded | 1,077 | 1,573 | (496) | (31.5)% |
Net loss and loss adjustment expenses | 7,073 | 5,135 | 1,938 | 37.7% |
Commission expense | 5,500 | 4,604 | 896 | 19.5% |
Other underwriting expenses | 4,475 | 4,039 | 436 | 10.8% |
Other operating expenses | 1,069 | 530 | 539 | 101.7% |
Depreciation and amortization | 379 | 262 | 117 | 44.7% |
Total expenses | 18,496 | 14,570 | 3,926 | 26.9% |
Income from operations before taxes | 6,118 | 5,258 | 860 | 16.4% |
Provision for income tax | 2,044 | 1,797 | 247 | 13.7% |
Net income | $4,074 | $3,461 | $613 | 17.7% |
Three months ended September 30, | ||||
2017 | 2016 | Percentage Point Change | Percent Change | |
Key ratios: | ||||
Net loss ratio | 32.9% | 32.8% | 0.1 | 0.3% |
Net underwriting expense ratio | 36.9% | 34.6% | 2.3 | 6.6% |
Net combined ratio | 69.8% | 67.4% | 2.4 | 3.6% |
54 |
Table of Contents |
(1) | Effective December 31, 2021, we entered into a 30% personal lines quota share treaty. |
(2) | The three months ended June 30, 2023 and 2022 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. |
|
| Three months ended June 30, |
| |||||||||||||
|
| 2023 |
|
| 2022 |
|
| Percentage Point Change |
|
| Percent Change |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Key ratios: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net loss ratio |
|
| 66.4 | % |
|
| 66.9 | % |
|
| (0.5 | ) |
|
| (0.7 | )% |
Net underwriting expense ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| (3.9 | ) |
|
| (10.7 | )% |
Net combined ratio |
|
| 98.9 | % |
|
| 103.3 | % |
|
| (4.4 | ) |
|
| (4.3 | )% |
Direct Written Premiums
Direct written premiums during the three months ended SeptemberJune 30, 20172023 (“Q3-2017”Three Months 2023”) were $32,840,000$47,647,000 compared to $27,171,000$49,778,000 during the three months ended SeptemberJune 30, 20162022 (“Q3-2016”Three Months 2022”). The increasedecrease of $5,669,000,$2,131,000, or 20.9%4.3%, was primarily due to an increase in premiums from our personal lines business, partially offset by an increase in premiums from our livery physical damage business.
Direct written premiums from our personal lines business for Three Months 2023 were $44,011,000, a decrease of $2,781,000, or 5.9%, from $46,792,000 in Three Months 2022. The 5.9% decrease in premiums from our personal lines business was primarily due to decrease in premiums associated with a 8.6% decrease in policies in-force during Q3-2017in force as of June 30, 2023 compared to Q3-2016. We wrote more newJune 30, 2022, offset by rate increases. The rate increases achieved along with a decrease in policies as a resultin force is in accordance with both our Kingstone 2.0 and Kingstone 3.0 strategic plans.
Direct written premiums from our livery physical damage business for Three Months 2023 were $3,610,000, an increase of continued demand for our products$655,000, or 22.2%, from $2,954,000 in Three Months 2022. The increase in livery physical damage direct written premiums was due to an increasing number of policies and an increase in the markets that we serve. We believe that a large drivervalues of our growththe autos insured.
Beginning in new policies is attributable to our upgraded A.M. Best rating of A- that we received in April 2017. In May 2017, we started writing Homeowners’personal lines policies in New Jersey. Policies in-force increased by 14.6%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 September 30, 2017New York as our “non-New York” business. Direct written premiums from our Core business were $42,211,000 in Three Months 2023 compared to September 30, 2016.
55 |
Table of Contents |
Net Written Premiums and Net Premiums Earned
Effective December 31, 2021, we entered into a quota share reinsurance ceding rates in effect during Q3-2017 and Q3-2016. For purposes of the discussion herein, the change in quota share ceding rates on July 1, 2017 will be referred to as “the Cut-off”. This table should be referred to in conjunction with the discussionstreaty for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.
Three months ended | |||
September 30, | |||
2017 | 2016 | ||
("2017/2019 Treaty") | ("2016/2017 Treaty") | ||
Quota share reinsurance rates | |||
Personal lines | 20% | 40% |
Three months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Net written premiums | $32,261 | $17,232 | $15,029 | 87.2% |
Return of premiums previously ceded to prior quota share treaties | 7,140 | - | 7,140 | na |
Net written premiums without the effect of the July 1, 2017 Cut-off | $25,121 | $17,232 | $7,889 | 45.8% |
Excess of loss reinsurance treaties
An increase in written premiums will also increase the premiums ceded under our excess of loss treaties, which incrementally reduces our net written premiums.treaties. In Q3-2017,Three Months 2023, our ceded excess of loss reinsurance premiums decreasedincreased by $162,000$176,000 over the comparable ceded premiums for Q3-2016.Three Months 2022. The decreaseincrease was due to more favorable reinsurance rates in Q3-2017, partially offset by an increase in subject premiums subject toand the heightened cost of coverage obtained. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance.
Catastrophe reinsurance treaty
Most of the premiums written under our personal lines policies are also subject to our catastrophe treaty.treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums forceded under catastrophe insurancetreaties will increase. ThisAn increase in our personal lines business results in an increase in premiums ceded under our catastrophe treaty, which reduces net written premiums.treaties if reinsurance rates are stable or are increasing. In Q3-2017,accordance with our Kingstone 2.0 and Kingstone 3.0 goals, we have reduced our PML, and in the Three Months 2023, our premiums ceded under catastrophe reinsurance premiums increasedtreaties decreased by $402,000 over$94,000 as compared to the comparable ceded premiums for Q3-2016. The increase was due to an increase in our catastrophe coverage and an increaseThree Months 2022, in premiums subject tospite of a large catastrophe reinsurance partially offset by more favorable reinsurance rates in Q3-2017.
Net premiums earned
Net premiums earned increased $5,868,000,$1,606,000, or 37.5%5.8%, to $21,514,000$29,508,000 in Q3-2017Three Months 2023 from $15,646,000$27,902,000 in Q3-2016.Three Months 2022. The increase was due to the increaseincreased premiums written in prior periods due to rate increases and increased replacement costs, offset by the 4.3% decrease in direct written premiums discussed above and to increased retention effective July 1, 2017, asduring Three Months 2023. In addition, the run-off of a resultportion of the reduction2021-2023 Treaty increased the premiums ceded and reduced the growth of the quota share percentage in our personal lines quota share treaty. The decrease in our quota share ceding percentage from the July 1, 2017 Cut-off gave us a $7,140,000 return of premiums previously ceded, which led to an increase in our net premiums earned during the period after the Cut-off.
56 |
Table of Contents |
Ceding Commission Revenue
Three months ended | |||
September 30, | |||
2017 | 2016 | ||
("2017/2019 Treaty") | ("2016/2017 Treaty") | ||
Provisional ceding commission rate on quota share treaty | |||
Personal lines | 53% | 52% |
The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:
Three months ended September 30, | ||||
($ in thousands) | 2017 | 2016 | Change | Percent |
Provisional ceding commissions earned | $1,922 | $3,186 | $(1,264) | (39.7)% |
Contingent ceding commissions earned | (204) | (251) | 47 | 18.7% |
Total ceding commission revenue | $1,718 | $2,935 | $(1,217) | (41.5)% |
|
| Three months ended June 30, |
| |||||||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Provisional ceding commissions earned |
| $ | 5,294 |
|
| $ | 4,693 |
|
| $ | 601 |
|
|
| 12.8 | % |
Contingent ceding commissions earned |
|
| 118 |
|
|
| 23 |
|
|
| 95 |
|
|
| 413.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ceding commission revenue |
| $ | 5,412 |
|
| $ | 4,716 |
|
| $ | 696 |
|
|
| 14.8 | % |
(Columns in the table above may not sum to totals due to rounding)
Ceding commission revenue was $1,718,000$5,412,000 in Q3-2017Three Months 2023 compared to $2,935,000$4,716,000 in Q3-2016.Three Months 2022. The decreaseincrease of $1,217,000, or 41.5%,$696,000 was due to a decreasean increase in provisional ceding commissions earned partially offset by a reductionand an increase in negative contingent ceding commissions earned.
Provisional Ceding Commissions Earned
In Three Months 2023 we earned provisional ceding commission based oncommissions of $5,294,000 from personal lines earned premiums ceded written premiums. In Q3-2017 ourunder the 2023/2024 Treaty, and in Three Months 2022 we earned provisional ceding rate was 53% effective July 1, 2017commissions of $4,693,000 from personal lines earned premiums ceded under the 2017/2019 Treaty. In Q3-2016 our provisional ceding rate was 52% effective July 1, 2016 under the 2016/20172021/2023 Treaty. The $1,264,000 decreaseincrease of $601,000 in provisional ceding commissions earned is primarilywas due to the decrease in quota share ceding rate effective July 1, 2017 to 20%, fromrunoff of an 8.5% portion of the 40% rate in effect during Q3-2016; thus there was less ceded premiums in Q3-2017 available to earn ceding commissions than there was in Q3-2016. The decrease was30% 2021/2023 Treaty, partially offset by an increasea decrease in personal linespremiums subject to quota share treaties as a result of the decrease in direct written premiums subject todiscussed above.
Contingent Ceding Commissions Earned
The structure of the quota share2023/2024 Treaty and by the increase in our2021/2023 Treaty calls for a fixed provisional ceding commission rate as discussed above.
Net Investment Income
Net investment income was $1,033,000$1,451,000 in Q3-2017Three Months 2023 compared to $709,000$634,000 in Q3-2016.Three Months 2022, an increase of $817,000, or 128.9%. The increase in investment income is attributable to a $766,000 reversal in Three Months 2022 of $324,000, or 45.7%,prior years’ estimated accrued interest income stemming from an error in third party investment reporting. The increase was also due to an increase in average invested assets in Q3-2017.higher interest rates earned on cash balances. The average yield on non-cash invested assets was 3.63% as of SeptemberJune 30, 20172023 compared to 3.90%3.51% as of SeptemberJune 30, 2016. The pre-tax equivalent yield on invested assets was 3.84% and 4.17% as of September 30, 2017 and 2016, respectively.
Cash and invested assets were $155,738,000$175,407,000 as of SeptemberJune 30, 2017,2023 compared to $108,968,000$193,784,000 as of SeptemberJune 30, 2016.2022. The $46,770,000 increase$18,377,000 decrease in cash and invested assets resultedwas primarily fromattributable to increased disbursements of losses in connection with higher severity and inflation’s impact on losses along with catastrophe losses incurred in 2023 and prior periods. An increase in unrealized losses on our investment portfolio also contributed to the reduction.
57 |
Table of Contents |
Net Gains (Losses) on Investments
Net gains on investments were $197,000 in Three Months 2023 compared to net proceeds(losses) of approximately $30,137,000 that we received$(4,517,000) in JanuaryThree Months 2022. Unrealized gains on our equity securities and February 2017 from our public offering and increased operating cash flows for the period after
Other Income
Other income was $328,000$151,000 in Q3-2017Three Months 2023 compared to $297,000$245,000 in Q3-2016. The increaseThree Months 2022, a decrease of $31,000,$94,000, or 10.4%, was primarily due to an increase in installment and finance fees earned in our insurance underwriting business.
Net Loss and LAE
Net loss and LAE was $7,073,000 in Q3-2017$19,581,000 for Three Months 2023 compared to $5,135,000 in Q3-2016.$18,656,000 for Three Months 2022. The net loss ratio was 32.9%66.4% in Q3-2017Three Months 2023 compared to 32.8%66.9% in Q3-2016, an increaseThree Months 2022, a decrease of 0.10.5 percentage points.
The following graph summarizes the changes in the components of net loss ratio for the periods indicated:
(Percent components may not sum to totals due to rounding)
58 |
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For Three Months 2023, the loss ratio was relatively stable compared to Q3-2016, increasing 0.1 points to 32.9% from 32.8% in Q3-2016. The coreslightly lower than Three Months 2022. While the underlying loss ratio (loss ratio excluding the impact of severe winter weathercatastrophe and prior year loss developmentdevelopment) was 33.1% in Q3-2017improved for Three Months 2023 compared to 33.2% in Q3-2016, orThree Months 2022, the catastrophe loss had a bigger impact for Three Months 2023.
There were three wind events classified as catastrophe for Three Months 2023. The total net catastrophe losses for the calendar quarter were $1,383,000, which contributed 4.7 points to the loss ratio. This compares to a 0.4-point impact from catastrophe events for Three Months 2022.
The underlying loss ratio was 61.7% for Three Months 2023, a decrease of 0.1 points.3.8 points from the 65.5% underlying loss ratio recorded for Three Months 2022. The small decreaseunderlying loss experience for Three Months 2023 was improved due to lower frequency which is drivenbelieved to be the result of the Company’s new product rollout as well as the Company’s active efforts to manage less profitable segments. Such improvement in loss experience was offset by continued improvementsan elevated number of large losses, similar to what was observed in claim frequencythe first three months of 2023.
Prior year development was stable for personal lines. In addition, we recorded 0.2 points of favorable prior year loss development in Q3-2017, compared to 0.4 points ofThree Months 2023. There was an overall favorable development in Q3-2016, or a reduction inof $16,000, which had marginal impact on the impactloss ratio.
See table below under “Additional Financial Information” summarizing net loss ratios by line of favorable prior year development of 0.2 points. There was no impact from severe winter weather recorded in either Q3-2017 or Q3-2016.
Commission Expense
Commission expense was $5,500,000$8,471,000 in Q3-2017Three Months 2023 or 19.3%16.6% of direct earned premiums. Commission expense was $4,604,000$8,481,000 in Q3-2016Three Months 2022 or 18.5%18.0% of direct earned premiums. The increasedecrease of $896,000 is$10,000 was primarily due to a reduction of commission rates on our legacy policies in accordance with Kingstone 3.0 as well as the lower commission rate paid on Select products as compared to legacy products, but offset by an increase in direct earned premiums in Q3-2017 as comparedof $3,899,000 to Q3-2016.
Other Underwriting Expenses
Other underwriting expenses were $4,475,000$6,684,000, or 13.1% of direct earned premiums, in Q3-2017Three Months 2023 compared to $4,039,000$6,625,000, or 14.1% of direct earned premiums, in Q3-2016.Three Months 2022. The increase of $436,000,$59,000, or 10.8%0.9%, was primarily due to increases in expenses related to our growth in direct earned premiums and salaries, partially offset by decreases in professional fees, credit card fees and policy management system fees as result of the completion of our policy management system conversion, allowing us to eliminate multiple legacy systems.
Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $2,942,000 in Three Months 2023 compared to $2,518,000 in Three Months 2022. The increase of $424,000, or 16.8%, compared unfavorably to the 4.3% decrease in direct written premiums. We are also incurring expenses relatedIn the periods following Three Months 2022, we continued to expansion intostrengthen our professional team by investing in the states where we are newly licensedhiring of higher-level and higher compensated managers and staff needed to writemanage the business (“Expansion Expenses”). Expenses directly related to the increase in direct written premiums primarily consist of underwriting expenses, software usage fees and state premium taxes. Expenses indirectly related to the increase in direct written premiums primarily consist of salaries along with related other employment costs. Expansion Expenses were $212,000 in Q3-2017 compared to $160,000 in Q3-2016. The increase of $52,000 includes the costs of salaries and employment costs, professional fees, IT and data services specifically attributable to the expansion into new states.
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Our net underwriting expense ratio including the impact of ceding commissions,in Three Months 2023 was 36.9%32.5% compared to 36.4% in Q3-2017, compared with 34.6% in Q3-2016.Three Months 2022. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:
Three months ended | |||
September 30, | Percentage | ||
2017 | 2016 | Point Change | |
Ceding commission revenue - provisional | (8.9)% | (20.4)% | 11.5 |
Ceding commission revenue - contingent | 0.9 | 1.6 | (0.7) |
Other income | (1.5) | (1.9) | 0.4 |
Acquisition costs and other underwriting expenses: | |||
Commission expense | 25.6 | 29.4 | (3.8) |
16.1 | 8.7 | 7.4 | |
Other underwriting expenses | |||
Employment costs attributable to core NY business | 9.0 | 11.5 | (2.5) |
Expansion Expenses | 1.0 | 1.0 | - |
IT expenses | 1.9 | 1.7 | 0.2 |
Other expenses | 8.9 | 11.7 | (2.8) |
Total other underwriting expenses | 20.8 | 25.9 | (5.1) |
Net underwriting expense ratio | 36.9% | 34.6% | 2.3 |
|
| Three months ended |
|
|
|
| ||||||
|
| June 30, |
|
| Percentage |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Point Change |
| |||
Other underwriting expenses |
|
|
|
|
|
|
|
|
| |||
Employment costs |
|
| 10.0 | % |
|
| 9.0 | % |
|
| 1.0 |
|
Underwriting fees (inspections/surveys) |
|
| 1.6 |
|
|
| 1.7 |
|
|
| (0.1 | ) |
IT expenses |
|
| 3.0 |
|
|
| 4.2 |
|
|
| (1.2 | ) |
Professional fees |
|
| 0.8 |
|
|
| 1.3 |
|
|
| (0.5 | ) |
Other expenses |
|
| 7.3 |
|
|
| 7.6 |
|
|
| (0.3 | ) |
Total other underwriting expenses |
|
| 22.7 |
|
|
| 23.8 |
|
|
| (1.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 28.7 |
|
|
| 30.4 |
|
|
| (1.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceding commission revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Provisional |
|
| (17.9 | ) |
|
| (16.8 | ) |
|
| (1.1 | ) |
Contingent |
|
| (0.4 | ) |
|
| (0.1 | ) |
|
| (0.3 | ) |
Total ceding commission revenue |
|
| (18.3 | ) |
|
| (16.9 | ) |
|
| (1.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| (0.5 | ) |
|
| (0.9 | ) |
|
| 0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net underwriting expense ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| (3.9 | ) |
(Components may not sum to 20.8% in 2017. This decrease is driven by a decline in the impact from employment costs attributabletotals due to our growing core New York business and other expenses.
60 |
Table of Contents |
Other Operating Expenses
Other operating expenses, related to the expenses of our holding company and Cosi, were $1,069,000 in Q3-2017$763,000 for Three Months 2023 compared to $530,000 in Q3-2016. $666,000 for Three Months 2022. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:
|
| Three months ended |
|
|
|
|
| |||||||||
|
| June 30, |
|
|
|
|
| |||||||||
($ in thousands) |
| 2023 |
|
| 2022 |
|
| Change |
|
| Percent |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Employement costs |
| $ | 105 |
|
| $ | (101 | ) |
| $ | 206 |
|
| na% |
| |
Bonuses |
|
| - |
|
|
| - |
|
|
| - |
|
| na |
| |
Equity compensation |
|
| 212 |
|
|
| 486 |
|
|
| (274 | ) |
|
| (56.4 | ) |
Professional |
|
| 139 |
|
|
| 97 |
|
|
| 42 |
|
|
| 43.3 |
|
Directors fees |
|
| 69 |
|
|
| 82 |
|
|
| (13 | ) |
|
| (15.9 | ) |
Insurance |
|
| 48 |
|
|
| 37 |
|
|
| 11 |
|
|
| 29.7 |
|
Other expenses |
|
| 190 |
|
|
| 65 |
|
|
| 125 |
|
|
| 192.3 |
|
Total other operating expenses |
| $ | 763 |
|
| $ | 666 |
|
| $ | 97 |
|
|
| 14.6 | % |
(Components may not sum to totals due to rounding)
The increase in Q3-2017Three Months 2023 of $539,000,$97,000, or 101.7%14.6%, as compared to Three Months 2022 was primarily due to increasesan increase in executive bonus compensation, executive compensation dueemployment costs attributable to annual rate increases andthe hiring of additional staff, equityour new Chief Financial Officer in January 2023 and fluctuations in deferred compensation and consulting fees.liability related to changes in the underlying invested portfolio. The increase was partially offset by a decrease in executive bonus compensation includes $236,000 of accrued long-term bonus compensation pursuant to the three year employment agreement effective January 1, 2017 with our Chief Executive Officer. In Q3-2016 there was no long-term bonus compensation plan in place.
Depreciation and Amortization
Depreciation and amortization was $379,000$779,000 in Q3-2017Three Months 2023 compared to $262,000$877,000 in Q3-2016.Three Months 2022. The increasedecrease of $117,000,$98,000, or 44.7%11.2%, in depreciation and amortization was primarily due to depreciationthe completion and deployment of our newcustomized policy management software as planned for in Kingstone 2.0, now allowing us to consolidate multiple legacy systems into one efficient system platform for handling business being writtenand retire those older more costly and less reliable systems. Depreciation on older assets that were retired, which had a shorter useful life, is greater than the depreciation on newly acquired assets which have a longer useful life.
Interest Expense
Interest expense in expansion states. TheThree Months 2023 was $1,006,000 compared to $457,000 in Three Months 2022, an increase was also impacted by newly purchased assets used to upgrade our systems infrastructure and improvementsof $549,000 or 120.1%. In Three Months 2023, as disclosed in Note 7 to the Kingston, New York home office building fromcondensed consolidated financial statements, we incurred increased interest expense in connection with the 2022 Notes, which provide for interest at the rate of 12% per annum, and the 2022 equipment financing. In Three Months 2022, we operate.
61 |
Table of Contents |
Income Tax Expense
Income tax expensebenefit in Q3-2017Three Months 2023 was $2,044,000,$41,000, which resulted in an effective tax benefit rate of 7.3%. Income tax benefit in Three Months 2022 was $1,403,000, which resulted in an effective tax rate of 33.4%20.7%. Income tax expenseLoss before taxes was $563,000 in Q3-2016 was $1,797,000, which resultedThree Months 2023 compared to $6,782,000 in anThree Months 2022. The difference in effective tax rate is due to the effect of 34.2%. Income before taxes was $6,118,000permanent differences in Q3-2017Three Months 2023 compared to $5,258,000Three Months 2022.
Net Loss
Net loss was $522,000 in Q3-2016.
Additional Financial Information
We operate our business as one segment, property and casualty insurance. Within this segment, we offer a widean array of property and casualty policies to our producers. The following table summarizes gross and net written premiums, net premiums earned, and net loss and loss adjustment expenses by major product type, which were determined based primarily on similar economic characteristics and risks of loss.
For the Three Months Ended | For the Nine Months Ended | |||
September 30, | September 30, | |||
2017 | 2016 | 2017 | 2016 | |
Gross premiums written: | ||||
Personal lines | $26,729,634 | $21,357,900 | $69,331,085 | $58,496,825 |
Commercial lines | 3,634,037 | 3,111,308 | 11,380,912 | 9,916,605 |
Livery physical damage | 2,422,352 | 2,640,531 | 8,549,878 | 7,792,984 |
Other(1) | 65,778 | 59,637 | 180,086 | 183,376 |
Total | $32,851,801 | $27,169,376 | $89,441,961 | $76,389,790 |
Net premiums written: | ||||
Personal lines | ||||
Excluding the effect of quota share | ||||
adjustments on July 1 | $19,373,782 | $11,893,952 | $42,684,254 | $32,111,287 |
Return of premiums previously ceded to | ||||
prior quota share treaties | 7,140,088 | - | 7,140,088 | - |
Personal lines (2) | 26,513,870 | 11,893,952 | 49,824,342 | 32,111,287 |
Commercial lines | 3,250,326 | 2,760,623 | 10,196,459 | 8,919,387 |
Livery physical damage | 2,422,352 | 2,640,531 | 8,549,878 | 7,792,984 |
Other(1) | 74,771 | (62,826) | 152,245 | 23,179 |
Total | $32,261,319 | $17,232,280 | $68,722,924 | $48,846,837 |
Net premiums earned: | ||||
Personal lines (2) | $15,395,435 | $10,388,403 | $37,125,043 | $29,678,863 |
Commercial lines | 3,125,137 | 2,828,473 | 8,953,476 | 8,282,020 |
Livery physical damage | 2,939,032 | 2,487,975 | 8,616,365 | 7,106,718 |
Other(1) | 54,804 | (58,670) | 142,999 | 121,130 |
Total | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Net loss and loss adjustment expenses: | ||||
Personal lines | $3,553,087 | $2,383,297 | $13,304,934 | $13,069,461 |
Commercial lines | 1,535,862 | 1,178,963 | 4,294,440 | 3,271,253 |
Livery physical damage | 1,417,332 | 1,236,780 | 3,643,007 | 3,171,434 |
Other(1) | 10,226 | (145,932) | 32,824 | (430,869) |
Unallocated loss adjustment expenses | 556,816 | 481,746 | 1,546,036 | 1,324,266 |
Total | $7,073,323 | $5,134,854 | $22,821,241 | $20,405,545 |
Net loss ratio: | ||||
Personal lines | 23.1% | 22.9% | 35.8% | 44.0% |
Commercial lines | 49.1% | 41.7% | 48.0% | 39.5% |
Livery physical damage | 48.2% | 49.7% | 42.3% | 44.6% |
Other(1) | 18.7% | 248.7% | 23.0% | -355.7% |
Total | 32.9% | 32.8% | 41.6% | 45.2% |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Gross premiums written: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Personal lines |
| $ | 44,011,176 |
|
| $ | 46,792,267 |
|
| $ | 88,182,114 |
|
| $ | 86,955,416 |
|
Livery physical damage |
|
| 3,609,832 |
|
|
| 2,953,588 |
|
|
| 7,015,500 |
|
|
| 5,726,868 |
|
Other(1) |
|
| 25,936 |
|
|
| 32,608 |
|
|
| 46,776 |
|
|
| 80,076 |
|
Total gross premiums written |
| $ | 47,646,944 |
|
| $ | 49,778,463 |
|
| $ | 95,244,390 |
|
| $ | 92,762,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums written: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
| $ | 24,954,271 |
|
| $ | 27,048,585 |
|
| $ | 45,505,958 |
|
| $ | 49,159,250 |
|
Livery physical damage |
|
| 3,609,832 |
|
|
| 2,953,588 |
|
|
| 7,015,500 |
|
|
| 5,726,868 |
|
Other(1) |
|
| 18,625 |
|
|
| 23,607 |
|
|
| 30,017 |
|
|
| 57,850 |
|
Total net premiums written |
| $ | 28,582,728 |
|
| $ | 30,025,780 |
|
| $ | 52,551,475 |
|
| $ | 54,943,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
| $ | 26,075,876 |
|
| $ | 25,178,854 |
|
| $ | 51,094,961 |
|
| $ | 49,339,070 |
|
Livery physical damage |
|
| 3,409,779 |
|
|
| 2,687,273 |
|
|
| 6,621,613 |
|
|
| 5,161,838 |
|
Other(1) |
|
| 22,541 |
|
|
| 35,941 |
|
|
| 46,575 |
|
|
| 74,540 |
|
Total net premiums earned |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
| $ | 17,925,971 |
|
| $ | 16,540,604 |
|
| $ | 40,495,580 |
|
| $ | 37,576,758 |
|
Livery physical damage |
|
| 894,026 |
|
|
| 1,180,223 |
|
|
| 2,279,167 |
|
|
| 2,010,792 |
|
Other(1) |
|
| 36 |
|
|
| (967 | ) |
|
| 151,643 |
|
|
| (24,367 | ) |
Unallocated loss adjustment expenses |
|
| 828,963 |
|
|
| 980,984 |
|
|
| 1,720,053 |
|
|
| 1,950,377 |
|
Total without commercial lines |
|
| 19,648,996 |
|
|
| 18,700,844 |
|
|
| 44,646,443 |
|
|
| 41,513,560 |
|
Commercial lines (in run-off effective July 2019)(2) |
|
| (68,294 | ) |
|
| (44,803 | ) |
|
| (26,331 | ) |
|
| 83,679 |
|
Total net loss and loss adjustment expenses |
| $ | 19,580,702 |
|
| $ | 18,656,041 |
|
| $ | 44,620,112 |
|
| $ | 41,597,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss ratio(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
|
| 68.7 | % |
|
| 65.7 | % |
|
| 79.3 | % |
|
| 76.2 | % |
Livery physical damage |
|
| 26.2 | % |
|
| 43.9 | % |
|
| 34.4 | % |
|
| 39.0 | % |
Other(1) |
|
| 0.2 | % |
|
| -2.7 | % |
|
| 325.6 | % |
|
| -32.7 | % |
Total without commercial lines |
|
| 66.6 | % |
|
| 67.0 | % |
|
| 77.3 | % |
|
| 76.1 | % |
Commercial lines (in run-off effective July 2019)(2) |
| na |
|
| na |
|
| na |
|
| na |
| ||||
Total |
|
| 66.4 | % |
|
| 66.9 | % |
|
| 77.2 | % |
|
| 76.2 | % |
62 |
Table of Contents |
(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 Loss and LAE”, as to catastrophe losses in the three months and six months ended June 30, 2023 and 2022. |
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, | |||
2017 | 2016 | 2017 | 2016 | |
Revenues | ||||
Net premiums earned | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Ceding commission revenue | 1,717,610 | 2,934,928 | 8,208,000 | 8,274,290 |
Net investment income | 1,033,307 | 709,072 | 2,917,111 | 2,286,199 |
Net realized gain (loss) on investments | 20,998 | 241,035 | 96,915 | 604,903 |
Other income | 317,269 | 294,373 | 880,930 | 820,472 |
Total revenues | 24,603,592 | 19,825,589 | 66,940,839 | 57,174,595 |
Expenses | ||||
Loss and loss adjustment expenses | 7,073,323 | 5,134,854 | 22,821,241 | 20,405,545 |
Commission expense | 5,500,483 | 4,603,755 | 15,491,027 | 13,400,029 |
Other underwriting expenses | 4,475,455 | 4,039,209 | 12,887,488 | 10,981,784 |
Depreciation and amortization | 378,518 | 262,097 | 1,023,390 | 834,519 |
Total expenses | 17,427,779 | 14,039,915 | 52,223,146 | 45,621,877 |
Income from operations | 7,175,813 | 5,785,674 | 14,717,693 | 11,552,718 |
Income tax expense | 2,399,048 | 2,114,016 | 4,911,977 | 3,881,232 |
Net income | $4,776,765 | $3,671,658 | $9,805,716 | $7,671,486 |
Key Measures: | ||||
Net loss ratio | 32.9% | 32.8% | 41.6% | 45.2% |
Net underwriting expense ratio | 36.9% | 34.6% | 35.2% | 33.8% |
Net combined ratio | 69.8% | 67.4% | 76.8% | 79.0% |
Reconciliation of net underwriting expense ratio: | ||||
Acquisition costs and other | ||||
underwriting expenses | $9,975,938 | $8,642,964 | $28,378,515 | $24,381,813 |
Less: Ceding commission revenue | (1,717,610) | (2,934,928) | (8,208,000) | (8,274,290) |
Less: Other income | (317,269) | (294,373) | (880,930) | (820,472) |
Net underwriting expenses | $7,941,059 | $5,413,663 | $19,289,585 | $15,287,051 |
Net premiums earned | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Net Underwriting Expense Ratio | 36.9% | 34.6% | 35.2% | 33.8% |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net premiums earned |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
|
Ceding commission revenue |
|
| 5,412,210 |
|
|
| 4,715,587 |
|
|
| 10,857,617 |
|
|
| 9,396,983 |
|
Net investment income |
|
| 1,451,356 |
|
|
| 634,325 |
|
|
| 2,992,848 |
|
|
| 1,993,425 |
|
Net gains (losses) on investments |
|
| 146,377 |
|
|
| (4,379,853 | ) |
|
| 1,330,625 |
|
|
| (8,731,597 | ) |
Other income |
|
| 149,245 |
|
|
| 242,620 |
|
|
| 308,071 |
|
|
| 471,127 |
|
Total revenues |
|
| 36,667,384 |
|
|
| 29,114,747 |
|
|
| 73,252,310 |
|
|
| 57,705,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses |
|
| 19,580,702 |
|
|
| 18,656,041 |
|
|
| 44,620,112 |
|
|
| 41,597,239 |
|
Commission expense |
|
| 8,471,182 |
|
|
| 8,481,031 |
|
|
| 17,010,944 |
|
|
| 16,832,117 |
|
Other underwriting expenses |
|
| 6,683,638 |
|
|
| 6,624,997 |
|
|
| 13,555,257 |
|
|
| 13,440,946 |
|
Depreciation and amortization |
|
| 778,502 |
|
|
| 867,186 |
|
|
| 1,586,632 |
|
|
| 1,627,201 |
|
Interest expense |
|
| 110,554 |
|
|
| - |
|
|
| 225,026 |
|
|
| - |
|
Total expenses |
|
| 35,624,578 |
|
|
| 34,629,255 |
|
|
| 76,997,971 |
|
|
| 73,497,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations |
|
| 1,042,806 |
|
|
| (5,514,508 | ) |
|
| (3,745,661 | ) |
|
| (15,792,117 | ) |
Income tax expense (benefit) |
|
| 277,231 |
|
|
| (1,170,035 | ) |
|
| (660,992 | ) |
|
| (3,357,294 | ) |
Net income (loss) |
| $ | 765,575 |
|
| $ | (4,344,473 | ) |
| $ | (3,084,669 | ) |
| $ | (12,434,823 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss ratio |
|
| 66.4 | % |
|
| 66.9 | % |
|
| 77.2 | % |
|
| 76.2 | % |
Net underwriting expense ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| 33.6 | % |
|
| 37.4 | % |
Net combined ratio |
|
| 98.9 | % |
|
| 103.3 | % |
|
| 110.8 | % |
|
| 113.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net underwriting expense ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
underwriting expenses |
| $ | 15,154,820 |
|
| $ | 15,106,028 |
|
| $ | 30,566,201 |
|
| $ | 30,273,063 |
|
Less: Ceding commission revenue |
|
| (5,412,210 | ) |
|
| (4,715,587 | ) |
|
| (10,857,617 | ) |
|
| (9,396,983 | ) |
Less: Other income |
|
| (149,245 | ) |
|
| (242,620 | ) |
|
| (308,071 | ) |
|
| (471,127 | ) |
Net underwriting expenses |
| $ | 9,593,365 |
|
| $ | 10,147,821 |
|
| $ | 19,400,513 |
|
| $ | 20,404,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Underwriting Expense Ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| 33.6 | % |
|
| 37.4 | % |
63 |
Table of Contents |
An analysis of our direct, assumed and ceded earned premiums, loss and loss adjustment expenses, and loss ratios is shown below:
Direct | Assumed | Ceded | Net | |
Nine months ended September 30, 2017 | ||||
Written premiums | $89,423,758 | $18,203 | $(20,719,037) | $68,722,924 |
Change in unearned premiums | (8,456,690) | 8,162 | (5,436,513) | (13,885,041) |
Earned premiums | $80,967,068 | $26,365 | $(26,155,550) | $54,837,883 |
Loss and loss adjustment expenses excluding | ||||
the effect of catastrophes | $31,281,727 | $42,751 | $(8,503,237) | $22,821,241 |
Catastrophe loss | - | - | - | - |
Loss and loss adjustment expenses | $31,281,727 | $42,751 | $(8,503,237) | $22,821,241 |
Loss ratio excluding the effect of catastrophes | 38.6% | 162.2% | 32.5% | 41.6% |
Catastrophe loss | 0.0% | 0.0% | 0.0% | 0.0% |
Loss ratio | 38.6% | 162.2% | 32.5% | 41.6% |
Nine months ended September 30, 2016 | ||||
Written premiums | $76,375,159 | $14,631 | $(27,542,953) | $48,846,837 |
Change in unearned premiums | (4,875,664) | 2,058 | 1,215,500 | (3,658,106) |
Earned premiums | $71,499,495 | $16,689 | $(26,327,453) | $45,188,731 |
Loss and loss adjustment expenses excluding | ||||
the effect of catastrophes | $26,712,184 | $32,521 | $(7,741,637) | $19,003,068 |
Catastrophe loss | 2,337,461 | - | (934,984) | 1,402,477 |
Loss and loss adjustment expenses | $29,049,645 | $32,521 | $(8,676,621) | $20,405,545 |
Loss ratio excluding the effect of catastrophes | 37.4% | 194.9% | 29.4% | 42.1% |
Catastrophe loss | 3.3% | 0.0% | 3.5% | 3.2% |
Loss ratio | 40.7% | 194.9% | 33.0% | 45.2% |
Three months ended September 30, 2017 | ||||
Written premiums | $32,839,891 | $11,910 | $(590,482) | $32,261,319 |
Change in unearned premiums | (4,407,894) | (165) | (6,338,852) | (10,746,911) |
Earned premiums | $28,431,997 | $11,745 | $(6,929,334) | $21,514,408 |
Loss and loss adjustment expenses excluding | ||||
the effect of catastrophes | $8,123,601 | $26,418 | $(1,076,696) | $7,073,323 |
Catastrophe loss | - | - | - | - |
Loss and loss adjustment expenses | $8,123,601 | $26,418 | $(1,076,696) | $7,073,323 |
Loss ratio excluding the effect of catastrophes | 28.6% | 224.9% | 15.5% | 32.9% |
Catastrophe loss | 0.0% | 0.0% | 0.0% | 0.0% |
Loss ratio | 28.6% | 224.9% | 15.5% | 32.9% |
Three months ended September 30, 2016 | ||||
Written premiums | $27,170,743 | $(1,367) | $(9,937,096) | $17,232,280 |
Change in unearned premiums | (2,302,119) | (1,479) | 717,499 | (1,586,099) |
Earned premiums | $24,868,624 | $(2,846) | $(9,219,597) | $15,646,181 |
Loss and loss adjustment expenses excluding | ||||
the effect of catastrophes | $6,705,294 | $2,226 | $(1,572,666) | $5,134,854 |
Catastrophe loss | - | - | - | - |
Loss and loss adjustment expenses | $6,705,294 | $2,226 | $(1,572,666) | $5,134,854 |
Loss ratio excluding the effect of catastrophes | 27.0% | -78.2% | 17.1% | 32.8% |
Catastrophe loss | 0.0% | 0.0% | 0.0% | 0.0% |
Loss ratio | 27.0% | -78.2% | 17.1% | 32.8% |
|
| Direct |
|
| Assumed |
|
| Ceded |
|
| Net |
| ||||
Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Written premiums |
| $ | 95,244,390 |
|
| $ | - |
|
| $ | (42,692,915 | ) |
| $ | 52,551,475 |
|
Change in unearned premiums |
|
| 5,577,883 |
|
|
| - |
|
|
| (366,209 | ) |
|
| 5,211,674 |
|
Earned premiums |
| $ | 100,822,273 |
|
| $ | - |
|
| $ | (43,059,124 | ) |
| $ | 57,763,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the effect of catastrophes |
| $ | 60,255,984 |
|
| $ | - |
|
| $ | (20,761,334 | ) |
| $ | 39,494,650 |
|
Catastrophe loss |
|
| 7,874,884 |
|
|
| - |
|
|
| (2,749,422 | ) |
|
| 5,125,462 |
|
Loss and loss adjustment expenses |
| $ | 68,130,868 |
|
| $ | - |
|
| $ | (23,510,756 | ) |
| $ | 44,620,112 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio excluding the effect of catastrophes |
|
| 59.8 | % |
|
| 0.0 | % |
|
| 48.2 | % |
|
| 68.4 | % |
Catastrophe loss |
|
| 7.8 | % |
|
| 0.0 | % |
|
| 6.4 | % |
|
| 8.9 | % |
Loss ratio |
|
| 67.6 | % |
|
| 0.0 | % |
|
| 54.6 | % |
|
| 77.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written premiums |
| $ | 92,762,360 |
|
| $ | - |
|
| $ | (37,818,392 | ) |
| $ | 54,943,968 |
|
Change in unearned premiums |
|
| (393,353 | ) |
|
| - |
|
|
| 24,833 |
|
|
| (368,520 | ) |
Earned premiums |
| $ | 92,369,007 |
|
| $ | - |
|
| $ | (37,793,559 | ) |
| $ | 54,575,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the effect of catastrophes |
| $ | 52,832,153 |
|
| $ | - |
|
| $ | (14,366,628 | ) |
| $ | 38,465,525 |
|
Catastrophe loss |
|
| 7,032,470 |
|
|
| - |
|
|
| (3,900,756 | ) |
|
| 3,131,714 |
|
Loss and loss adjustment expenses |
| $ | 59,864,623 |
|
| $ | - |
|
| $ | (18,267,384 | ) |
| $ | 41,597,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio excluding the effect of catastrophes |
|
| 57.2 | % |
|
| 0.0 | % |
|
| 38.0 | % |
|
| 70.5 | % |
Catastrophe loss |
|
| 7.6 | % |
|
| 0.0 | % |
|
| 10.3 | % |
|
| 5.7 | % |
Loss ratio |
|
| 64.8 | % |
|
| 0.0 | % |
|
| 48.3 | % |
|
| 76.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written premiums |
| $ | 47,646,944 |
|
| $ | - |
|
| $ | (19,064,216 | ) |
| $ | 28,582,728 |
|
Change in unearned premiums |
|
| 3,244,999 |
|
|
| - |
|
|
| (2,319,531 | ) |
|
| 925,468 |
|
Earned premiums |
| $ | 50,891,943 |
|
| $ | - |
|
| $ | (21,383,747 | ) |
| $ | 29,508,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the effect of catastrophes |
| $ | 28,345,979 |
|
| $ | - |
|
| $ | (10,147,791 | ) |
| $ | 18,198,188 |
|
Catastrophe loss |
|
| 2,489,053 |
|
|
| - |
|
|
| (1,106,539 | ) |
|
| 1,382,514 |
|
Loss and loss adjustment expenses |
| $ | 30,835,032 |
|
| $ | - |
|
| $ | (11,254,330 | ) |
| $ | 19,580,702 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio excluding the effect of catastrophes |
|
| 55.7 | % |
|
| 0.0 | % |
|
| 47.5 | % |
|
| 61.7 | % |
Catastrophe loss |
|
| 4.9 | % |
|
| 0.0 | % |
|
| 5.2 | % |
|
| 4.7 | % |
Loss ratio |
|
| 60.6 | % |
|
| 0.0 | % |
|
| 52.6 | % |
|
| 66.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written premiums |
| $ | 49,778,463 |
|
| $ | - |
|
| $ | (19,752,683 | ) |
| $ | 30,025,780 |
|
Change in unearned premiums |
|
| (2,786,080 | ) |
|
| - |
|
|
| 662,368 |
|
|
| (2,123,712 | ) |
Earned premiums |
| $ | 46,992,383 |
|
| $ | - |
|
| $ | (19,090,315 | ) |
| $ | 27,902,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the effect of catastrophes |
| $ | 26,323,489 |
|
| $ | - |
|
| $ | (7,779,738 | ) |
| $ | 18,543,751 |
|
Catastrophe loss |
|
| 195,070 |
|
|
| - |
|
|
| (82,780 | ) |
|
| 112,290 |
|
Loss and loss adjustment expenses |
| $ | 26,518,559 |
|
| $ | - |
|
| $ | (7,862,518 | ) |
| $ | 18,656,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio excluding the effect of catastrophes |
|
| 56.0 | % |
|
| 0.0 | % |
|
| 40.8 | % |
|
| 66.5 | % |
Catastrophe loss |
|
| 0.4 | % |
|
| 0.0 | % |
|
| 0.4 | % |
|
| 0.4 | % |
Loss ratio |
|
| 56.4 | % |
|
| 0.0 | % |
|
| 41.2 | % |
|
| 66.9 | % |
(Percent components may not sum to totals due to rounding)
64 |
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, | |||
2017 | 2016 | 2017 | 2016 | |
Net premiums earned | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Ceding commission revenue | 1,717,610 | 2,934,928 | 8,208,000 | 8,274,290 |
Other income | 317,269 | 294,373 | 880,930 | 820,472 |
Loss and loss adjustment expenses (1) | 7,073,323 | 5,134,854 | 22,821,241 | 20,405,545 |
Acquisition costs and other underwriting expenses: | ||||
Commission expense | 5,500,483 | 4,603,755 | 15,491,027 | 13,400,029 |
Other underwriting expenses | 4,475,455 | 4,039,209 | 12,887,488 | 10,981,784 |
Total acquisition costs and other | ||||
underwriting expenses | 9,975,938 | 8,642,964 | 28,378,515 | 24,381,813 |
Underwriting income | $6,500,026 | $5,097,664 | $12,727,057 | $9,496,135 |
Key Measures: | ||||
Net loss ratio excluding the effect of catastrophes | 32.9% | 32.8% | 41.6% | 42.1% |
Effect of catastrophe loss on net loss ratio (1) (2) | 0.0% | 0.0% | 0.0% | 3.1% |
Net loss ratio | 32.9% | 32.8% | 41.6% | 45.2% |
Net underwriting expense ratio excluding the | ||||
effect of catastrophes | 36.9% | 34.6% | 35.2% | 33.8% |
Effect of catastrophe loss on net underwriting | ||||
expense ratio (2) | 0.0% | 0.0% | 0.0% | 0.0% |
Net underwriting expense ratio | 36.9% | 34.6% | 35.2% | 33.8% |
Net combined ratio excluding the effect | ||||
of catastrophes | 69.8% | 67.4% | 76.8% | 75.9% |
Effect of catastrophe loss on net combined | ||||
ratio (1) (2) | 0.0% | 0.0% | 0.0% | 3.1% |
Net combined ratio | 69.8% | 67.4% | 76.8% | 79.0% |
Reconciliation of net underwriting expense ratio: | ||||
Acquisition costs and other | ||||
underwriting expenses | $9,975,938 | $8,642,964 | $28,378,515 | $24,381,813 |
Less: Ceding commission revenue | (1,717,610) | (2,934,928) | (8,208,000) | (8,274,290) |
Less: Other income | (317,269) | (294,373) | (880,930) | (820,472) |
$7,941,059 | $5,413,663 | $19,289,585 | $15,287,051 | |
Net earned premium | $21,514,408 | $15,646,181 | $54,837,883 | $45,188,731 |
Net Underwriting Expense Ratio | 36.9% | 34.6% | 35.2% | 33.8% |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net premiums earned |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
|
Ceding commission revenue |
|
| 5,412,210 |
|
|
| 4,715,587 |
|
|
| 10,857,617 |
|
|
| 9,396,983 |
|
Other income |
|
| 149,245 |
|
|
| 242,620 |
|
|
| 308,071 |
|
|
| 471,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and loss adjustment expenses (1) |
|
| 19,580,702 |
|
|
| 18,656,041 |
|
|
| 44,620,112 |
|
|
| 41,597,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commission expense |
|
| 8,471,182 |
|
|
| 8,481,031 |
|
|
| 17,010,944 |
|
|
| 16,832,117 |
|
Other underwriting expenses |
|
| 6,683,638 |
|
|
| 6,624,997 |
|
|
| 13,555,257 |
|
|
| 13,440,946 |
|
Total acquisition costs and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
underwriting expenses |
|
| 15,154,820 |
|
|
| 15,106,028 |
|
|
| 30,566,201 |
|
|
| 30,273,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting gain (loss) |
| $ | 334,129 |
|
| $ | (901,794 | ) |
| $ | (6,257,476 | ) |
| $ | (7,426,744 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key Measures: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss ratio excluding the effect of catastrophes |
|
| 61.7 | % |
|
| 66.5 | % |
|
| 68.4 | % |
|
| 70.5 | % |
Effect of catastrophe loss on net loss ratio (1) |
|
| 4.7 | % |
|
| 0.4 | % |
|
| 8.9 | % |
|
| 5.7 | % |
Net loss ratio |
|
| 66.4 | % |
|
| 66.9 | % |
|
| 77.2 | % |
|
| 76.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net underwriting expense ratio excluding the effect of catastrophes |
|
| 32.5 | % |
|
| 36.4 | % |
|
| 33.6 | % |
|
| 37.4 | % |
Effect of catastrophe loss on net underwriting expense ratio |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
Net underwriting expense ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| 33.6 | % |
|
| 37.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net combined ratio excluding the effect of catastrophes |
|
| 94.2 | % |
|
| 102.9 | % |
|
| 102.0 | % |
|
| 107.9 | % |
Effect of catastrophe loss on net combined ratio (1) |
|
| 4.7 | % |
|
| 0.4 | % |
|
| 8.9 | % |
|
| 5.7 | % |
Net combined ratio |
|
| 98.9 | % |
|
| 103.2 | % |
|
| 110.8 | % |
|
| 113.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net underwriting expense ratio: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs and other underwriting expenses |
| $ | 15,154,820 |
|
| $ | 15,106,028 |
|
| $ | 30,566,201 |
|
| $ | 30,273,063 |
|
Less: Ceding commission revenue |
|
| (5,412,210 | ) |
|
| (4,715,587 | ) |
|
| (10,857,617 | ) |
|
| (9,396,983 | ) |
Less: Other income |
|
| (149,245 | ) |
|
| (242,620 | ) |
|
| (308,071 | ) |
|
| (471,127 | ) |
|
| $ | 9,593,365 |
|
| $ | 10,147,821 |
|
| $ | 19,400,513 |
|
| $ | 20,404,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earned premium |
| $ | 29,508,196 |
|
| $ | 27,902,068 |
|
| $ | 57,763,149 |
|
| $ | 54,575,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Underwriting Expense Ratio |
|
| 32.5 | % |
|
| 36.4 | % |
|
| 33.6 | % |
|
| 37.4 | % |
(1) | For the three months ended June 30, 2023 and 2022, includes the sum of net catastrophe losses and loss adjustment expenses of $1,382,514 and $112,290, respectively. For the six months ended June 30, 2023 and 2022, includes the sum of net catastrophe losses and loss adjustment expenses of $5,125,462 and $3,131,714, respectively. |
65 |
Table of Contents |
Investments
Portfolio Summary
Fixed-Maturity Securities
The following table presents a breakdown of the amortized cost, estimated fair value, and gross unrealized gains and losses by investment typeof our investments in fixed-maturity securities classified as available-for-sale for which an allowance for credit loss has not been recorded, as of SeptemberJune 30,, 2017 2023 and December 31, 2016:
September 30, 2017 | ||||||
Cost or | Gross | Gross Unrealized Losses | % of | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Fair | |
Category | Cost | Gains | Months | Months | Value | Value |
Political subdivisions of States, | ||||||
Territories and Possessions | $11,428,403 | $286,360 | $(21,223) | $- | $11,693,540 | 9.4% |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 77,734,988 | 1,416,060 | (204,904) | (109,623) | 78,836,521 | 63.0% |
Residential mortgage and other | ||||||
asset backed securities (1) | 21,152,407 | 291,172 | (120,346) | (63,542) | 21,259,691 | 17.0% |
Total fixed-maturity securities | 110,315,798 | 1,993,592 | (346,473) | (173,165) | 111,789,752 | 89.4% |
Equity Securities | 12,706,538 | 785,012 | (103,789) | (166,645) | 13,221,116 | 10.6% |
Total | $123,022,336 | $2,778,604 | $(450,262) | $(339,810) | $125,010,868 | 100.0% |
|
| June 30, 2023 |
| |||||||||||||||||||||
|
| 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 (1) |
| $ | 8,192,900 |
|
| $ | 67 |
|
| $ | (59,420 | ) |
| $ | - |
|
| $ | 8,133,547 |
|
|
| 5.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 17,089,668 |
|
|
| - |
|
|
| (2,652 | ) |
|
| (3,489,849 | ) |
|
| 13,597,167 |
|
|
| 9.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 79,190,654 |
|
|
| - |
|
|
| (270,230 | ) |
|
| (7,511,387 | ) |
|
| 71,409,037 |
|
|
| 51.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities (2) |
|
| 52,237,241 |
|
|
| 72,673 |
|
|
| (1,621 | ) |
|
| (7,592,927 | ) |
|
| 44,715,366 |
|
|
| 32.4 | % |
Total fixed-maturity securities |
| $ | 156,710,463 |
|
| $ | 72,740 |
|
| $ | (333,923 | ) |
| $ | (18,594,163 | ) |
| $ | 137,855,117 |
|
|
| 100.0 | % |
|
| December 31, 2022 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| % of |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Estimated |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| Fair Value |
| ||||||
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies (1) |
| $ | 23,874,545 |
|
| $ | 1,479 |
|
| $ | (6,928 | ) |
| $ | - |
|
| $ | 23,869,096 |
|
|
| 15.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 17,108,154 |
|
|
| - |
|
|
| (2,195,273 | ) |
|
| (1,771,494 | ) |
|
| 13,141,387 |
|
|
| 8.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 80,338,464 |
|
|
| - |
|
|
| (5,796,994 | ) |
|
| (2,458,985 | ) |
|
| 72,082,485 |
|
|
| 46.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities (2) |
|
| 53,597,264 |
|
|
| 58,398 |
|
|
| (882,664 | ) |
|
| (7,150,803 | ) |
|
| 45,622,195 |
|
|
| 29.5 | % |
Total fixed-maturity securities |
| $ | 174,918,427 |
|
| $ | 59,877 |
|
| $ | (8,881,859 | ) |
| $ | (11,381,282 | ) |
| $ | 154,715,163 |
|
|
| 100.0 | % |
(1) In October 2022, KICO placed certain U.S. Treasury securities to fulfill the required collateral for a sale leaseback transaction in a designated custodian account (see Note 7 – Debt - “Equipment Financing”). As of June 30, 2023 and December 31, 2022, the amount of required collateral was approximately $7,986,000 and $8,691,000, respectively. As of June 30, 2023 and December 31, 2022, the estimated fair value of the eligible collateral was approximately $8,134,000 and $8,691,000, respectively.
(2) KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to our relationship withits membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7 – Debt – “Federal Home Loan Bank”). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHBLNYFHLBNY credit line. As of SeptemberJune 30, 2017,2023 and December 31, 2022, the estimated fair value of the eligible investments was $7,028,101.approximately $11,799,000 and $12,228,000, respectively. KICO will retain all rights regarding all securities if pledged as collateral. As of SeptemberJune 30, 2017,2023 and December 31, 2022 there was no outstanding balance on the FHLBNY credit line.
December 31, 2016 | ||||||
Cost or | Gross | Gross Unrealized Losses | % of | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Fair | |
Category | Cost | Gains | Months | Months | Value | Value |
Political subdivisions of States, | ||||||
Territories and Possessions | $8,053,449 | $199,028 | $(46,589) | $- | $8,205,888 | 9.1% |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 53,728,395 | 600,519 | (638,113) | (5,612) | 53,685,189 | 59.4% |
Residential mortgage backed | ||||||
securities | 18,814,784 | 70,682 | (309,273) | (38,442) | 18,537,751 | 20.5% |
Total fixed-maturity securities | 80,596,628 | 870,229 | (993,975) | (44,054) | 80,428,828 | 89.0% |
Equity Securities | 9,709,385 | 701,641 | (255,301) | (168,039) | 9,987,686 | 11.0% |
Total | $90,306,013 | $1,571,870 | $(1,249,276) | $(212,093) | $90,416,514 | 100.0% |
66 |
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 June 30, 2023 and December 31, 2022:
|
| June 30, 2023 |
| |||||||||||||||||
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
|
| % of Estimated |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
|
| Fair Value |
| |||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Preferred stocks |
| $ | 13,583,942 |
|
| $ | - |
|
| $ | (3,122,556 | ) |
| $ | 10,461,386 |
|
|
| 72.6 | % |
Common stocks and exchange traded funds |
|
| 4,402,841 |
|
|
| 268,887 |
|
|
| (722,632 | ) |
|
| 3,949,096 |
|
|
| 27.4 | % |
Total |
| $ | 17,986,783 |
|
| $ | 268,887 |
|
| $ | (3,845,188 | ) |
| $ | 14,410,482 |
|
|
| 100.0 | % |
|
| December 31, 2022 |
| |||||||||||||||||
|
|
|
|
| Gross |
|
| Gross |
|
| Estimated |
|
| % of Estimated |
| |||||
Category |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
|
| Fair Value |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Equity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Preferred stocks |
| $ | 13,583,942 |
|
| $ | - |
|
| $ | (3,589,313 | ) |
| $ | 9,994,629 |
|
|
| 72.2 | % |
Common stocks and exchange traded funds |
|
| 4,502,758 |
|
|
| 158,635 |
|
|
| (821,632 | ) |
|
| 3,839,761 |
|
|
| 27.8 | % |
Total |
| $ | 18,086,700 |
|
| $ | 158,635 |
|
| $ | (4,410,945 | ) |
| $ | 13,834,390 |
|
|
| 100.0 | % |
Other Investments
The following table presents a breakdown of the cost and estimated fair value of, and gross gains on our other investments as of June 30, 2023 and December 31, 2022:
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||
|
|
|
|
| Gross |
|
| Estimated |
|
|
|
|
| Gross |
|
| Estimated |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Fair Value |
|
| Cost |
|
| Gains |
|
| Fair Value |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Hedge fund |
| $ | 1,987,040 |
|
| $ | 1,562,500 |
|
| $ | 3,549,540 |
|
| $ | 1,987,040 |
|
| $ | 784,612 |
|
| $ | 2,771,652 |
|
67 |
Table of Contents |
Held-to-Maturity Securities
September 30, 2017 | ||||||
Cost or | Gross | Gross Unrealized Losses | % of | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Fair | |
Category | Cost | Gains | Months | Months | Value | Value |
U.S. Treasury securities | $606,456 | $147,583 | $- | $- | $754,039 | 14.6% |
Political subdivisions of States, | ||||||
Territories and Possessions | 1,099,032 | 68,375 | - | - | 1,167,407 | 22.5% |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 3,140,861 | 124,122 | (5,270) | - | 3,259,713 | 62.9% |
Total | $4,846,349 | $340,080 | $(5,270) | $- | $5,181,159 | 100.0% |
December 31, 2016 | ||||||
Cost or | Gross | Gross Unrealized Losses | % of | |||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Fair | |
Category | Cost | Gains | Months | Months | Value | Value |
U.S. Treasury securities | $606,427 | $147,612 | $- | $- | $754,039 | 14.2% |
Political subdivisions of States, | ||||||
Territories and Possessions | 1,349,916 | 37,321 | - | - | 1,387,237 | 26.2% |
Corporate and other bonds | ||||||
Industrial and miscellaneous | 3,138,559 | 72,784 | (7,619) | (46,881) | 3,156,843 | 59.6% |
Total | $5,094,902 | $257,717 | $(7,619) | $(46,881) | $5,298,119 | 100.0% |
The following table presents a breakdown of the amortized cost and estimated fair value of, and gross unrealized gains and losses on, investments in held-to-maturity securities as of June 30, 2023 and December 31, 2022:
June 30, 2023 | ||||||||||||||||||||||||
Cost or | Gross | Gross Unrealized Losses | Estimated | % of | ||||||||||||||||||||
Amortized | Unrealized | Less than 12 | More than 12 | Fair | Estimated | |||||||||||||||||||
Category | Cost | Gains | Months | Months | Value | Fair Value | ||||||||||||||||||
Held-to-Maturity Securities: | ||||||||||||||||||||||||
U.S. Treasury securities | $ | 1,228,708 | $ | 27,347 | $ | (36,008 | ) | $ | - | $ | 1,220,047 | 19.5 | % | |||||||||||
Political subdivisions of States, | ||||||||||||||||||||||||
Territories and Possessions | 498,902 | - | (142 | ) | - | 498,760 | 8.0 | % | ||||||||||||||||
Exchange traded debt | 304,111 | - | (62,411 | ) | - | 241,700 | 3.9 | % | ||||||||||||||||
Corporate and other bonds | ||||||||||||||||||||||||
Industrial and miscellaneous | 5,273,310 | - | (4,554 | ) | (963,148 | ) | 4,305,608 | 68.6 | % | |||||||||||||||
Total | $ | 7,305,031 | $ | 27,347 | $ | (103,115 | ) | $ | (963,148 | ) | $ | 6,266,115 | 100.0 | % |
|
| December 31, 2022 |
| |||||||||||||||||||||
|
| Cost or |
|
| Gross |
|
| Gross Unrealized Losses |
|
| Estimated |
|
| % of |
| |||||||||
|
| Amortized |
|
| Unrealized |
|
| Less than 12 |
|
| More than 12 |
|
| Fair |
|
| Estimated |
| ||||||
Category |
| Cost |
|
| Gains |
|
| Months |
|
| Months |
|
| Value |
|
| Fair Value |
| ||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Held-to-Maturity Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
U.S. Treasury securities |
| $ | 1,228,560 |
|
| $ | 28,400 |
|
| $ | (34,077 | ) |
| $ | - |
|
| $ | 1,222,883 |
|
|
| 18.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Territories and Possessions |
|
| 498,638 |
|
|
| 2,092 |
|
|
| - |
|
|
| - |
|
|
| 500,730 |
|
|
| 7.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange traded debt |
|
| 304,111 |
|
|
| - |
|
|
| (29,111 | ) |
|
| - |
|
|
| 275,000 |
|
|
| 4.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial and miscellaneous |
|
| 5,734,831 |
|
|
| 36,968 |
|
|
| (809,746 | ) |
|
| (360,278 | ) |
|
| 4,601,775 |
|
|
| 69.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 7,766,140 |
|
| $ | 67,460 |
|
| $ | (872,934 | ) |
| $ | (360,278 | ) |
| $ | 6,600,388 |
|
|
| 100.0 | % |
Held-to-maturity U.S. Treasury securities included in held-to-maturity securities are held in trust pursuant to the New York State Department of Financial Services’various states’ minimum funds requirement.
68 |
Table of Contents |
A summary of the amortized cost and fair value of the Company’sour investments in held-to-maturity securities by contractual maturity as of
September 30, 2017 | December 31, 2016 | |||
Amortized | Amortized | |||
Remaining Time to Maturity | Cost | Fair Value | Cost | Fair Value |
Less than one year | $- | $- | $- | $- |
One to five years | 1,745,332 | 1,806,484 | 650,000 | 642,455 |
Five to ten years | 2,494,561 | 2,620,636 | 3,838,475 | 3,901,625 |
More than 10 years | 606,456 | 754,039 | 606,427 | 754,039 |
Total | $4,846,349 | $5,181,159 | $5,094,902 | $5,298,119 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Amortized |
|
| Estimated |
|
| Amortized |
|
| Estimated |
| ||||
Remaining Time to Maturity |
| Cost |
|
| Fair Value |
|
| Cost |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Less than one year |
| $ | 249,927 |
|
| $ | 249,473 |
|
| $ | 708,535 |
|
| $ | 743,575 |
|
One to five years |
|
| 1,120,894 |
|
|
| 1,084,744 |
|
|
| 1,120,507 |
|
|
| 1,088,522 |
|
Five to ten years |
|
| 1,408,731 |
|
|
| 1,210,185 |
|
|
| 1,402,704 |
|
|
| 1,200,720 |
|
More than 10 years |
|
| 4,525,479 |
|
|
| 3,721,713 |
|
|
| 4,534,394 |
|
|
| 3,567,571 |
|
Total |
| $ | 7,305,031 |
|
| $ | 6,266,115 |
|
| $ | 7,766,140 |
|
| $ | 6,600,388 |
|
Credit Rating of Fixed-Maturity Securities
The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of SeptemberJune 30,, 2017 2023 and December 31, 20162022 as rated by Standard & Poor’s (or, if unavailable from Standard & Poor’s, then Moody’s, Fitch, or Fitch)Kroll):
September 30, 2017 | December 31, 2016 | |||
Percentage of | Percentage of | |||
Fair Market | Fair Market | Fair Market | Fair Market | |
Value | Value | Value | Value | |
Rating | ||||
U.S. Treasury securities | $- | 0.0% | $- | 0.0% |
Corporate and municipal bonds | ||||
AAA | 1,571,341 | 1.4% | 1,801,106 | 2.2% |
AA | 11,498,555 | 10.3% | 7,236,457 | 9.0% |
A | 17,319,455 | 15.6% | 13,944,784 | 17.3% |
BBB | 59,211,360 | 53.0% | 38,908,731 | 48.4% |
BB | 929,350 | 0.8% | - | 0.0% |
Total corporate and municipal bonds | 90,530,061 | 81.1% | 61,891,078 | 76.9% |
Residential mortgage and other asset backed securities | ||||
AAA | 2,021,700 | 1.8% | - | 0.0% |
AA | 11,564,239 | 10.3% | 14,143,828 | 17.7% |
A | 3,908,071 | 3.5% | 173,973 | 0.2% |
CCC | 1,415,748 | 1.3% | 513,369 | 0.6% |
CC | 126,335 | 0.1% | - | 0.0% |
C | 30,318 | 0.0% | 112,136 | 0.1% |
D | 1,811,320 | 1.6% | 3,594,444 | 4.5% |
Not rated | 381,960 | 0.3% | - | 0.0% |
Total residential mortgage and other asset backed securities | 21,259,691 | 18.9% | 18,537,750 | 23.1% |
Total | $111,789,752 | 100.0% | $80,428,828 | 100.0% |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Estimated |
|
| Percentage of |
|
| Estimated |
|
| Percentage of |
| ||||
|
| Fair |
|
| Estimated |
|
| Fair |
|
| Estimated |
| ||||
|
| Value |
|
| Fair Value |
|
| Value |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
| ||||||||
Rating |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
| $ | 8,133,548 |
|
|
| 5.9 | % |
| $ | 23,869,096 |
|
|
| 15.4 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and municipal bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
| 1,877,254 |
|
|
| 1.4 | % |
|
| 1,824,478 |
|
|
| 1.2 | % |
AA |
|
| 10,066,478 |
|
|
| 7.3 | % |
|
| 9,785,908 |
|
|
| 6.3 | % |
A |
|
| 32,050,700 |
|
|
| 23.4 | % |
|
| 31,099,075 |
|
|
| 20.2 | % |
BBB+ |
|
| 18,070,287 |
|
|
| 13.1 | % |
|
| 16,682,159 |
|
|
| 10.8 | % |
BBB |
|
| 21,283,056 |
|
|
| 15.4 | % |
|
| 19,664,051 |
|
|
| 12.7 | % |
BBB- |
|
| - |
|
|
| 0.0 | % |
|
| 4,516,713 |
|
|
| 2.9 | % |
Total corporate and municipal bonds |
|
| 83,347,775 |
|
|
| 60.6 | % |
|
| 83,572,384 |
|
|
| 54.1 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage backed, asset backed, and other collateralized obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA |
|
| 16,186,523 |
|
|
| 11.7 | % |
|
| 16,497,621 |
|
|
| 10.7 | % |
AA |
|
| 22,491,096 |
|
|
| 16.3 | % |
|
| 23,062,233 |
|
|
| 14.9 | % |
A |
|
| 6,808,837 |
|
|
| 4.9 | % |
|
| 6,722,902 |
|
|
| 4.3 | % |
BBB+ |
|
| 16,457 |
|
|
| 0.0 | % |
|
| - |
|
|
| 0.0 | % |
BBB |
|
| - |
|
|
| 0.0 | % |
|
| 20,067 |
|
|
| 0.0 | % |
CCC |
|
| 435,351 |
|
|
| 0.3 | % |
|
| 457,683 |
|
|
| 0.3 | % |
CC |
|
| 95,270 |
|
|
| 0.1 | % |
|
| 99,600 |
|
|
| 0.1 | % |
D |
|
| - |
|
|
| 0.0 | % |
|
| 40,474 |
|
|
| 0.0 | % |
Non rated |
|
| 340,260 |
|
|
| 0.2 | % |
|
| 373,103 |
|
|
| 0.2 | % |
Total residential mortgage backed, asset backed, and other collateralized obligations |
|
| 46,373,794 |
|
|
| 33.5 | % |
|
| 47,273,683 |
|
|
| 30.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
| $ | 137,855,117 |
|
|
| 100.0 | % |
| $ | 154,715,163 |
|
|
| 100.0 | % |
69 |
Table of Contents |
The table below summarizes the average yield by type of fixed-maturity security as of SeptemberJune 30,, 2017 2023 and December 31, 2016:
Category | September 30, 2017 | December 31, 2016 |
U.S. Treasury securities and | ||
obligations of U.S. government | ||
corporations and agencies | 3.44% | 3.44% |
Political subdivisions of States, | ||
Territories and Possessions | 3.56% | 3.87% |
Corporate and other bonds | ||
Industrial and miscellaneous | 4.02% | 3.86% |
Residential mortgage and other asset backed securities | 1.68% | 3.83% |
Total | 3.54% | 3.85% |
Category |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
|
|
|
|
|
|
| ||
U.S. Treasury securities and obligations of U.S. government corporations and agencies |
|
| 4.51 | % |
|
| 2.58 | % |
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 3.46 | % |
|
| 3.58 | % |
|
|
|
|
|
|
|
|
|
Corporate and other bonds Industrial and miscellaneous |
|
| 3.65 | % |
|
| 3.68 | % |
|
|
|
|
|
|
|
|
|
Residential mortgage backed securities |
|
| 2.86 | % |
|
| 2.70 | % |
|
|
|
|
|
|
|
|
|
Total |
|
| 3.44 | % |
|
| 3.20 | % |
The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of SeptemberJune 30,, 2017 2023 and December 31, 2016:
September 30, 2017 | December 31, 2016 | |
Weighted average effective maturity | 5.5 | 5.0 |
Weighted average final maturity | 7.9 | 8.3 |
Effective duration | 4.8 | 4.4 |
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Weighted average effective maturity |
|
| 8.9 |
|
|
| 5.8 |
|
|
|
|
|
|
|
|
|
|
Weighted average final maturity |
|
| 13.3 |
|
|
| 13.5 |
|
|
|
|
|
|
|
|
|
|
Effective duration |
|
| 4.6 |
|
|
| 4.5 |
|
Fair Value Consideration
Fair value asis 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 SeptemberJune 30,, 2017 2023 and December 31, 2016, 70%2022, 62% and 65%, respectively, of the investment portfolio recorded at fair value was priced based upon quoted market prices.
70 |
Table of Contents |
The table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale and equity securities by length of time the security has continuously been in an unrealized loss position as of SeptemberJune 30,, 2017 2023 and December 31, 2016:
September 30, 2017 | ||||||||
Less than 12 months | 12 months or more | Total | ||||||
No. of | No. of | Aggregate | ||||||
Fair | Unrealized | Positions | Fair | Unrealized | Positions | Fair | Unrealized | |
Category | Value | Losses | Held | Value | Losses | Held | Value | Losses |
Fixed-Maturity Securities: | ||||||||
Political subdivisions of | ||||||||
States, Territories and | ||||||||
Possessions | $2,183,221 | $(21,223) | 4 | $- | $- | - | $2,183,221 | $(21,223) |
Corporate and other | ||||||||
bonds industrial and | ||||||||
miscellaneous | 11,306,993 | (204,904) | 20 | 4,967,629 | (109,623) | 9 | 16,274,622 | (314,527) |
Residential mortgage and other | ||||||||
asset backed securities | 13,999,289 | (120,346) | 16 | 1,241,754 | (63,542) | 5 | 15,241,043 | (183,888) |
Total fixed-maturity | ||||||||
securities | $27,489,503 | $(346,473) | 40 | $6,209,383 | $(173,165) | 14 | $33,698,886 | $(519,638) |
Equity Securities: | ||||||||
Preferred stocks | $1,738,380 | $(26,360) | 6 | $1,786,150 | $(107,477) | 3 | $3,524,530 | $(133,837) |
Common stocks and | ||||||||
exchange traded mutual funds | 1,612,300 | (77,429) | 3 | 299,250 | (59,168) | 1 | 1,911,550 | (136,597) |
Total equity securities | $3,350,680 | $(103,789) | 9 | $2,085,400 | $(166,645) | 4 | $5,436,080 | $(270,434) |
Total | $30,840,183 | $(450,262) | 49 | $8,294,783 | $(339,810) | 18 | $39,134,966 | $(790,072) |
December 31, 2016 | ||||||||
Less than 12 months | 12 months or more | Total | ||||||
No. of | No. of | Aggregate | ||||||
Fair | Unrealized | Positions | Fair | Unrealized | Positions | Fair | Unrealized | |
Category | Value | Losses | Held | Value | Losses | Held | Value | Losses |
Fixed-Maturity Securities: | ||||||||
Political subdivisions of | ||||||||
States, Territories and | ||||||||
Possessions | $1,067,574 | $(46,589) | 3 | $- | $- | - | $1,067,574 | $(46,589) |
Corporate and other | ||||||||
bonds industrial and | ||||||||
miscellaneous | 19,859,293 | (638,113) | 34 | 239,970 | (5,612) | 1 | 20,099,263 | (643,725) |
Residential mortgage | ||||||||
backed securities | 15,918,090 | (309,273) | 30 | 675,316 | (38,442) | 6 | 16,593,406 | (347,715) |
Total fixed-maturity | ||||||||
securities | $36,844,957 | $(993,975) | 67 | $915,286 | $(44,054) | 7 | $37,760,243 | $(1,038,029) |
Equity Securities: | ||||||||
Preferred stocks | $3,759,850 | $(241,333) | 8 | $660,750 | $(70,571) | 1 | $4,420,600 | $(311,904) |
Common stocks and | ||||||||
exchange traded mutual funds | 288,075 | (13,968) | 1 | 424,550 | (97,468) | 1 | 712,625 | (111,436) |
Total equity securities | $4,047,925 | $(255,301) | 9 | $1,085,300 | $(168,039) | 2 | $5,133,225 | $(423,340) |
Total | $40,892,882 | $(1,249,276) | 76 | $2,000,586 | $(212,093) | 9 | $42,893,468 | $(1,461,369) |
|
| June 30, 2023 |
| |||||||||||||||||||||||||||||
|
| 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 |
| $ | 5,927,580 |
|
| $ | (59,420 | ) |
|
| 1 |
|
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | 5,927,580 |
|
| $ | (59,420 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 148,703 |
|
|
| (2,652 | ) |
|
| 1 |
|
|
| 13,448,464 |
|
|
| (3,489,849 | ) |
|
| 13 |
|
|
| 13,597,167 |
|
|
| (3,492,501 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds industrial and miscellaneous |
|
| 6,860,908 |
|
|
| (270,230 | ) |
|
| 12 |
|
|
| 64,548,129 |
|
|
| (7,511,387 | ) |
|
| 77 |
|
|
| 71,409,037 |
|
|
| (7,781,617 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities |
|
| 101,701 |
|
|
| (1,621 | ) |
|
| 4 |
|
|
| 41,865,274 |
|
|
| (7,592,927 | ) |
|
| 38 |
|
|
| 41,966,975 |
|
|
| (7,594,548 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities |
| $ | 13,038,892 |
|
| $ | (333,923 | ) |
|
| 18 |
|
| $ | 119,861,867 |
|
| $ | (18,594,163 | ) |
|
| 128 |
|
| $ | 132,900,759 |
|
| $ | (18,928,086 | ) |
71 |
Table of Contents |
|
| December 31, 2022 |
| |||||||||||||||||||||||||||||
|
| 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 |
| $ | 18,918,196 |
|
| $ | (6,928 | ) |
|
| 3 |
|
| $ | - |
|
|
| - |
|
|
| - |
|
| $ | 18,918,196 |
|
| $ | (6,928 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Political subdivisions of States, Territories and Possessions |
|
| 7,970,633 |
|
|
| (2,195,273 | ) |
|
| 9 |
|
|
| 5,170,753 |
|
|
| (1,771,494 | ) |
|
| 5 |
|
|
| 13,141,386 |
|
|
| (3,966,767 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other bonds industrial and miscellaneous |
|
| 56,910,104 |
|
|
| (5,796,994 | ) |
|
| 75 |
|
|
| 15,172,381 |
|
|
| (2,458,985 | ) |
|
| 15 |
|
|
| 72,082,485 |
|
|
| (8,255,979 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage and other asset backed securities |
|
| 10,145,880 |
|
|
| (882,664 | ) |
|
| 22 |
|
|
| 34,753,178 |
|
|
| (7,150,803 | ) |
|
| 26 |
|
|
| 44,899,058 |
|
|
| (8,033,467 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed-maturity securities |
| $ | 93,944,813 |
|
| $ | (8,881,859 | ) |
|
| 109 |
|
| $ | 55,096,312 |
|
| $ | (11,381,282 | ) |
|
| 46 |
|
| $ | 149,041,125 |
|
| $ | (20,263,141 | ) |
72 |
Table of Contents |
There were 67146 securities at SeptemberJune 30,, 2017 2023 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.credit losses by us. There were 85155 securities at December 31, 20162022 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.credit losses by us. Significant factors influencing our determination that unrealized losses were temporary included credit quality considerations, the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and interest rate environment factors, 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.
The public offering price for the 2,692,500 shares sold was $12.00 per share. The aggregate net proceeds to us were approximately $30,137,000. On March 1, 2017, we used $23,000,000 of the net proceeds of the offering to contribute capital to KICO, to support its ratings upgrade plan and additional growth. The remainder of the net proceeds will be used for general corporate purposes.
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 USU.S. Treasury and agency securities. See Note 3 – Investments to theour condensed consolidated financial statements – Investments, for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of Decemberthe end of the previous quarter, which is March 31, 20162023, and are due and payable within one year90 days of borrowing. The maximum allowable advance as of SeptemberJune 30, 2017 is2023, based on the net admitted assets as of March 31, 2023, was approximately $6,212,000.$13,268,000. Available collateral as of June 30, 2023 was approximately $11,799,000. Advances are limited to 85% of the amount of available collateral. There were no borrowings under this facility during the threesix months ended SeptemberJune 30, 2017.
On December 15, 2022, we issued $19,950,000 of our 2022 Notes pursuant to the aforementioned sourcesExchange Agreement. We are required to make a mandatory redemption payment with regard to the 2022 Notes on December 30, 2023 in an amount discussed in Note 7 – Debt of cash flow currently availablethe condensed consolidated financial statements included in this Quarterly Report. We are insufficientalso required to cover our holding company cash requirements, we will seek to obtain additional financing.
73 |
Table of Contents |
Cash flow and liquidity are categorized into three sources: (1) operating activities; (2) investing activities; and (3) financing activities, which are shown in the following table:
Nine Months Ended September 30, | 2017 | 2016 |
Cash flows provided by (used in): | ||
Operating activities | $20,889,623 | $13,474,432 |
Investing activities | (34,698,530) | (17,855,522) |
Financing activities | 27,644,693 | 3,260,405 |
Net increase (decrease) in cash and cash equivalents | 13,835,786 | (1,120,685) |
Cash and cash equivalents, beginning of period | 12,044,520 | 13,551,372 |
Cash and cash equivalents, end of period | $25,880,306 | $12,430,687 |
Six Months ended June 30, |
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Cash flows (used in) provided by: |
|
|
|
|
|
| ||
Operating activities |
| $ | (17,009,995 | ) |
| $ | (13,716,630 | ) |
Investing activities |
|
| 17,890,127 |
|
|
| 3,857,225 |
|
Financing activities |
|
| (551,936 | ) |
|
| (1,231,065 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 328,196 |
|
|
| (11,090,470 | ) |
Cash and cash equivalents, beginning of period |
|
| 11,958,228 |
|
|
| 24,290,598 |
|
Cash and cash equivalents, end of period |
| $ | 12,286,424 |
|
| $ | 13,200,128 |
|
Net cash provided byused in operating activities was $20,889,000$17,010,000 in 2017Six Months 2023 as compared to $13,474,000$13,717,000 used in 2016.operating activities in Six Months 2022. The $7,415,000$3,293,000 increase in cash flows provided byused in operating activities in 2017Six Months 2023 as compared to Six Months 2022 was primarily athe result of an increase in cash arising from net fluctuations in operating assets and liabilities, relatingpartially offset by net income (adjusted for non-cash items) of $412,000. The increase in cash used in operating activities is also partially offset by the payment of $13,245,000 to reinsurers in Six Months 2022 pursuant to the inception of our quota share reinsurance treaty, effective December 31, 2021. The net fluctuations in assets and liabilities are related to operating activities of KICO as affected by the growth or declines in its operations, payments on claims and other changes, which are described above, and by an increase in net income (adjusted for non-cash items) of $2,606,000.
Net cash provided by financinginvesting activities was $27,645,000$17,890,000 in 2017Six Months 2023 compared to $3,260,000$3,857,000 provided by investing activities in 2016. The $24,385,000Six Months 2022 resulting in a $14,033,000 increase in net cash provided by investing activities. In Six Months 2023, we had net cash provided by our investment portfolio of $18,789,000, compared to $6,398,000 used in Six Months 2022. In addition, we decreased our acquisition of fixed assets by $1,642,000 in Six Months 2023 compared to Six Months 2022.
Net cash used in financing activities is the result of the $30,137,000was $552,000 in Six Months 2023 compared to $1,231,000 used in Six Months 2022. The $679,000 decrease in net proceeds we received from the public offering of our common stockcash used in January/February 2017, offset partially by the $4,808,000 net proceeds we received from the private placement of our common stockfinancing activities was attributable to no dividends being paid to shareholders in April 2016Six Months 2023 compared to $851,000 being paid in Six Months 2022 and a $917,000 increase$378,000 decrease in dividendswithholding taxes paid due to an increaseon the vesting of restricted stock awards. The decreases in cash used in financing activities were partially offset by $536,000 of principal payments on the shares outstanding and dividend paid per share.
Reinsurance
Effective December 31, 2021, we entered into a quota share reinsurance treaties are on a July 1 through June 30 fiscal year basis; therefore, for year to date fiscal periods after June 30, two separate treaties will be included in such periods.
74 |
Table of Contents |
We have the option under certain circumstances to reduce the quota share ceding rate or terminate the 2017/2019 Treaty effective July 1, 2018 by giving advance notice to the two reinsurers who participate in the quota share reinsurance treaty. Such two reinsurers who participate in the quota share reinsurance treaty have the option under limited circumstances to reduce the quota share ceding rate or terminate the 2017/2019 Treaty effective July 1, 2018 by giving advance notice to us.
Treaty Year | |||
July 1, 2017 | July 1, 2016 | July 1, 2015 | |
to | to | to | |
Line of Business | June 30, 2018 | June 30, 2017 | June 30, 2016 |
Personal Lines: | |||
Homeowners, dwelling fire and canine legal liability | |||
Quota share treaty: | |||
Percent ceded | 20% | 40% | 40% |
Risk retained | $800,000 | $500,000 | $450,000 |
Losses per occurrence subject to quota share reinsurance coverage | $1,000,000 | $833,333 | $750,000 |
Excess of loss coverage and facultative facility above quota share coverage (1) | $9,000,000 | $3,666,667 | $3,750,000 |
in excess of | in excess of | in excess of | |
$1,000,000 | $833,333 | $750,000 | |
Total reinsurance coverage per occurrence | $9,200,000 | $4,000,000 | $4,050,000 |
Losses per occurrence subject to reinsurance coverage | $10,000,000 | $4,500,000 | $4,500,000 |
Expiration date | June 30, 2019 | June 30, 2017 | June 30, 2016 |
Personal Umbrella | |||
Quota share treaty: | |||
Percent ceded - first $1,000,000 of coverage | 90% | 90% | 90% |
Percent ceded - excess of $1,000,000 dollars of coverage | 100% | 100% | 100% |
Risk retained | $100,000 | $100,000 | $100,000 |
Total reinsurance coverage per occurrence | $4,900,000 | $4,900,000 | $2,900,000 |
Losses per occurrence subject to quota share reinsurance coverage | $5,000,000 | $5,000,000 | $3,000,000 |
Expiration date | June 30, 2019 | June 30, 2017 | June 30, 2016 |
Commercial Lines: | |||
General liability commercial policies, except for commercial auto | |||
Quota share treaty: | |||
Percent ceded (terminated effective July 1, 2014) | None | None | None |
Risk retained | $750,000 | $500,000 | $425,000 |
Losses per occurrence subject to quota share reinsurance coverage | None | None | None |
Excess of loss coverage above quota share coverage | $3,750,000 | $4,000,000 | $4,075,000 |
in excess of | in excess of | in excess of | |
$750,000 | $500,000 | $425,000 | |
Total reinsurance coverage per occurrence | $3,750,000 | $4,000,000 | $4,075,000 |
Losses per occurrence subject to reinsurance coverage | $4,500,000 | $4,500,000 | $4,500,000 |
Commercial Umbrella | |||
Quota share treaty: | |||
Percent ceded - first $1,000,000 of coverage | 90% | 90% | |
Percent ceded - excess of $1,000,000 of coverage | 100% | 100% | |
Risk retained | $100,000 | $100,000 | |
Total reinsurance coverage per occurrence | $4,900,000 | $4,900,000 | |
Losses per occurrence subject to quota share reinsurance coverage | $5,000,000 | $5,000,000 | |
Expiration date | June 30, 2018 | June 30, 2017 | |
Commercial Auto: | |||
Risk retained | $300,000 | ||
Excess of loss coverage in excess of risk retained | $1,700,000 | ||
in excess of | |||
$300,000 | |||
Catastrophe Reinsurance: | |||
Initial loss subject to personal lines quota share treaty | $5,000,000 | $5,000,000 | $4,000,000 |
Risk retained per catastrophe occurrence (2) | $4,000,000 | $3,000,000 | $2,400,000 |
Catastrophe loss coverage in excess of quota share coverage (3) (4) | $315,000,000 | $247,000,000 | $176,000,000 |
Severe winter weather aggregate (4) | No | No | Yes |
Reinstatement premium protection (5) | Yes | Yes | Yes |
|
| Treaty Period |
| |||||||||||||||||
|
|
|
| 2023/2024 Treaty |
|
| 2021/2023 Treaty |
| ||||||||||||
|
| January 2, |
|
| July 1, |
|
| January 1, |
|
| July 1, |
|
| December 31, |
| |||||
|
| 2024 |
|
| 2023 |
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||||
|
| to |
|
| to |
|
| to |
|
| to |
|
| to |
| |||||
|
| June 30, |
|
| January 1, |
|
| June 30, |
|
| January 1, |
|
| June 30, |
| |||||
Line of Business |
| 2024 |
|
| 2024 |
|
| 2023 |
|
| 2023 |
|
| 2022 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Personal Lines: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Homeowners, dwelling fire and canine legal liability Quota share treaty: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Percent ceded (7) |
|
| (6 | ) |
|
| 30 | % |
|
| 30 | % |
|
| 30 | % |
|
| 30 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk retained on initial $1,000,000 of losses (5) (6) (7) |
| $ | 1,000,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
| $ | 700,000 |
|
Losses per occurrence subject to quota share reinsurance coverage |
|
| (6 | ) |
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
| $ | 1,000,000 |
|
Expiration date |
|
| (6 | ) |
| January 1, 2024 |
|
| January 1, 2024 |
|
| January 1, 2023 |
|
| January 1, 2023 |
| ||||
Excess of loss coverage and facultative facility coverage (1) (5) (6) |
| $ | 8,000,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
| $ | 8,400,000 |
|
|
| in excess of |
|
| in excess of |
|
| in excess of |
|
| in excess of |
|
| in excess of |
| |||||
|
| $ | 1,000,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
| $ | 600,000 |
|
Total reinsurance coverage per occurrence (5) (6) |
| $ | 7,000,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
| $ | 8,500,000 |
|
Losses per occurrence subject to reinsurance coverage |
| $ | 8,000,000 |
|
| $ | 8,000,000 |
|
| $ | 8,000,000 |
|
| $ | 9,000,000 |
|
| $ | 9,000,000 |
|
Expiration date (6) |
| June 30, 2024 |
|
| June 30, 2024 |
|
| June 30, 2023 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Catastrophe Reinsurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial loss subject to personal lines quota share treaty (6) |
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
| $ | 10,000,000 |
|
Risk retained per catastrophe occurrence (6) (7) (8) |
| $ | 10,000,000 |
|
| $ | 8,750,000 |
|
| $ | 8,750,000 |
|
| $ | 7,400,000 |
|
| $ | 7,400,000 |
|
Catastrophe loss coverage in excess of quota share coverage (2) (6) |
| $ | 315,000,000 |
|
| $ | 315,000,000 |
|
| $ | 335,000,000 |
|
| $ | 335,000,000 |
|
| $ | 490,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinstatement premium protection (3) (4) |
| Yes |
|
| Yes |
|
| Yes |
|
| Yes |
|
| Yes |
|
(1) | For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2024. |
(2) | 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. |
(3) | For the period December 31, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. |
(4) | For the period July 1, |
Table of Contents |
(5) | For the period January 1, 2022 through January 1, 2024, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty and 2022/2023 Treaty. Excludes losses from named storms. | |||
(6) | Personal lines quota share (homeowners, dwelling fire and canine liability) and underlying excess of loss reinsurance will expire on January 1, 2024; reinsurance coverage in effect from January 2, 2024 through June 30, 2024 is only for excess of loss and catastrophe reinsurance treaties. | |||
(7) | For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. | |||
(8) | Plus losses in excess of catastrophe coverage |
|
| Treaty Year |
| |||||
Line of Business |
| July 1, 2022 to June 30, 2023 |
|
| July 1, 2021 to June 30, 2022 |
| ||
|
|
|
|
|
|
| ||
Personal Lines: |
|
|
|
|
|
| ||
Personal Umbrella |
|
|
|
|
|
| ||
Quota share treaty: |
|
|
|
|
|
| ||
Percent ceded - first $1,000,000 of coverage |
|
| 90 | % |
|
| 90 | % |
Percent ceded - excess of $1,000,000 dollars of coverage |
|
| 95 | % |
|
| 95 | % |
Risk retained |
| $ | 300,000 |
|
| $ | 300,000 |
|
Total reinsurance coverage per occurrence |
| $ | 4,700,000 |
|
| $ | 4,700,000 |
|
Losses per occurrence subject to quota share reinsurance coverage |
| $ | 5,000,000 |
|
| $ | 5,000,000 |
|
Expiration date |
| June 30, 2023 |
|
| June 30, 2022 |
|
Commercial Lines (1)
(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.
Six Months 2023 included continuing economic inflation, which resulted in a sustained increase in interest rates, a widening of credit spreads, lower public equity valuations, and significant financial market volatility. The higher interest rates and widening of credit spreads previously reduced the value of our fixed income securities, saw a reversal which had previously lowered our stockholders’ equity materially in prior quarters. For Six Months 2023, the continuing economic inflation impacted our loss and loss adjustment expenses as well; should these trends continue in the near-term, it would in all likelihood negatively impact our results of operations.
July 1, 2016 - June 30, 2017 | July 1, 2015 - June 30, 2016 | ||||||||
Treaty | Extent of Loss | Risk Retained | Extent of Loss | Risk Retained | |||||
Personal Lines | Initial $833,333 | $500,000 | Initial $750,000 | $450,000 | |||||
$833,333 - $4,500,000 | None(1) | $750,000 - $4,500,000 | None(1) | ||||||
Over $4,500,000 | 100% | Over $4,500,000 | 100% | ||||||
Personal Umbrella | Initial $1,000,000 | $100,000 | Initial $1,000,000 | $100,000 | |||||
$1,000,000 - $5,000,000 | None | $1,000,000 - $3,000,000 | None | ||||||
Over $5,000,000 | 100% | Over $3,000,000 | 100% | ||||||
Commercial Lines | Initial $500,000 | $500,000 | Initial $425,000 | $425,000 | |||||
$500,000 - $4,500,000 | None(1) | $425,000 - $4,500,000 | None(1) | ||||||
Over $4,500,000 | 100% | Over $4,500,000 | 100% | ||||||
Commercial Umbrella | Initial $1,000,000 | $100,000 | |||||||
$1,000,000 - $5,000,000 | None | ||||||||
Over $5,000,000 | 100% | ||||||||
Catastrophe (2) | Initial $5,000,000 | $3,000,000 | Initial $4,000,000 | $2,400,000 | |||||
$5,000,000 - $252,000,000 | None | $4,000,000 - $180,000,000 | None | ||||||
Over $252,000,000 | 100% | Over $180,000,000 | 100% |
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
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 Financial Condition
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.This item is not applicable
Item 4.
Controls and Procedures.Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (asas defined in Rule 13a-15(e) under the Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in ourthe reports we file or submit under the Exchange Act reports 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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
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 Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.
Changes in Internal Control over Financial Reporting
There was no changehave 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 has materially affected, or isare 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 2022 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 2022 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 or any “affiliated purchaser” during the quarter ended September 30, 2017:
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 | Maximum Number of Shares that May Be Purchased Under the Plans or Programs |
7/1/17 – 7/31/17 | - | - | - | - |
8/1/17 – 8/31/17 | 1,012 | $15.14 | - | - |
9/1/17 – 9/30/17 | 8,000 | $14.08 | - | - |
Total | 9,012 | $14.20 | - | - |
Item 3.
Defaults Upon Senior Securities.None.
Item 4.
Mine Safety Disclosures.Not applicable
Item 5.
Other Information.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: August 14, 2023 | By: | /s/ Barry B. Goldstein | |
Barry B. Goldstein Chief Executive Officer | |||
Dated: August 14, 2023 | By: | /s/ Jennifer Gravelle | |
Jennifer Gravelle Chief Financial Officer |
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