UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2020
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________to _________
 
Commission File Number 0-1665
 
KINGSTONE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
36-2476480
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
15 Joys Lane
Kingston, NY 12401
(Address of principal executive offices)
(845) 802-7900
 
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
KINS
Nasdaq Capital Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
 
As of May 8, 2020, there were 10,793,260 shares of the registrant’s common stock outstanding.
 

 
 
 
KINGSTONE COMPANIES, INC.
INDEX
 
 
PAGE
 
 
PART I — FINANCIAL INFORMATION
2
2
2
3
4
5
6
34
59
59
 
 
PART II — OTHER INFORMATION
61
61
61
62
62
62
62
62
63
 
 
 
 
Forward-Looking Statements
 
This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated results or other consequences of our plans or strategies, projected or anticipated results from acquisitions to be made by us, or projections involving anticipated revenues, earnings, costs or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may cause actual results and outcomes to differ materially from those contained in the forward-looking statements include, but are not limited to the risks and uncertainties discussed in Part I Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II, Item 1A of this Quarterly Report.
 
Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise except as required by law.
 
 
 
 
 
 
 
1
 
 
PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
 
 March 31,
 
 
 December 31,
 
 
 
2020
 
 
2019
 
 
 
 (unaudited)
 
 
 
 
Assets
 
 
 
 
 
 
   
 
 
 
 
 
 
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $4,136,710 at March 31, 2020 and
$4,124,767 at December 31, 2019)
 $3,826,404 
 $3,825,952 
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $152,675,779 at March 31, 2020 and
$162,202,355 at December 31, 2019)
  151,879,894 
  168,236,181 
Equity securities, at fair value (cost of $22,430,037 at March 31, 2020 and $22,624,668 at December 31, 2019)
  18,368,893 
  24,661,382 
Other investments
  1,987,522 
  2,584,913 
Total investments
  176,062,713 
  199,308,428 
Cash and cash equivalents
  25,586,789 
  32,391,485 
Premiums receivable, net
  11,913,123 
  12,706,411 
Reinsurance receivables, net
  42,709,055 
  40,750,538 
Deferred policy acquisition costs
  19,571,888 
  20,634,378 
Intangible assets
  500,000 
  500,000 
Property and equipment, net
  7,365,654 
  7,620,636 
Deferred income taxes, net
  1,347,699 
  311,052 
Other assets
  7,477,334 
  6,979,884 
Total assets
 $292,534,255 
 $321,202,812 
 
    
    
Liabilities
    
    
Loss and loss adjustment expense reserves
 $77,851,099 
 $80,498,611 
Unearned premiums
  84,478,538 
  90,383,238 
Advance premiums
  3,143,879 
  3,191,512 
Reinsurance balances payable
  5,337,287 
  11,714,724 
Deferred ceding commission revenue
  6,935,401 
  7,735,398 
Accounts payable, accrued expenses and other liabilities
  8,409,856 
  9,986,317 
Long-term debt, net
  29,515,476 
  29,471,431 
Total liabilities
  215,671,536 
  232,981,231 
 
    
    
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 11,851,266 shares at March 31, 2020 and 11,824,889 at December 31, 2019; outstanding 10,781,393 shares at March 31, 2020 and 10,797,450 shares at December 31, 2019
  118,512 
  118,248 
Capital in excess of par
  69,533,150 
  69,133,918 
Accumulated other comprehensive (loss) income
  (626,601)
  4,768,870 
Retained earnings
  10,792,934 
  16,913,097 
 
  79,817,995 
  90,934,133 
Treasury stock, at cost, 1,069,873 shares at March 31, 2020 and 1,027,439 shares at December 31, 2019
  (2,955,276)
  (2,712,552)
Total stockholders' equity
  76,862,719 
  88,221,581 
 
    
    
Total liabilities and stockholders' equity
 $292,534,255 
 $321,202,812 
 
See accompanying notes to condensed consolidated financial statements.
 
 
2
 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three months ended March 31,
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 Revenues
 
 
 
 
 
 
 Net premiums earned
 $26,941,450 
 $29,595,889 
 Ceding commission revenue
  3,831,099 
  1,277,683 
 Net investment income
  1,665,844 
  1,623,712 
 Net (losses) gains on investments
  (6,444,418)
  2,035,363 
 Other income
  629,619 
  365,901 
 Total revenues
  26,623,594 
  34,898,548 
 
    
    
 Expenses
    
    
 Loss and loss adjustment expenses
  16,385,821 
  29,134,224 
 Commission expense
  7,899,191 
  6,853,416 
 Other underwriting expenses
  6,761,792 
  6,135,991 
 Other operating expenses
  1,563,620 
  971,172 
 Depreciation and amortization
  687,094 
  602,332 
 Interest expense
  456,545 
  456,545 
 Total expenses
  33,754,063 
  44,153,680 
 
    
    
 Loss from operations before income taxes
  (7,130,469)
  (9,255,132)
 Income tax benefit
  (1,686,266)
  (1,919,942)
 Net loss
  (5,444,203)
  (7,335,190)
 
    
    
 Other comprehensive (loss) income, net of tax
    
    
 Gross change in unrealized (losses) gains  on available-for-sale-securities
  (6,727,489)
  4,188,716 
 
    
    
 Reclassification adjustment for (gains) losses included in net loss
  (102,222)
  22,431 
 Net change in unrealized (losses) gains
  (6,829,711)
  4,211,147 

    
    
 Income tax benefit (expense) related to items of other comprehensive (loss) income
  1,434,240 
  (884,341)
 Other comprehensive (loss) income, net of tax
  (5,395,471)
  3,326,806 
 
    
    
 Comprehensive loss
 $(10,839,674)
 $(4,008,384)
 
    
    
Loss per common share:
    
    
Basic
 $(0.50)
 $(0.68)
Diluted
 $(0.50)
 $(0.68)
 
    
    
Weighted average common shares outstanding
    
    
Basic
  10,807,841 
  10,757,843 
Diluted
  10,807,841 
  10,757,843 
 
    
    
Dividends declared and paid per common share
 $0.0625 
 $0.1000 
 
See accompanying notes to condensed consolidated financial statements.
 
 
3
 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended March 31, 2020 and 2019
 
 
 Preferred Stock
 Common Stock

Accumulated Other 

 Treasury Stock
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
Capital in
Excess of Par
Comprehensive
Income (Loss)
Retained
Earnings
 
 Shares
 
 
 Amount
 
 
 Total
 
Balance, January 1, 2019
  - 
 $- 
  11,775,148 
 $117,751 
 $67,763,940 
 $(2,884,313)
 $26,380,816 
  1,027,439 
 $(2,712,552)
 $88,665,642 
Stock-based compensation
  - 
  - 
  - 
  - 
  309,882 
  - 
  - 
  - 
  - 
  309,882 
Vesting of restricted stock awards
  - 
  - 
  27,593 
  275 
  (275)
  - 
  - 
  - 
  - 
  - 
Shares deducted from restricted stock
    
    
    
    
    
    
    
    
    
    
awards for payment of withholding taxes
  - 
  - 
  (6,553)
  (64)
  (115,943)
  - 
  - 
  - 
  - 
  (116,007)
Dividends
  - 
  - 
  - 
  - 
  - 
  - 
  (1,075,962)
  - 
  - 
  (1,075,962)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  (7,335,190)
  - 
  - 
  (7,335,190)
Change in unrealized gains on available-
    
    
    
    
    
    
    
    
    
    
for-sale securities, net of tax
  - 
  - 
  - 
  - 
  - 
  3,326,806 
  - 
  - 
  - 
  3,326,806 
Balance, March 31, 2019
  - 
 $- 
  11,796,188 
 $117,962 
 $67,957,604 
 $442,493 
 $17,969,664 
  1,027,439 
 $(2,712,552)
 $83,775,171 
 
 
 Preferred Stock
 Common Stock
 
 
 
Accumulated Other
 
 
 
 Treasury Stock
 
 
 
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
Capital in
Excess of Par
Comprehensive
Income (Loss)
Retained
Earnings
 
 Shares
 
 
 Amount
 
 
 Total
 
Balance, January 1, 2020
  - 
 $- 
  11,824,889 
 $118,248 
 $69,133,918 
 $4,768,870 
 $16,913,097 
  1,027,439 
 $(2,712,552)
 $88,221,581 
Stock-based compensation
  - 
  - 
  - 
  - 
  487,450 
  - 
  - 
  - 
  - 
  487,450 
Vesting of restricted stock awards
  - 
  - 
  38,866 
  387 
  (387)
  - 
  - 
  - 
  - 
  - 
Shares deducted from restricted stock
    
    
    
    
    
    
    
    
    
    
awards for payment of withholding taxes
  - 
  - 
  (12,489)
  (123)
  (87,831)
  - 
  - 
  - 
  - 
  (87,954)
Acquisition of treasury stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  42,434 
  (242,724)
  (242,724)
Dividends
  - 
  - 
  - 
  - 
  - 
  - 
  (675,960)
  - 
  - 
  (675,960)
Net loss
  - 
  - 
  - 
  - 
  - 
  - 
  (5,444,203)
  - 
  - 
  (5,444,203)
Change in unrealized losses on available-
    
    
    
    
    
    
    
    
    
    
for-sale securities, net of tax
  - 
  - 
  - 
  - 
  - 
  (5,395,471)
  - 
  - 
  - 
  (5,395,471)
Balance, March 31, 2020
  - 
 $- 
  11,851,266 
 $118,512 
 $69,533,150 
 $(626,601)
 $10,792,934 
  1,069,873 
 $(2,955,276)
 $76,862,719 
 
See accompanying notes to condensed consolidated financial statements.
 
 
4
 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31,
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 Cash flows from operating activities:
 
 
 
 
 
 
 Net loss
 $(5,444,203)
 $(7,335,190)
 Adjustments to reconcile net loss to net cash flows provided
by (used in) operating activities:
    
    
 Net (gains) losses on sale of investments
  (274,581)
  25,192 
 Net unrealized losses (gains) of equity investments
  6,121,608 
  (1,767,835)
 Net unrealized losses (gains) of other investments
  597,391 
  (292,720)
 Depreciation and amortization
  687,094 
  602,332 
 Bad debts
  35,737 
  36,824 
 Amortization of bond premium, net
  105,189 
  118,568 
 Amortization of discount and issuance costs on long-term debt
  44,045 
  44,045 
 Stock-based compensation
  487,450 
  309,882 
 Deferred income tax expense
  397,593 
  510,533 
 (Increase) decrease in operating assets:
    
    
 Premiums receivable, net
  757,551 
  (286,973)
 Reinsurance receivables, net
  (1,958,517)
  209,478 
 Deferred policy acquisition costs
  1,062,490 
  (246,544)
 Other assets
  (521,521)
  (3,666,830)
 Increase (decrease) in operating liabilities:
    
    
 Loss and loss adjustment expense reserves
  (2,647,512)
  12,913,165 
 Unearned premiums
  (5,904,700)
  627,872 
 Advance premiums
  (47,633)
  956,784 
 Reinsurance balances payable
  (6,377,437)
  (731,445)
 Deferred ceding commission revenue
  (799,997)
  58,710 
 Accounts payable, accrued expenses and other liabilities
  (1,576,461)
  616,556 
 Net cash flows (used in) provided by operating activities
  (15,256,414)
  2,702,404 
 
    
    
 Cash flows from investing activities:
    
    
 Purchase - fixed-maturity securities available-for-sale
  (961,000)
  (6,094,835)
 Purchase - equity securities
  (5,220,778)
  (1,604,615)
 Sale and redemption - fixed-maturity securities held-to-maturity
  - 
  400,000 
 Sale or maturity - fixed-maturity securities available-for-sale
  10,553,818 
  1,505,382 
 Sale - equity securities
  5,518,428 
  246,047 
 Acquisition of property and equipment
  (432,112)
  (1,048,604)
 Other investing activities
  - 
  (287,733)
 Net cash flows provided by (used in) investing activities
  9,458,356 
  (6,884,358)
 
    
    
 Cash flows from financing activities:
    
    
 Withholding taxes paid on vested retricted stock awards
  (87,954)
  (116,007)
 Purchase of treasury stock
  (242,724)
  - 
 Dividends paid
  (675,960)
  (1,075,962)
 Net cash flows used in financing activities
  (1,006,638)
  (1,191,969)
 
    
    
 Decrease in cash and cash equivalents
 $(6,804,696)
 $(5,373,923)
 Cash and cash equivalents, beginning of period
  32,391,485 
  21,138,403 
 Cash and cash equivalents, end of period
 $25,586,789 
 $15,764,480 
 
    
    
 Supplemental disclosures of cash flow information:
    
    
 Cash paid for income taxes
 $- 
 $- 
 Cash paid for interest
 $- 
 $- 
 
See accompanying notes to condensed consolidated financial statements.
 
 
5
 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1 - Nature of Business and Basis of Presentation
 
Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its wholly owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance exclusively through retail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut continue to be growing markets for the Company, 82.7% and 91.4% of KICO’s direct written premiums for the three months ended March 31, 2020 and 2019, respectively, came from the New York policies. Kingstone, through its wholly owned subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, accesses alternate forms of distribution outside of the independent agent and broker network, through which KICO currently distributes its various products. Kingstone (through Cosi) now has the opportunity to partner with name-brand carriers and access nationwide insurance agencies.
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2019 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 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 presentation of the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2020 may not be indicative of the results that may be expected for the year ending December 31, 2020.
 
Note 2 – Accounting Policies
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and assumptions, which include the reserves for losses and loss adjustment expenses, and are subject to estimation errors due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of many years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require judgments by management. On an ongoing basis, management reevaluates its assumptions and the methods for calculating these estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the consolidated financial statements.
 
 
6
 
 
Principles of Consolidation
 
The accompanying condensed consolidated financial statements consist of Kingstone and its following wholly owned subsidiaries: (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates, and (2) Cosi. All significant intercompany account balances and transactions have been eliminated in consolidation.
 
Accounting Changes
 
The Company has determined that it was not subject to any new accounting pronouncements that became effective during the three months ended March 31, 2020.
 
Accounting Pronouncements
 
In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-13 - Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The revised accounting guidance requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU 2016-13 amends the accounting for credit losses of available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 will be effective for the Company on January 1, 2023. The Company is currently evaluating the effect the updated guidance will have on its condensed consolidated financial statements.
 
In December 2019, the FASB issued ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes (“ASU 2019-12”). Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on its financial condition and results of operations.
 
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.
 
 
7
 
 
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 March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
 
March 31, 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
 $5,033,879 
 $102,361 
 $- 
 $- 
 $5,136,240 
 $102,361 

    
    
    
    
    
    
 Political subdivisions of States, Territories and Possessions
  9,139,221 
  275,738 
  - 
  - 
  9,414,959 
  275,738 

    
    
    
    
    
    
Corporate and other bonds Industrial and miscellaneous
  112,871,652 
  2,876,429 
  (2,258,459)
  - 
  113,489,622 
  617,970 

    
    
    
    
    
    
 Residential mortgage and other asset backed securities (1)
  25,631,027 
  292,497 
  (938,478)
  (1,145,973)
  23,839,073 
  (1,791,954)
 Total
 $152,675,779 
 $3,547,025 
 $(3,196,937)
 $(1,145,973)
 $151,879,894 
 $(795,885)
 
(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 March 31, 2020, the estimated fair value of the eligible investments was approximately $7,287,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2020, there was no outstanding balance on the FHLBNY credit line.
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net
 
  
 
 Cost or
 
 
 Gross
 
 
 Gross Unrealized Losses
 
 
 Estimated
 
 
 Unrealized
 
 
 
 Amortized
 
 
 Unrealized
 
 
 Less than 12
 
 
 More than 12
 
 
 Fair
 
 
 Gains/
 
Category
 
 Cost
 
 
 Gains
 
 
 Months
 
 
 Months
 
 
 Value
 
 
 (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed-Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 U.S. Treasury securities and obligations of U.S. government corporations and agencies
 $7,037,856 
 $23,244 
 $- 
 $- 
 $7,061,100 
 $23,244 
 
    
    
    
    
    
    
Political subdivisions of States, Territories and Possessions
  9,151,293 
  181,835 
  (11,316)
  - 
  9,321,812 
  170,519 
 
    
    
    
    
    
    
Corporate and other bonds Industrial and miscellaneous
  119,874,573 
  5,777,624 
  (16,685)
  (13,473)
  125,622,039 
  5,747,466 
 
    
    
    
    
    
    
Residential mortgage and other asset backed securities (1)
  26,138,633 
  437,841 
  (68,793)
  (276,451)
  26,231,230 
  92,597 
Total
 $162,202,355 
 $6,420,544 
 $(96,794)
 $(289,924)
 $168,236,181 
 $6,033,826 
 
(1)
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.
 
 
8
 
 
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 March 31, 2020 and December 31, 2019 is shown below:
 
 
 
March 31, 2020
 
 
December 31, 2019
 
 
 
Amortized
 
 
Estimated
 
 
Amortized
 
 
Estimated
 
 Remaining Time to Maturity
 
Cost
 
 
Fair Value
 
 
Cost
 
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Less than one year
 $12,900,401 
 $12,937,879 
 $11,986,401 
 $12,025,804 
 One to five years
  44,309,018 
  44,695,085 
  49,715,422 
  51,000,025 
 Five to ten years
  65,324,015 
  66,293,522 
  69,850,104 
  74,410,275 
 More than 10 years
  4,511,318 
  4,114,335 
  4,511,795 
  4,568,847 
 Residential mortgage and other asset backed securities
  25,631,027 
  23,839,073 
  26,138,633 
  26,231,230 
 Total
 $152,675,779 
 $151,879,894 
 $162,202,355 
 $168,236,181 
 
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.
 
Equity Securities
 
The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of March 31, 2020 and December 31, 2019 are as follows:
 
 
 
March 31, 2020
 
 
 
 
 
 
Gross
 
 
Gross
 
 
 
 
  
 
 
 
 
 Unrealized
 
 
 Unrealized
 
 
 Estimated
 
 Category
 
 Cost
 
 
 Gains
 
 
 Losses
 
 
 Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Equity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 Preferred stocks
 $7,535,068 
 $7,870 
 $(1,113,367)
 $6,429,571 
 Common stocks, mutual funds, and exchange traded funds
  14,894,969 
  137,242 
  (3,092,889)
  11,939,322 
 Total
 $22,430,037 
 $145,112 
 $(4,206,256)
 $18,368,893 
 
 
 
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 
 
 
9
 
 
Other Investments
 
The cost and estimated fair value of, and gross unrealized gains and losses, on the Company’s other investments as of March 31, 2020 and December 31, 2019 are as follows:
 
 
 
March 31, 2020
 
 
December 31, 2019
 
 
 
 
 
 
 Gross
 
 
 
 
 
 
 
 
 Gross
 
 
 
 
 
 
 
 
 
 Unrealized
 
 
 Estimated
 
 
 
 
 
 Unrealized
 
 
 Estimated
 
 Category
 
 Cost
 
 
 Losses
 
 
 Fair Value
 
 
 Cost
 
 
 Gains
 
 
 Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Other Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Hedge fund
 $1,999,381 
 $(11,859)
 $1,987,522 
 $1,999,381 
 $585,532 
 $2,584,913 
 Total
 $1,999,381 
 $(11,859)
 $1,987,522 
 $1,999,381 
 $585,532 
 $2,584,913 
 
Held-to-Maturity Securities
 
The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses, on investments in held-to-maturity fixed-maturity securities as of March 31, 2020 and December 31, 2019 are summarized as follows:
 
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 Cost or
 
 
 Gross
 
 
 Gross Unrealized Losses
 
 
 Estimated
 
 
 Net
 
 
 
 Amortized
 
 
 Unrealized
 
 
 Less than 12
 
 
 More than 12
 
 
 Fair
 
 
 Unrealized
 
 Category
 
 Cost
 
 
 Gains
 
 
 Months
 
 
 Months
 
 
 Value
 
 
 Gains
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Held-to-Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 U.S. Treasury securities
 $729,561 
 $162,483 
 $- 
 $- 
 $892,044 
 $162,483 
 
    
    
    
    
    
    
 Political subdivisions of States,
    
    
    
    
    
    
 Territories and Possessions
  998,573 
  43,857 
  - 
  - 
  1,042,430 
  43,857 
 
    
    
    
    
    
    
 Corporate and other bonds
    
    
    
    
    
    
 Industrial and miscellaneous
  2,098,270 
  106,196 
  (2,230)
  - 
  2,202,236 
  103,966 
 
    
    
    
    
    
    
 Total
 $3,826,404 
 $312,536 
 $(2,230)
 $- 
 $4,136,710 
 $310,306 
 
 
 
December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 Cost or
 
 
 Gross
 
 
 Gross Unrealized Losses
 
 
 Estimated
 
 
 Net
 
 
 
 Amortized
 
 
 Unrealized
 
 
 Less than 12
 
 
 More than 12
 
 
 Fair
 
 
 Unrealized
 
 Category
 
 Cost
 
 
 Gains
 
 
 Months
 
 
 Months
 
 
 Value
 
 
 Gains
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Held-to-Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 U.S. Treasury securities
 $729,550 
 $151,002 
 $- 
 $- 
 $880,552 
 $151,002 
 
    
    
    
    
    
    
 Political subdivisions of States,
    
    
    
    
    
    
 Territories and Possessions
  998,619 
  51,021 
  - 
  - 
  1,049,640 
  51,021 
 
    
    
    
    
    
    
 Corporate and other bonds
    
    
    
    
    
    
 Industrial and miscellaneous
  2,097,783 
  97,627 
  (835)
  - 
  2,194,575 
  96,792 
 
    
    
    
    
    
    
 Total
 $3,825,952 
 $299,650 
 $(835)
 $- 
 $4,124,767 
 $298,815 
 
 
10
 
 
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 March 31, 2020 and December 31, 2019 is shown below:
 
 
 
March 31, 2020
 
 
December 31, 2019
 
 
 
Amortized
 
 
Estimated
 
 
Amortized
 
 
Estimated
 
 Remaining Time to Maturity
 
Cost
 
 
Fair Value
 
 
Cost
 
 
Fair Value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Less than one year
 $500,000 
 $497,770 
 $500,000 
 $499,165 
 One to five years
  2,099,588 
  2,220,096 
  2,099,268 
  2,215,640 
 Five to ten years
  620,255 
  664,805 
  620,134 
  655,923 
 More than 10 years
  606,561 
  754,039 
  606,550 
  754,039 
 Total
 $3,826,404 
 $4,136,710 
 $3,825,952 
 $4,124,767 
 
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
 
 
 
 March 31,
 
 
 
 2020
 
 
 2019
 
 
 
 
 
 
 
 
 Income:
 
 
 
 
 
 
 Fixed-maturity securities
 $1,447,938 
 $1,526,870 
 Equity securities
  253,073 
  207,144 
 Cash and cash equivalents
  44,223 
  40,401 
 Total
  1,745,234 
  1,774,415 
 Expenses:
    
    
 Investment expenses
  79,390 
  150,703 
 Net investment income
 $1,665,844 
 $1,623,712 
 
Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $-0- and $400,000 for the three months ended March 31, 2020 and 2019, respectively.
 
Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $10,553,818 and $1,505,382 for the three months ended March 31, 2020 and 2019, respectively.
 
Proceeds from the sale of equity securities were $5,518,428 and $246,047 for the three months ended March 31, 2020 and 2019, respectively.
 
 
11
 
 
The Company’s net (losses) gains on investments are summarized as follows:
 
 
 
 Three months ended
 
 
 
 March 31,
 
 
 
 2020
 
 
 2019
 
 Realized Gains (Losses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 Fixed-maturity securities:
 
 
 
 
 
 
 Gross realized gains
 $204,225 
 $6,002 
 Gross realized losses
  (32,342)
  (28,433)
 
  171,883 
  (22,431)
 
    
    
 Equity securities:
    
    
 Gross realized gains
  316,513 
  3,200 
 Gross realized losses
  (213,815)
  (5,961)
 
  102,698 
  (2,761)
 
    
    
 Net realized gains (losses)
  274,581 
  (25,192)
 
    
    
 Unrealized (Losses) Gains
    
    
 
    
    
 Equity securities:
    
    
 Gross gains
  - 
  1,767,835 
 Gross losses
  (6,121,608)
  - 
 
  (6,121,608)
  1,767,835 
 
    
    
 Other investments:
    
    
 Gross gains
  - 
  292,720 
 Gross losses
  (597,391)
  - 
 
  (597,391)
  292,720 
 
    
    
 Net unrealized (losses) gains
  (6,718,999)
  2,060,555 
 
    
    
 Net (losses) gains on investments
 $(6,444,418)
 $2,035,363 
 
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 loss.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.  For held-to-maturity debt 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.
 
OTTI losses are recorded in the condensed consolidated statements of operations and comprehensive 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 March 31, 2020 and December 31, 2019, there were 80 and 39 fixed-maturity securities, respectively, that accounted for the gross unrealized loss. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of investments for the three months ended March 31, 2020 and 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.
 
12
 
 
The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at March 31, 2020 as follows:
 
 
 
  March 31, 2020
 
 
 
Less than 12 months    
 
 
12 months or more    
 
 
Total    
 
  
 
 Estimated
 
 
 
 
 
 No. of
 
 
 Estimated
 
 
 
 
 
 No. of
 
 
 Estimated
 
 
 
 
 
 
 Fair
 
 
 Unrealized
 
 
 Positions
 
 
 Fair
 
 
 Unrealized
 
 
 Positions
 
 
 Fair
 
 
 Unrealized
 
 Category
 
 Value
 
 
 Losses
 
 
 Held
 
 
 Value
 
 
 Losses
 
 
 Held
 
 
 Value
 
 
 Losses
 
 Fixed-Maturity Securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 U.S. Treasury securities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 and obligations of U.S.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 government corporations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 and agencies
 $- 
 $- 
  - 
 $- 
 $- 
  - 
 $- 
 $- 
 
    
    
    
    
    
    
    
    
 Political subdivisions of
    
    
    
    
    
    
    
    
 States, Territories and
    
    
    
    
    
    
    
    
 Possessions
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
 
    
    
    
    
    
    
    
    
 Corporate and other
    
    
    
    
    
    
    
    
 bonds industrial and
    
    
    
    
    
    
    
    
 miscellaneous
  35,409,999 
  (2,258,459)
  50 
  - 
  - 
  - 
  35,409,999 
  (2,258,459)
 
    
    
    
    
    
    
    
    
 Residential mortgage and other
    
    
    
    
    
    
    
    
 asset backed securities
  6,067,674 
  (938,478)
  13 
  10,286,307 
  (1,145,973)
  17 
  16,353,981 
  (2,084,451)
 
    
    
    
    
    
    
    
    
 Total fixed-maturity
    
    
    
    
    
    
    
    
 securities
 $41,477,673 
 $(3,196,937)
  63 
 $10,286,307 
 $(1,145,973)
  17 
 $51,763,980 
 $(4,342,910)
 
 
13
 
 
The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 2019 as follows:
 
 
 
  December 31, 2019
 
 
 
Less than 12 months    
 
 
12 months or more    
 
 
Total    
 
  
 
 Estimated
 
 
 
 
 
 No. of
 
 
 Estimated
 
 
 
 
 
 No. of
 
 
 Estimated
 
 
 
 
 
 
 Fair
 
 
 Unrealized
 
 
 Positions
 
 
 Fair
 
 
 Unrealized
 
 
 Positions
 
 
 Fair
 
 
 Unrealized
 
 Category
 
 Value
 
 
 Losses
 
 
 Held