UNITED STATES
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 June 30, 2019
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 | (I.R.S. Employer |
15 Joys Lane
(845) 802-7900
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 |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
As of August 7, 2019,2020, there were 10,775,55010,670,342 shares of the registrant’s common stock outstanding.
KINGSTONE COMPANIES, INC.
INDEX
Forward-Looking Statements
This Quarterly Report contains forward-lookingforward‑looking statements within the 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 results or other consequences of our plans or strategies, projected or anticipated results from acquisitions to be made by us, or projections involving anticipated revenues, earnings, costs or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-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, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may cause actual results and outcomes to differ materially from those contained in the forward-looking statements include, but are not limited to the risks and uncertainties discussed in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018.
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 except as required by law.
1 |
Table of Contents |
PART I. FINANCIAL INFORMATION
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||
Condensed Consolidated Balance Sheets |
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| June 30, |
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| December 31, |
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| 2020 |
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| 2019 |
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| (unaudited) |
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Assets |
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Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of |
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| ||
$8,322,456 at June 30, 2020 and $4,124,767 at December 31, 2019) |
| $ | 7,870,374 |
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| $ | 3,825,952 |
|
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of |
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$155,226,267 at June 30, 2020 and $162,202,355 at December 31, 2019) |
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| 165,466,488 |
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| 168,236,181 |
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Equity securities, at fair value (cost of $24,564,076 at June 30, 2020 and |
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$22,624,668 at December 31, 2019) |
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| 22,705,709 |
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| 24,661,382 |
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Other investments |
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| 2,542,320 |
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| 2,584,913 |
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Total investments |
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| 198,584,891 |
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| 199,308,428 |
|
Cash and cash equivalents |
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| 20,153,732 |
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| 32,391,485 |
|
Premiums receivable, net |
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| 13,339,539 |
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| 12,706,411 |
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Reinsurance receivables, net |
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| 41,242,321 |
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| 40,750,538 |
|
Deferred policy acquisition costs |
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| 19,522,342 |
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| 20,634,378 |
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Intangible asset |
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| 500,000 |
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| 500,000 |
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Property and equipment, net |
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| 7,361,798 |
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| 7,620,636 |
|
Deferred income taxes, net |
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| - |
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|
| 311,052 |
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Other assets |
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| 8,595,855 |
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| 6,979,884 |
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Total assets |
| $ | 309,300,478 |
|
| $ | 321,202,812 |
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Liabilities |
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Loss and loss adjustment expense reserves |
| $ | 76,608,359 |
|
| $ | 80,498,611 |
|
Unearned premiums |
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| 85,006,280 |
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| 90,383,238 |
|
Advance premiums |
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| 4,599,781 |
|
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| 3,191,512 |
|
Reinsurance balances payable |
|
| 5,467,103 |
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| 11,714,724 |
|
Deferred ceding commission revenue |
|
| 6,978,574 |
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| 7,735,398 |
|
Accounts payable, accrued expenses and other liabilities |
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| 9,869,913 |
|
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| 9,986,317 |
|
Deferred income taxes, net |
|
| 1,589,469 |
|
|
| - |
|
Long-term debt, net |
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| 29,559,521 |
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| 29,471,431 |
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Total liabilities |
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| 219,679,000 |
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|
| 232,981,231 |
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|
Commitments and Contingencies (Note 11) |
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Stockholders' Equity |
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Preferred stock, $.01 par value; authorized 2,500,000 shares |
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| - |
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| - |
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Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,866,254 shares |
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at June 30, 2020 and 11,824,889 shares at December 31, 2019; outstanding |
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|
10,670,145 shares at June 30, 2020 and 10,797,450 shares at December 31, 2019 |
|
| 118,662 |
|
|
| 118,248 |
|
Capital in excess of par |
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| 69,951,549 |
|
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| 69,133,918 |
|
Accumulated other comprehensive income |
|
| 8,091,923 |
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|
| 4,768,870 |
|
Retained earnings |
|
| 14,973,684 |
|
|
| 16,913,097 |
|
|
|
| 93,135,818 |
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| 90,934,133 |
|
Treasury stock, at cost, 1,196,109 shares at June 30, 2020 |
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and 1,027,439 shares at December 31, 2019 |
|
| (3,514,340 | ) |
|
| (2,712,552 | ) |
Total stockholders' equity |
|
| 89,621,478 |
|
|
| 88,221,581 |
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|
|
|
|
|
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Total liabilities and stockholders' equity |
| $ | 309,300,478 |
|
| $ | 321,202,812 |
|
June 30, | December 31, | |
2019 | 2018 | |
(unaudited) | ||
Assets | ||
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of | ||
$4,114,072 at June 30, 2019 and $4,426,416 at December 31, 2018) | $3,824,620 | $4,222,855 |
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of | ||
$160,085,628 at June 30, 2019 and $155,431,261 at December 31, 2018) | 164,334,869 | 151,777,516 |
Equity securities, at fair value (cost of $22,254,788 at June 30, 2019 and | ||
$18,305,986 at December 31, 2018) | 22,738,950 | 16,572,616 |
Other investments | 2,335,874 | 1,855,225 |
Total investments | 193,234,313 | 174,428,212 |
Cash and cash equivalents | 18,895,805 | 21,138,403 |
Premiums receivable, net | 14,958,200 | 13,961,599 |
Reinsurance receivables, net | 28,643,360 | 26,367,115 |
Deferred policy acquisition costs | 19,413,809 | 17,907,737 |
Intangible assets, net | 500,000 | 670,000 |
Property and equipment, net | 7,350,068 | 6,056,929 |
Deferred income taxes, net | 216,474 | 354,233 |
Other assets | 6,256,815 | 5,867,850 |
Total assets | $289,468,844 | $266,752,078 |
Liabilities | ||
Loss and loss adjustment expense reserves | $69,675,120 | $56,197,106 |
Unearned premiums | 85,488,146 | 79,032,131 |
Advance premiums | 3,468,225 | 2,107,629 |
Reinsurance balances payable | 2,806,903 | 1,933,376 |
Deferred ceding commission revenue | 3,100,156 | 2,686,677 |
Accounts payable, accrued expenses and other liabilities | 7,877,191 | 6,819,231 |
Income taxes payable | - | 15,035 |
Long-term debt, net | 29,383,341 | 29,295,251 |
Total liabilities | 201,799,082 | 178,086,436 |
Commitments and Contingencies (note 11) | ||
Stockholders' Equity | ||
Preferred stock, $.01 par value; authorized 2,500,000 shares | - | - |
Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,802,087 shares | ||
at June 30, 2019 and 11,775,148 shares at December 31, 2018; outstanding | ||
10,774,648 shares at June 30, 2019 and 10,747,709 shares at December 31, 2018 | 118,020 | 117,751 |
Capital in excess of par | 68,373,590 | 67,763,940 |
Accumulated other comprehensive income (loss) | 3,359,047 | (2,884,313) |
Retained earnings | 18,531,657 | 26,380,816 |
90,382,314 | 91,378,194 | |
Treasury stock, at cost, 1,027,439 shares at June 30, 2019 | ||
and at December 31, 2018 | (2,712,552) | (2,712,552) |
Total stockholders' equity | 87,669,762 | 88,665,642 |
Total liabilities and stockholders' equity | $289,468,844 | $266,752,078 |
See accompanying notes to condensed consolidated financial statements.
Table of |
For the Three Months Ended | For the Six Months Ended | |||
June 30, | June 30, | |||
2019 | 2018 | 2019 | 2018 | |
Revenues | ||||
Net premiums earned | $31,201,279 | $24,104,614 | $60,797,168 | $46,942,231 |
Ceding commission revenue | 675,695 | 1,691,168 | 1,953,378 | 3,386,326 |
Net investment income | 1,719,769 | 1,556,866 | 3,343,481 | 2,940,855 |
Net gains (losses) on investments | 678,655 | (106,733) | 2,714,018 | (629,860) |
Other income | 329,972 | 300,271 | 695,873 | 608,504 |
Total revenues | 34,605,370 | 27,546,186 | 69,503,918 | 53,248,056 |
Expenses | ||||
Loss and loss adjustment expenses | 17,672,308 | 11,176,085 | 46,806,532 | 28,442,415 |
Commission expense | 7,299,173 | 6,017,189 | 14,152,589 | 11,817,137 |
Other underwriting expenses | 5,416,449 | 5,075,986 | 11,552,440 | 10,107,489 |
Other operating expenses | 1,097,468 | 843,816 | 2,068,640 | 1,090,674 |
Depreciation and amortization | 627,669 | 424,161 | 1,230,001 | 833,592 |
Interest expense | 456,545 | 451,962 | 913,090 | 908,507 |
Total expenses | 32,569,612 | 23,989,199 | 76,723,292 | 53,199,814 |
Income (loss) before taxes | 2,035,758 | 3,556,987 | (7,219,374) | 48,242 |
Income tax expense (benefit) | 396,378 | 799,690 | (1,523,564) | 8,879 |
Net income (loss) | 1,639,380 | 2,757,297 | (5,695,810) | 39,363 |
Other comprehensive income (loss), net of tax | ||||
Gross change in unrealized gains (losses) | ||||
on available-for-sale-securities | 3,679,475 | (1,475,767) | 7,868,191 | (4,349,246) |
Reclassification adjustment for losses | ||||
included in net income | 12,364 | 76,126 | 34,795 | 319,899 |
Net change in unrealized gains (losses) | 3,691,839 | (1,399,641) | 7,902,986 | (4,029,347) |
Income tax benefit (expense) related to items | ||||
of other comprehensive income (loss) | (775,285) | 293,723 | (1,659,626) | 845,961 |
Other comprehensive income (loss), net of tax | 2,916,554 | (1,105,918) | 6,243,360 | (3,183,386) |
Comprehensive income (loss) | $4,555,934 | $1,651,379 | $547,550 | $(3,144,023) |
Earnings (loss) per common share: | ||||
Basic | $0.15 | $0.26 | $(0.53) | $0.00 |
Diluted | $0.15 | $0.25 | $(0.53) | $0.00 |
Weighted average common shares outstanding | ||||
Basic | 10,771,717 | 10,664,806 | 10,764,824 | 10,667,385 |
Diluted | 10,785,064 | 10,820,322 | 10,764,824 | 10,828,020 |
Dividends declared and paid per common share | $0.1000 | $0.1000 | $0.2000 | $0.2000 |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||||||||||
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Condensed Consolidated Statements of Operations and Comprehensive Income (Unaudited) |
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| For the Three Months Ended |
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| For the Six Months Ended |
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| June 30, |
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| June 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Revenues |
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Net premiums earned |
| $ | 26,636,856 |
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| $ | 31,201,279 |
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| $ | 53,578,306 |
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| $ | 60,797,168 |
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Ceding commission revenue |
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| 3,480,214 |
|
|
| 675,695 |
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| 7,311,313 |
|
|
| 1,953,378 |
|
Net investment income |
|
| 1,612,006 |
|
|
| 1,719,769 |
|
|
| 3,277,850 |
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| 3,343,481 |
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Net gains (losses) on investments |
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| 2,697,868 |
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|
| 678,655 |
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| (3,746,550 | ) |
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| 2,714,018 |
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Other income |
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| 683,480 |
|
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| 329,972 |
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| 1,313,099 |
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| 695,873 |
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Total revenues |
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| 35,110,424 |
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| 34,605,370 |
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| 61,734,018 |
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| 69,503,918 |
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Expenses |
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Loss and loss adjustment expenses |
|
| 12,813,631 |
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| 17,672,308 |
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| 29,199,452 |
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| 46,806,532 |
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Commission expense |
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| 7,850,607 |
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| 7,299,173 |
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| 15,749,798 |
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| 14,152,589 |
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Other underwriting expenses |
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| 6,325,472 |
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| 5,416,449 |
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| 13,087,264 |
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| 11,552,440 |
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Other operating expenses |
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| 1,420,160 |
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| 1,097,468 |
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| 2,983,780 |
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| 2,068,640 |
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Depreciation and amortization |
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| 673,160 |
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| 627,669 |
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| 1,360,254 |
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| 1,230,001 |
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Interest expense |
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| 456,545 |
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| 456,545 |
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| 913,090 |
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| 913,090 |
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Total expenses |
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| 29,539,575 |
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| 32,569,612 |
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| 63,293,638 |
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| 76,723,292 |
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Income (loss) from operations before income taxes |
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| 5,570,849 |
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| 2,035,758 |
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| (1,559,620 | ) |
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| (7,219,374 | ) |
Income tax expense (benefit) |
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| 962,659 |
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| 396,378 |
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| (723,607 | ) |
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| (1,523,564 | ) |
Net income (loss) |
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| 4,608,190 |
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| 1,639,380 |
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| (836,013 | ) |
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| (5,695,810 | ) |
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Other comprehensive income, net of tax |
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Gross change in unrealized gains |
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on available-for-sale-securities |
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| 10,887,611 |
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| 3,679,475 |
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| 4,160,122 |
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| 7,868,191 |
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Reclassification adjustment for gains |
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included in net income (loss) |
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| 148,495 |
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| 12,364 |
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| 46,273 |
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| 34,795 |
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Net change in unrealized gains |
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| 11,036,106 |
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| 3,691,839 |
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| 4,206,395 |
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| 7,902,986 |
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Income tax expense related to items |
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of other comprehensive income |
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| (2,317,582 | ) |
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| (775,285 | ) |
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| (883,342 | ) |
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| (1,659,626 | ) |
Other comprehensive income, net of tax |
|
| 8,718,524 |
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| 2,916,554 |
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| 3,323,053 |
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| 6,243,360 |
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Comprehensive income |
| $ | 13,326,714 |
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| $ | 4,555,934 |
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| $ | 2,487,040 |
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| $ | 547,550 |
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Earnings (loss) per common share: |
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Basic |
| $ | 0.43 |
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| $ | 0.15 |
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| $ | (0.08 | ) |
| $ | (0.53 | ) |
Diluted |
| $ | 0.43 |
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| $ | 0.15 |
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| $ | (0.08 | ) |
| $ | (0.53 | ) |
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Weighted average common shares outstanding |
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Basic |
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| 10,733,354 |
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| 10,771,717 |
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| 10,770,598 |
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|
| 10,764,824 |
|
Diluted |
|
| 10,734,784 |
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| 10,785,064 |
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| 10,770,598 |
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| 10,764,824 |
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Dividends declared and paid per common share |
| $ | 0.0400 |
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| $ | 0.1000 |
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| $ | 0.1025 |
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| $ | 0.2000 |
|
See accompanying notes to condensed consolidated financial statements.
3 |
Table of Contents |
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES | ||||||||||
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) | ||||||||||
Three months ended June 30, |
Accumulated | ||||||||||
Capital | Other | |||||||||
Preferred Stock | Common Stock | in Excess | Comprehensive | Retained | Treasury Stock | |||||
Shares | Amount | Shares | Amount | of Par | Income (Loss) | Earnings | Shares | Amount | Total | |
Balance, April 1, 2018 | - | $- | 11,679,334 | $116,793 | $68,163,744 | $(1,391,063) | $23,780,755 | 1,012,669 | $(2,509,193) | $88,161,036 |
Stock-based compensation | - | - | - | - | 176,109 | - | - | - | - | 176,109 |
Vesting of restricted stock awards | - | - | 3,706 | 37 | (37) | - | - | - | - | - |
Shares deducted from restricted stock | ||||||||||
awards for payment of withholding taxes | - | - | (536) | (5) | (9,304) | - | - | - | - | (9,309) |
Exercise of stock options | - | - | 3,400 | 34 | 17,272 | - | - | - | - | 17,306 |
Acquisition of treasury stock | - | - | - | - | - | - | - | 11,775 | (203,329) | (203,329) |
Dividends | - | - | - | - | - | - | (1,066,384) | - | - | (1,066,384) |
Net income | - | - | - | - | - | - | 2,757,297 | - | - | 2,757,297 |
Change in unrealized losses on available- | ||||||||||
for-sale securities, net of tax | - | - | - | - | - | (1,105,918) | - | - | - | (1,105,918) |
Balance, June 30, 2018 | - | $- | 11,685,904 | $116,859 | $68,347,784 | $(2,496,981) | $25,471,668 | 1,024,444 | $(2,712,522) | $88,726,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Accumulated |
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||
Capital | Other |
|
|
|
|
| Capital |
| Other |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | in Excess | Comprehensive | Retained | Treasury Stock |
| Preferred Stock |
| Common Stock |
| in Excess |
| Comprehensive |
| Retained |
| Treasury Stock |
|
| |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | of Par | Income (Loss) | Earnings | Shares | Amount | Total |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Income |
|
| Earnings |
|
| Shares |
|
| Amount |
|
| Total |
| |||||||||||
Balance, April 1, 2019 | - | $- | 11,796,188 | $117,962 | $67,957,604 | $442,493 | $17,969,664 | 1,027,439 | $(2,712,552) | $83,775,171 |
| - |
| $ | - |
| 11,796,188 |
| $ | 117,962 |
| $ | 67,957,604 |
| $ | 442,493 |
| $ | 17,969,664 |
| 1,027,439 |
| $ | (2,712,552 | ) |
| $ | 83,775,171 |
| |||||||||||
Stock-based compensation | - | 399,325 | - | 399,325 |
| - |
| - |
| - |
| - |
| 399,325 |
| - |
| - |
| - |
| - |
| 399,325 |
| |||||||||||||||||||||||||
Vesting of restricted stock awards | - | 3,553 | 34 | (34) | - |
| - |
| - |
| 3,553 |
| 34 |
| (34 | ) |
| - |
| - |
| - |
| - |
| - |
| |||||||||||||||||||||||
Shares deducted from restricted stock | ||||||||||||||||||||||||||||||||||||||||||||||||||
awards for payment of withholding taxes | - | (654) | (6) | (6,825) | - | (6,831) | ||||||||||||||||||||||||||||||||||||||||||||
Shares deducted from restricted stock awards for payment of withholding taxes |
| - |
| - |
| (654 | ) |
| (6 | ) |
| (6,825 | ) |
| - |
| - |
| - |
| - |
| (6,831 | ) | ||||||||||||||||||||||||||
Exercise of stock options | - | 3,000 | 30 | 23,250 | - | 23,280 |
| - |
| - |
| 3,000 |
| 30 |
| 23,520 |
| - |
| - |
| - |
| - |
| 23,550 |
| |||||||||||||||||||||||
Dividends | - | (1,077,387) | - | (1,077,387) |
| - |
| - |
| - |
| - |
| - |
| - |
| (1,077,387 | ) |
| - |
| - |
| (1,077,387 | ) | ||||||||||||||||||||||||
Net income | - | 1,639,380 | - | 1,639,380 |
| - |
| - |
| - |
| - |
| - |
| - |
| 1,639,380 |
| - |
| - |
| 1,639,380 |
| |||||||||||||||||||||||||
Change in unrealized gains on available- | ||||||||||||||||||||||||||||||||||||||||||||||||||
for-sale securities, net of tax | - | 2,916,554 | - | 2,916,554 | ||||||||||||||||||||||||||||||||||||||||||||||
Change in unrealized gains on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,916,554 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,916,554 |
| ||||||||||
Balance, June 30, 2019 | - | $- | 11,802,087 | $118,020 | $68,373,320 | $3,359,047 | $18,531,657 | 1,027,439 | $(2,712,552) | $87,669,492 |
|
| - |
|
| $ | - |
|
|
| 11,802,087 |
|
| $ | 118,020 |
|
| $ | 68,373,590 |
|
| $ | 3,359,047 |
|
| $ | 18,531,657 |
|
|
| 1,027,439 |
|
| $ | (2,712,552 | ) |
| $ | 87,669,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Capital |
|
| Other |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| Preferred Stock |
|
| Common Stock |
|
| in Excess |
|
| Comprehensive |
|
| Retained |
|
| Treasury Stock |
|
|
|
| |||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| of Par |
|
| Income (Loss) |
|
| Earnings |
|
| Shares |
|
| Amount |
|
| Total |
| ||||||||||
Balance, April 1, 2020 |
|
| - |
|
| $ | - |
|
|
| 11,851,266 |
|
| $ | 118,512 |
|
| $ | 69,533,150 |
|
| $ | (626,601 | ) |
| $ | 10,792,934 |
|
|
| 1,069,873 |
|
| $ | (2,955,276 | ) |
| $ | 76,862,719 |
|
Stock-based compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 454,937 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 454,937 |
|
Vesting of restricted stock awards |
|
| - |
|
|
| - |
|
|
| 22,030 |
|
|
| 220 |
|
|
| (220 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Shares deducted from restricted stock awards for payment of withholding taxes |
|
| - |
|
|
| - |
|
|
| (7,042 | ) |
|
| (70 | ) |
|
| (36,318 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (36,388 | ) |
Acquisition of treasury stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 126,236 |
|
|
| (559,064 | ) |
|
| (559,064 | ) |
Dividends |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (427,440 | ) |
|
| - |
|
|
| - |
|
|
| (427,440 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,608,190 |
|
|
| - |
|
|
| - |
|
|
| 4,608,190 |
|
Change in unrealized gains on available-for-sale securities, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,718,524 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,718,524 |
|
Balance, June 30, 2020 |
|
| - |
|
| $ | - |
|
|
| 11,866,254 |
|
| $ | 118,662 |
|
| $ | 69,951,549 |
|
| $ | 8,091,923 |
|
| $ | 14,973,684 |
|
|
| 1,196,109 |
|
| $ | (3,514,340 | ) |
| $ | 89,621,478 |
|
See accompanying notes to condensed consolidated financial statements. KINGSTONE COMPANIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders' Equity (Unaudited) Six months ended June 30, Accumulated Capital Other Preferred Stock Common Stock in Excess Comprehensive Retained Treasury Stock Shares Amount Shares Amount of Par Income (Loss) Earnings Shares Amount Total Balance, January 1, 2019 - Stock-based compensation Vesting of restricted stock awards Shares deducted from restricted stock awards for payment of withholding taxes Exercise of stock options Dividends Net loss Change in unrealized gains on available-for-sale securities, net of tax Balance, June 30, 2019 Accumulated Capital Other Preferred Stock Common Stock in Excess Comprehensive Retained Treasury Stock Shares Amount Shares Amount of Par Income Earnings Shares Amount Total Balance, January 1, 2020 - Stock-based compensation Vesting of restricted stock awards Shares deducted from restricted stock awards for payment of withholding taxes Acquisition of treasury stock Dividends Net loss Change in unrealized gains on available-for-sale securities, net of tax Balance, June 30, 2020 See accompanying notes to condensed consolidated financial statements. KINGSTONE COMPANIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2020 2019 Cash flows from operating activities: Net loss Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities: Net gains on sale of investments Net unrealized losses (gains) of equity investments Net unrealized losses (gains) of other investments Depreciation and amortization Bad debts Amortization of bond premium, net Amortization of discount and issuance costs on long-term debt Stock-based compensation Deferred income tax expense (benefit) (Increase) decrease in operating assets: Premiums receivable, net Reinsurance receivables, net Deferred policy acquisition costs Other assets Increase (decrease) in operating liabilities: Loss and loss adjustment expense reserves Unearned premiums Advance premiums Reinsurance balances payable Deferred ceding commission revenue Accounts payable, accrued expenses and other liabilities Net cash flows (used in) provided by operating activities Cash flows from investing activities: Purchase - fixed-maturity securities held-to-maturity Purchase - fixed-maturity securities available-for-sale Purchase - equity securities Sale and redemption - fixed-maturity securities held-to-maturity Sale or maturity - fixed-maturity securities available-for-sale Sale - equity securities Acquisition of property and equipment Net cash flows used in investing activities Cash flows from financing activities: Proceeds from exercise of stock options Withholding taxes paid on vested retricted stock awards Purchase of treasury stock Dividends paid Net cash flows used in financing activities Decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosures of cash flow information: Cash paid for income taxes Cash paid for interest See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Nature of Business and Basis of Presentation Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its wholly owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, Note 2 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which include the reserves for losses and loss adjustment expenses, and are subject to estimation errors due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of many years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require judgments by management. On an Principles of Consolidation The accompanying condensed consolidated financial statements consist of Kingstone and its following wholly owned Accounting Changes The Company Accounting Pronouncements In June 2016, In 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, estimated fair value, and unrealized gains and losses of investments in fixed-maturity securities classified as available-for-sale as of June June 30, 2020 Net Cost or Gross Gross Unrealized Losses Estimated Unrealized Amortized Unrealized Less than 12 More than 12 Fair Gains/ Category Cost Gains Months Months Value (Losses) Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1) KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of June 30, 2020, the estimated fair value of the eligible investments was approximately $6,993,000. KICO will retain all rights regarding all securities if pledged as collateral. As of June 30, 2020, there was no outstanding balance on the FHLBNY credit line. December 31, 2019 Cost or Gross Gross Unrealized Losses Estimated Net Amortized Unrealized Less than 12 More than 12 Fair Unrealized Category Cost Gains Months Months Value Gains Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1) 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 June 30, June 30, 2020 December 31, 2019 Amortized Estimated Amortized Estimated Remaining Time to Maturity Cost Fair Value Cost Fair Value Less than one year One to five years Five to ten years More than 10 years Residential mortgage and other asset backed securities Total The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties. Equity Securities The cost and estimated fair value of, and gross unrealized gains and losses June 30, 2020 Gross Gross Unrealized Unrealized Estimated Category Cost Gains Losses Fair Value Equity Securities: Preferred stocks 9,023,896 Common stocks, mutual funds, and exchange traded funds Total December 31, 2019 Gross Gross Unrealized Unrealized Estimated Category Cost Gains Losses Fair Value Equity Securities: Preferred stocks $ 8,374,424 $ 339,257 $ (11,794 ) $ 8,701,887 Common stocks, mutual funds, and exchange traded funds 14,250,244 1,982,878 (273,627 ) 15,959,495 Total $ 22,624,668 $ 2,322,135 $ (285,421 ) $ 24,661,382 Other Investments The cost and estimated fair value of, and gross unrealized June 30, 2020 December 31, 2019 Gross Gross Unrealized Estimated Unrealized Estimated Category Cost Gains Fair Value Cost Gains Fair Value Other Investments: Hedge fund Total Held-to-Maturity Securities The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses June 30, 2020 Cost or Gross Gross Unrealized Losses Estimated Net Amortized Unrealized Less than 12 More than 12 Fair Unrealized Category Cost Gains Months Months Value Gains Held-to-Maturity Securities: U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total December 31, 2019 Cost or Gross Gross Unrealized Losses Estimated Net Amortized Unrealized Less than 12 More than 12 Fair Unrealized Category Cost Gains Months Months Value Gains Held-to-Maturity Securities: U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum funds requirements. A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of June 30, June 30, 2020 December 31, 2019 Amortized Estimated Amortized Estimated Remaining Time to Maturity Cost Fair Value Cost Fair Value Less than one year One to five years Five to ten years More than 10 years Total 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 Six months ended June 30, June 30, 2020 2019 2020 2019 Income: Fixed-maturity securities Equity securities Cash and cash equivalents Total Expenses: Investment expenses Net investment income Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were Proceeds from the sale of equity securities were The Company’s net gains (losses) on investments are summarized as follows: Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Realized (Losses) Gains Fixed-maturity securities: Gross realized gains Gross realized losses Equity securities: Gross realized gains Gross realized losses Net realized (losses) gains Unrealized Gains (Losses) Equity securities: Gross gains Gross losses Other investments: Gross gains Gross losses Net unrealized gains (losses) Net gains (losses) on investments Impairment Review Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities to evaluate the necessity of recording impairment losses for other-than-temporary declines in the estimated fair value of investments. In evaluating potential impairment, GAAP specifies (i) if the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in comprehensive OTTI losses are recorded in the condensed consolidated statements of operations and comprehensive The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at June 30, June 30, 2020 Less than 12 months 12 months or more Total Estimated No. of Estimated No. of Estimated Fair Unrealized Positions Fair Unrealized Positions Fair Unrealized Category Value Losses Held Value Losses Held Value Losses Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, December 31, 2019 Less than 12 months 12 months or more Total Estimated No. of Estimated No. of Estimated Fair Unrealized Positions Fair Unrealized Positions Fair Unrealized Category Value Losses Held Value Losses Held Value Losses Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities Note 4 - Fair Value Measurements The following table presents information about the Company’s investments that are measured at fair value on a recurring basis at June 30, June 30, 2020 Level 1 Level 2 Level 3 Total Fixed-maturity securities available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage backed securities Total fixed maturities Equity securities Total investments December 31, 2019 Level 1 Level 2 Level 3 Total Fixed-maturity securities available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage backed securities Total fixed maturities Equity securities Total investments The following table sets forth the Company’s investment in a hedge fund measured at Category June 30, 2020 December 31, 2019 Other Investments: Hedge fund Total The investment is generally redeemable with at least 45 days prior written notice. The hedge fund investment is accounted for as a limited partnership by the Company. Income is earned based upon the Company’s allocated share of the partnership's changes in unrealized gains and losses to its partners. Such amounts have been recorded in the condensed consolidated statements of operations and comprehensive loss within net gains (losses) on investments. The estimated fair value and the level of the fair value hierarchy of the Company’s long-term debt as of June 30, June 30, 2020 Level 1 Level 2 Level 3 Total Long-term debt Senior Notes due 2022 December 31, 2019 Level 1 Level 2 Level 3 Total Long-term debt Senior Notes due 2022 Note 5 - Fair Value of Financial Instruments and Real Estate The estimated fair values of the Company’s financial instruments and real estate as of June 30, June 30, 2020 December 31, 2019 Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Fixed-maturity securities-held-to maturity Cash and cash equivalents Premiums receivable, net Reinsurance receivables, net Real estate, net of accumulated depreciation Reinsurance balances payable Note 6 Premiums Earned Premiums written, ceded and earned are as follows: Direct Assumed Ceded Net Six months ended June 30, 2020 Premiums written $ 79,347,406 $ - $ (28,066,253 ) $ 51,281,153 Change in unearned premiums 5,376,958 - (3,079,805 ) 2,297,153 Premiums earned $ 84,724,364 $ - $ (31,146,058 ) $ 53,578,306 Six months ended June 30, 2019 Premiums written $ 82,309,827 $ 77 $ (15,327,796 ) $ 66,982,108 Change in unearned premiums (6,456,216 ) 202 271,074 (6,184,940 ) Premiums earned $ 75,853,611 $ 279 $ (15,056,722 ) $ 60,797,168 Three months ended June 30, 2020 Premiums written $ 42,650,477 $ - $ (14,559,998 ) $ 28,090,479 Change in unearned premiums (527,742 ) - (925,881 ) (1,453,623 ) Premiums earned $ 42,122,735 $ - $ (15,485,879 ) $ 26,636,856 Three months ended June 30, 2019 Premiums written $ 44,821,279 $ 111 $ (8,199,887 ) $ 36,621,503 Change in unearned premiums (5,828,149 ) 7 407,918 (5,420,224 ) Premiums earned $ 38,993,130 $ 118 $ (7,791,969 ) $ 31,201,279 Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of June 30, 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: Six months ended June 30, 2020 2019 Balance at beginning of period Less reinsurance recoverables Net balance, beginning of period Incurred related to: Current year Prior years Total incurred Paid related to: Current year Prior years Total paid Net balance at end of period Add reinsurance recoverables Balance at end of period Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of 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 six months ended June 30, 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. Due to the inherent uncertainty associated with the reserving process, the ultimate liability may differ, perhaps substantially, from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. On at least a quarterly basis, the Company reviews by line of business existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior periods. Several methods are used, varying by line of business and accident year, in order to select the estimated period-end loss reserves. These methods include the following: Paid Loss Development Incurred Loss Development Paid Bornhuetter-Ferguson (“BF”) Incurred Bornhuetter-Ferguson (“BF”) Incremental Claim-Based Methods Frequency / Severity Based Methods - historical measurements of claim frequency and average paid claim size (severity) are reviewed for more mature accident years where a majority of claims have been reported and/or closed. These historical averages are trended forward to more recent periods in order to estimate ultimate losses for newer accident years that are not yet fully developed. These methods are useful for lines of business with slow and/or volatile loss development patterns, such as liability lines where information pertaining to individual cases may not be completely known for many years. The claim frequency and severity information for older periods can then be used as reasonable measures for developing a range of estimates for more recent immature periods. Management’s best estimate of required reserves is generally based on an average of the methods above, with appropriate weighting of Three key assumptions that materially affect the estimate of loss reserves are the loss ratio estimate for the current accident year used in the BF methods, The Company is not aware of any claim trends that have emerged or that would cause future adverse development that have not already been In New York State, lawsuits for negligence are subject to certain limitations and must be commenced within three years from the date of the accident or are otherwise barred. Accordingly, the Company’s exposure to unreported claims (“pure” IBNR) for accident dates of June 30, The following is information about incurred and paid claims development as of June 30, All Lines of Business (in thousands, except reported claims data) As of Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance June 30, 2020 For the Years Ended December 31, For the six months ended June Cumulative Number of Reported Claims by Accident Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 30, 2020 IBNR (Unaudited 2011 - 2019) (Unaudited) 2011 2012 (1) 2013 2014 2015 2016 2017 2018 2019 2020 Total (1) All Lines of Business (in thousands) Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, For the six months ended June 30, Accident Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 (Unaudited 2011 - 2019) (Unaudited) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented $ 57,038 All outstanding liabilities before 2011, net of reinsurance 98 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance 57,136 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. The reconciliation of the net incurred and paid loss development tables to the loss and LAE reserves in the consolidated balance sheet is as follows: As of (in thousands) June 30, 2020 Liabilities for loss and loss adjustment expenses, net of reinsurance Total reinsurance recoverable on unpaid losses Unallocated loss adjustment expenses Total gross liability for loss and LAE reserves Reinsurance Through June 30, 2019, the Company’s quota share reinsurance treaties Effective July 1, 2019, the 2017/2019 Treaty and the commercial umbrella treaty expired on a run-off basis; these treaties were not renewed. The Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, Treaty Year December 15, 2019 July 1, 2019 July 1, 2018 to to to Line of Business December 31, 2020 December 14, 2019 June 30, 2019 Personal Lines: Homeowners, dwelling fire and and canine legal liability Quota share treaty: Percent ceded 25 % None 10 % Treaty Year January 1, 2021 July 1, 2020 December 15, 2019 July 1, 2019 July 1, 2018 to to to to to Line of Business June 30, 2021 December 31, 2020 June 30, 2020 December 14, 2019 June 30, 2019 Personal Lines: Homeowners, dwelling fire and and canine legal liability Quota share treaty: Risk retained on intial $1,000,000 of losses NA (7) $ 750,000 $ 750,000 $ 1,000,000 $ 900,000 Losses per occurrence subject to quota share reinsurance coverage NA (7) $ 1,000,000 $ 1,000,000 None $ 1,000,000 Expiration date December 31, 2020 December 31, 2020 June 30, 2019 Excess of loss coverage and facultative facility coverage (1) $ 8,000,000 $ 8,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 in excess of in excess of in excess of in excess of in excess of $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 Total reinsurance coverage per occurrence (7) 8,000,000 $ 8,250,000 $ 9,250,000 $ 9,000,000 $ 9,100,000 Losses per occurrence subject to reinsurance coverage $ 8,000,000 $ 9,000,000 $ 10,000,000 $ 10,000,000 $ 10,000,000 Expiration date (7) June 30, 2021 June 30, 2021 June 30, 2020 June 30, 2020 June 30, 2019 Catastrophe Reinsurance: Initial loss subject to personal lines quota share treaty $ NA (7) $ 7,500,000 $ 7,500,000 None $ 5,000,000 Risk retained per catastrophe occurrence (2) (7) $ 10,000,000 $ 8,125,000 $ 5,625,000 $ 7,500,000 $ 4,500,000 Catastrophe loss coverage in excess of quota share coverage (3) (7) $ 475,000,000 $ 475,000,000 $ 602,500,000 $ 602,500,000 $ 445,000,000 Reinstatement premium protection (4) (5) (6) Yes Yes Yes Yes Yes (1) (2) (3) (4) (5) (6) (7) Treaty Year July 1, 2020 July 1, 2019 July 1, 2018 to to to Line of Business June 30, 2021 June 30, 2020 June 30, 2019 Personal Lines: Personal Umbrella Quota share treaty: Percent ceded - first $1,000,000 of coverage Percent ceded - excess of $1,000,000 of coverage Risk retained Total reinsurance coverage per occurrence Losses per occurrence subject to quota share reinsurance coverage Expiration date June 30, 2021 June 30, 2020 June 30, 2019 Commercial Lines: General liability commercial policies Quota share treaty None None None Risk retained Excess of loss coverage above risk retained in excess of in excess of in excess of Total reinsurance coverage per occurrence Losses per occurrence subject to reinsurance coverage Commercial Umbrella Quota share treaty: None None Percent ceded - first $1,000,000 of coverage Percent ceded - excess of $1,000,000 of coverage Risk retained Total reinsurance coverage per occurrence Losses per occurrence subject to quota share reinsurance coverage Expiration date June 30, 2019 The Company’s reinsurance program Ceding Commission Revenue The Company earns ceding commission revenue under its quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions are earned, and (ii) a sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increases when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decreases when the estimated ultimate loss ratio increases. The Company’s estimated ultimate treaty year loss ratios (the “Loss Ratio(s)”) for treaties in effect during the three months and six months ended June 30, 2020 are attributable to contracts under the 2019/2020 Treaty. The Loss Ratios for treaties in effect for the three months and six months ended June 30, 2019 are attributable to contracts under the 2017/2019 Treaty for the 2018/2019 Treaty Under the 2019/2020 Treaty and the 2017/2019 Treaty for the 2018/2019 Treaty Year, the Company received an upfront fixed provisional ceding commission rate that is not subject to a sliding scale contingent adjustment. In addition to the treaties that were in effect Ceding commission revenue consists of the following: Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Provisional ceding commissions earned Contingent ceding commissions earned Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled annually based on the Loss Ratio of each treaty year that ends on June 30. Note 7 Federal Home Loan Bank In July 2017, KICO became a member of, and invested in, the Federal Home Loan Bank of New York (“FHLBNY”). The aggregate fair value of the investment in dividend bearing common stock was $11,200 and $15,180 as of June 30, Long-term Debt On December 19, 2017, the Company issued $30 million of its 5.50% Senior Unsecured Notes due December 30, 2022 (the “Notes”) in an underwritten public offering. Interest is payable semi-annually in arrears on June 30 and December 30 of each year, which began on June 30, 2018 at the rate of 5.50% June 30, December 31, 2020 2019 The Notes are unsecured obligations of the Company and are not the obligations of or guaranteed by any of the Company's subsidiaries. The Notes rank senior in right of payment to any of the Company's existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the Notes. The Notes rank equally in right of payment to all of the Company's existing and future senior indebtedness, but will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the Notes will be structurally subordinated to the indebtedness and other obligations of the Company's subsidiaries. The Company may redeem the Notes, at any time in whole or from time to time in part, at the redemption price equal to the greater of: (i) 100% of the principal amount of the Notes to be redeemed; and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Notes to be redeemed that would be due if the Notes matured on the applicable redemption date (exclusive of interest accrued to the applicable redemption date) discounted to the redemption date on a semi-annual basis at the Treasury Rate, plus 50 basis points. The Company has used Note 8 Dividends Declared and Paid Dividends declared and paid on Stock Options Effective August 12, 2014, the Company adopted the 2014 Equity Participation Plan (the “2014 Plan”) pursuant to which a maximum of 700,000 shares of Common Stock of the Company The results of operations for the three months ended June 30, The weighted average estimated fair value of stock options granted during the six months ended June 30, The following weighted average assumptions were used for grants during the following periods: Six months ended June 30, 2020 2019 Dividend Yield Volatility Risk-Free Interest Rate Expected Life 2.75 years The Black-Scholes A summary of stock option activity under the Company’s 2014 Plan Stock Options Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value Outstanding at January 1, 2020 Granted Exercised Forfeited Outstanding at June 30, 2020 Vested and Exercisable at June 30, 2020 The aggregate intrinsic value of options outstanding and options exercisable at June 30, Participants in the As of June 30, As of June 30, Restricted Stock Awards A summary of the restricted Restricted Stock Awards Shares Weighted Average Grant Date Fair Value per Share Aggregate Fair Value Balance at January 1, 2020 Granted Vested Forfeited Balance at June 30, 2020 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, Note 9 The Company files a consolidated U.S. federal income tax return that includes all wholly owned subsidiaries. State tax returns are filed on a consolidated or separate return basis depending on applicable laws. The Company records adjustments related to prior years’ taxes during the period when they are identified, generally when the tax returns are filed. The effect of these adjustments on the current and prior periods (during which the differences originated) is evaluated based upon quantitative and qualitative factors and are considered in relation to the consolidated financial statements taken as a whole for the respective periods. Deferred tax assets and liabilities are determined using the enacted tax rates applicable to the period the temporary differences are expected to be recovered. Accordingly, the current period income tax provision can be affected by the enactment of new tax rates. The net deferred income taxes on the balance sheets reflect temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and income tax purposes, tax effected at various rates depending on whether the temporary differences are subject to federal taxes, state taxes, or both. Significant components of the Company’s deferred tax assets and liabilities are as follows: June 30, December 31, 2020 2019 Deferred tax asset: Net operating loss carryovers (1) Claims reserve discount Unearned premium Deferred ceding commission revenue Other Total deferred tax assets Deferred tax liability: Investment in KICO (2) Deferred acquisition costs Intangible asset Depreciation and amortization Net unrealized gains of securities - available-for-sale Total deferred tax liabilities Net deferred income tax (liability) asset (1) June 30, December 31, Type of NOL 2020 2019 Expiration Federal only, current year (A) State only (B) December 31, 2040 Valuation allowance State only, net of valuation allowance Total deferred tax asset from net operating loss carryovers (A) On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. The (B) Kingstone generates operating losses for state purposes and has prior year NOLs available. The state NOL as of June 30, (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 $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 six months ended June 30, 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, Note 10 Basic net earnings/(loss) per common share is computed by dividing income/(loss) available to common shareholders by the weighted-average number of The computation of diluted earnings/(loss) per common share excludes outstanding options in periods where the exercise of such options would be anti-dilutive. For the six months ended June 30, The reconciliation of the weighted average number of Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Weighted average number of shares outstanding Effect of dilutive securities, common share equivalents: Stock options Restricted stock awards Weighted average number of shares outstanding, used for computing diluted earnings per share Note 11 - Commitments and Contingencies Litigation From time to time, the Company is involved in various legal proceedings in the ordinary course of business. For example, to the extent a claim is asserted by a third party in a lawsuit against one of the Company’s insureds covered by a particular policy, the Company may have a duty to defend the insured party against the claim. These claims may relate to bodily injury, property damage or other compensable injuries as set forth in the policy. Such proceedings are considered in estimating the liability for loss and LAE expenses. On June 12, 2019, Phillip Woolgar filed a suit naming the Company and certain present or former officers and directors as defendants in a putative class action captioned Office Lease The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease. The Company is a party to a non-cancellable operating lease, dated March 27, 2015, for its office facility for KICO located in Valley Stream, New York expiring March 31, 2024. On July 8, 2019, the Company entered into a lease agreement for an additional office facility for Cosi located in Valley Stream, New York under a non-cancelable operating lease. The lease has a term of seven years and two months expiring December 31, 2026. In addition to the base rental costs, occupancy lease agreements generally provide for rent escalations resulting from increased assessments from real estate taxes and other charges. Additional information regarding the Company’s office operating Three months ended Six months ended Lease cost June 30, 2020 June 30, 2020 Operating leases Short-term leases Total lease cost (1) Other information on operating leases Cash payments included in the measurement of lease liability reported in operating cash flows Discount rate Remaining lease term in years 5 years 5 years (1) The following table presents the contractual maturities of the Company’s lease liabilities as of June 30, For the Year Ending December 31, Total Remainder of 2020 2021 2022 2023 2024 Thereafter Total undiscounted lease payments Less: present value adjustment Operating lease liability Rent expense for the three months ended June 30, Employment Agreements Barry Goldstein, President, Chief Executive Officer and Executive Chairman of the Board On October 14, 2019, the Company and Barry B. Goldstein, the Company’s President, Chief Executive Officer and Executive Chairman of the Board, entered into a Second Amended and Restated Employment Agreement (the “Amended Employment Agreement”). The Amended Employment Agreement is effective as of January 1, 2020 and expires on December 31, 2022. The Amended Employment Agreement extends the expiration date of the employment agreement in effect for Pursuant to the Amended Employment Pursuant to the Amended Employment Agreement, in January 2020, Mr. Goldstein received a grant of 157,431 shares of restricted stock, under the terms of the Company’s 2014 Plan determined by dividing $1,250,000 by the fair market value of the Company’s Common Stock on the date of grant. This 2020 grant will become vested with respect to one-third of the award on each of the first and second anniversaries of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. Also pursuant to the Amended Employment Agreement, Mr. Goldstein will be entitled to receive a grant, under the terms of the 2014 Plan, during January 2021, of a number of 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. The January 2021 grant will become vested with respect to one-half of the award on each of the first anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. Further, pursuant to the Amended Employment Agreement, Mr. Goldstein is entitled to receive a grant, under the terms of the 2014 Plan, during each of 2020, 2021 and 2022, of a number of shares of restricted stock determined by dividing $136,500 by the fair market value of the Company’s Common Stock on the date of grant. In January 2020, Mr. Goldstein was granted 17,191 shares of restricted stock pursuant to this provision. This grant will become vested with respect to one-third of the award on each of the first and second anniversaries of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. The 2021 grant will become vested with respect to one-half of the award on each of the first anniversary of the grant date and on December 31, 2022 based on the continued provision of services through the applicable vesting date. The 2022 grant will become vested on December 31, 2022 based on the continued provision of services through such date. Dale A. Thatcher Effective July 19, 2019 (the “Separation Date”), Dale A. Thatcher retired and resigned his positions as Chief Executive Officer and President of the Company and KICO. At such time, he also resigned his positions on the Board of Directors of each of the Company and KICO. Effective upon Mr. Thatcher’s separation from employment, the Board appointed Barry B. Goldstein, former Chief Executive Officer and Executive Chairman of the Board of Directors, to the position of Chief Executive Officer and President of each of the Company and KICO. Mr. Goldstein previously served as Chief Executive Officer and President of the Company from March 2001 through December 31, 2018, and as Chief Executive Officer and President of KICO from January 2012 through December 31, 2018. In connection with his separation from employment, each of the Company and KICO entered into an Agreement and General Release (the “Separation Agreement”) with Mr. Thatcher. Pursuant to the Separation Agreement, the Company and KICO shall collectively provide the following payments and benefits to Mr. Thatcher in full satisfaction of all payments and benefits and other amounts due to him under the terms of the existing employment agreements upon his separation from employment: (i) $381,111 (representing the amount of base salary he would have received had he remained employed through March 31, 2020), (ii) $5,000 in full satisfaction for any bonus payments payable under the existing employment agreements, (iii) continuing group health coverage commencing on the Separation Date and ending on March 31, 2020, and (iv) continued vesting of all stock awards previously granted to Mr. Thatcher in his capacity as an executive officer but which were unvested as of the Separation Date (Mr. Thatcher shall not be entitled to any further grants of stock awards after the Separation Date) . In addition, the Company and KICO agreed to provide Mr. Thatcher with a severance payment of $20,000 in consideration for a release. Pursuant to the Separation Agreement, Mr. Thatcher agreed that, for a period of three years following the Separation Date, he shall not accept any operating executive role with another property and casualty insurance company. Meryl Golden, Chief Operating Officer On September 16, 2019, the Company and Meryl Golden entered into an employment Pursuant to the Golden Employment Agreement, Ms. Golden is entitled to receive an annual salary of $500,000 and was granted 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 will vest in three equal installments, with the first installment vesting on the grant date, and the remaining installments vesting on the first and second anniversaries following the grant date, subject to the terms of the stock option agreement between the Company and Ms. Golden. COVID-19 The recent outbreak of the coronavirus, also known as "COVID-19", has spread across the globe and is impacting worldwide economic activity. Conditions surrounding the coronavirus continue to rapidly evolve and government authorities have implemented emergency measures to mitigate the spread of the virus. The outbreak and the related mitigation measures have had and will continue to have a material adverse impact on global economic conditions as well as on the Company's business activities. The extent to which COVID-19 may impact the Company's business activities will depend on future developments, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions, business disruptions, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. These events are highly uncertain and, as such, the Company cannot determine their financial impact at this time. No adjustments have been made to the amounts reported in these condensed consolidated financial statements as a result of this matter. Note 12 On June 18, 2018, the Company adopted the Kingstone Companies, Inc. Deferred Compensation Plan (the "Deferred Compensation Plan"). The Deferred Compensation Plan is offered to a select group (“Participants”), consisting of management and highly compensated employees as a method of recognizing and retaining such Participants. The Deferred Compensation Plan provides for eligible Participants to elect to defer up to 75% of their base compensation and up to 100% of bonuses and other compensation and to have such deferred amounts deemed to be invested in specified investment options. In addition to the Participant deferrals, the Company may choose to make matching contributions to some or all of the Participants in the Deferred Compensation Plan to the extent the Participant did not receive the maximum matching or non-elective contributions permissible under the Company’s 401(k) Plan due to limitations under the Internal Revenue Code or the 401(k) Plan. Participants may elect to receive payment of their account balances in a single cash payment or in annual installments for a period of up to ten years. The Note 13 The Company has evaluated events that occurred subsequent to June 30, Reinsurance Effective July 1, 2020, the Company entered into new A. M. Best On July Executive Employment On July 20, 2020, the Company Tropical Storm Isaias On August 4, 2020, the Northeast, which is the primary location of KICO’s insureds, was struck by Tropical Storm Isaias which caused power outages and significant damage to homes. KICO has received more than 1,100 claims relating to the storm. The Company is unable to determine the aggregate dollar amount Dividends Declared On August Equity Participation Plan On August 5, 2020, the Company’s stockholders approved amendments to the 2014 Plan, including an increase in the maximum shares of Common Stock of the Company that are authorized to be used pursuant to the 2014 Plan to 1,400,000. ITEM 2 We offer property and casualty insurance products to individuals In addition, through our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, we We derive substantially all of our revenue from KICO, which includes revenues from earned premiums, ceding commissions from quota share reinsurance, net investment income generated from its portfolio, and net realized gains and losses on investment securities. All of KICO’s insurance policies are written for a one-year term. Earned premiums represent premiums received from insureds, which are recognized as revenue over the period of time that insurance coverage is provided (i.e., ratably over the one-year life of the policy). A significant period of time can elapse from the receipt of insurance premiums to the payment of insurance claims. During this time, KICO invests the premiums, earns investment income and generates net realized and unrealized investment gains and losses on investments. Our holding company earns investment income from its cash holdings and may also generate net realized and unrealized investment gains and losses on future investments. Our expenses include the insurance underwriting expenses of KICO and other operating expenses. Insurance companies incur a significant amount of their total expenses from losses incurred by policyholders, which are Other operating expenses include our corporate expenses as a holding company and operating expenses of Cosi. These corporate expenses include legal and auditing fees, executive employment costs, and other costs directly associated with being a public company. Cosi operating expenses primarily include commissions paid to brokers, employment costs, and consulting costs. Product Lines Our Personal lines: Commercial In May 2019, due to the poor performance of this line we placed a Livery physical damage: Other: Key Measures We utilize the following key measures in analyzing the results of our insurance underwriting business: Net loss ratio: Net underwriting expense ratio: Net combined ratio: Underwriting income: Distribution Channels During 2019, we initiated an alternative distribution program through Three months ended Three months ended Six months ended Six months ended ($ in thousands) June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019 Direct Written Pemiums Amount Percent Amount Percent Amount Percent Amount Percent Core Independent Expansion Independent (1) Alternative Distribution through Cosi Total (1)Outside of New York (Percent components may not sum to totals due to rounding) For the three months ended June 30, 2020 and 2019, Alternative Distribution made up Critical Accounting Policies and Estimates Our condensed consolidated financial statements include the accounts of Kingstone Companies, Inc. and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions in certain circumstances that affect amounts reported in our condensed consolidated financial statements and related notes. In preparing these condensed consolidated financial statements, our management has utilized information including our past history, industry standards, the current economic environment, and other factors, in forming its estimates and judgments for certain amounts included in the condensed consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by our management in formulating its estimates in these financial statements may not materialize. Application of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of similar companies. 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 Consolidated Results of Operations Six Months Ended June 30, The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated: Six months ended June 30, ($ in thousands) 2020 2019 Change Percent Revenues Direct written premiums Assumed written premiums n/a % Ceded written premiums Ceded to quota share treaties Ceded to excess of loss treaties Ceded to catastrophe treaties Total ceded written premiums Net written premiums Change in unearned premiums Direct and assumed n/a Ceded to quota share treaties n/a Change in net unearned premiums n/a Premiums earned Direct and assumed Ceded to reinsurance treaties Net premiums earned Ceding commission revenue Excluding the effect of catastrophes Effect of catastrophes n/a % Total ceding commission revenue Net investment income Net (losses) gains on investments Other income Total revenues Expenses Loss and loss adjustment expenses Direct and assumed: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Total direct and assumed loss and loss adjustment expenses Ceded loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrop hes Losses from catastrophes (1) Total ceded loss and loss adjustment expenses Net loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Net loss and loss adjustment expenses Commission expense Other underwriting expenses Other operating expenses Depreciation and amortization Interest expense - % Total expenses Loss before taxes Income tax benefit Net loss (1) The six months ended June 30, 2020 and 2019 include catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers. Six months ended June 30, 2020 2019 Percentage Point Change Percent Change Key ratios: Net loss ratio Net underwriting expense ratio Net combined ratio Direct Written Premiums Direct written premiums during the Beginning in 2017 we started writing homeowners policies in New Jersey. Through 2019 we expanded to Rhode Island, Massachusetts and Connecticut. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were $15,095,000 in Six Months 2020 compared to $9,529,000 in Six Months 2019. Net Written Premiums and Net Premiums Earned Through June 30, 2019, our quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis. Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December 31, 2020 (“2019/2020 Treaty”). Our personal lines quota share reinsurance treaty in effect for Six Months 2019 was covered under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017/2019 Treaty”). The treaty in effect during Six Months 2019 was covered under the July 1, 2018 Six months ended June 30, 2020 2019 ("2019/2020 Treaty") ("2018/2019 Treaty Year") Quota share reinsurance rates Personal lines 25% (2) 10% (1) (2) Net written premiums decreased $15,701,000, or 23.4%, to $51,281,000 in Six Months 2020 from $66,982,000 in Six Months 2019. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). The decrease in net written premiums in Six Months 2020 was attributable to the inception of the 2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share treaty. In Six Months 2020, our premiums ceded under quota share treaties increased by $9,637,000 over the comparable ceded premiums in Six Months 2019. Our personal lines business was subject to the 2017/2019 Treaty under the 2018/2019 Treaty Year through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force will continue to be ceded under the 10% quota share rate until such policies expire (run-off) over the next year. The 2019 Run-off period is from July 1, 2019 through June 30, 2020 and there was no return of unearned premiums under this arrangement. Excess of loss reinsurance treaties An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In Six Months 2020, our ceded excess of loss reinsurance premiums increased by 114,000 over the comparable ceded premiums for Six Months 2019. The increase was due to an increase in premiums subject to excess of loss reinsurance. Catastrophe reinsurance treaties Most of the premiums written under our personal lines policies are also subject to our catastrophe treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaties provided that reinsurance rates are stable or are increasing. In Six Months 2020, our premiums ceded under catastrophe treaties increased by $2,987,000 over the comparable ceded premiums in Six Months 2019. The change was due to an increase in our catastrophe limit purchased, an increase in premiums subject to catastrophe reinsurance due to continued growth of our personal lines business, and an increase in reinsurance rates effective July 1, 2019. Our ceded catastrophe premiums are paid based on the total direct written premiums subject to the catastrophe reinsurance treaty. Net premiums earned Net premiums earned decreased $7,219,000, or 11.9%, to $53,578,000 in Six Months 2020 from $60,797,000 in Six Months 2019. The decrease was due to the inception of the 2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share treaty. Ceding Commission Revenue The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated: Six months ended June 30, ($ in thousands) 2020 2019 Change Percent Provisional ceding commissions earned Contingent ceding commissions earned Contingent ceding commissions earned excluding the effect of catastrophes n/a Effect of catastrophes on ceding commissions earned Contingent ceding commissions earned Total ceding commission revenue Ceding commission revenue was $7,311,000 in Six Months 2020 compared to $1,953,000 in Six Months 2019. The increase of $5,358,000, or 274.3%, was due to an increase in both provisional ceding commissions earned and contingent ceding commissions earned. The increase in provisional ceding commissions occurred due to the increase in quota share reinsurance rates effective December 15, 2019 (see below for discussion of provisional ceding commissions earned and contingent ceding commissions earned). Provisional Ceding Commissions Earned We receive a provisional ceding commission based on ceded written premiums. The $4,480,000 increase in provisional ceding commissions earned is primarily due to the increase in the quota share ceding rate effective December 15, 2019 to 25%, from the 10% rate in effect in Six Months 2019. There was an increase in ceded premiums in Six Months 2020 available from which to earn ceding commissions compared to Six Months 2019 due to the changes in quota share ceding rates and an increase in personal lines direct written premiums subject to the quota share. Contingent Ceding Commissions Earned The 2019/2020 Treaty and 2017/2019 Treaty structure calls for a higher upfront provisional ceding commission and there is not an opportunity to earn additional contingent ceding commissions under these treaties. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017. Under our prior years’ quota share treaties, we received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive. Net Investment Income Net investment income was $3,278,000 in Six Months 2020 compared to $3,343,000 in Six Months 2019, a decrease of $65,000, or 1.9%. The average yield on invested assets was 3.53% as of June 30, 2020 compared to 3.64% as of June 30, 2019. The pre-tax equivalent yield on invested assets was 3.09% and 3.43% as of June 30, 2020 and 2019, respectively. Cash and invested assets were $218,739,000 as of June 30, 2020 compared to $212,130,000 as of June 30, 2019. The $6,608,000 increase in cash and invested assets was primarily attributable to an increase in operating cash flows for the periods after June 30, 2019. Net Gains and Losses on Investments Net losses on investments were $3,746,000 in Six Months 2020 compared to a net gain of $2,714,000 in Six Months 2019. Unrealized losses on our equity securities and other investments in Six Months 2020 were $4,022,000, compared to unrealized gains of $2,713,000 in Six Months 2019. Realized gains on sales of investments were $275,000 in Six Months 2020 compared to $1000 in Six Months 2019. Unrealized losses in Six Months 2020 were due to the market fluctuations related to the Covid-19 pandemic. Other Income Other income was $1,313,000 in Six Months 2020 compared to $696,000 in Six Months 2019. The increase of $617,000, or 88.6%, was primarily due to commission revenue from Cosi. Net Loss and LAE Net loss and LAE was $29,199,000 in Six Months 2020 compared to $48,806,000 in Six Months 2019. The net loss ratio was 54.5% in Six Months 2020 compared to 77.0% in Six Months 2019, an improvement of 22.5 percentage points. The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business: (Components may not sum to totals due to rounding) During Six Months 2020, the loss ratio improved 22.5 points, from 77.0% in Six Months 2019 to 54.5% in Six Months 2020. The loss ratio improved due to several factors, including a reduction in the impact of winter weather catastrophes, reduced impact from prior year loss development, and an improvement in the core loss ratio driven by reductions in claim frequency affecting both personal lines and Auto Physical Damage. Prior year development has been slightly favorable for the Six Months 2020, with a 0.3 points of favorable impact on the overall loss ratio. The favorable loss development for the Six Months 2020 compares to 10.0 points of unfavorable impact in the Six Months 2019, which was primarily related to adverse loss development from commercial lines business, now in runoff. The impact of prior year development was 10.3 points more favorable in Six Months 2020 compared to the prior year period. The impact of catastrophe losses was lower in Six Months 2020 when compared to the prior period. In the Six Months 2020 there was a much smaller impact from winter catastrophes events than in 2019. Catastrophe events through Six Months 2020 had a 3.2 point impact on the loss ratio, as compared to a 10.7 impact from catastrophe events in the Six Months 2019, or a decrease in the impact from catastrophe events of 7.5 points compared to the prior period. The underlying loss ratio (loss ratio excluding the impact of catastrophes and prior year development) was 51.6% for the Six Months 2020, a decrease of 4.7 points from the 56.3% underlying loss ratio recorded for Six Months 2019. The improvement was primarily due to reduced core claim frequency in personal lines and reduced claim frequency in the Auto Physical Damage line. Excluding commercial lines, the underlying loss ratio improved 3.5 points, from 53.1% for Six Months 2019 to 49.6% for the Six Months 2020. See table below under “Additional Financial Information” summarizing net loss ratios by line of business. Commission Expense Commission expense was $15,750,000 in Six Months 2020 or 18.6% of direct earned premiums. Commission expense was $14,153,000 in Six Months 2019 or 18.7% of direct earned premiums. The increase of $1,597,000 is primarily due to the increase in direct earned premiums for Six Months 2020 as compared to Six Months 2019. Other Underwriting Expenses Other underwriting expenses were $13,087,000 in Six Months 2020 compared to $11,552,000 in Six Months 2019. The increase of $1,535,000, or 13.3%, was primarily due to expenses related to growth in personal lines direct written premiums and salaries. Expenses directly related to the increase in personal lines direct written premiums primarily consist of underwriting expenses, software usage fees, and state premium taxes. Expenses indirectly related to the increase in personal lines direct written premiums primarily consist of salaries along with related other employment costs. Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $5,342,000 in Six Months 2020 compared to $4,899,000 in Six Months 2019. The increase of $443,000, or 9.0%, was less than the 11.5% increase in personal lines direct written premiums. The increase in employment costs was attributable to the hiring of additional highly experienced management, offset by staff reductions. Our net underwriting expense ratio in Six Months 2020 was 39.2% compared to 38.0% in Six Months 2019. The following table shows the individual components of our net underwriting expense ratio for the periods indicated: Six months ended June 30, Percentage 2020 2019 Point Change Other underwriting expenses Employment costs Underwriting fees (inspections/data services) Other expenses Total other underwriting expenses Ceding commission revenue Provisional Contingent Total ceding commission revenue Other income Commission expense Net underwriting expense ratio The overall 9.0 percentage point increase in the benefit from provisional ceding commissions was driven entirely by the change in our quota share ceding rates and its impact on provisional ceding commission revenue due to less retention beginning with the inception of the 2019/2020 Treaty on December 15, 2019, resulting in an increase in provisional ceding commissions. The components of our net underwriting expense ratio related to other underwriting expenses, other income and commissions increased in all categories due to less retention beginning with the inception of 2019/2020 Treaty on December 15, 2019, resulting in an overall 1.2 percentage point increase in the net underwriting expense ratio. Other Operating Expenses Other operating expenses, related to the expenses of our holding company and Cosi, were $2,983,000 for Six Months 2020 compared to $2,069,000 for Six Months 2019. The increase in Six Months 2020 of $914,000, or 44.2%, as compared to Six Months 2019 was primarily due to increases in equity compensation, commissions incurred by Cosi and professional fees. The increase in equity compensation was due to an annual restricted stock award pursuant to the employment agreement with Barry B. Goldstein, our Chief Executive Officer. Depreciation and Amortization Depreciation and amortization was $1,360,000 in Six Months 2020 compared to $1,230,000 in Six Months 2019. The increase of $130,000, or 10.6%, in depreciation and amortization was primarily due to depreciation of our new systems platform for handling business being written in Expansion states, newly purchased assets used to upgrade our systems infrastructure and improvements to the Kingston, New York home office building from which we operate. Interest Expense Interest expense was $913,000 for both Six Months 2020 and Six Months 2019. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017. Income Tax Benefit Income tax benefit in Six Months 2020 was $724,000, which resulted in an effective tax benefit rate of 46.4%. Income tax benefit in Six Months 2019 was $1,524,000, which resulted in an effective tax benefit rate of 21.1%. Loss before taxes was $1,560,000 in Six Months 2020 compared to loss before taxes of $7,220,000 in Six Months 2019. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. We will elect on our 2019 federal income tax return to carry back the 2019 NOL of $7,222,000 to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019. Net Loss Net loss was $836,000 in Six Months 2020 compared to net loss of $5,696,000 in Six Months 2019. The decrease in net loss of $4,860,000 was due to the circumstances described above, which caused the decrease in our net loss ratio, increase in ceding commission revenue and other income, partially offset by the decrease in our net premiums earned, and increases in net losses on investments, other underwriting and operating expenses, and depreciation and amortization. Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019 The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated: Three months ended June 30, ($ in thousands) 2020 2019 Change Percent Revenues Direct written premiums Assumed written premiums n/a % Ceded written premiums Ceded to quota share treaties Ceded to excess of loss treaties Ceded to catastrophe treaties Total ceded written premiums Net written premiums Change in unearned premiums Direct and assumed Ceded to quota share treaties n/a Change in net unearned premiums Premiums earned Direct and assumed Ceded to reinsurance treaties Net premiums earned Ceding commission revenue Excluding the effect of catastrophes Effect of catastrophes n/a % Total ceding commission revenue Net investment income Net gains on investments Other income Total revenues Expenses Loss and loss adjustment expenses Direct and assumed: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Total direct and assumed loss and loss adjustment expenses Ceded loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Total ceded loss and loss adjustment expenses Net loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Net loss and loss adjustment expenses Commission expense Other underwriting expenses Other operating expenses Depreciation and amortization Interest expense - % Total expenses Income before taxes Income tax expense Net income (1) The three months ended June 30, 2020 and 2019 include catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers. Three months ended June 30, 2020 2019 Percentage Point Change Percent Change Key ratios: Net loss ratio Net underwriting expense ratio Net combined ratio Direct Written Premiums Direct written premiums during the Beginning in Net Written Premiums and Net Premiums Earned Through June 30, 2019, our quota share reinsurance treaties were on a July 1 through June 30 fiscal year basis. Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December 31, 2020 (“2019/2020 Treaty”). Our personal lines quota share reinsurance treaty in effect for Three Months 2019 was covered under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017/2019 Treaty”). The treaty in effect during Three Months 2019 was covered under the July 1, 2018 through June 30, 2019 treaty year (“2018/2019 Treaty Year”). The following table describes the quota share reinsurance ceding rates in effect for each treaty year during Three months ended June 30, 2020 2019 ("2019/2020 Treaty") ("2018/2019 Treaty Year") Personal lines 25% (2) 10% (1) (1) The 2018/2019 Treaty Year, covered under the 2017/2019 Treaty, expired on a run-off basis effective July 1, 2019 through June 30, 2020 (the “2019 Run-off”). (2) The 2019/2020 Treaty was effective December 15, 2019 with a quota share reinsurance rate of 25%. See “Reinsurance” below for changes to our personal lines quota share treaty effective December 15, 2019, and July 1, 2019 and 2018. Net written premiums Excess of loss reinsurance treaties An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In Catastrophe reinsurance treaties Most of the premiums written under our personal lines policies are also subject to our catastrophe treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaties provided that reinsurance rates are stable or are increasing. In Net premiums earned Net premiums earned Ceding Commission Revenue The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated: Three months ended June 30, ($ in thousands) 2020 2019 Change Percent Provisional ceding commissions earned Contingent ceding commissions earned Contingent ceding commissions earned excluding the effect of catastrophes n/a Effect of catastrophes on ceding commissions earned Contingent ceding commissions earned Total ceding commission revenue Ceding commission revenue was Provisional Ceding Commissions Earned We receive a provisional ceding commission based on ceded written premiums. The Contingent Ceding Commissions Earned The 2019/2020 Treaty and 2017/2019 Treaty structure calls for a Net Investment Income Net investment income was Cash and invested assets were $218,739,000 as of June 30, 2020 compared to $212,130,000 as of June 30, Net Gains and Losses on Investments Net gains on investments were $2,697,000 in Three Months 2020 compared to $679,000 in Three Months Other Income Other income was $683,000 in Three Months Net Loss and LAE Net loss and LAE was $12,813,000 in Three Months 2020 compared to $17,672,000 in Three Months The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business: (Components may not sum to totals due to rounding) During Three Months Prior year development was slightly favorable in Three Months 2020, with a 0.2 point favorable impact to the overall loss ratio. This was the third consecutive quarter of stable prior year The impact of catastrophe losses was slightly greater in Three Months 2020 when compared to Three Months 2019. In the Three Months 2020 there were several small cat events and one larger wind event in April. These events had a 5.7 point impact on the loss ratio for the quarter. This compares to a 4.6 impact from catastrophe events in the Three Months 2019, The See table below under “Additional Financial Information” summarizing net loss ratios by line of business. Commission Expense Commission expense was Other Underwriting Expenses Other underwriting expenses were $6,325,000 in Three Months 2020 compared to $5,416,000 in Three Months Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $2,602,000 in Three Months 2020 compared to $2,347,000 in Three Months 2019. The increase of $255,000, or 10.9%, was Our net underwriting expense ratio in Three Months Three months ended Percentage 2020 2019 Point Change Other underwriting expenses Employment costs Underwriting fees (inspections/data services) Other expenses Total other underwriting expenses Ceding commission revenue Provisional Contingent Total ceding commission revenue Other income Commission expense Net underwriting expense ratio The overall Other Operating Expenses Other operating expenses, related to the expenses of our holding company and Cosi, were $1,420,000 for Three Months 2020 compared to $1,097,000 for Three Months Depreciation and Amortization Depreciation and amortization was $673,000 in Three Months 2020 compared to $628,000 in Three Months Interest Expense Interest expense Income Tax Expense Income tax expense in Three Months 2020 was $963,000, which resulted in an effective tax expense rate of 17.3%. Income tax expense in Three Months 2019 was $396,000, which resulted in an effective tax expense rate of 19.5% Net Income Net income Additional Financial Information We operate our business as one segment, property and casualty insurance. Within this segment, we offer an array of property and casualty policies to our producers. The following table summarizes gross and net written premiums, net premiums earned, and net loss and loss adjustment expenses by major product type, which were determined based primarily on similar economic characteristics and risks of loss. For the Three Months Ended For the Six Months Ended June 30, June 30, 2020 2019 2020 2019 Gross premiums written: Personal lines Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total gross premiums written Net premiums written: Personal lines(3) Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net premiums written Net premiums earned: Personal lines(3) Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net premiums earned Net loss and loss adjustment expenses(4): Personal lines Livery physical damage Other(1) Unallocated loss adjustment expenses Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net loss and loss adjustment expenses Net loss ratio(4): Personal lines Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total (1) “Other” includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto. (2) In July 2019, we decided that we will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business. (3) See discussion above with regard to “Net Written Premiums and Net Premiums Earned”, as to changes in quota share ceding rates, effective July 1, 2019 and 2018. (4) See discussion above with regard to “Net Loss and LAE”, as to catastrophe losses in the six months ended June 30, 2020 and 2019. Insurance Underwriting Business on a Standalone Basis Our insurance underwriting business reported on a standalone basis for the periods indicated is as Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Revenues Net premiums earned Ceding commission revenue Net investment income Net gains (losses) on investments Other income Total revenues Expenses Loss and loss adjustment expenses Commission expense Other underwriting expenses Depreciation and amortization Total expenses Income (loss) from operations Income tax expense (benefit) Net income (loss) Key Measures: Net loss ratio Net underwriting expense ratio Net combined ratio Reconciliation of net underwriting expense ratio: Acquisition costs and other underwriting expenses Less: Ceding commission revenue Less: Other income Net underwriting expenses Net premiums earned Net Underwriting Expense Ratio 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 Six months ended June 30, 2020 Written premiums Change in unearned premiums Earned premiums Loss and loss adjustment expenses exluding the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Six months ended June 30, 2019 Written premiums Change in unearned premiums Earned premiums Loss and loss adjustment expenses exluding the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Three months ended June 30, 2020 Written premiums Change in unearned premiums Earned premiums Loss and loss adjustment expenses exluding the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Three months ended June 30, 2019 Written premiums Change in unearned premiums Earned premiums Loss and loss adjustment expenses exluding the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio (Percent components may not sum to totals due to rounding) The key measures for our insurance underwriting business for the periods indicated are as follows: Three months ended Six months ended June 30, June 30, 2020 2019 2020 2019 Net premiums earned Ceding commission revenue Other income Loss and loss adjustment expenses (1) Acquistion costs and other underwriting expenses: Commission expense Other underwriting expenses Total acquistion costs and other underwriting expenses Underwriting income (loss) Key Measures: Net loss ratio excluding the effect of catastrophes Effect of catastrophe loss on net loss ratio (1) Net loss ratio Net underwriting expense ratio excluding the effect of catastrophes Effect of catastrophe loss on net underwriting expense ratio (2) Net underwriting expense ratio Net combined ratio excluding the effect of catastrophes Effect of catastrophe loss on net combined ratio (1) (2) Net combined ratio Reconciliation of net underwriting expense ratio: Acquisition costs and other underwriting expenses Less: Ceding commission revenue (2) Less: Other income Net earned premium Net Underwriting Expense Ratio (1) Investments Portfolio Summary Fixed-Maturity Securities The following table presents a breakdown of the amortized cost, estimated fair value, and unrealized gains and losses of our investments in fixed-maturity securities classified as available-for-sale as of June 30, June 30, 2020 Cost or Gross Gross Unrealized Losses Estimated % of Amortized Unrealized Less than 12 More than 12 Fair Estimated Category Cost Gains Months Months Value Fair Value U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds �� Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1) KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY"). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of June 30, 2020, the estimated fair value of the eligible investments was approximately $6,993,000. KICO will retain all rights regarding all securities if pledged as collateral. As of June 30, 2020, there was no outstanding balance on the FHLBNY credit line. December 31, 2019 Cost or Gross Gross Unrealized Losses Estimated % of Amortized Unrealized Less than 12 More than 12 Fair Estimated Category Cost Gains Months Months Value Fair Value U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1) KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its relationship with the FHLBNY. The eligible collateral would be pledged to FHLBNY if KICO draws an advance from FHLBNY. As of December 31, 2019, the estimated fair value of the eligible investments was $7,284,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2019, there was no outstanding balance on the FHLBNY credit line. Equity Securities The following table presents a breakdown of the cost and estimated fair value of, and gross unrealized gains and losses June 30, 2020 Gross Gross Estimated % of Unrealized Unrealized Fair Estimated Category Cost Gains Losses Value Fair Value Equity Securities: Preferred stocks Common stocks, mutual funds, and exchange traded funds Total December 31, 2019 Gross Gross Estimated % of Unrealized Unrealized Fair Estimated Category Cost Gains Losses Value Fair Value Equity Securities: Preferred stocks Common stocks, mutual funds, and exchange traded funds Total Other Investments The following table presents a breakdown of the cost and estimated fair value of, and gross unrealized gains June 30, 2020 December 31, 2019 Gross Gross Unrealized Estimated Unrealized Estimated Category Cost Gains Fair Value Cost Gains Fair Value Other Investments: Hedge fund Total Held-to-Maturity Securities The following table presents a breakdown of the amortized cost and estimated fair value of, and gross unrealized gains and losses June 30, 2020 Cost or Gross Gross Unrealized Losses Estimated % of Amortized Unrealized Less than 12 More than 12 Fair Estimated Category Cost Gains Months Months Value Fair Value U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total December 31, 2019 Cost or Gross Gross Unrealized Losses Estimated % of Amortized Unrealized Less than 12 More than 12 Fair Estimated Category Cost Gains Months Months Value Fair Value U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum fund requirements. A summary of the amortized cost and fair value of our investments in held-to-maturity securities by contractual maturity as of June June 30, 2020 December 31, 2019 Amortized Estimated Amortized Estimated Remaining Time to Maturity Cost Fair Value Cost Fair Value Less than one year One to five years Five to ten years More than 10 years Total Credit Rating of Fixed-Maturity Securities The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of June 30, June 30, 2020 December 31, 2019 Estimated Percentage of Estimated Percentage of Fair Fair Fair Fair Value Value Value Value Rating U.S. Treasury securities Corporate and municipal bonds AAA AA A BBB BB Total corporate and municipal bonds Residential mortgage backed securities AAA AA A CCC CC C D Non rated Total residential mortgage backed securities Total The table below summarizes the average yield by type of fixed-maturity security as of June 30, Category June 30, 2020 December 31, 2019 U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage backed securities Total The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of June 30, June 30, 2020 December 31, 2019 Weighted average effective maturity Weighted average final maturity Effective duration Fair Value Consideration Fair value The table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale and equity securities by length of time the security has continuously been in an unrealized loss position as of June 30, June 30, 2020 Less than 12 months 12 months or more Total Estimated No. of Estimated No. of Estimated Fair Unrealized Positions Fair Unrealized Positions Fair Unrealized Category Value Losses Held Value Losses Held Value Losses Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities December 31, 2019 Less than 12 months 12 months or more Total Estimated No. of Estimated No. of Estimated Fair Unrealized Positions Fair Unrealized Positions Fair Unrealized Category Value Losses Held Value Losses Held Value Losses Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities There were Liquidity and Capital Resources Cash Flows The primary sources of cash flow are from our insurance underwriting subsidiary, KICO, and include direct premiums written, ceding commissions from our quota share reinsurers, loss recovery payments from our reinsurers, investment income and proceeds from the sale or maturity of investments. Funds are used by KICO for ceded premium payments to reinsurers, which are paid on a net basis after subtracting losses paid on reinsured claims and reinsurance commissions. KICO also uses funds for loss payments and loss adjustment expenses on our net business, commissions to producers, salaries and other underwriting expenses as well as to purchase investments and fixed assets. For the six months ended June 30, KICO is a member of the Federal Home Loan Bank of New York (“FHLBNY”), which provides additional access to liquidity. Members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances. Advances are to be fully collateralized; eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. See Note 3 to our condensed consolidated financial statements As of June 30, Our reconciliation of net income to net cash provided by operations is generally influenced by the collection of premiums in advance of paid losses, the timing of reinsurance, issuing company settlements and loss payments. 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: 2020 2019 Cash flows provided by (used in): Operating activities Investing activities Financing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Net cash used in operating activities was $9,981,000 in Six Months 2020 as compared to $10,801,000 provided by operating activities Net cash used by investing activities was $227,000 in Six Months 2020 compared to $10,791,000 used in investing activities Net cash used in financing activities was Reinsurance Through June 30, 2019, our quota share reinsurance treaties Our quota share reinsurance treaties in effect Effective July 1, 2019, our 2017/2019 Treaty and commercial umbrella treaty expired on a run-off basis; these treaties were not renewed. We entered into new excess of loss and catastrophe reinsurance treaties effective July 1, Treaty Year December 15, 2019 July 1, 2019 July 1, 2018 to to to Line of Business December 31, 2020 December 14, 2019 June 30, 2019 Personal Lines: Homeowners, dwelling fire and and canine legal liability Quota share treaty: Percent ceded None Treaty Year January 1, 2021 July 1, 2020 December 15, 2019 July 1, 2019 July 1, 2018 to to to to to Line of Business June 30, 2021 December 31, 2020 June 30, 2020 December 14, 2019 June 30, 2019 Personal Lines: Homeowners, dwelling fire and and canine legal liability Quota share treaty: Risk retained on intial $1,000,000 of losses NA (7) $ 750,000 $ 750,000 $ 1,000,000 $ 900,000 Losses per occurrence subject to quota share reinsurance coverage NA (7) $ 1,000,000 $ 1,000,000 None $ 1,000,000 Expiration date December 31,2020 December 31, 2020 June 30, 2019 Excess of loss coverage and facultative facility coverage (1) 8,000,000 8,000,000 9,000,000 9,000,000 9,000,000 in excess of in excess of in excess of in excess of in excess of 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 Total reinsurance coverage per occurrence (7) 8,000,000 8,250,000 9,250,000 9,000,000 9,100,000 Losses per occurrence subject to reinsurance coverage 8,000,000 9,000,000 10,000,000 10,000,000 10,000,000 Expiration date (7) June 30, 2021 June 30, 2021 June 30, 2020 June 30, 2020 June 30, 2019 Catastrophe Reinsurance: Initial loss subject to personal lines quota share treaty NA (7) 7,500,000 7,500,000 None $ 5,000,000 Risk retained per catastrophe occurrence (2) (7) 10,000,000 8,125,000 5,625,000 $ 7,500,000 $ 4,500,000 Catastrophe loss coverage in excess of quota share coverage (3) (7) 475,000,000 475,000,000 602,500,000 $ 602,500,000 $ 445,000,000 Reinstatement premium protection (4) (5) (6) Yes Yes Yes Yes Yes (1) For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000. (2) Plus losses in excess of catastrophe coverage. Effective July 1, 2020, no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note 7 below). (3) Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone. (4) Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000. (5) Effective July 1, 2019, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000. (6) Effective July 1, 2020, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. (7) Quota share expires December 31, 2020; reinsurance coverage from January 1, 2021 through June 30, 2021 is only for excess of loss and catastrophe reinsurance. Treaty Year July 1, 2020 July 1, 2019 July 1, 2018 to to to Line of Business June 30, 2021 June 30, 2020 June 30, 2019 �� Personal Lines: Personal Umbrella Quota share treaty: Percent ceded - first $1,000,000 of coverage Percent ceded - excess of $1,000,000 dollars of coverage Risk retained Total reinsurance coverage per occurrence Losses per occurrence subject to quota share reinsurance coverage Expiration date June 30, 2021 June 30, 2020 June 30, 2019 Commercial Lines: General liability commercial policies Quota share treaty None None None Risk retained Excess of loss coverage above risk retained in excess of in excess of in excess of Total reinsurance coverage per occurrence Losses per occurrence subject to reinsurance coverage Commercial Umbrella Quota share treaty: None None Percent ceded - first $1,000,000 of coverage Percent ceded - excess of $1,000,000 of coverage Risk retained Total reinsurance coverage per occurrence Losses per occurrence subject to quota share reinsurance coverage Expiration date June 30, 2019 Our catastrophe reinsurance treaty expired on June 30, 2020. Our growth in personal lines Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Outlook The impacts of COVID-19 and related economic conditions on our results are highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate. In addition, because COVID-19 did not begin to affect our financial results until late in the first quarter of 2020, its impact on our results through June 30, 2020 is not indicative of its impact on our results for the remainder of 2020. For additional information on the risks posed by COVID-19, see “The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity” included in Part II, Item 1A- “Risk Factors” in this Quarterly Report. Our net premiums earned may be impacted by a number of factors. Net premiums earned are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. Net written premiums from both renewal and new business are impacted by competitive market conditions as well as general economic conditions. As a result of COVID-19, economic conditions in the United States have rapidly deteriorated. The decreased levels of economic activity will negatively impact premium volumes generated by new business. We began to experience this impact in March 2020 and it became more significant in the second quarter of 2020. We also expect this impact will further persist but to a lesser extent for the remainder of 2020, but the degree of the impact will depend on the extent and duration of the economic contraction and could be material. We have also made underwriting changes to emphasize profitability over growth and have culled out the type of risks that do not generate an acceptable level of return. This action has lead, and will continue to lead, to a slowdown in premium growth, particularly in new business. Item 3. This item is not applicable to smaller reporting companies. Evaluation of Disclosure Controls and Procedures We maintain a system of disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are designed to assure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are: (i) effective in recording, processing, summarizing, and reporting information on a timely basis that we are required to disclose in the reports that we file or submit under the Exchange Act, and (ii) effective in ensuring that information that we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and 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 June 30, Changes in Internal Control over Financial Reporting Remediation of Material Weakness During the quarter ended September 30, 2019 we identified and disclosed material weakness in our internal control over financial reporting relating to ineffective operation of controls related to the establishment and ongoing monitoring of case reserves for losses and loss adjustment expenses. Case reserve estimates are subject to individual judgment, and provide the primary information used as the basis for setting overall reserve levels including a provision for IBNR reserves. In order to remediate the material weakness identified as of September 30, 2019, we made the following changes outlined directly below, which include changes and/or enhancements to our internal controls over financial reporting within our claims cycle and they are as follows: · · · · • Added new and enhanced existing controls within our claims transaction cycle. · We believe that these actions, which are all incorporated in the process of estimating the liability for case reserves for losses and loss adjustment expenses, were sufficient to remediate the material weakness as of June 30, 2020. Except for the steps taken to remediate the material weakness identified above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that 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 Chief Financial Officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. PART II. OTHER INFORMATION On June 12, 2019, Phillip Woolgar filed a suit naming the Company and certain present or former officers and directors as defendants in a putative class action captioned Woolgar v. Kingstone Companies et al., 19 cv 05500 (S.D.N.Y.), asserting claims under Section 10(b) of the Exchange Act and SEC Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act. Plaintiff seeks to represent a class of persons or entities that purchased Kingstone securities between March 14, 2018, and April 29, 2019, and alleges violations of the federal securities law in connection with the Company’s April 29, 2019 announcement regarding losses related to winter catastrophe events. The lawsuit alleges that the Company failed to disclose that it did not adequately follow industry best practices related to claims handling and thus did not record sufficient claim reserves, and that as a result, Defendants’ positive statements about the Company’s business, operations and prospects misled investors. Plaintiff seeks, among other things, an undetermined amount of money damages. Item 1A. For a discussion of the Company’s potential risks and uncertainties, see Part I, Item 1A- “Risk Factors” and Part II, Item 7- “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2019 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. Other than as described below, there have been no material changes The impact of COVID-19 and related risks could materially affect our Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy and our results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 include, among others, the following: Revenues. We expect that the impact of COVID-19 on Investments. The disruption in the financial markets related to COVID-19 has contributed to net investment losses, primarily due to the impact of changes in fair value on our equity investments and in our fixed-income investment portfolio. Our corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries. In addition, in recent years, many state and local governments have been operating under deficits or projected deficits. These deficits may be exacerbated by the costs of responding to COVID-19 and reduced tax revenues due to adverse economic conditions. The severity and duration of these deficits could have an adverse impact on the collectability and valuation of our municipal bond portfolio. Our investment portfolio also includes mortgage-backed securities which could be adversely impacted by declines in real estate valuations and/or financial market disruption. Further disruptions in global financial markets could adversely impact our net investment income in future periods. Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. For example, we may be subject to legislative and/or regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies were not designed or priced to cover. Currently, in some states there is proposed legislation to require insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage. Regulatory restrictions or requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel or non-renew policies and our right to collect premiums. Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our producers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. Reinsurance Risks. We purchase reinsurance to reduce our net liability on individual risks, to protect against possible catastrophes, to remain within a target ratio of net premiums written to policyholders’ surplus and to expand our underwriting capacity. Participation in reinsurance arrangements does not relieve us from our obligations to policyholders. Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes. Market conditions beyond our control, including the effect of COVID-19 on the reinsurance market, have impacted and may continue to impact the availability and cost of the reinsurance we purchase. No assurances can be given that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available in the future. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we will have to either accept an increase in our exposure risk, reduce our insurance writings or seek other alternatives. Recent decline in the financial strength rating assigned to our insurance subsidiary by A.M. Best will impact our revenues and earnings. Financial strength ratings are an important factor influencing the competitive position of insurance companies. The objective of the rating agencies’ rating systems is to provide an opinion as to an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. The ratings of Kingstone Insurance Company (“KICO”), our insurance subsidiary, reflect the rating agencies’ opinion as to its financial strength and are not evaluations directed to investors in our securities, nor are they recommendations to buy, sell or hold our securities. Our ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of, the rating agencies. Our ability to write business, particularly commercial liability lines, is influenced by our financial strength rating from A.M. Best. On July 10, 2020, A.M. Best lowered the financial strength rating of KICO from “A-“ (Excellent) to “B++” (Good). The outlook of A.M. Best’s credit rating is negative. A.M. Best indicated that the ratings downgrade of KICO reflects its balance sheet strength, which A.M. Best categorizes as adequate, as well as its strong operating performance, limited business profile and appropriate enterprise risk management. It stated that the ratings action was driven by a revision in KICO’s catastrophe reinsurance program effective July 1, 2020 which significantly reduces the amount of reinsurance protection previously contemplated and purchased. Management believes that A.M. Best’s financial strength rating is more significant with regard to commercial liability insurance, as opposed to personal lines business. Since we have discontinued our commercial lines business, we believe that A.M. Best’s rating action will not result in a material decrease in the amount of business that KICO will be a ble to write. However, the A.M Best ratings downgrade has resulted in a material decrease in the business of our subsidiary, Cosi, a multi-state licensed general agency that had partnered with name-brand carriers which require an A.M. Best “A-“ rating from its partners. The effectsof Tropical Storm Isaias will be material to our results of operations for the third quarter of 2020. On August 4, 2020, the Northeast, which is the primary location of KICO’s insureds, was struck by Tropical Storm Isaias which caused power outages and significant damage to homes. We have received more than 1,100 claims relating to the storm. We are unable to determine the aggregate dollar amount of the claims at this time but the claims will in all likelihood have a material adverse effect upon our 2020 third quarter results of operations. Item 2. (a) None. (b) Not applicable. (c) 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 4/1/20 - 4/30/20 5/1/20 - 5/31/20 6/1/20 - 6/30/20 Total (1)Purchases were made by us in open market transactions. Item 3. None. Not applicable. None. Item 6. Exhibits. 3(a) Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2014 filed on May 15, 2014). 3(b) By-laws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s 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. 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 11, 2020 By: /s/ Barry B. Goldstein Barry B. Goldstein Chief Executive Officer Dated: August 11, 2020 By: /s/ Victor Brodsky Victor Brodsky Chief Financial OfficerKINGSTONE COMPANIES, INC. AND SUBSIDIARIES4 Table of Contents 20192020 and 2018 Balance, January 1, 2018, as reported Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018 Balance, January 1, 2018, as adjusted Stock-based compensation Shares deducted from exercise of stock options for payment of withholding taxes Vesting of restricted stock awards Shares deducted from restricted stock awards for payment of withholding taxes Exercise of stock options Acquisition of treasury stock Dividends Net income Change in unrealized losses on available- for-sale securities, net of tax Balance, June 30, 2018 $ - 11,775,148 $ 117,751 $ 67,763,940 $ (2,884,313 ) $ 26,380,816 1,027,439 $ (2,712,552 ) $ 88,665,642 - - - - 709,207 - - - - 709,207 - - 31,546 314 (314 ) - - - - - - - (7,607 ) (75 ) (122,763 ) - - - - (122,838 ) - - 3,000 30 23,520 - - - - 23,550 - - - - - - (2,153,349 ) - - (2,153,349 ) - - - - - - (5,695,810 ) - - (5,695,810 ) - - - - - 6,243,360 - - - 6,243,360 - $ - 11,802,087 $ 118,020 $ 68,373,590 $ 3,359,047 $ 18,531,657 1,027,439 $ (2,712,552 ) $ 87,669,762 $ - 11,824,889 $ 118,248 $ 69,133,918 $ 4,768,870 $ 16,913,097 1,027,439 $ (2,712,552 ) $ 88,221,581 - - - - 942,387 - - - - 942,387 - - 60,896 607 (607 ) - - - - - - - (19,531 ) (193 ) (124,149 ) - - - - (124,342 ) - - - - - - - 168,670 (801,788 ) (801,788 ) - - - - - - (1,103,400 ) - - (1,103,400 ) - - - - - - (836,013 ) - - (836,013 ) - - - - - 3,323,053 - - - 3,323,053 - $ - 11,866,254 $ 118,662 $ 69,951,549 $ 8,091,923 $ 14,973,684 1,196,109 $ (3,514,340 ) $ 89,621,478 KINGSTONE COMPANIES, INC. AND SUBSIDIARIESCondensed Consolidated Statements of Stockholders' Equity (Unaudited)Six months ended June 30, 2019 and 2018 ContinuedTable of Contents Balance, January 1, 2019 Stock-based compensation Vesting of restricted stock awards Shares deducted from restricted stock awards for payment of withholding taxes Exercise of stock options Dividends Net loss Change in unrealized gains on available- for-sale securities, net of tax Balance, June 30, 2019 $ (836,013 ) $ (5,695,810 ) (275,158 ) (931 ) 3,979,115 (2,232,438 ) 42,593 (480,649 ) 1,360,254 1,230,001 46,440 - 302,279 188,778 88,090 88,090 942,387 709,207 1,017,179 (1,521,867 ) (679,568 ) (996,601 ) (491,783 ) (2,276,245 ) 1,112,036 (1,506,072 ) (1,609,499 ) (329,335 ) (3,890,252 ) 13,478,014 (5,376,958 ) 6,456,015 1,408,269 1,360,596 (6,247,621 ) 873,527 (756,824 ) 413,479 (116,404 ) 1,042,925 (9,981,438 ) 10,800,684 (4,041,750 ) - (12,447,259 ) (11,867,613 ) (8,290,221 ) (4,461,684 ) - 400,000 19,174,048 6,987,908 6,479,813 503,884 (1,101,416 ) (2,353,140 ) (226,785 ) (10,790,645 ) - 23,550 (124,342 ) (122,838 ) (801,788 ) - (1,103,400 ) (2,153,349 ) (2,029,530 ) (2,252,637 ) $ (12,237,753 ) $ (2,242,598 ) 32,391,485 21,138,403 $ 20,153,732 $ 18,895,805 $ - $ - $ 825,000 $ 825,000 Condensed Consolidated Statements of Cash Flows (Unaudited) Net (loss) income Net (gains) losses on sale of investments Net unrealized (gains) losses of equity investments Net unrealized gains of other investments Depreciation and amortization Amortization of bond premium, net Amortization of discount and issuance costs on long-term debt Stock-based compensation Deferred income tax benefit (Increase) decrease in operating assets: Premiums receivable, net Reinsurance receivables, net Deferred policy acquisition costs Other assets Increase (decrease) in operating liabilities: Loss and loss adjustment expense reserves Unearned premiums Advance premiums Reinsurance balances payable Deferred ceding commission revenue Accounts payable, accrued expenses and other liabilities Net cash flows provided by operating activities Purchase - fixed-maturity securities available-for-sale Purchase - equity securities Sale and redemption - fixed-maturity securities held-to-maturity Sale or maturity - fixed-maturity securities available-for-sale Sale - equity securities Proceeds from exercise of stock options Withholding taxes paid on net exercise of stock options Withholding taxes paid on vested retricted stock awards Purchase of treasury stock Dividends paid Decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplemental disclosures of cash flow information: Cash paid for income taxes Cash paid for interest See accompanying notes to condensed consolidated financial statements.KINGSTONE COMPANIES, INC. AND SUBSIDIARIESto small businessesexclusively through retail and individuals exclusively throughwholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, Connecticut and Pennsylvania.Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut are nowcontinue to be growing expansion markets for the Company, 86.0%79.5% and 88.4%81.0% of KICO’s direct written premiums for the three months and six months ended June 30, 2019,2020, respectively, came from the New York policies. Kingstone, through its wholly owned subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, accesses alternate forms of distribution outside of the independent agent and broker network, through which KICO currently distributes its various products. Kingstone (through Cosi) now has the opportunity to partner with name-brand carriers and access nationwide insurance agencies.20182019 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 18, 2019.16, 2020. 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 six months ended June 30, 20192020 may not be indicative of the results that may be expected for the year ending December 31, 2019.–- Accounting Policieson-goingongoing basis, management reevaluates its assumptions and the methods for calculating these estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the consolidated financial statements.7 Table of Contents subsidiaries, as well assubsidiaries: (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates.operates, and (2) Cosi. All significant inter-companyintercompany account balances and transactions have been eliminated in consolidation.In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule was effective on November 5, 2018. adopted the provisions of this Releasehas determined that it was not subject to any new accounting pronouncements that became effective January 1, 2019, and included the required presentation of changes in stockholders’ equity forduring the six months ended June 30, 2019 and 2018.In February 2016, the FASB issued ASU 2016-02 – Leases (Topic 842) (“ASU 2016-02”). Under this ASU, the Company recognized a right-of-use-asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of fewer than 12 months. The liability has been measured at the present value of the future minimum lease payments taking into account renewal options if applicable plus initial incremental direct costs such as commissions. The minimum payments are discounted using the Company’s incremental borrowing rate. The Company adopted ASU 2016-02 effective January 1, 2019 using the cumulative effect adjustment transition method, which applies the provision of the standard at the effective date without adjusting the comparative periods presented. The adoption of the updated guidance resulted in the Company recognizing a right-of-use asset of $855,000 as part of other assets and a lease liability of $855,000 as part of accounts payable, accrued expenses and other liabilities in the condensed consolidated balance sheet. The right-of use-asset is amortized as rent expense on a straight line basis. The adoption of this ASU did not have a material effect on the Company's results of operations or liquidity.FASBthe Financial Accounting Standards Board (the “FASB”) issued ASUAccounting Standards Update (“ASU”) 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2020.2023. The Company is currently evaluating the effect the updated guidance will have on its condensed consolidated financial statements.August 2018,December 2019, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework2019-12, Income Taxes - ChangesSimplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the Disclosure Requirementsamount that would be recognized if the year-to-date loss were the anticipated loss for Fair Value Measurement (ASU 2018-13). This update modifies the existing disclosure requirementsfull year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on fair value measurements in Topic 820 by changing requirements regarding Level 1, Level 2 and Level 3 investments.its estimated annual effective tax rate. ASU 2018-132019-12 is effective for annual reporting periodsfiscal years beginning after December 15, 2019,2020, including interim periods within those annual periods, with earlyperiods. Early adoption is permitted. Entities are permitted to early adopt any removed or modified disclosures of ASU 2018-13 immediately and delay the adoption of the additional disclosures until their effective date. We do not intend to early adopt the additional disclosures and are assessingThe Company is currently evaluating the impact of retrospectively adopting the additions from this new accounting standardguidance on our fair value disclosures.8 Table of Contents 2019 2020 and December 31, 20182019 are summarized as follows: Category Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1)In 2017, KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (See Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHBLNY credit line. As of June 30, 2019, the estimated fair value of the eligible investments was approximately $5,354,000. KICO will retain all rights regarding all securities if pledged as collateral. As of June 30, 2019, there was no outstanding balance on the FHLBNY credit line. Category Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total (1)In 2017, KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the FHLBNY (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHBLNY credit line. As of December 31, 2018, the estimated fair value of the eligible investments was approximately $5,116,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2018, there was no outstanding balance on the FHLBNY credit line.$ 3,032,168 $ 54,542 $ - $ - $ 3,086,710 $ 54,542 8,577,207 423,179 - - 9,000,386 423,179 121,977,355 10,145,949 (117,056 ) - 132,006,248 10,028,893 21,639,537 256,784 (180,701 ) (342,476 ) 21,373,144 (266,393 ) $ 155,226,267 $ 10,880,454 $ (297,757 ) $ (342,476 ) $ 165,466,488 $ 10,240,221 9 Table of Contents $ 7,037,856 $ 23,244 $ - $ - $ 7,061,100 $ 23,244 9,151,293 181,835 (11,316 ) - 9,321,812 170,519 119,874,573 5,777,624 (16,685 ) (13,473 ) 125,622,039 5,747,466 26,138,633 437,841 (68,793 ) (276,451 ) 26,231,230 92,597 $ 162,202,355 $ 6,420,544 $ (96,794 ) $ (289,924 ) $ 168,236,181 $ 6,033,826 KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the FHLBNY (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of December 31, 2019, the estimated fair value of the eligible investments was approximately $7,284,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2019, there was no outstanding balance on the FHLBNY credit line. 20192020 and December 31, 20182019 is shown below: Less than one year One to five years Five to ten years More than 10 years Residential mortgage and other asset backed securities Total $ 8,634,023 $ 8,717,499 $ 11,986,401 $ 12,025,804 50,151,886 53,273,499 49,715,422 51,000,025 66,090,352 73,226,458 69,850,104 74,410,275 8,710,469 8,875,888 4,511,795 4,568,847 21,639,537 21,373,144 26,138,633 26,231,230 $ 155,226,267 $ 165,466,488 $ 162,202,355 $ 168,236,181 10 Table of Contents ofon, investments in equity securities as of June 30, 20192020 and December 31, 20182019 are as follows: Equity Securities: Preferred stocks Common stocks and exchange traded mutual funds Total Equity Securities: Preferred stocks Common stocks and exchange traded mutual funds Total $ $ 88,910 $ (464,826 ) $ 8,647,980 15,540,180 533,364 (2,015,815 ) 14,057,729 $ 24,564,076 $ 622,274 $ (2,480,641 ) $ 22,705,709 gain and losses ofgains on, the Company’s other investments as of June 30, 20192020 and December 31, 20182019 are as follows: Other Investments: Hedge fund Total $ 1,999,381 $ 542,939 $ 2,542,320 $ 1,999,381 $ 585,532 $ 2,584,913 $ 1,999,381 $ 542,939 $ 2,542,320 $ 1,999,381 $ 585,532 $ 2,584,913 11 Table of Contents ofon, investments in held-to-maturity fixed-maturity securities as of June 30,, 2019 2020 and December 31, 20182019 are summarized as follows: Held-to-Maturity Securities: U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total Held-to-Maturity Securities: U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total $ 729,572 $ 162,616 $ - $ - $ 892,188 $ 162,616 998,527 59,493 - - 1,058,020 59,493 6,142,275 280,297 (50,324 ) - 6,372,248 229,973 $ 7,870,374 $ 502,406 $ (50,324 ) $ - $ 8,322,456 $ 452,082 $ 729,550 $ 151,002 $ - $ - $ 880,552 $ 151,002 998,619 51,021 - - 1,049,640 51,021 2,097,783 97,627 (835 ) - 2,194,575 96,792 $ 3,825,952 $ 299,650 $ (835 ) $ - $ 4,124,767 $ 298,815 12 Table of Contents 20192020 and December 31, 20182019 is shown below: Less than one year One to five years Five to ten years More than 10 years Total $ 500,000 $ 495,630 $ 500,000 $ 499,165 2,099,913 2,264,353 2,099,268 2,215,640 1,994,445 2,184,944 620,134 655,923 3,276,016 3,377,529 606,550 754,039 $ 7,870,374 $ 8,322,456 $ 3,825,952 $ 4,124,767 Income: Fixed-maturity securities Equity securities Cash and cash equivalents Total Expenses: Investment expenses Net investment income $ 1,394,284 $ 1,474,341 $ 2,841,771 $ 3,001,211 243,344 205,509 496,868 412,653 43,936 172,680 88,159 213,081 1,681,564 1,852,530 3,426,798 3,626,945 69,558 132,761 148,948 283,464 $ 1,612,006 $ 1,719,769 $ 3,277,850 $ 3,343,481 $400,000$-0- and $-0-$400,000 for the six months ended June 30, 2020 and 2019, and 2018, respectively.$6,987,908$19,174,048 and $15,172,845$6,987,908 for the six months ended June 30, 2020 and 2019, and 2018, respectively.$503,884$6,479,813 and $4,746,825$503,884 for the six months ended June 30, 2020 and 2019, and 2018, respectively.13 Table of Contents Realized (Losses) Gains Fixed-maturity securities: Gross realized gains Gross realized losses Equity securities: Gross realized gains Gross realized losses Net realized gains (losses) Unrealized Gains (Losses) Equity securities: Gross gains Gross losses Other investments: Gross gains Gross losses Net unrealized gains (losses) Net gains (losses) on investments $ 16,087 $ 4,942 $ 252,577 $ 10,944 (164,582 ) (17,306 ) (196,925 ) (45,739 ) (148,495 ) (12,364 ) 55,652 (34,795 ) 125,310 90,427 444,671 41,688 (11,350 ) (27,638 ) (225,165 ) (5,962 ) 113,960 62,789 219,506 35,726 (34,535 ) 50,425 275,158 931 2,177,605 440,301 - 2,232,438 - - (3,979,115 ) - 2,177,605 440,301 (3,979,115 ) 2,232,438 554,798 187,929 - 480,649 - - (42,593 ) - 554,798 187,929 (42,593 ) 480,649 2,732,403 628,230 (4,021,708 ) 2,713,087 $ 2,697,868 $ 678,655 $ (3,746,550 ) $ 2,714,018 loss.income. The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections. For held-to-maturity debt securities, the amount of OTTI recorded in comprehensive loss for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security on the basis of timing of future estimated cash flows of the security.income (loss)loss as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At June 30, 20192020 and December 31, 2018,2019, there were 4930 and 15639 fixed-maturity securities, respectively, that accounted for the gross unrealized loss. The Company determined that none of the other unrealized losses were deemed to be OTTI for its portfolio of investments for the six months ended June 30, 20192020 and 2018.2019. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery of estimated fair value to the Company’s cost basis.14 Table of Contents 20192020 as follows: Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous asset backed securities Total fixed-maturity securities $ - $ - - $ - $ - - $ - $ - - - - - - - - - 4,839,822 (117,056 ) 5 - - - 4,839,822 (117,056 ) 7,060,988 (180,701 ) 9 10,639,265 (342,476 ) 16 17,700,253 (523,177 ) $ 11,900,810 $ (297,757 ) 14 $ 10,639,265 $ (342,476 ) 16 $ 22,540,075 $ (640,233 ) 15 Table of Contents 20182019 as follows: Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities $ - $ - - $ - $ - - $ - $ - 3,067,428 (11,316 ) 3 - - - 3,067,428 (11,316 ) 3,730,478 (16,685 ) 7 1,300,915 (13,473 ) 3 5,031,393 (30,158 ) 5,862,636 (68,793 ) 5 13,534,768 (276,451 ) 21 19,397,404 (345,244 ) $ 12,660,542 $ (96,794 ) 15 $ 14,835,683 $ (289,924 ) 24 $ 27,496,225 $ (386,718 ) 16 Table of Contents Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation technique used by the Company to fair value its financial instruments is the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets.The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification 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:Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Included are those investments traded on an active exchange, such as the Nasdaq Global Select Market, U.S. Treasury securities and obligations of U.S. government agencies, together with corporate debt securities that are generally investment grade.Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. Municipal and corporate bonds, and residential mortgage-backed securities, that are traded in less active markets are classified as Level 2. These securities are valued using market price quotations for recently executed transactions.Level 3—Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Material assumptions and factors considered in pricing investment securities and other assets may include appraisals, projected cash flows, market clearing activity or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.The availability of observable inputs varies and is affected by a wide variety of factors. When the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. The degree of judgment exercised by management in determining fair value is greatest for investments categorized as Level 3. For investments in this category, the Company considers prices and inputs that are current as of the measurement date. In periods of market dislocation, as characterized by current market conditions, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause a security to be reclassified between levels.20192020 and December 31, 20182019 indicating the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value: Fixed-maturity securities available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage backed securities Total fixed maturities Equity securities Total investments Fixed-maturity securities available-for-sale U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage backed securities Total fixed maturities Equity securities Total investments Pursuant to ASC 820 “Fair Value Measurement,” an entity is permitted, as a practical expedient, to estimate the fair value of an investment within the scope of ASC 820 using the net asset value (“NAV”) per share of the investment. $ 3,086,710 $ - $ - $ 3,086,710 - 9,000,386 - 9,000,386 129,921,971 2,084,277 - 132,006,248 - 21,373,144 - 21,373,144 133,008,681 32,457,807 - 165,466,488 22,705,709 - - 22,705,709 $ 155,714,390 $ 32,457,807 $ - $ 188,172,197 $ 7,061,100 $ - $ - $ 7,061,100 - 9,321,812 - 9,321,812 123,010,772 2,611,267 - 125,622,039 - 26,231,230 - 26,231,230 130,071,872 38,164,309 - 168,236,181 24,661,382 - - 24,661,382 $ 154,733,254 $ 38,164,309 $ - $ 192,897,563 17 Table of Contents NAVNet Asset Value (“NAV”) per share as of June 30, 20192020 and December 31, 2018.2019. 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: Other Investments: Hedge fund Total $ 2,542,320 $ 2,584,913 $ 2,542,320 $ 2,584,913 20192020 and December 31, 20182019 not measured at fair value is as follows: Long-term debt Senior Notes due 2022 Long-term debt Senior Notes due 2022 $ - $ 27,279,898 $ - $ 27,279,898 $ - $ 27,313,994 $ - $ 27,313,994 The Company uses the following methods and assumptions in estimating the fair value of financial instruments and real estate:Equity securities, available-for-sale fixed income securities, held-to-maturity fixed income securities, and other investments:Fair value disclosures for these investments are included in “Note 3 - Investments” and “Note 4 – Fair Value Measurements”.Cash and cash equivalents: The carrying values of cash and cash equivalents approximate their fair values because of the short-term nature of these instruments.Premiums receivable and reinsurance receivables: The carrying values reported in the condensed consolidated balance sheets for these financial instruments approximate their fair values due to the short-term nature of the assets.Real estate: The fair value of the land and building included in property and equipment, which is used in the Company’s operations, approximates the carrying value. The fair value was based on an appraisal prepared using the sales comparison approach, and accordingly the real estate is a Level 3 asset under the fair value hierarchy.Reinsurance balances payable: The carrying value reported in the condensed consolidated balance sheets for these financial instruments approximates fair value.Long-term debt: The estimated fair value of long-term debt is based on observable market interest rates when available. When observable market interest rates were not available, the estimated fair values of debt were based on observable market interest rates of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements., 2019 2020 and December 31, 20182019 are as follows: Fixed-maturity securities-held-to maturity Cash and cash equivalents Premiums receivable, net Reinsurance receivables, net Real estate, net of accumulated depreciation Reinsurance balances payable Long-term debt, net $ 7,870,374 $ 8,322,456 $ 3,825,952 $ 4,124,767 $ 20,153,732 $ 20,153,732 $ 32,391,485 $ 32,391,485 $ 13,339,539 $ 13,339,539 $ 12,706,411 $ 12,706,411 $ 41,242,321 $ 41,242,321 $ 40,750,538 $ 40,750,538 $ 2,256,872 $ 2,705,000 $ 2,292,743 $ 2,705,000 $ 5,467,103 $ 5,467,103 $ 11,714,724 $ 11,714,724 18 Table of Contents –- Property and Casualty Insurance Activity Six months ended June 30, 2019 Premiums written Change in unearned premiums Premiums earned Six months ended June 30, 2018 Premiums written Change in unearned premiums Premiums earned Three months ended June 30, 2019 Premiums written Change in unearned premiums Premiums earned Three months ended June 30, 2018 Premiums written Change in unearned premiums Premiums earned , 2019 2020 and December 31, 20182019 was $3,468,225$4,599,781 and $2,107,629,$3,191,512, respectively.19 Table of Contents Balance at beginning of period Less reinsurance recoverables Net balance, beginning of period Incurred related to: Current year Prior years Total incurred Paid related to: Current year Prior years Total paid Net balance at end of period Add reinsurance recoverables Balance at end of period $ 80,498,611 $ 56,197,106 (15,728,224 ) (15,671,247 ) 64,770,387 40,525,859 29,373,472 40,689,147 (174,020 ) 6,117,385 29,199,452 46,806,532 14,223,404 19,692,437 20,204,732 13,999,258 34,428,136 33,691,695 59,541,702 53,640,696 17,066,657 16,034,424 $ 76,608,359 $ 69,675,120 $6,621,688$10,219,432 and $8,017,022$6,621,688 for the six months ended June 30, 2020 and 2019, and 2018, respectively., 2020 and 2019 was $174,020 favorable and 2018 was $6,117,385 unfavorable and $227,346 unfavorable, respectively. During the six months ended June 30, 2019, the Company increased case reserves for certain older open liability claims, which primarily affected the ultimate loss projections for commercial lines business. The Company’s management continually monitorsThis was in response to management’s detailed review of open liability claims activity to assess the appropriatenessthat resulted in new assessments of carried case and incurred but not reported (“IBNR”) reserves,reserve levels, giving consideration to both Company and industry trends.20 Table of Contents – - historical patterns of paid loss development are used to project future paid loss emergence in order to estimate required reserves.– - 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.– - 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.–- 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 alsomay 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.21 Table of Contents 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.Twodescribed 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.consideredcontemplated in existing casesetting current carried reserves and in its current loss development factors.20162017 and prior is limited, although there remains the possibility of adverse development on reported claims (“case development” IBNR). In certain rare circumstances states have retroactively revised a statute of limitations. The Company is not aware of any such effort that would have a material impact on the Company’s results.2019,2020, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of June 30, 20192020 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, 20102011 to December 31, 20182019 is presented as supplementary unaudited information.All Lines of Business(in thousands, except reported claims data)
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (1)Reported claims for accident year 2012 includes 3,406 claims from Superstorm Sandy.All Lines of Business(in thousands) Accident 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 22 Table of Contents Year $ 7,603 $ 7,678 $ 8,618 $ 9,440 $ 9,198 $ 9,066 $ 9,144 $ 9,171 $ 9,127 $ 9,128 $ - 1,914 9,539 9,344 10,278 10,382 10,582 10,790 10,791 11,015 10,963 91 4,704 10,728 9,745 9,424 9,621 10,061 10,089 10,607 10,430 33 1,561 14,193 14,260 14,218 14,564 15,023 16,381 16,509 299 2,137 22,340 21,994 22,148 22,491 23,386 23,031 130 2,555 26,062 24,941 24,789 27,887 27,832 423 2,878 31,605 32,169 35,304 36,026 414 3,384 54,455 56,351 58,289 2,187 4,191 75,092 72,769 11,498 4,394 27,492 7,445 1,713 $ 292,469 Reported claims for accident year 2012 includes 3,406 claims from Superstorm Sandy. 2020 $ 3,740 $ 5,117 $ 6,228 $ 7,170 $ 8,139 $ 8,540 $ 8,702 $ 8,727 $ 8,789 $ 8,993 3,950 5,770 7,127 8,196 9,187 10,236 10,323 10,428 10,443 3,405 5,303 6,633 7,591 8,407 9,056 9,717 10,007 5,710 9,429 10,738 11,770 13,819 14,901 15,169 12,295 16,181 18,266 19,984 21,067 22,058 15,364 19,001 21,106 23,974 24,863 16,704 24,820 28,693 30,172 32,383 44,516 47,698 40,933 52,940 13,087 $ 235,431 $ 23 Table of Contents As of(in thousands)June 30, 2019Liabilities for loss and loss adjustment expenses, net of reinsurance$51,519Total reinsurance recoverable on unpaid losses16,034Unallocated loss adjustment expenses2,122Total gross liability for loss and LAE reserves$69,675$ 57,136 17,066 2,406 $ 76,608 Thearewere on a July 1 through June 30 fiscal year basis. The Company’sEffective December 15, 2019, the Company entered into a quota share reinsurance treaties in effect for the six months ended June 30, 2019 and 2018treaty for its personal lines business, which primarily consists of homeowners’ policies, covering the period from December 15, 2019 through December 31, 2020 (“2019/2020 Treaty”). The Company’s quota share reinsurance treaties in effect during the six months ended June 30, 2019 for its personal lines business were covered under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017/2019 Treaty”). The treaty in effect forduring the six months ended June 30, 2019 was covered under the July 1, 2018 through June 30, 2019 treaty year (“2018/2019 Treaty Year”) and the treaty in effect for the six months ended June 30, 2018 was covered under the July 1, 2017 through June 30, 2018 treaty year (“2017/2018 Treaty Year”).In August 2018, the Company terminated its contract with one of the reinsurers that was a party to the 2017/2019 Treaty. This termination was retroactive to July 1, 2018 and had the effect of reducing the quota share ceding rate to 10% under the 2018/2019 Treaty Year from 20% under the 2017/2018 Treaty Year.2019.2020. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows: Treaty Year July 1, 2019 July 1, 2018 July 1, 2017 to to to Line of Busines June 30, 2020 June 30, 2019 June 30, 2018 Personal Lines: Homeowners, dwelling fire and canine legal liability Quota share treaty: Percent ceded None 10% 20% Risk retained 1,000,000 900,000 800,000 Losses per occurrence subject to quota share reinsurance coverage None 1,000,000 1,000,000 Excess of loss coverage and facultative facility above quota share coverage (1) 10,000,000 9,000,000 9,000,000 in excess of in excess of 1,000,000 1,000,000 Total reinsurance coverage per occurrence 9,000,000 9,100,000 9,200,000 Losses per occurrence subject to reinsurance coverage 10,000,000 10,000,000 10,000,000 Expiration date June 30, 2020 June 30, 2019 June 30, 2019 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 4,900,000 Losses per occurrence subject to quota share reinsurance coverage 5,000,000 5,000,000 5,000,000 Expiration date June 30, 2020 June 30, 2019 June 30, 2018 Commercial Lines: General liability commercial policies Quota share treaty None None None Risk retained 750,000 750,000 750,000 Excess of loss coverage above risk retained 3,750,000 3,750,000 3,750,000 in excess of in excess of in excess of 750,000 750,000 750,000 Total reinsurance coverage per occurrence 3,750,000 3,750,000 3,750,000 Losses per occurrence subject to reinsurance coverage 4,500,000 4,500,000 4,500,000 Commercial Umbrella Quota share treaty: None 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, 2019 June 30, 2018 Catastrophe Reinsurance: Initial loss subject to personal lines quota share treaty None 5,000,000 5,000,000 Risk retained per catastrophe occurrence (2) 7,500,000 4,500,000 4,000,000 Catastrophe loss coverage in excess of quota share coverage (3) 602,500,000 445,000,000 315,000,000 Reinstatement premium protection (4)(5)(6) Yes Yes Yes (1)For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000.(2)Plus losses in excess of catastrophe coverage.(3)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.(4)Effective July 1, 2017, reinstatement premium protection for $145,000,000 of catastrophe coverage in excess of $5,000,000.(5)Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000.(6)Effective July 1, 2019, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.The single maximum risks per occurrence to which the Company is subject under the treaties effective July 1, 2018 and 2017 are as follows: July 1, 2017 - June 30, 2018 Treaty Personal Lines (1) Initial $1,000,000 $900,000 Initial $1,000,000 $800,000 $1,000,000 - $10,000,000 None(2) $1,000,000 - $10,000,000 None(2) Over $10,000,000 100% Over $10,000,000 100% Personal Umbrella Initial $1,000,000 $100,000 Initial $1,000,000 $100,000 $1,000,000 - $5,000,000 None $1,000,000 - $5,000,000 None Over $5,000,000 100% Over $5,000,000 100% Commercial Lines Initial $750,000 $750,000 Initial $750,000 $750,000 $750,000 - $4,500,000 None(3) $750,000 - $4,500,000 None(3) Over $4,500,000 100% Over $4,500,000 100% Commercial Umbrella Initial $1,000,000 $100,000 Initial $1,000,000 $100,000 $1,000,000 - $5,000,000 None $1,000,000 - $5,000,000 None Over $5,000,000 100% Over $5,000,000 100% Catastrophe (4) Initial $5,000,000 $4,500,000 Initial $5,000,000 $4,000,000 $5,000,000 - $450,000,000 None $5,000,000 - $320,000,000 None Over $450,000,000 100% Over $320,000,000 100% (1)Treaty for July 1, 2017 – June 30, 2018 and July 1, 2018 – June 30, 2019 is a two-year treaty with expiration date of June 30, 2019.(2)Covered by excess of loss treaties up to $3,500,000 and by facultative facility from $3,500,000 to $10,000,000.(3)Covered by excess of loss treaties.(4)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts.The single maximum risks per occurrence to which the Company is subject under the treaty year shown below are as follows: 24 Table of Contents For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000. Plus losses in excess of catastrophe coverage. Effective July 1, 2020, no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note 7 below). 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. Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000. Effective July 1, 2019, -reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.Effective July 1, 2020, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. Quota share expires December 31, 2020; reinsurance coverage from January 1, 2021 through June 30, 20202021 is only for excess of loss and catastrophe reinsurance.TreatyRange of LossRisk RetainedPersonal Lines (1) Initial $1,000,000$1,000,000 $1,000,000 - $10,000,000 None(2) Over $10,000,000100% Personal Umbrella Initial $1,000,000$100,00025 $1,000,000 - $5,000,000 None Over $5,000,000100%Table of ContentsCommercial Lines Initial $750,000$750,000 $750,000 - $4,500,000 None(3) Over $4,500,000100%Commercial Umbrella Initial $1,000,000$100,000 $1,000,000 - $5,000,000 None Over $5,000,000100%Catastrophe (4) Initial $7,500,000$7,500,000 $7,500,000 - $610,000,000 None Over $610,000,000100%(1)Personal lines quota share treaty was eliminated effective July 1, 2019. The 2017/2019 Treaty expired on a run-off basis.(2)Covered by excess of loss treaties up to $3,500,000 and by facultative facility from $3,500,000 to $10,000,000.(3)Covered by excess of loss treaties.(4)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts.90 % 90 % 90 % 95 % 100 % 100 % $ 300,000 $ 100,000 $ 100,000 $ 4,700,000 $ 4,900,000 $ 4,900,000 $ 5,000,000 $ 5,000,000 $ 5,000,000 $ 750,000 $ 750,000 $ 750,000 $ 3,750,000 $ 3,750,000 $ 3,750,000 $ 750,000 $ 750,000 $ 750,000 $ 3,750,000 $ 3,750,000 $ 3,750,000 $ 4,500,000 $ 4,500,000 $ 4,500,000 90 % 100 % $ 100,000 $ 4,900,000 $ 5,000,000 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.26 Table of Contents Year. The Loss RatiosYear, which expired on June 30, 2019 and was not renewed.forduring the three months and six months ended June 30, 2018 are attributable to contracts under the 2017/2019 Treaty for the 2017/2018 Treaty Year.Treaty in effect for the three months2020 and six months ended June 30, 2019,Under the 2017/2019 Treaty, the Company received an upfront fixed provisional rate that was only subject to a sliding scale contingent adjustment based upon Loss Ratio for the 2017/2018 Treaty Year (“Loss Period”). Under this arrangement, the Company earned provisional ceding commissions that are subject to later adjustment dependent on changes to the estimated Loss Period Loss Ratio for the 2017/2019 Treaty. The Company’s Loss Period Loss Ratios attributable to the 2017/2019 Treaty reached the maximum contractual level during the six months ended June 30, 2018, and therefore no contingent commission adjustment was recorded for the three months and six months ended June 30, 2019.Treaty in effect for the three months and six months ended June 30, 2018The Loss Ratios for the period July 1, 2017 through June 30, 2018 attributable to the 2017/2019 Treaty were higher than the contractual Loss Ratio at which provisional ceding commissions were earned. Accordingly, for the three months and six months ended June 30, 2018, the Company incurred negative contingent ceding commissions as a result of the estimated Loss Ratio for the 2017/2019 Treaty, which reduced contingent ceding commissions earned.In addition to the treaties that were in effect for the three months and six months ended June 30, 2019 and 2018, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods increase or decrease, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. Provisional ceding commissions earned Contingent ceding commissions earned $ 3,440,676 $ 1,363,474 $ 7,161,036 $ 2,681,225 39,538 (687,779 ) 150,277 (727,847 ) $ 3,480,214 $ 675,695 $ 7,311,313 $ 1,953,378 20192020 and December 31, 2018,2019, net contingent ceding commissions payable to reinsurers under all treaties was approximately $2,333,000$2,736,000 and $1,581,000,$2,886,000, respectively, which is recorded in reinsurance balances payable on the accompanying condensed consolidated balance sheets.Commercial Lines of BusinessIn July 2019, the Company made the decision that it will no longer underwrite Commercial Lines risks. These include Business Owners, Artisans (“CraftPak”), Special Multi-Peril, and Commercial Umbrella policies. The Company had 7,770 commercial lines policies in force as of June 30, 2019. For the six months ended June 30, 2019, these policies represented approximately 12% of net premiums earned. As of June 30, 2019, claims from these commercial lines represent 43% of loss and loss adjustment expense reserves net of reinsurance recoverables. Inforce policies for these lines will be non-renewed at the end of their current annual terms. It is expected that all existing inforce Commercial Lines policies will expire by September 30, 2020.–- Debt2019.2020 and December 31, 2019, respectively. FHLBNY members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances, which are to be fully collateralized. Eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. See Note 3 –- Investments for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of the previous quarter and are due and payable within one yearninety days of borrowing. The maximum allowable advance as of March 31, 2019June 30, 2020 was approximately $11,060,000.$11,339,000. Advances are limited to 90%85% of the amount of available collateral, which was approximately $4,819,000$5,944,000 as of June 30, 2019.2020. There were no borrowings under this facility during the six months ended June 30, 2020 and 2019.27 Table of Contents . per annum. The net proceeds of the issuance were $29,121,630, net of discount of $163,200 and transaction costs of $715,170, for an effective yield of 5.67%. per annum. The balance of long-term debt as of June 30, 20192020 and December 31, 20182019 is as follows: 5.50% Senior Unsecured Notes Discount Issuance costs Long-term debt, net 5.50% Senior Unsecured Notes $ 30,000,000 $ 30,000,000 Discount (81,133 ) (97,325 ) Issuance costs (359,346 ) (431,244 ) Long-term debt, net $ 29,559,521 $ 29,471,431 On December 20, 2017, the$25,000,000an aggregate $28,256,335 of the net proceeds from the offering to contribute capital to KICO in order to support additional growth. The remainder of the net proceeds areis being used for general corporate purposes. A registration statement relating to the debt issued in the offering was filed with the SEC, which became effective on November 28, 2017.–- Stockholders’ Equitycommon stockCommon Stock were $2,153,349$1,103,400 and $2,134,759$2,153,349 for the six months ended June 30, 20192020 and 2018,2019, respectively. The Company’s Board of Directors approved a quarterly dividend on August 7, 20195, 2020 of $0.0625$.04 per share payable in cash on September 13, 201915, 2020 to stockholders of record as of August 30, 201931, 2020 (see Note 13)13 - Subsequent Events).28 Table of Contents Pursuant to the Company’s 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock, a maximum of 700,000 shares of the Company’s Common Stock are permitted to be issued pursuant to options granted and restricted stock issued. 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 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.20192020 and 20182019 include stock-based compensation expense related to these plansfor stock options totaling approximately $0$21,000 and $1,000,$0, respectively. The results of operations for the six months ended June 30, 20192020 and 20182019 include stock-based compensation expense related tofor stock options totaling approximately $1,000$38,000 and $4,000,$0, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of approximately 17%16% for the three months and six months ended June 30 20192020 and 2018.2019. Such amounts have been included in the consolidated statements of operations and comprehensive income (loss) within other operating expenses.Stock-based compensation expense for2019 and 2018 is the estimated fair value of options granted, amortized on a straight-line basis over the requisite service period, for the entire portion of the award less an estimate for anticipated forfeitures. The Company uses the “simplified” method to estimate the expected term of the options because the Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate expected term.2020 was $2.40 per share. No options were granted during the six months ended June 30, 2019 and 2018.3.14 % n/a 37.69 % n/a 1.40 % n/a n/a Option Valuation Modeloption pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because ourthe Company’s stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of ourthe Company’s stock options.29 Table of Contents and 2005 Plan for the six months ended June 30, 20192020 is as follows:Stock Options Outstanding at January 1, 2019 Granted Exercised Forfeited 82,000 $ 8.61 3.38 $ - 74,523 $ 7.96 4.59 $ - - $ - - $ - (36,557 ) $ 8.43 - $ - 119,966 $ 8.26 3.94 $ - 50,000 $ 8.45 1.62 $ - 20192020 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 $8.65$4.42 closing price of the Company’s Common Stock on June 30, 2019. The total intrinsic value of2020. No options were exercised during the six months ended June 30, 2019 was $6,270, determined as of the date of exercise.2020. The total intrinsic value of options forfeited during the six months ended June 30, 20192020 was $13,588,$-0-, determined as of the date of forfeiture.2005 and 2014 PlansPlan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”), or by exchanging a number of shares owned for a period of greater than one year having a fair market value equal to the exercise price of the option being exercised (“Share Exchange”). The Company received cash proceeds of $23,550 from the exercise of options for the purchase of 3,000 shares of Common Stock during the six months ended June 30, 2019. The Company received cash proceeds of $46,883 from the exercise of options for the purchase of 7,400 shares of Common Stock during the six months ended June 30, 2018. The Company received 4,860 shares from the exercise of options under a Share Exchange for the purchase of 20,000 shares of Common Stock during the six months ended June 30, 2018. The remaining 66,500 options exercised during the six months ended June 30, 2018 were Net Exercises, resulting in the issuance of 30,126 shares of Common Stock.2019, there were no2020, the estimated fair value of unamortized compensation costscost related to unvested stock option awards.2019,2020, there were 427,476110,199 shares reserved for grants under the 2014 Plan.30 Table of Contents common stockCommon Stock activity under the Company’s 2014 Plan for the six2019 2020 is as follows:Restricted Stock Awards Balance at January 1, 2019 Granted Vested Forfeited 213,929 $ 16.51 $ 3,554,174 199,812 $ 7.94 $ 1,586,507 (59,420 ) $ 17.12 $ (1,017,090 ) (10,863 ) $ 15.24 $ (165,500 ) 343,458 $ 10.81 $ 3,958,091 20192020 and 2018,2019, stock-based compensation for these grants was approximately $399,000$434,000 and $175,000,$399,000, respectively, which is included in other operating expenses on the accompanying condensed consolidated statements of operations and comprehensive loss.income. For the six months ended June 30, 20192020 and 2018,2019, stock-based compensation for these grants ofwas approximately $905,000 and $708,000, and $281,000, respectively, for these grantswhich is included in other operating expenses inon the accompanying condensed consolidated statements of incomeoperations and comprehensive income (loss).income. These amounts reflect the Company’s accounting expense and do not correspond to the actual value that will be recognized by the directors, executives and employees.–- Income Taxes31 Table of Contents Deferred tax asset: Net operating loss carryovers (1) Claims reserve discount Unearned premium Deferred ceding commission revenue Other Total deferred tax assets Deferred tax liability: Investment in KICO (2) Deferred acquisition costs Intangibles Depreciation and amortization Net unrealized gains (losses) of securities - available for sale Total deferred tax liabilities Net deferred income tax asset (1)$ 55,845 $ 1,586,247 771,358 839,959 3,068,011 3,105,344 1,465,501 1,624,434 332,021 462,019 5,692,736 7,618,003 759,543 759,543 4,099,692 4,333,219 105,000 105,000 302,443 312,298 2,015,527 1,796,891 7,282,205 7,306,951 $ (1,589,469 ) $ 311,052 The deferred tax assets from net operating loss carryovers (“NOL”) are as follows: $ - $ 1,517,866 1,805,591 1,616,568 (1,749,746 ) (1,548,187 ) 55,845 68,381 $ 55,845 $ 1,586,247 deferredCompany will elect on its 2019 federal income tax assets from net operating loss carryovers (“NOL”) are as follows: Type of NOL Expiration Federal only, current year None Amount subject to Annual Limitation, federal only December 31, 2019 Total federal only State only (A) December 31, 2039 Valuation allowance State only, net of valuation allowance Total deferred tax asset from net operating loss carryovers (A)return to carry back the 2019 NOL to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019. 20192020 and December 31, 20182019 was approximately $23,146,000 $26,502,000 and $20,083,000,$24,901,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax, which is included in the condensed consolidated statements of operations and comprehensive income (loss)loss within other underwriting expenses. Aexpenses. Kingstone has recorded a valuation allowance has been recorded due to the uncertainty of generating enough state taxable income to utilize 100% of the available state NOLs over their remaining lives, which expire between 2027 and 2039.32 Table of Contents –- Investment in KICO20192020 and 2018.2019. If any had been recognized these would have been reported in income tax expense.20152016 through December 31, 20182019 remain subject to examination. The Company’s federal income tax return for the year ended December 31, 2016 has been examined by the Internal Revenue Service and was accepted as filed. –Earnings/-Earnings/(Loss) Per Common Sharecommon shares of Common Stock outstanding. Diluted earnings/(loss) per common share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options as well as non-vested restricted stock awards. The computation of diluted earnings/(loss) per common share excludes those options with an exercise price in excess of the average market price of the Company’s common sharesCommon Stock during the periods presented.2019 and 2018,2020, no options were included in the computation of diluted earnings/earnings (loss) per common share as they would have been anti-dilutive for the relevant periods and, as a result, the weighted average number of common shares of Common Stock used in the calculation of diluted earnings per common share has not been adjusted for the effect of such options.33 Table of Contents common shares of Common Stock used in the calculation of basic and diluted earnings/earnings (loss) per common share follows: Weighted average number of shares outstanding Stock options Restricted stock awards Weighted average number of shares outstanding, used for computing diluted earnings per share 10,733,354 10,771,717 10,770,598 10,764,824 - 4,188 - - 1,430 9,159 - - 10,734,784 10,785,064 10,770,598 10,764,824 We believeThe Company believes the lawsuit to be without merit. The Company has not established an accrual for this matter as a loss is not considered to be probable and reasonably estimable. It is the opinion of management, after consulting legal counsel, that facts known at the present time do not indicate that such litigation will have a material adverse impact on the Company’s results of operations, financial position, or cash flows. See Note 2 - Accounting Policies for additional information regarding the accounting for leases.34 Table of Contents This lease is accounted for as an operating lease, whereby lease expense is recognized on a straight-line basis over the term of the lease.leaseleases is as follows: Operating lease Short-term leases Total lease cost (1) Other information on operating lease liability reported in operating cash flows Discount rate Remaining lease term in years
(1)Included in the condensed consolidated statements of operations and comprehensive income (loss) within other underwriting expenses.$ 61,297 $ 122,594 - - $ 61,297 $ 122,594 $ 62,782 $ 127,063 5.50 % 5.50 % Included in the condensed consolidated statements of operations and comprehensive income within other underwriting expenses for KICO and within other operating expenses for Cosi. 2019:For the Year Ending December 31, Remainder of 2019 2020 2021 2022 2023 Thereafter Total undiscounted lease payments Less: present value adjustment Operating lease liability $ 128,561 264,571 273,831 283,415 140,739 192,916 1,284,033 190,041 $ 1,093,992 20192020 and 20182019 amounted to $61,297 and $41,342, for each period.respectively. Rent expense for the six months ended June 30, 2020 and 2019 totaled $122,594 and 2018 amounted to $82,684, for each period.respectively. Rent expense is(loss) within other underwriting expenses.See Note 13 Subsequent Events35 Table of Contents additional office lease.AgreementsSee Note 13 Subsequent EventsAgreement, Mr. Goldstein is entitled to receive an annual base salary of $500,000 and an annual bonus equal to 6% of the Company’s consolidated income from operations before taxes, exclusive of the Company’s consolidated net investment income (loss), net unrealized gains (losses) on equity securities and net realized gains (losses) on investments, up to a maximum of 2.5 times his base salary. In addition, pursuant to the Amended Employment Agreement, Mr. Goldstein is entitled to receive a long-term compensation (“LTC”) award of between $945,000 and $2,835,000 based on a specified minimum increase in the Company’s adjusted book value per share (as defined in the Amended Employment Agreement) as of December 31, 2022 as compared to December 31, 2019 (with the maximum LTC payment being due if the average per annum increase is at least 14%). Further, pursuant to the Amended Employment Agreement, in the event that Mr. Goldstein’s employment is terminated by the Company without cause or he resigns for good reason (each as defined in the Amended Employment Agreement), Mr. Goldstein would be entitled to receive his base salary, the 6% bonus and the LTC payment for the remainder of the term. In addition, in the event of Mr. Goldstein’s death, his estate would be entitled to receive his base salary, accrued bonus and accrued LTC payment through the date of death. Further, in the event that Mr. Goldstein’s employment is terminated by the Company without cause or he resigns for good reason, or, in the event of the termination of Mr. Goldstein’s employment due to disability or death, Mr. Goldstein’s granted but unvested restricted stock awards will vest. Mr. Goldstein would be entitled, under certain circumstances, to a payment equal to 3.82 times his then annual salary, the target LTC payment of $1,890,000 and his accrued 6% bonus in the event of the termination of his employment within eighteen months following a change of control of the Company.36 Table of Contents agreement.37 Table of Contents –- Deferred Compensation Planfirst payroll subject to the Deferred Compensation Plan was in July 2018. The deferred compensation liability as of June 30, 20192020 and December 31, 20182019 amounted to $486,961$559,917 and $298,638,$599,274, respectively, and is recorded in accounts payable, accrued expenses and other liabilities in the accompanying condensed consolidated balance sheets. The Company did not make any voluntary contributions for the six months ended June 30, 2020 and 2019.–- Subsequent Events, 2019 2020 through the date these condensed consolidated financial statements were issued for matters that required disclosure or adjustment in these condensed consolidated financial statements.KICO eliminated its personal lines and commercial umbrella quota share treaties, and annual excess of loss and catastrophe reinsurance treaties effective July 1, 2019 (see Note 6 – Property and Casualty Insurance Activity – Reinsurance)“Reinsurance”).Office Lease8, 2019,10, 2020, KICO’s A.M. Best financial strength rating was downgraded from A- (Excellent) to B++ (Good) and its long-term issuer credit rating (“Long-Term ICR”) was downgraded from “a-” to “bbb”. Concurrently, A.M. Best also downgraded the Company’s Long-Term ICR from “bbb-” to “bb”. Also downgraded was the long-term issue credit rating on the Company’s $30.0 million 5.50% senior unsecured notes due 2022 from “bbb-” to “bb”. entered into a lease agreement for an additional office facility for Cosi located in Valley Stream, NY under a non-cancelable operating lease. In addition to the base rental costs, occupancy lease agreements generally provide for rent escalations resulting from increased assessments from real estate taxes and other charges.The lease commencement date will be determined upon the completion of landlord provided construction, which the Company expects to be on or about October 1, 2019. The lease has a term of seven years and two months.This lease will be accounted for as an operating lease, whereby lease expense is recognized on a straight-line basis over the term of the lease. See Note 2 - Accounting Policies for additional information regarding the accounting for leases.The following table presents the contractual maturities of the Company’s lease liabilities under this lease:For the Year Ending December 31, Remainder of 2019 2020 2021 2022 2023 Thereafter Total undiscounted lease payments Less: present value adjustment Operating lease liability Employment AgreementsDale A. Thatcher,Victor J. Brodsky, Chief ExecutiveFinancial Officer and PresidentTreasurer of the Company and KICO, retiredChief Financial Officer, Executive Vice President and resigned his positions effective July 19, 2019 (the “Separation Date”). At such time, he also resigned his positions on the Board of Directors of each of the Company and KICO. Effective upon Mr. Thatcher’s separation from employment, the Board appointed Barry B. Goldstein, Former Chief Executive Officer and Executive Chairman of the Board of Directors to the position of Chief Executive Officer and President of each of the Company and KICO. Mr. Goldstein previously served as Chief Executive Officer and President of the Company from March 2001 through December 31, 2018, and as Chief Executive Officer and Presidenta director of KICO, from January 2012 through December 31, 2018.In connectionagreed that Mr. Brodsky’s employment with his separation from employment, each of the Company and KICO entered into an Agreementwill cease on September 30, 2020. Mr. Brodsky’s cessation of employment was a voluntary decision made by him to pursue other interests. The Company, KICO and General Release (the “Separation Agreement”) with Mr. Thatcher. PursuantBrodsky also agreed that Mr. Brodsky will serve as a consultant to the Separation Agreement, the Company and KICO shall collectively providefor the following payments and benefits to Mr. Thatcher in full satisfaction of all payments and benefits and other amounts due to him under the terms of the existing employment agreements upon his separationperiod from employment: (i) an amount equal to $381,111 (representing the amount of base salary he would have received had he remained employedOctober 1, 2020 through March 31, 2020), (ii) an2021. equal to $5,000 in full satisfaction for any bonus payments payable under the existing employment agreements, (iii) continuing group health coverage commencing on the Separation Date and ending on March 31, 2020, and (iv) continued vesting of all previously granted but unvested stock awards as of the Separation Date (Mr. Thatcher shall not be entitled to any further grantsclaims at this time but the claims will in all likelihood have a material adverse effect upon the 2020 third quarter results of stock awards after the Separation Date). In addition, the Company and KICO agreed to provide Mr. Thatcher with a severance payment of $20,000 in consideration for a release. As required by the employment agreements, Mr. Thatcher covenanted that, for a period of three years following the Separation Date, he shall not accept any operating executive role with another property and casualty insurance company.Commercial Lines of BusinessOn July 23, 2019, the Company made the decision that it will no longer underwrite Commercial Lines risks (see Note 6 Property and Casualty Insurance Activity – Commercial Lines of Business).7, 2019,5, 2020, the Company’s Board of Directors approved a quarterly dividend of $0.0625$0.04 per share payable in cash on September 13, 201915, 2020 to stockholders of record as of the close of business on August 30, 201931, 2020 (see Note 8)8 - Stockholders’ Equity).ITEM38 Table of Contents Overview and small businesses through our wholly owned subsidiary, Kingstone Insurance Company (“KICO”). KICO’s insureds are located primarily in downstate New York, consisting of New York City, and Long Island and Westchester County, although we are actively writing business in New Jersey, Rhode Island, Massachusetts, Connecticut and Pennsylvania.Massachusetts. We are licensed in the States of New York, New Jersey, Rhode Island, Connecticut, Massachusetts, Pennsylvania, Connecticut, Maine, and New Hampshire. For the three months and six months ended June 30, 2019,2020, respectively, 86.0%79.5% and 88.4%81.0% of KICO’s direct written premiums came from the New York policies.now access alternative distribution channels outside of the independent agent and broker network, through which KICO currently distributes its various products.channels. Through Cosi, we now have the opportunity to partner with name-brand carriers and access nationwide insurance agencies. See “Distribution Channels” below for a discussion of our distribution channels. Cosi receives commission revenue from KICO for the policies that it places with nationwide insurance agenciesothers and pays commissions to these agencies. Cosi retains the profit between the commission revenue received and the commission expense paid. Cosi revenue is included in other income and Cosi related expenses isare included in other operating expenses. Cosi operations isare not included in our stand-alone insurance underwriting business and, accordingly, its revenue and expenses are not included in the calculation of our combined ratio as described below. 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.39 Table of Contents active product lines include the following:lines:six month moratorium on new commercial lines and new commercial umbrella submissions.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 all commercial lines andor commercial umbrella risks. In force policies for these lines will beare being non-renewed at the end of their current annual terms. For the three months and six months ended June 30, 2019,2020, these policies represent approximately 12%3.0% and 4.6%, respectively of net premiums earned and claims from this lineas of business represent 43%June 30, 2020, 41.7% of loss and loss adjustment expenseLAE reserves net of reinsurance recoverables. See discussion below on Outlook and Additionalunder “Additional Financial Informationloss adjustment expenses (“LAE”)LAE incurred to net premiums earned.40 Table of Contents Cosi.Cosi (“Alternative Distribution”). The goal of this program is to increaseenhance our personal lines historical distribution channel from only independent broker and agent networks (“Independent”) to include nationally recognized name-brand carriers along with nationwide call center and digital insurance agencies. While still in its early stages of development, the resultsimpact of this initiative can best be measured by the amount of new premiums written compared to total premiums written, which includes renewals from our historical independent agency network. The table below shows new business and total businesspremiums written by distribution channel for our homeowners and dwelling fire components of personal lines. Direct Written Pemiums New Business Core Independent Expansion Independent Alternative Distribution through Cosi Total New and Renewal Business Core Independent Expansion Independent Alternative Distribution through Cosi Total (Percent$ 31,282 75.5 % $ 30,746 80.9 % $ 58,427 77.1 % $ 57,281 84.2 % 8,100 19.5 % 6,272 16.5 % 13,342 17.6 % 9,492 14.0 % 2,078 5.0 % 964 2.5 % 4,057 5.4 % 1,243 1.8 % $ 41,460 100.0 % $ 37,982 100.0 % $ 75,826 100.0 % $ 68,016 100.0 % 8.3% of direct written premiums for new business5.0% and 2.5% of direct written premiums for newour homeowners and renewaldwelling fire components of personal lines. As discussed above, on July 10, 2020, KICO’s A.M. Best Financial Strength Rating was downgraded from A- (Excellent) to B++ (Good),. We believe this action will result in a material decrease in the business combined. For the six months ended June 30, 2019, Alternative Distribution made up 6.2%from Cosi, a multi-state licensed general agent that had partnered with name-brand carriers which require an A.M. Best rating of direct written premiums for new business and 1.8% of direct written premiums for new and renewal business combined.41 Table of Contents 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 impairment of investment securities, intangible assets and the valuation of stock-based compensation. See Note 2 to the condensed consolidated financial statements - “Accounting Policies” for information related to updated accounting policies.OutlookAlthough second quarter results were disappointing due to poor performance from our commercial lines business and a higher impact from weather related catastrophe events, we were pleased with our continuing year over year growth. We anticipate the continued growth of our alternate distribution channel and the launch of our Maine homeowners product during the fourth quarter of 2019, which will add to our geographically distributed footprint in the Northeast.Due to uncertainties related to the run-off of our commercial lines business as discussed above, we are withdrawing our combined ratio guidance.20192020 Compared to Six Months Ended June 30, 2018 Six months ended June 30, Direct written premiums Assumed written premiums na % Ceded written premiums Ceded to quota share treaties (1) Ceded to excess of loss treaties Ceded to catastrophe treaties Total ceded written premiums Net written premiums Change in unearned premiums Direct and assumed Ceded to quota share treaties Change in net unearned premiums Premiums earned Direct and assumed Ceded to reinsurance treaties Net premiums earned Ceding commission revenue Excluding the effect of catastrophes Effect of catastrophes Total ceding commission revenue Net investment income Net gains (losses) on investments Other income Total revenues Loss and loss adjustment expenses Direct and assumed: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (2) Total direct and assumed loss and loss adjustment expenses Ceded loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (2) Total ceded loss and loss adjustment expenses Net loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (2) Net loss and loss adjustment expenses Commission expense Other underwriting expenses Other operating expenses Depreciation and amortization Interest expense Total expenses (Loss) income before taxes Income tax (benefit) expense Net (loss) income (1)Effective July 1, 2018, we decreased$ 79,347 $ 82,310 $ (2,963 ) (3.6 ) % - - - 79,347 82,310 (2,963 ) (3.6 )% 15,600 5,963 9,637 161.6 % 947 833 114 13.7 % 11,519 8,532 2,987 35.0 % 28,066 15,328 12,738 83.1 % 51,281 66,982 (15,701 ) (23.4 ) % 5,377 (6,456 ) 11,833 % (3,080 ) 271 (3,351 ) % 2,297 (6,185 ) 8,482 % 84,724 75,854 8,870 11.7 % (31,146 ) (15,057 ) (16,089 ) 106.9 % 53,578 60,797 (7,219 ) (11.9 )% 7,311 1,953 5,358 274.3 % - - - 7,311 1,953 5,358 274.3 % 3,278 3,343 (65 ) (1.9 )% (3,746 ) 2,714 (6,460 ) (238.0 )% 1,313 696 617 88.6 % 61,734 69,503 (7,769 ) (11.2 )% 37,081 46,164 (9,083 ) (19.7 )% 2,338 7,264 (4,926 ) (67.8 )% 39,419 53,428 (14,009 ) (26.2 )% 9,592 5,859 3,733 63.7 % 628 763 (135 ) (17.7 )% 10,220 6,622 3,598 54.3 % 27,489 40,305 (12,816 ) (31.8 )% 1,710 6,501 (4,791 ) (73.7 )% 29,199 46,806 (17,607 ) (37.6 )% 15,750 14,153 1,597 11.3 % 13,087 11,552 1,535 13.3 % 2,984 2,069 915 44.2 % 1,360 1,230 130 10.6 % 913 913 - 63,294 76,723 (13,430 ) (17.5 )% (1,560 ) (7,220 ) 5,660 (78.4 ) % (724 ) (1,524 ) 800 (52.5 )% $ (836 ) $ (5,696 ) $ 4,860 (85.3 )% 42 Table of Contents 54.5 % 77.0 % (22.5 ) (29.2 )% 39.2 % 38.0 % 1.2 3.2 % 93.7 % 115.0 % (21.3 ) (18.5 )% quota share ceding rate in our personal lines quota share treaty from 20%six months ended June 30, 2020 (“Six Months 2020”) were $79,347,000 compared to 10% (the “2018 cut-off”).(2)The$82,310,000 during the six months ended June 30, 2019 (“Six Months 2019”). The decrease of $2,963,000, or 3.6%, was primarily due to an $8,580,000 decrease in premiums from our commercial lines business as result of our decision in July 2019 to no longer underwrite this line of business. Direct written premiums from our personal lines business for Six Months 2020 were $75,958,000, an increase of $7,811,000, or 11.5%, from $68,147,000 in Six Months 2019. includesthrough June 30, 2019 treaty year (“2018/2019 Treaty Year”). The following table describes the quota share reinsurance ceding rates in effect for each treaty year during Six Months 2020 and Six Months 2019 under the 2019/2020 Treaty and the 2017/2019 Treaty, respectively. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.(1) The 2018/2019 Treaty Year, covered under the 2017/2019 Treaty, expired on a run-off basis effective July 1, 2019 through June 30, 2020 (the “2019 Run-off”). The 2019/2020 Treaty was effective December 15, 2019 with a quota share reinsurance rate of 25%.
See “Reinsurance” below for changes to our personal lines quota share treaty effective December 15, 2019, and July 1, 2019 and 2018.43 Table of Contents 44 Table of Contents $ 7,161 $ 2,681 $ 4,480 167.1 % 150 (728 ) 878 - - - n/a 150 (728 ) 878 n/a $ 7,311 $ 1,953 $ 5,358 274.3 % 45 Table of Contents 46 Table of Contents 47 Table of Contents 48 Table of Contents 10.0 % 8.1 % 1.9 3.0 2.4 0.6 11.4 8.5 2.9 24.4 19.0 5.4 (13.4 ) (4.4 ) (9.0 ) (0.3 ) 1.2 (1.5 ) (13.7 ) (3.2 ) (10.5 ) (0.9 ) (1.1 ) 0.2 29.4 23.3 6.1 39.2 % 38.0 % 1.2 49 Table of Contents 50 Table of Contents $ 42,650 $ 44,821 $ (2,171 ) (4.8 )% - - - 42,650 44,821 (2,171 ) (4.8 )% 8,502 3,304 5,198 157.3 % 452 429 23 5.4 % 5,606 4,467 1,139 25.5 % 14,560 8,200 6,360 77.6 % 28,090 36,621 (8,531 ) (23.3 )% (527 ) (5,828 ) 5,301 (91.0 )% (926 ) 408 (1,334 ) % (1,453 ) (5,420 ) 3,967 (73.2 )% 42,123 38,993 3,130 8.0 % (15,486 ) (7,792 ) (7,694 ) 98.7 % 26,637 31,201 (4,564 ) (14.6 )% 3,480 675 2,805 415.6 % - - - 3,480 675 2,805 415.6 % 1,612 1,719 (107 ) (6.2 )% 2,698 679 2,019 297.3 % 683 330 353 107.0 % 35,110 34,604 506 1.5 % 15,109 19,521 (4,412 ) (22.6 )% 2,057 1,637 420 25.7 % 17,166 21,158 (3,992 ) (18.9 )% 3,808 3,287 521 15.9 % 545 199 346 173.9 % 4,353 3,486 867 24.9 % 11,301 16,234 (4,933 ) (30.4 )% 1,512 1,438 74 5.1 % 12,813 17,672 (4,859 ) (27.5 )% 7,851 7,300 551 7.5 % 6,325 5,416 909 16.8 % 1,420 1,097 323 29.4 % 673 628 45 7.2 % 456 456 - 29,539 32,569 (3,031 ) (9.3 )% 5,571 2,035 3,536 173.8 % 963 396 567 143.2 % $ 4,608 $ 1,639 $ 2,969 181.1 % Key ratios: Net loss ratio Net underwriting expense ratio Net combined ratio 51 Table of Contents 48.1 % 56.6 % (8.5 ) (15.0 )% 39.2 % 37.5 % 1.7 4.5 % 87.3 % 94.1 % (6.8 ) (7.2 )% sixthree months ended June 30, 2020 (“Three Months 2020”) were $42,650,000 compared to $44,821,000 during the three months ended June 30, 2019 (“SixThree Months 2019”) were $82,310,000 compared to $68,390,000 during the six months ended June 30, 2018 (“Six Months 2018”). The increasedecrease of $13,920,000,$2,171,000, or 20.4%4.8%, was primarily due to a $3,866,000 decrease in premiums from our commercial lines business as result of our decision in July 2019 to no longer underwrite this line of business. Direct written premiums from our personal lines business for Three Months 2020 were $41,523,000, an increase of $3,475,000, or 9.1%, from $38,048,000 in policies in-force during SixThree Months 2019 as compared to Six Months 2018. We wrote more new policies as a result of continued demand for our products2019. the markets that we serve. Policies in-force increased by 18.8% as of June 30, 2019 compared to June 30, 2018.In 2017 we started writing homeowners’homeowners policies in New JerseyJersey. Through 2019 we expanded to Rhode Island, Massachusetts and Rhode Island. We began writing homeowners policies in Massachusetts in 2018 and Connecticut in March of 2019.Connecticut. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were $9,529,000$8,760,000 in SixThree Months 20192020 compared to $3,064,000$6,297,000 in SixThree Months 2018.SixThree Months 2020 and Three Months 2019 under the 2019/2020 Treaty and Six Months 2018,the 2017/2019 Treaty, respectively. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow. Quota share reinsurance rates Personal lines 10%(1) 20%(1) (1)2017/2019 Treaty is a two-year treaty, quota share reinsurance rate was reduced to 10% effective July 1, 2018.See “Reinsurance” below for changes to our personal lines quota share treaties effective July 1, 2019, 2018 and 2017.Quota share reinsurance rates 52 Table of Contents increased $15,317,000,decreased $8,531,000, or 29.6%23.3%, to $66,982,000$28,090,000 in SixThree Months 20192020 from $51,665,000$36,621,000 in SixThree Months 2018.2019. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). The decrease in net written premiums in Three Months 2020 was attributable to the inception of the 2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share treaty. In Three Months 2020, our premiums ceded under quota share treaties increased by $5,198,000 over the comparable ceded premiums in Three Months 2019. Our personal lines business was subject to a quota share treatythe 2017/2019 Treaty under the 2018/2019 Treaty Year through June 30, 2019. Following June 30, 2019, which is nowany earned premium and associated claims for policies still in run off. A reductionforce will continue to be ceded under the 10% quota share percentage or elimination of a quota share treaty will reduce our ceded written premiums, which will result in a corresponding increase to our net written premiums.rate until such policies expire (run-off) over the next year. The increase in net written premiums2019 Run-off period is due to growth and the reductions of our personal lines quota share reinsurance rate from 20% to 10% on July 1, 2018.SixThree Months 2019,2020, our ceded excess of loss reinsurance premiums increased by $237,000$23,000 over the comparable ceded premiums for SixThree Months 2018.2019. The increase was due to an increase in premiums subject to excess of loss reinsurance.SixThree Months 2019,2020, our premiums ceded under catastrophe treaties increased by $2,012,000$1,140,000 over the comparable ceded premiums in SixThree Months 2018.2019. The increasechange was due to an increase in our catastrophe coverage andlimit purchased, an increase in premiums subject to catastrophe reinsurance partially offset by more favorabledue to continued growth of our personal lines business, and an increase in reinsurance rates in Six Monthseffective July 1, 2019. Our ceded catastrophe premiums are paid based on the total direct written premiums subject to the catastrophe reinsurance treaty.increased $13,855,000,decreased $4,564,000, or 29.5%14.6%, to $60,797,000$26,637,000 in SixThree Months 20192020 from $46,942,000$31,201,000 in SixThree Months 2018.2019. The increasedecrease was due to the increase in written premiums discussed above and our retaining more earned premiums effective July 1, 2018, as a resultinception of the reduction of2019/2020 Treaty on December 15, 2019 and the decrease in commercial lines premiums, which are not subject to a quota share reinsurance rate.53 Table of Contents The following table details the quota share provisional ceding commission rates in effect during Six Months 2019 and Six Months 2018. This table should be referred to in conjunction with the discussion for ceding commission revenue that follows. Provisional ceding commission rate on quota share treaty Personal lines 53% 53% ($ in thousands) Provisional ceding commissions earned Contingent ceding commissions earned Contingent ceding commissions earned excluding the effect of catastrophes Effect of catastrophes on ceding commissions earned Contingent ceding commissions earned Total ceding commission revenue $ 3,441 $ 1,363 $ 2,078 152.5 % 39 (688 ) 727 - - - n/a 39 (688 ) 727 n/a $ 3,480 $ 675 $ 2,805 415.6 % $1,953,000$3,480,000 in SixThree Months 20192020 compared to $3,386,000$675,000 in SixThree Months 2018.2019. The decreaseincrease of $1,433,000,$2,805,000, or 42.3%415.6%, was due to a decreasean increase in both provisional ceding commissions earned partially offset by an increase inand contingent ceding commissions earned. The reductionincrease in provisional ceding commissions occurred due to the decision to retain more of our profitable businessincrease in quota share reinsurance rates effective December 15, 2019 (see below for discussion of provisional ceding commissions earned and contingent ceding commissions earned).$1,532,000 decrease$2,078,000 increase in provisional ceding commissions earned is primarily due to the decreaseincrease in the quota share ceding rate effective July 1, 2018December 15, 2019 to 10%25%, from the 20%10% rate in effect from July 1, 2017 through June 30, 2018. Thus there were fewerin Three Months 2019. There was an increase in ceded premiums in SixThree Months 20192020 available from which to earn ceding commissions than there werecompared to Three Months 2019 due to the changes in Six Months 2018. The decrease was partially offset byquota share ceding rates and an increase in personal lines direct written premiums subject to the quota.We receivecontingenthigher upfront provisional ceding commission based on a sliding scale in relationand there is not an opportunity to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive. The amount ofearn additional contingent ceding commissions we are eligible to receive under the 2017/2019 Treaty is subject to change based on losses incurred from claims with accident dates beginning July 1, 2017.these treaties. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017.The 2017/2019 Treaty structure limits the amount of contingent ceding commissions that we can receive by setting a higher provisional commission rate than the rates received in prior years. As a result of the higher upfront provisional ceding commissions that we receive under the 2017/2019 Treaty, there is not an opportunity to earn additional contingent ceding commissions under this treaty. Under our current “net” treaty structure, catastrophe losses in excess of the $5,000,000 retention will fall outside of the quota share treaty and such losses will not have an impact on contingent ceding commissions. In Six Months 2018, catastrophe losses of $1,433,000 were ceded under our personal lines quota share treaty. These catastrophe losses resulted in the Loss Ratios for the period July 1, 2017 through June 30, 2018 (attributable to the 2017/2019 Treaty) being higher than the contractual Loss Ratio at which provisional ceding commissions were being earned. As a result, we incurred a negative adjustment or reduction to the contingent ceding commissions of $459,000 relative to what would have been earned had the catastrophe losses not occurred. Effective July 1, 2018, the provisional ceding commission rate was a fixed rate with no downward adjustment required related to Loss Ratio, accordingly, in 2019, catastrophe losses of $763,000 that were ceded under our personal lines quota share treaty did not have an effect on contingent ceding commissions. See “Reinsurance” below for changes to our personal lines quota share treaty effective July 1, 2018.Net Investment IncomeNet investment income was $3,343,000 in Six Months 2019 compared to $2,941,000 in Six Months 2018. The increase of $402,000, or 13.7%, was due to an increase in average invested assets in 2019. The average yield on invested assets was 3.64% as of June 30, 2019 compared to 3.74% as of June 30, 2018. The pre-tax equivalent yield on invested assets was 3.43% and 3.41% as of June 30, 2019 and 2018, respectively.Cash and invested assets were $212,130,000 as of June 30, 2019 compared to $186,310,000 as of June 30, 2018. The $25,820,000 increase in cash and invested assets resulted primarily from increased operating cash flows for the period after June 30, 2018.Net Gains and Losses on InvestmentsNet gains on investments were $2,714,000 in Six Months 2019 compared to a net loss of $630,000 in Six Months 2018. Unrealized gains on our equity securities and other investments in Six Months 2019 were $2,713,000, compared to an unrealized loss of $310,000 in Six Months 2018. Realized gains on sales of investments were $1,000 in Six Months 2019 compared to realized losses of $320,000 in Six Months 2018.Other IncomeOther income was $696,000 in Six Months 2019 compared to $609,000 in Six Months 2018. The increase of $87,000, or 14.3%, was primarily due to an increase in installment and other fees earned in our insurance underwriting business.Net Loss and LAENet loss and LAE was $46,806,000 in Six Months 2019 compared to $28,442,000 in Six Months 2018. The net loss ratio was 77.0% in Six Months 2019 compared to 60.6% in Six Months 2018, an increase of 16.4 percentage points.The following graphs summarize the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business:During the Six Months 2019, the loss ratio was elevated due to three factors. First, there was a higher than normal level of catastrophe loss activity, primarily related to a single large freeze event in Mid-January with a $4.3 million impact. In total, there are five PCS catastrophe events affecting KICO in 2019 with a net impact of $6.5 million, or 10.7 points on the loss ratio. This compares to a 12.2 point impact from six catastrophe events for the same period in 2018, or a 1.5 point reduction in the impact of catastrophe losses. Although catastrophe activity has had a slightly lower impact on the loss ratio in 2019, it was still well above the 10-year average impact through the first Six Months.A second major impact on the loss ratio was reserve strengthening for prior years of $6.1 million, which had a 10.0 point impact on the loss ratio. This compares to 0.5 points of prior year development in Six Months 2018, or an increase of 9.5 points in the impact of prior year loss development. During the early part of 2019 it was determined that significant case reserve strengthening was required for older liability claims, particularly from commercial lines business. This in turn led to our decision to cease writing commercial lines policies in July 2019. Of the prior year reserve strengthening through Six Months 2019, 72% is related to commercial lines liability business. This has significantly increased the ultimate loss ratio projections for commercial lines liability business in accident years 2014 and forward, and leads to the conclusion that the business is no longer profitable. Excluding commercial lines, prior year development for the Six Months 2019 was 3.1 points, compared to 2.0 points of adverse prior year development for the Six Months 2018.Finally, the underlying loss ratio excluding the impact of catastrophes and prior year development was 56.3% for the Six Months 2019, an increase of 8.4 points from the 47.9% underlying loss ratio recorded for Six Months 2018. The underlying loss ratio increased compared to Six Months 2018 due to continued increases in average claim severity for non-weather water damage property claims. In addition, the underlying loss ratio for the Six Months 2019 is affected by increased loss ratio expectations for commercial lines as a result of increases in our prior year loss ratio estimates for that business as noted above. Excluding commercial lines, the underlying loss ratio excluding the impact of catastrophes and prior year development for the Six Months 2019 was 53.1%, an increase of 6.7 points from the 46.4% underlying loss ratio recorded for the Six Months 2018. See table below under “Additional Financial Information” summarizing net loss ratios by line of business.Commission ExpenseCommission expense was $14,153,000 in Six Months 2019 or 18.7% of direct earned premiums. Commission expense was $11,817,000 in Six Months 2018 or 18.8% of direct earned premiums. The increase of $2,336,000 is primarily due to the increase in direct earned premiums for Six Months 2019 as compared to Six Months 2018.Other Underwriting ExpensesOther underwriting expenses were $11,552,000 in Six Months 2019 compared to $10,107,000 in Six Months 2018. The increase of $1,445,000, or 14.3%, was primarily due to expenses related to growth in direct written premiums. 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. The 14.3 percentage point increase of other underwriting was less than the 20.4% increase in total direct written premiums.Our largest component of other underwriting expenses is salaries and employment, which costs were $4,899,000 in Six Months 2019 compared to $4,522,000 in Six Months 2018. The increase of $377,000, or 8.3%, was less than the 20.4% increase in total direct written premiums. The increase in employment costs was due to hiring of additional staff to service our current level of business and anticipated growth in volume, as well as annual increases in salaries.Our net underwriting expense ratio in Six Months 2019 was 38.0% compared to 38.2% in Six Months 2018. The following table shows the individual components of our net underwriting expense ratio for the periods indicated: Other underwriting expenses Employment costs Underwriting fees (inspections/data services) Other expenses Total other underwriting expenses Ceding commission revenue Provisional Contingent Total ceding commission revenue Other income Commission expense Net underwriting expense ratio The 2.3 percentage point decrease in our other underwriting expense ratio was driven by a decline of 1.5 percentage points from the impact of employment costs.The overall 4.6 percentage point increase in provisional ceding commissions was driven entirely by the change in our quota share ceding rates and its impact on provisional ceding commission revenue due to the additional retention resulting from the cut-off to our quota share treaty on July 1, 2018. The components of our net underwriting expense ratio related to other underwriting expenses, other income and commissions improved in nearly all categories, resulting in an overall 0.2 percentage point decrease in the net underwriting expense ratio.Other Operating ExpensesOther operating expenses, related to the expenses of our holding company and Cosi, were $2,069,000 for Six Months 2019 compared to $1,091,000 for Six Months 2018. The increase in Six Months 2019 of $978,000, or 89.6%, was primarily due to increases in equity compensation and salaries. The increase in salary was due to the initial hiring of staff for Cosi and the increase in equity compensation was due to 2019 annual restricted stock awards to directors and executives. In addition, the increase was also due to an absence of change to accrued executive bonus compensation in Six Months 2019, compared to a decrease in Six Months 2018. Executive bonus compensation is accrued pursuant to the employment agreement effective January 1, 2017 with Barry B. Goldstein, our Executive Chairman and current Chief Executive Officer. The bonus is a one-time payment computed at the end of the three-year period ended December 31, 2019, and the amount accrued through June 30, 2019 will only be paid if the three-year computation meets the required terms of profitability.Depreciation and AmortizationDepreciation and amortization was $1,230,000 in Six Months 2019 compared to $834,000 in Six Months 2018. The increase of $396,000, or 47.5%, in depreciation and amortization was primarily due to depreciation of our new system platform for processing business being written in Expansion states and newly purchased assets used to upgrade our systems infrastructure and improvements to the Kingston, New York home office building from which we operate.Interest ExpenseInterest expense for Six Months 2019 was $913,000 compared to $909,000 in Six Months 2018. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017. Income Tax ExpenseIncome tax benefit in Six Months 2019 was $1,524,000, which resulted in an effective tax rate of 21.1%. Income tax expense in Six Months 2018 was $9,000, which resulted in an effective tax rate of 18.8%. Loss before taxes was $7,220,000 in Six Months 2019 compared to income before taxes of $48,000 in Six Months 2018.Net LossNet loss was $5,696,000 in Six Months 2019 compared to net income of $39,000 in Six Months 2018. The increase in net loss of $5,735,000, was due to the circumstances described above, which caused the increase in our net loss ratio, decrease in ceding commission revenue, increases in other underwriting and operating expenses, and depreciation and amortization, partially offset by the increase in our net premiums earned, net investment income, and net gains on investments.Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated: ($ in thousands) Direct written premiums Assumed written premiums Ceded written premiums Ceded to quota share treaties Ceded to excess of loss treaties Ceded to catastrophe treaties Total ceded written premiums Net written premiums Change in unearned premiums Direct and assumed Ceded to quota share treaties Change in net unearned premiums Premiums earned Direct and assumed Ceded to reinsurance treaties Net premiums earned Ceding commission revenue Excluding the effect of catastrophes Effect of catastrophes Total ceding commission revenue Net investment income Net gains (losses) on investments Other income Total revenues Loss and loss adjustment expenses Direct and assumed: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Total direct and assumed loss and loss adjustment expenses Ceded loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Total ceded loss and loss adjustment expenses Net loss and loss adjustment expenses: Loss and loss adjustment expenses excluding the effect of catastrophes Losses from catastrophes (1) Net loss and loss adjustment expenses Commission expense Other underwriting expenses Other operating expenses Depreciation and amortization Interest expense Total expenses Income before taxes Income tax expense Net income The three months ended June 30, 2019 includes 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. Key ratios: Net loss ratio Net underwriting expense ratio Net combined ratio Direct Written PremiumsDirect written premiums during the three months ended June 30, 2019 (“Three Months 2019”) were $44,821,000 compared to $36,864,000 during the three months ended June 30, 2018 (“Three Months 2018”). The increase of $7,957,000, or 21.6%, was primarily due to an increase in policies in-force during 2019 as compared to 2018 driven by continued growth in new business. We wrote more new policies as a result of continued demand for our products in the markets that we serve. Policies in-force increased by 18.8% as of June 30, 2019 compared to June 30, 2018.In 2017, we started writing homeowners’ policies in New Jersey and Rhode Island. We began writing homeowners policies in Massachusetts in 2018 and Connecticut in March of 2019. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were $6,297,000 in Three Months 2019, compared to $2,167,000 in Three Months 2018.Net Written Premiums and Net Premiums EarnedThe following table describes the quota share reinsurance ceding rates in effect during Three Months 2019 and Three Months 2018, respectively. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow. Quota share reinsurance rates Personal lines 10%(1) 20%(1) (1)2017/2019 Treaty is a two-year treaty, quota share reinsurance rate was reduced to 10% effective July 1, 2018.See “Reinsurance” below for changes to our personal linesyears’ quota share treaties, effective July 1, 2019, 2018 and 2017.Net written premiums increased $8,656,000, or 31.0%, to $36,621,000 in Three Months 2019 from $27,965,000 in Three Months 2018. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). Our personal lines business was currently subject to a quota share treaty through June 30, 2019, now in run off. A reduction to the quota share percentage or elimination of a quota share treaty will reduce our ceded written premiums, which will result in a corresponding increase to our net written premiums. The increase in net written premiums is due to growth and the reduction of our personal lines quota share reinsurance rate from 20% to 10% on July 1, 2018.Excess of loss reinsurance treatiesAn increase in written premiums will, to a lesser extent, increase the premiums ceded under our excess of loss treaties. In Three Months 2019, our ceded excess of loss reinsurance premiums increased by $122,000 over the comparable ceded premiums for Three Months 2018. The increase is due to an increase in premiums subject to excess of loss reinsurance.Catastrophe reinsurance treatiesMost of the premiums written under our personal lines are also subject to our catastrophe treaty. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaty provided that reinsurance rates are stable or are increasing. In Three Months 2019, our premiums ceded under catastrophe treaties increased by $1,079,000 over the comparable ceded premiums for Three Months 2018. The increase was due to an increase in our catastrophe coverage and an increase in premiums subject to catastrophe reinsurance, partially offset by more favorable reinsurance rates in Three Months 2019. Our ceded catastrophe premiums are paid based on the total direct written premiums subject to the catastrophe reinsurance treaty.Net premiums earnedNet premiums earned increased $7,096,000, or 29.4 %, to $31,201,000 in Three Months 2019 from $24,105,000 in Three Months 2018. The increase was due to the increase in written premiums discussed above and our retaining more earned premiums effective July 1, 2018, as a result of the reduction of the quota share percentage in our personal lines quota share treaty.Ceding Commission RevenueThe following table details the quota share provisional ceding commission rates in effect during Three Months 2019 and Three Months 2018. This table should be referred to in conjunction with the discussion for ceding commission revenue that follows. Provisional ceding commission rate on quota share treaty Personal lines 53% 53% The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated: ($ in thousands) Provisional ceding commissions earned Contingent ceding commissions earned Contingent ceding commissions earned excluding the effect of catastrophes Effect of catastrophes on ceding commissions earned Contingent ceding commissions earned Total ceding commission revenue Ceding commission revenue was $675,000 in Three Months 2019 compared to $1,691,000 in Three Months 2018. The decrease of $1,016,000, or 60.1%, was due to a decrease in provisional ceding commissions earned as well as a decrease in contingent ceding commissions earned. The reduction in provisional ceding commissions occurred due to us making the decision to retain more of our profitable business (see below for discussion of provisional ceding commissions earned and contingent ceding commissions earned).Provisional Ceding Commissions EarnedWe receive a provisional ceding commission based on ceded written premiums. The $783,000 decrease in provisional ceding commissions earned is primarily due to the decrease in the quota share ceding rate effective July 1, 2018 to 10%, from the 20% rate in effect from July 1, 2017 through June 30, 2018. Thus there were fewer ceded premiums in Three Months 2019 available to earn ceding commissions than there were in Three Months 2018. The decrease was partially offset by an increase in personal lines direct written premiums subject to the quota.Contingent Ceding Commissions EarnedWe receivewe received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive. The amount of contingent ceding commissions we are eligible to receive under the 2017/2019 Treaty is subject to change based on losses incurred from claims with accident dates beginning July 1, 2017. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017.The 2017/2019 Treaty structure limits the amount of contingent ceding commissions that we can receive by setting a higher provisional commission rate than the rates received in prior years. As a result of the higher upfront provisional ceding commissions that we receive under the 2017/2019 Treaty, there is not an opportunity to earn additional contingent ceding commissions under this treaty. Under our current “net” treaty structure, catastrophe losses in excess of the $5,000,000 retention will fall outside of the quota share treaty and such losses will not have an impact on contingent ceding commissions. In 2018, catastrophe losses of $1,433,000 were ceded under our personal lines quota share treaty. These catastrophe losses resulted in the Loss Ratios for the period July 1, 2017 through June 30, 2018 (attributable to the 2017/2019 Treaty) being higher than the contractual Loss Ratio at which provisional ceding commissions were being earned. As a result, we incurred a negative adjustment or reduction to the contingent ceding commissions of $125,000 relative to what would have been earned had the catastrophe losses not occurred. Effective July 1, 2018, the provisional ceding commission rate was a fixed rate with no downward adjustment required related to Loss Ratio, accordingly, in 2019, catastrophe losses of $763,000 that were ceded under our personal lines quota share treaty did not have an effect on contingent ceding commissions. See “Reinsurance” below for changes to our personal lines quota share treaty effective July 1, 2019, 2018 and 2017.54 Table of Contents compared to $1,557,000 in Three Months 2018. The increasea decrease of $162,000, $107,000, or 10.4%, was due to an increase in average invested assets in Three Months 2019.6.2%. The average yield on invested assets was 3.53% as of June 30, 2020 compared to 3.64% as of June 30, 2019 compared to 3.74% as of June 30, 2018.2019. The pre-tax equivalent yield on invested assets was 3.43%3.09% and 3.41%3.43% as of June 30, 2020 and 2019, and 2018, respectively.2019, compared to $186,310,000 as of June 30, 2018.2019. The $25,820,000$6,608,000 increase in cash and invested assets resultedwas primarily from increasedattributable to an increase in operating cash flows for the periodperiods after June 30, 2018.2019 compared to a net loss of $107,000 in Three Months 2018.2019. Unrealized gainslosses on our equity securities and other investments in Three Months 20192020 were $628,000,$2,732,000, compared to an unrealized lossgains of $30,000$628,000 in Three Months 2018.2019. Realized gainslosses on sales of investments waswere $35,000 in Three Months 2020 compared to $50,000 in Three Months 2019 compared to realized losses of $76,0002019.2018.Other IncomeOther income was2020 compared to $330,000 in Three Months 2019 compared to $300,000 in Three Months 2018.2019. The increase of $30,000,$353,000, or 10.0%107.0%, was primarily due to an increase in installment and other fees earned in our insurance underwriting business.2019 compared to $11,176,000 in Three Months 2018.2019. The net loss ratio was 48.1% in Three Months 2020 compared to 56.6% in Three Months 2019, compared to 46.4% in Three Months 2018, an increaseimprovement of 10.28.5 percentage points.55 Table of Contents (Components2019,2020, the net loss ratio increased compared toimproved 8.5 points, from 56.6% in Three Months 2018 for several reasons. First,2019 to 48.1%. The loss ratio improved due to decreased claim frequency affecting both personal lines and auto physical damage, as well as a continued evaluation of reserve levels resultedreduction in an additional $1.6 millionthe impact of prior year development in the quarter, impacting the quarterly loss ratiodevelopment. This was partially offset by 5.0 points. This compared to 1.4 points of unfavorable prior year loss development in Three Months 2018, or an increase in the impact of catastrophe losses for the quarter ended June 30, 2020. development of 3.6 points. Prior yearloss development. The favorable loss development for the quarterThree Months 2020 compares to 5.0 points of unfavorable impact in Three Months 2019, which was primarily related to additional case reserve strengthening on olderadverse loss development from commercial lines liability claims, impacting our assessment of ultimate loss ratios for that line. Excluding commercial lines, thebusiness, now in runoff. The impact of prior year development was 5.2 points more favorable in Three Months 2020 compared to the prior year period. 56 Table of Contents was 1.8or an increase in impact from catastrophe events of 1.1 points compared to 2.5 points ofthe prior year development in Three months 2018, or a decrease in the impact of prior year development of 0.7 points. In addition to the impact from prior year development, there was a 4.6 point impact from catastrophes recorded during Three Months 2019, compared to a 0.8 point impact for Three Months 2018, or a 3.8 point increase in the impact of catastrophes. period. catastrophe impact for Three Months 2019 was unusually high for a Second Quarter, and was mostly driven by a strong wind event on the last day of June affecting a small area across central Long Island where we have significant personal lines market share. This event resulted in over 150 reported claims and estimated net ultimate losses of $836,000. Finally, the underlying loss ratio (loss ratio excluding the impact of catastrophes and prior year developmentdevelopment) was 47.1% in42.6% for Three Months 2019, compared to 44.2% in Three Months 2018, an increase2020, a decrease of 2.9 points. The4.5 points from the 47.1% underlying loss ratio increasedrecorded for Three Months 2019. The improvement was primarily due to reduced core claim frequency in personal lines, and well as a large reduction in claims frequency in the significantly higher commercial lines loss ratio expectation for the current accident year resulting from prior year reserve strengthening noted above.Auto Physical Damage line. Excluding commercial lines, the underlying loss ratio excluding the impact of catastrophes and prior year development wasimproved 1.3 points, from 43.5% infor Three Months 2019 compared to 46.8% in42.2% for Three Months 2018, or an improvement of 3.3 points. 2020. $7,300,000$7,851,000 in Three Months 2019 2020 or 18.7%18.6% of direct earned premiums. Commission expense was $6,017,000$7,300,000 in Three Months 20182019 or 18.6%18.7% of direct earned premiums. The increase of $1,283,000$551,000 is primarily due to the increase in direct earned premiums infor Three Months 2019 2020 as compared to Three Months 2018.2019 compared to $5,076,000 in Three Months 2018.2019. The increase of $340,000,$909,000, or 6.7%16.8%, was primarily due to expenses related to growth in personal lines direct written premiums. Expenses directly related to the increase in personal lines direct written premiums primarily consist of underwriting expenses, software usage fees, and state premium taxes. Expenses indirectly related to the increase in personal lines direct written premiums primarily consist of salaries along with related other employment costs. The 6.7 percentage point increaselessmore than the 21.6%9.1% increase in totalpersonal lines direct written premiums.57 Table of Contents 20192020 was 37.5%39.2% compared to 37.8%37.5% in Three Months 2018.2019. The following table shows the individual components of our net underwriting expense ratio for the periods indicated: Other underwriting expenses Employment costs Underwriting fees (inspections/data services) Other expenses Total other underwriting expenses Ceding commission revenue Provisional Contingent Total ceding commission revenue Other income Commission expense Net underwriting expense ratio The 3.6 percentage point decrease in our other underwriting expense ratio was driven by a decline of 2.2 percentage points from the impact of employment costs.June 30, 9.8 % 7.5 2.3 2.9 2.4 0.5 11.0 7.5 3.5 23.7 17.4 6.3 (12.9 ) (4.4 ) (8.5 ) (0.1 ) 2.2 (2.3 ) (13.0 ) (2.2 ) (10.8 ) (1.0 ) (1.1 ) 0.1 29.5 23.4 6.1 39.2 % 37.5 1.7 4.58.5 percentage point increase in the benefit from provisional ceding commissions was driven entirely by the change in our quota share ceding rates and its impact on provisional ceding commission revenue due to less retention beginning with the additional retentioninception of the 2019/2020 Treaty on December 15, 2019, resulting from the cut-off to our quota share treaty on July 1, 2018.in an increase in provisional ceding commissions. The components of our net underwriting expense ratio related to other underwriting expenses, other income and commissions improvedincreased in nearly all categories due to less retention beginning with the inception of 2019/2020 Treaty on December 15, 2019, resulting in an overall 0.31.7 percentage point decreaseincrease in the net underwriting expense ratio.2019 compared to $844,000 for Three Months 2018.2019. The increase in Three Months 20192020 of 253,000,$323,000, or 30.0%29.4%, as compared to Three Months 2019 was primarily due to increases in equity compensation, and salaries. The increase in salary was due to the initial hiring of staff forcommissions incurred by Cosi and theprofessional fees. The increase in equity compensation was due to 2019an annual restricted stock awards to directors and executives. The increase in salaries and equity compensation was partially offset by a decrease in accrued executive bonus compensation. Executive bonus compensation is accruedaward pursuant to the employment agreement effective January 1, 2017 with Barry B. Goldstein, our Executive Chairman and current Chief Executive Officer. The bonus is a one-time payment computed at the end of the three-year period ended December 31, 2019, and the amount accrued through June 30, 2019 will only be paid if the three-year computation meets the required terms of profitability.58 Table of Contents 2019 compared to $424,000 in Three Months 2018.2019. The increase of $204,000,$45,000, or 48.1%7.2%, in depreciation and amortization was primarily due to depreciation of our new systemsystems platform for processinghandling business being written in Expansion states. The increase was also impacted bystates, newly purchased assets used to upgrade our systems infrastructure and improvements to the Kingston, New York home office building from which we operate.inwas $456,000 for both Three Months 2019 was $456,0002020 and $452,000 in Three Months 2018.2019. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017. . Income tax expense in Three Months 2018 was $800,000, which resulted in an effective tax rate of 22.5%. Income before taxes was $5,571,000 in Three Months 2020 compared to $2,035,000 in Three Months 2019. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2019 NOL’s. We will elect on our 2019 federal income tax return to carry back the 2019 NOL of $7,222,000 to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019.before taxes of $3,557,000was $4,608,000 in Three Months 2018.Net IncomeNet income was $1,639,000 in Three Months 20192020 compared to net income of $2,757,000$1,639,000 in Three Months 2018.2019. The decreaseincrease in net income of $1,118,000, or 40.6%,$2,969,000 was due to the circumstances described above, which caused the increasedecrease in our net loss ratio, decreaseincrease in ceding commission revenue, increases in net gains on investments, and other underwriting expenses, depreciation and amortization and interest expense,income, partially offset by the increasedecrease in our net premiums earned, net investment incomeother underwriting and gains on investments. Gross premiums written: Personal lines Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total gross premiums written Net premiums written: Personal lines(3) Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net premiums written Net premiums earned: Personal lines(3) Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net premiums earned Net loss and loss adjustment expenses(4): Personal lines Livery physical damage Other(1) Unallocated loss adjustment expenses Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total net loss and loss adjustment expenses Net loss ratio(4): Personal lines Livery physical damage Other(1) Total without commercial lines Commercial lines (in run-off effective July 2019)(2) Total (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, the Company decided that it will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.(3)See discussions above with regard to “Net Written Premiums and Net Premiums Earned”, as to changes in quota share ceding rates, effective July 1, 2018 and 2017.(4)See discussions above with regard to “Net Loss and LAE”, as to catastrophe losses in 2019 and 2018.59 Table of Contents $ 41,522,768 $ 38,047,987 $ 75,957,604 $ 68,146,956 1,106,405 2,878,749 3,420,806 5,608,835 54,876 61,806 129,731 134,877 42,684,049 40,988,542 79,508,141 73,890,668 (33,572 ) 3,832,848 (160,735 ) 8,419,236 $ 42,650,477 $ 44,821,390 $ 79,347,406 $ 82,309,904 $ 27,103,665 $ 30,340,230 $ 48,315,146 $ 53,844,093 1,106,405 2,878,749 3,420,806 5,608,835 42,579 45,984 101,158 112,279 28,252,649 33,264,963 51,837,110 59,565,207 (162,170 ) 3,346,540 (555,957 ) 7,406,901 $ 28,090,479 $ 36,611,503 $ 51,281,153 $ 66,972,108 $ 23,614,240 $ 24,828,974 $ 46,213,874 $ 48,249,848 2,182,438 2,620,857 4,789,017 5,138,539 48,999 59,404 99,148 117,421 25,845,677 27,509,235 51,102,039 53,505,808 791,179 3,692,044 2,476,267 7,291,360 $ 26,636,856 $ 31,201,279 $ 53,578,306 $ 60,797,168 $ 10,639,057 $ 11,874,563 $ 23,153,625 $ 32,277,107 369,120 1,203,457 1,149,690 2,420,760 (72,436 ) 176,091 (23,639 ) 326,565 1,242,516 651,142 2,012,328 1,345,792 12,178,257 13,905,253 26,292,004 36,370,224 635,374 3,767,085 2,907,448 10,436,308 $ 12,813,631 $ 17,672,338 $ 29,199,452 $ 46,806,532 45.1 % 47.8 % 50.1 % 66.9 % 16.9 % 45.9 % 24.0 % 47.1 % -147.8 % 296.4 % -23.8 % 278.1 % 47.1 % 50.5 % 51.5 % 68.0 % 80.3 % 102.0 % 117.4 % 143.1 % 48.1 % 56.6 % 54.5 % 77.0 % 60 Table of Contents follows: Net premiums earned Ceding commission revenue Net investment income Net gains (losses) on investments Other income Total revenues Loss and loss adjustment expenses Commission expense Other underwriting expenses Depreciation and amortization Total expenses Income from operations Income tax expense (benefit) Net income (loss) Key Measures: Net loss ratio Net underwriting expense ratio Net combined ratio Acquisition costs and other underwriting expenses Less: Ceding commission revenue Less: Other income Net underwriting expenses Net premiums earned Net Underwriting Expense Ratio $ 26,636,856 $ 31,201,279 $ 53,578,306 $ 60,797,168 3,480,214 675,695 7,311,313 1,953,378 1,611,837 1,697,492 3,277,230 3,297,424 2,655,541 663,586 (3,653,643 ) 2,657,149 261,145 336,854 506,119 651,592 34,645,593 34,574,906 61,019,325 69,356,711 12,813,631 17,672,308 29,199,452 46,806,532 7,850,607 7,299,173 15,749,798 14,152,589 6,325,472 5,416,449 13,087,264 11,552,440 639,968 603,690 1,293,870 1,182,043 27,629,678 30,991,620 59,330,384 73,693,604 7,015,915 3,583,286 1,688,941 (4,336,893 ) 1,387,003 745,041 179,034 (957,930 ) $ 5,628,912 $ 2,838,245 $ 1,509,907 $ (3,378,963 ) 48.1 % 56.6 % 54.5 % 77.0 % 39.2 % 37.5 % 39.2 % 38.0 % 87.3 % 94.1 % 93.7 % 115.0 % $ 14,176,079 $ 12,715,622 $ 28,837,062 $ 25,705,029 (3,480,214 ) (675,695 ) (7,311,313 ) (1,953,378 ) (261,145 ) (336,854 ) (506,119 ) (651,592 ) $ 10,434,720 $ 11,703,073 $ 21,019,630 $ 23,100,059 $ 26,636,856 $ 31,201,279 $ 53,578,306 $ 60,797,168 39.2 % 37.5 % 39.2 % 38.0 % 61 Table of Contents Six months ended June 30, 2019 Written premiums Change in unearned premiums Earned premiums the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Six months ended June 30, 2018 Written premiums Change in unearned premiums Earned premiums the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Three months ended June 30, 2019 Written premiums Change in unearned premiums Earned premiums the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio Three months ended June 30, 2018 Written premiums Change in unearned premiums Earned premiums the effect of catastrophes Catastrophe loss Loss and loss adjustment expenses Loss ratio excluding the effect of catastrophes Catastrophe loss Loss ratio $ 79,347,406 $ - $ (28,066,253 ) $ 51,281,153 5,376,958 - (3,079,805 ) 2,297,153 $ 84,724,364 $ - $ (31,146,058 ) $ 53,578,306 $ 37,080,936 $ - $ (9,591,600 ) $ 27,489,336 2,337,948 - (627,832 ) 1,710,116 $ 39,418,884 $ - $ (10,219,432 ) $ 29,199,452 43.8 % n/a 30.8 % 51.3 % 2.8 % n/a 2.0 % 3.2 % 46.6 % n/a 32.8 % 54.5 % $ 82,309,827 $ 77 $ (15,327,796 ) $ 66,982,108 (6,456,216 ) 202 271,074 (6,184,940 ) $ 75,853,611 $ 279 $ (15,056,722 ) $ 60,797,168 $ 46,166,574 $ (2,081 ) $ (5,858,517 ) $ 40,305,976 7,263,727 - (763,171 ) 6,500,556 $ 53,430,301 $ (2,081 ) $ (6,621,688 ) $ 46,806,532 60.9 % -745.9 % 38.9 % 66.3 % 9.6 % 0.0 % 5.0 % 10.7 % 70.4 % -745.9 % 44.0 % 77.0 % $ 42,650,477 $ - $ (14,559,998 ) $ 28,090,479 (527,742 ) - (925,881 ) (1,453,623 ) $ 42,122,735 $ - $ (15,485,879 ) $ 26,636,856 $ 15,109,585 $ - $ (3,807,610 ) $ 11,301,975 2,056,580 - (544,924 ) 1,511,656 $ 17,166,165 $ - $ (4,352,534 ) $ 12,813,631 35.9 % n/a 24.6 % 42.4 % 4.9 % n/a 3.4 % 5.7 % 40.8 % n/a 28.1 % 48.1 % $ 44,821,279 $ 111 $ (8,199,887 ) $ 36,621,503 (5,828,149 ) 7 407,918 (5,420,224 ) $ 38,993,130 $ 118 $ (7,791,969 ) $ 31,201,279 $ 19,520,797 $ 921 $ (3,286,770 ) $ 16,234,948 1,636,384 - (199,024 ) 1,437,360 $ 21,157,181 $ 921 $ (3,485,794 ) $ 17,672,308 50.1 % 780.5 % 42.2 % 52.0 % 4.1 % 0.0 % 2.6 % 4.6 % 54.3 % 780.5 % 44.7 % 56.6 % 62 Table of Contents Net premiums earned Ceding commission revenue Other income Loss and loss adjustment expenses (1) Commission expense Other underwriting expenses Total acquistion costs and other underwriting expenses Underwriting income Key Measures: Net loss ratio excluding the effect of catastrophes Effect of catastrophe loss on net loss ratio (1) Net loss ratio Net underwriting expense ratio excluding the effect of catastrophes Effect of catastrophe loss on net underwriting expense ratio (2) Net underwriting expense ratio Net combined ratio excluding the effect of catastrophes Effect of catastrophe loss on net combined ratio (1) (2) Net combined ratio Acquisition costs and other underwriting expenses Less: Ceding commission revenue (2) Less: Other income Net earned premium Net Underwriting Expense Ratio $ 26,636,856 $ 31,201,279 $ 53,578,306 $ 60,797,168 3,480,214 675,695 7,311,313 1,953,378 261,145 336,854 506,119 651,592 12,813,631 17,672,308 29,199,452 46,806,532 7,850,607 7,299,173 15,749,798 14,152,589 6,325,472 5,416,449 13,087,264 11,552,440 14,176,079 12,715,622 28,837,062 25,705,029 $ 3,388,505 $ 1,825,898 $ 3,359,224 $ (9,109,423 ) 42.4 % 52.0 % 51.3 % 66.3 % 5.7 % 4.6 % 3.2 % 10.7 % 48.1 % 56.6 % 54.5 % 77.0 % 39.2 % 37.5 % 39.2 % 38.0 % 0.0 % 0.0 % 0.0 % 0.0 % 39.2 % 37.5 % 39.2 % 38.0 % 81.6 % 89.5 % 90.5 % 104.3 % 5.7 % 4.6 % 3.2 % 10.7 % 87.3 % 94.1 % 93.7 % 115.0 % $ 14,176,079 $ 12,715,622 $ 28,837,062 $ 25,705,029 (3,480,214 ) (675,695 ) (7,311,313 ) (1,953,378 ) (261,145 ) (336,854 ) (506,119 ) (651,592 ) $ 10,434,720 $ 11,703,073 $ 21,019,630 $ 23,100,059 $ 26,636,856 $ 31,201,279 $ 53,578,306 $ 60,797,168 39.2 % 37.5 % 39.2 % 38.0 % 20192020 and 2018,2019, includes the sum of net catastrophe losses and loss adjustment expenses of $1,437,360$1,511,656 and $183,547,$1,437,360, respectively. For the six months ended June 30, 20192020 and 2018,2019, includes the sum of net catastrophe losses and loss adjustment expenses of $1,710,116 and $6,500,556, and $5,730,397, respectively.(2)For the three months ended June 30, 2018, the effect of catastrophe loss on our net underwriting expense ratio includes the effect of reduced contingent ceding commission revenue by $124,929 and does not include the indirect effects of a $135,674 decrease in other underwriting expenses. For the six months ended June 30, 2018, the effect of catastrophe loss on our net underwriting expense ratio includes the effect of reduced contingent ceding commission revenue by $459,068 and does not include the indirect effects of a $164,931 decrease in other underwriting expenses.63 Table of Contents 20192020 and December 31, 2018: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total fixed-maturity securities (1)In 2017, KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY"). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHBLNY credit line. As of June 30, 2019, the estimated fair value of the eligible investments was approximately $5,354,000. KICO will retain all rights regarding all securities if pledged as collateral. As of June 30, 2019, there was no outstanding balance on the FHLBNY credit line. U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities (1) Total fixed-maturity securities (1) In 2017, KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its relationship with the Federal Home Loan Bank of New York ("FHLBNY"). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from FHBLNY. As of December 31, 2018, the estimated fair value of the eligible investments was $5,116,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2018, there was no outstanding balance on the FHLBNY credit line.$ 3,032,168 $ 54,542 $ - $ - $ 3,086,710 1.9 % 8,577,207 423,179 - - 9,000,386 5.4 % 121,977,355 10,145,949 (117,056 ) - 132,006,248 79.8 % 21,639,537 256,784 (180,701 ) (342,476 ) 21,373,144 12.9 % $ 155,226,267 $ 10,880,454 $ (297,757 ) $ (342,476 ) $ 165,466,488 100.0 % $ 7,037,856 $ 23,244 $ - $ - $ 7,061,100 4.2 % 9,151,293 181,835 (11,316 ) - 9,321,812 5.5 % 119,874,573 5,777,624 (16,685 ) (13,473 ) 125,622,039 74.7 % 26,138,633 437,841 (68,793 ) (276,451 ) 26,231,230 15.6 % $ 162,202,355 $ 6,420,544 $ (96,794 ) $ (289,924 ) $ 168,236,181 100.0 % 64 Table of Contents ofon, investments in equity securities as of June 30, 20192020 and December 31, 2018: Equity Securities: Preferred stocks Common stocks and exchange traded mutual funds Total Equity Securities: Preferred stocks Common stocks and exchange traded mutual funds Total $ 9,023,896 $ 88,910 $ (464,826 ) $ 8,647,980 38.1 % 15,540,180 533,364 (2,015,815 ) 14,057,729 61.9 % $ 24,564,076 $ 622,274 $ (2,480,641 ) $ 22,705,709 100.0 % $ 8,374,424 $ 339,257 $ (11,794 ) $ 8,701,887 35.3 % 14,250,244 1,982,878 (273,627 ) 15,959,495 64.7 % $ 22,624,668 $ 2,322,135 $ (285,421 ) $ 24,661,382 100.0 % Pursuant to ASC 820 “Fair Value Measurement,” an entity is permitted, as a practical expedient, to estimate the fair value of an investment within the scope of ASC 820 using the net asset value (“NAV”) per share (or its equivalent) of the investment.and losses ofon, our other investments as of June 30, 20192020 and December 31, 2018: Other Investments: Hedge fund Total $ 1,999,381 $ 542,939 $ 2,542,320 $ 1,999,381 $ 585,532 $ 2,584,913 $ 1,999,381 $ 542,939 $ 2,542,320 $ 1,999,381 $ 585,532 $ 2,584,913 65 Table of Contents ofon, investments in held-to-maturity securities as of June 30, 20192020 and December 31, 2018: U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total U.S. Treasury securities Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Total $ 729,572 $ 162,616 $ - $ - $ 892,188 10.7 % 998,527 59,493 - - 1,058,020 12.7 % 6,142,275 280,297 (50,324 ) - 6,372,248 76.6 % $ 7,870,374 $ 502,406 $ (50,324 ) $ - $ 8,322,456 100.0 % $ 729,550 $ 151,002 $ - $ - $ 880,552 21.3 % 998,619 51,021 - - 1,049,640 25.4 % 2,097,783 97,627 (835 ) - 2,194,575 53.3 % $ 3,825,952 $ 299,650 $ (835 ) $ - $ 4,124,767 100.0 % 66 Table of Contents 20192020 and December 31, 2018 2019 is shown below: Less than one year One to five years Five to ten years More than 10 years Total $ 500,000 $ 495,630 $ 500,000 $ 499,165 2,099,913 2,264,353 2,099,268 2,215,640 1,994,445 2,184,944 620,134 655,923 3,276,016 3,377,529 606,550 754,039 $ 7,870,374 $ 8,322,456 $ 3,825,952 $ 4,124,767 20192020 and December 31, 20182019 as rated by Standard & Poor’s (or, if unavailable from Standard & Poor’s, then Moody’s or Fitch): Rating A A C D $ 3,086,710 1.9 % $ 7,061,100 4.2 % 1,495,753 0.9 % 1,996,676 1.2 % 6,937,577 4.2 % 8,809,480 5.2 % 27,641,146 16.7 % 34,636,236 20.6 % 100,128,865 60.5 % 89,501,460 53.2 % 1,411,305 0.9 % - 0.0 % 137,614,646 83.2 % 134,943,852 80.2 % 2,895,529 1.7 % 2,976,306 1.8 % 17,433,461 10.5 % 18,440,382 10.9 % 2,402,420 1.5 % 2,471,761 1.5 % 830,309 0.5 % 1,174,273 0.7 % 61,709 0.0 % 86,461 0.1 % 17,230 0.0 % 17,813 0.0 % 378,628 0.2 % 215,015 0.1 % 745,846 0.5 % 849,218 0.5 % 24,765,132 14.9 % 26,231,229 15.6 % $ 165,466,488 100.0 % $ 168,236,181 100.0 % 67 Table of Contents 20192020 and December 31, 2018: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds Industrial and miscellaneous Residential mortgage and other asset backed securities Total 2.66 % 2.18 % 3.14 % 3.26 % 3.49 % 3.73 % 2.29 % 2.01 % 3.30 % 3.37 % 20192020 and December 31, 2018: Weighted average effective maturity Weighted average final maturity Effective duration 5.7 4.8 6.9 6.3 4.2 4.3 As disclosed in Note 4 to the condensed consolidated financial statements, with respect to “Fair Value Measurements,” we define fairasis the price that would be received to sell an asset or paid to transfer a liability in a transaction involving identical or comparable assets or liabilities between market participants (an “exit price”). The fair value hierarchy distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities (“Level 2”), and unobservable inputs, including the reporting entity’s estimates of the assumption that market participants would use, having the lowest priority (“Level 3”). As of June 30, 20192020 and December 31, 2018, 84%2019, 83% and 81%80%, respectively, of the investment portfolio recorded at fair value was priced based upon quoted market prices.68 Table of Contents 20192020 and December 31, 2018: Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities Fixed-Maturity Securities: U.S. Treasury securities and obligations of U.S. government corporations and agencies Political subdivisions of States, Territories and Possessions Corporate and other bonds industrial and miscellaneous Residential mortgage and other asset backed securities Total fixed-maturity securities $ - $ - - $ - $ - - $ - $ - - - - - - - - - 4,839,822 (117,056 ) 5 - - - 4,839,822 (117,056 ) 7,060,988 (180,701 ) 9 10,639,265 (342,476 ) 16 17,700,253 (523,177 ) $ 11,900,810 $ (297,757 ) 14 $ 10,639,265 $ (342,476 ) 16 $ 22,540,075 $ (640,233 ) 69 Table of Contents $ - $ - - $ - $ - - $ - $ - 3,067,428 (11,316 ) 3 - - - 3,067,428 (11,316 ) 3,730,478 (16,685 ) 7 1,300,915 (13,473 ) 3 5,031,393 (30,158 ) 5,862,636 (68,793 ) 5 13,534,768 (276,451 ) 21 19,397,404 (345,244 ) $ 12,660,542 $ (96,794 ) 15 $ 14,835,683 $ (289,924 ) 24 $ 27,496,225 $ (386,718 ) 70 Table of Contents 4930 securities at June 30, 20192020 that accounted for the gross unrealized loss of our fixed-maturity securities available-for-sale, none of which were deemed by us to be other than temporarily impaired. There were 15639 securities at December 31, 20182019 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. Significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of fair value to our cost basis.2019,2020, the primary source of cash flow for our holding company was the dividends received from KICO, subject to statutory restrictions. For the six months ended June 30, 2019,2020, KICO paid dividends of $4,000,000$3,500,000 to us.–Investments,- Investments, for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of the end of the previous quarter, which is March 31, 20192020, and are due and payable within one year90 days of borrowing. The maximum allowable advance as of June 30, 2019,2020, based on the net admitted assets as of March 31, 2019,2020, was approximately $11,060,000.$11,339,000. Advances are limited to 90%85% of the amount of available collateral, which was approximately $4,819,000$5,944,000 as of June 30, 2019.2020. There were no borrowings under this facility during the six months ended June 30, 2019.2019,2020, invested assets and cash in our holding company totaled approximately $1,771,000.$1,700,000. If the aforementioned sources of cash flow currently available are insufficient to cover our holding company cash requirements, we will seek to obtain additional financing.71 Table of Contents Cash flows provided by (used in): Operating activities Investing activities Financing activities Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Six Months Ended June 30, $ (9,981,438 ) $ 10,800,684 (226,785 ) (10,790,645 ) (2,029,530 ) (2,252,637 ) (12,237,753 ) (2,242,598 ) 32,391,485 21,138,403 $ 20,153,732 $ 18,895,805 was $10,801,000 in 2019 as compared to $5,953,000 provided in 2018.Six Months 2019. The $4,848,000 increase$20,782,000 decrease in cash flows provided by operating activities in 2019Six Months 2020 was primarily a result of an increasea decrease in cash arising from net fluctuations in assets and liabilities, partially offset by a decreasean increase in net income (adjusted for non-cash items) of $9,573,000.$14,383,000. 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 changes in quota share ceding rates which are described above.was $10,791,000 in 2019 compared to $31,955,000 used in 2018.Six Months 2019. The $21,164,000$10,564,000 decrease in net cash used in investing activities was the result of a $34,198,000 decrease$17,762,000 increase in acquisitionsdisposal of invested assets, partially offset by a $12,028,000 decrease$8,450,000 increase in sales or maturitiesacquisitions of invested assets and a $718,000 increase in fixed asset acquisitions in 2019.$2,253,000$2,030,000 in 2019Six Months 2020 compared to $2,991,000$2,253,000 used in 2018.Six Months 2019. The $738,000$223,000 decrease in net cash used in financing activities was primarily attributable to the purchasea $1,049,000 reduction in dividends paid, partially offset by $802,000 purchases of $540,000 in treasury stock in 2018 and none inSix Months 2020 compared to Six Months 2019.Ourarewere on a July 1 through June 30 fiscal year basis; therefore,basis. Effective December 15, 2019, we entered into a quota share reinsurance treaty for year to date fiscal periods after June 30, two separate treaties will be included in such periods.for the six months ended June 30,during Six Months 2020 and Six Months 2019 and 2018 for our personal lines business, which primarily consists of homeowners’ policies, were covered under the 2019/2020 Treaty and under a treaty covering a two-year period from July 1, 2017 through June 30, 2019 (“2017-20192017/2019 Treaty”). The treaty in effect for the six months ended June 30,during Three Months 2019 isand Six Months 2019 was covered under the July 1, 2018 through June 30, 2019 treaty year (“2018/2019 Treaty Year”) and the treaty in effect for the six months ended June 30, 2018 was covered under the July 1, 2017 through June 30, 2018 treaty year (“2017/2018 Treaty Year”).In August 2018, we terminated our contract with one of the reinsurers that was a party to the 2017/2019 Treaty. This termination was retroactive to July 1, 2018 and had the effect of reducing the quota share ceding rate to 10% under the 2018/2019 Treaty Year from 20% under the 2017/2018 Treaty Year.72 Table of Contents 2019.2020. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows: Treaty Year July 1, 2019 July 1, 2018 July 1, 2017 to to to Line of Busines June 30, 2020 June 30, 2019 June 30, 2018 Homeowners, dwelling fire and canine legal liability Quota share treaty: Percent ceded None 10% 20% Risk retained $ 1,000,000 $ 900,000 $ 800,000 Losses per occurrence subject to quota share reinsurance coverage None $ 1,000,000 $ 1,000,000 Excess of loss coverage and facultative facility above quota share coverage (1) $ 10,000,000 $ 9,000,000 $ 9,000,000 in excess of in excess of $ 1,000,000 $ 1,000,000 Total reinsurance coverage per occurrence $ 9,000,000 $ 9,100,000 $ 9,200,000 Losses per occurrence subject to reinsurance coverage $ 10,000,000 $ 10,000,000 $ 10,000,000 Expiration date June 30, 2020 June 30, 2019 June 30, 2019 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 $ 4,900,000 Losses per occurrence subject to quota share reinsurance coverage $ 5,000,000 $ 5,000,000 $ 5,000,000 Expiration date June 30, 2020 June 30, 2019 June 30, 2018 General liability commercial policies Quota share treaty None None None Risk retained $ 750,000 $ 750,000 $ 750,000 Excess of loss coverage above risk retained $ 3,750,000 $ 3,750,000 $ 3,750,000 in excess of in excess of in excess of $ 750,000 $ 750,000 $ 750,000 Total reinsurance coverage per occurrence $ 3,750,000 $ 3,750,000 $ 3,750,000 Losses per occurrence subject to reinsurance coverage $ 4,500,000 $ 4,500,000 $ 4,500,000 Commercial Umbrella Quota share treaty: None 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, 2019 June 30, 2018 Initial loss subject to personal lines quota share treaty None $ 5,000,000 $ 5,000,000 Risk retained per catastrophe occurrence (2) $ 7,500,000 $ 4,500,000 $ 4,000,000 Catastrophe loss coverage in excess of quota share coverage (3) $ 602,500,000 $ 445,000,000 $ 315,000,000 Reinstatement premium protection (4)(5)(6) Yes Yes Yes (1)25 % 10 % 73 Table of Contents 90 % 90 % 90 % 95 % 100 % 100 % $ 300,000 $ 100,000 $ 100,000 $ 4,700,000 $ 4,900,000 $ 4,900,000 $ 5,000,000 $ 5,000,000 $ 5,000,000 $ 750,000 $ 750,000 $ 750,000 $ 3,750,000 $ 3,750,000 $ 3,750,000 $ 750,000 $ 750,000 $ 750,000 $ 3,750,000 $ 3,750,000 $ 3,750,000 $ 4,500,000 $ 4,500,000 $ 4,500,000 90 % 100 % $ 100,000 $ 4,900,000 $ 5,000,000 includespremiums and the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $10,000,000increasing coastal exposure in total insured value, which covers direct losses from $3,500,000 to $10,000,000.(2)Plus losses in excess ofExpansion states has increased our risks for catastrophes. Our catastrophe coverage.(3)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane, and cyclone.(4)Effective July 1, 2017, reinstatement premium protection for $145,000,000 of catastrophe coverage in excess of $5,000,000..Effective July 1, 2018, reinstatement premium protection for $210,000,000 of catastrophe coverage in excess of $5,000,000.Effective July 1, 2019, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.The single maximum risks per occurrence to which the Company is subject under the treatiesrates increased effective July 1, 2018 are2020 to reflect our increased risk and size of our personal lines business as follows: July 1, 2018 - June 30, 2019 July 1, 2017 - June 30, 2018 Treaty Range of Loss Risk Retained Range of Loss Risk Retained Personal Lines (1) Initial $1,000,000 $900,000 Initial $1,000,000 $800,000 $1,000,000 - $10,000,000 None(2) $1,000,000 - $10,000,000 None(2) Over $10,000,000 100% Over $10,000,000 100% Personal Umbrella Initial $1,000,000 $100,000 Initial $1,000,000 $100,000 $1,000,000 - $5,000,000 None $1,000,000 - $5,000,000 None Over $5,000,000 100% Over $5,000,000 100% Commercial Lines Initial $750,000 $750,000 Initial $750,000 $750,000 $750,000 - $4,500,000 None(3) $750,000 - $4,500,000 None(3) Over $4,500,000 100% Over $4,500,000 100% Commercial Umbrella Initial $1,000,000 $100,000 Initial $1,000,000 $100,000 $1,000,000 - $5,000,000 None $1,000,000 - $5,000,000 None Over $5,000,000 100% Over $5,000,000 100% Catastrophe (4) Initial $5,000,000 $4,500,000 Initial $5,000,000 $4,000,000 $5,000,000 - $450,000,000 None $5,000,000 - $320,000,000 None Over $450,000,000 100% Over $320,000,000 100% (1)Treaty for July 1, 2017 – June 30, 2018 and July 1, 2018 – June 30, 2019 is a two-year treaty with expiration date of June 30, 2019.(2)Covered by excess of loss treaties upwell as increases in the reinsurance market related to $3,500,000 and by facultative facility from $3,500,000 to $10,000,000.(3)Covered by excess of loss treaties.(4)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. The single maximum risks per occurrence to which the Company is subject under the treaty years shown below are as follows:July 1, 2019 - June 30, 2020Treaty Extent of Loss Risk RetainedPersonal Lines (1) Initial $1,000,000$1,000,000 $1,000,000 - $10,000,000 None(2) Over $10,000,000100%Personal Umbrella Initial $1,000,000$100,000 $1,000,000 - $5,000,000 None Over $5,000,000100%Commercial Lines Initial $750,000$750,000 $750,000 - $3,750,000 None(3) Over $4,500,000100%Catastrophe (4) Initial $7,500,000$7,500,000 $7,500,000 - $610,000,000 None Over $610,000,000100%(1)Personal lines quota share treaty was eliminated effective July 1, 2019. The 2017/2019 Treaty expired on a run-off basis.(2)Covered by excess of loss treaties up to $3,500,000 and by facultative facility from $3,500,000 to $10,000,000.(3)Covered by excess of loss treaties.(4)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Item74 Table of Contents 2019.75 Table of Contents There was no changeEngaged external resources to perform a comprehensive review of our claims operations surrounding the establishment and monitoring of liability case reserves; Hired a new Chief Claims Officer whose role includes a review of the entire population of case reserves to the policy level to ensure proper valuation, existence, and completeness; Increased the number, experience level and skill of the personnel involved in our claims function through hiring and improved training; Performed a thorough review of existing policies and procedures in place to facilitate the development and documentation of controls over financial reporting regarding liability case reserves.This review led to the addition of multiple controls including a quality assurance process as well as enhanced documentation of our existing controls in place; Enhanced testing procedures performed by our outsourced internal audit to ensure adequate design and operating effectiveness of new and existing internal controls; has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.76 Table of Contents We believeThe Company, after consulting legal counsel, believes the lawsuit to be without merit.Item On August 10, 2020, the court granted the Company’s motion to dismiss the amended complaint in the suit. The court has permitted plaintiff to amend the complaint to attempt to cure the deficiencies identified by the court in its opinion (to the extent plaintiff has a good faith basis to do so). The amended complaint, if any, would need to be filed by September 11, 2020.Therefromto the risk factors previously disclosed in Part I, Item 1A of the Company’s 2019 Annual Report.Annual Reportresults of operations, financial position and/or liquidity.Form 10-Kgeneral economic activity will negatively impact our premium volumes. We began to experience this impact in March 2020 and it became more significant in the second quarter of 2020. We also expect this impact will further persist but to a lesser extent for the year ended December 31, 2018.Itemremainder of 2020, but the degree of the impact will depend on the extent and duration of the economic contraction and could be material.77 Table of Contents 78 Table of Contents Proceeds.There were noThe following table sets forth certain information with respect to purchases of common stock made by us or any “affiliated purchaser” during the quarter ended June 30, 2019.Item2020:5,000 $ 4.79 - - 121,236 $ 4.36 - - - - - - 126,236 $ 4.38 - - 79 3(a)Table of ContentscurrentCurrent Report on Form 8-K filed on November 9, 2009).Agreement and General Release, dated as of July 19, 2019, by and among Kingstone Companies, Inc., Kingstone Insurance Company and Dale A. Thatcher (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 19, 2019).101.INS101.SCH101.CAL101.DEF101.LAB101.PRE+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.SIGNATURES80 Table of Contents 81 Dated: August 9, 2019By: /s/ Barry B. GoldsteinBarry B. GoldsteinChief Executive OfficerDated: August 9, 2019By:/s/ Victor BrodskyVictor BrodskyChief Financial Officer78