UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark one)

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

 

For the quarterly period ended September 30, 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)

 

(845802-7900
(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 o

 

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 o

 

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

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

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

 

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

 

As of November 9, 2020, there were 10,675,198 shares of the registrant’s common stock outstanding.

 

 

 

  

KINGSTONE COMPANIES, INC.

INDEX

 

 

 

 

PAGE

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

2

 

 

 

 

 

 

 

Item 1 –

Financial Statements

 

 

2

 

 

Condensed Consolidated Balance Sheets at September 30, 2020 (Unaudited) and December 31, 2019

 

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and nine months ended September 30, 2020 (Unaudited) and 2019 (Unaudited)

 

 

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2020 (Unaudited) and 2019 (Unaudited)

 

 

4-5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (Unaudited) and 2019 (Unaudited)

 

 

6

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

7

 

Item 2 –

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

 

 

39

 

Item 3 –

Quantitative and Qualitative Disclosures About Market Risk

 

 

75

 

Item 4 –

Controls and Procedures

 

 

75

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

77

 

 

 

 

 

 

 

Item 1 –

Legal Proceedings

 

 

77

 

Item 1A –

Risk Factors

 

 

77

 

Item 2 –

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

79

 

Item 3 –

Defaults Upon Senior Securities

 

 

79

 

Item 4 –

Mine Safety Disclosures

 

 

79

 

Item 5 –

Other Information

 

 

79

 

Item 6 –

Exhibits

 

 

80

 

Signatures

 

 

80

 

  

 

Table of Contents

   

Forward-Looking Statements

 

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

Table of Contents

   

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets  

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

 

Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $7,899,304at September 30, 2020 and $4,124,767at December 31, 2019)

 

$7,369,608

 

 

$3,825,952

 

Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $145,126,859 at September 30, 2020 and $162,202,355 at December 31, 2019)

 

 

156,538,589

 

 

 

168,236,181

 

Equity securities, at fair value (costof 30,300,839 at September 30, 2020 and $22,624,668 at December 31, 2019)

 

 

29,623,267

 

 

 

24,661,382

 

Other investments

 

 

2,829,078

 

 

 

2,584,913

 

Total investments

 

 

196,360,542

 

 

 

199,308,428

 

Cash and cash equivalents

 

 

24,388,103

 

 

 

32,391,485

 

Premiums receivable, net

 

 

13,883,708

 

 

 

12,706,411

 

Reinsurance receivables, net

 

 

55,529,408

 

 

 

40,750,538

 

Deferred policy acquisition costs

 

 

19,916,325

 

 

 

20,634,378

 

Intangible assets

 

 

500,000

 

 

 

500,000

 

Property and equipment, net

 

 

7,788,633

 

 

 

7,620,636

 

Deferred income taxes, net

 

 

-

 

 

 

311,052

 

Other assets

 

 

8,992,936

 

 

 

6,979,884

 

Total assets

 

$327,359,655

 

 

$321,202,812

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$84,979,024

 

 

$80,498,611

 

Unearned premiums

 

 

88,167,636

 

 

 

90,383,238

 

Advance premiums

 

 

4,919,256

 

 

 

3,191,512

 

Reinsurance balances payable

 

 

10,062,649

 

 

 

11,714,724

 

Deferred ceding commission revenue

 

 

7,207,142

 

 

 

7,735,398

 

Accounts payable, accrued expenses and other liabilities

 

 

11,134,175

 

 

 

9,986,317

 

Deferred income taxes, net

 

 

1,972,782

 

 

 

-

 

Long-term debt, net

 

 

29,603,566

 

 

 

29,471,431

 

Total liabilities

 

 

238,046,230

 

 

 

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 11,871,307 shares at September 30, 2020 and 11,824,889 at December 31, 2019; outstanding 10,675,198 shares at September 30, 2020 and 10,797,450 shares at December 31, 2019

 

 

118,713

 

 

 

118,248

 

Capital in excess of par

 

 

70,372,799

 

 

 

69,133,918

 

Accumulated other comprehensive income

 

 

9,017,415

 

 

 

4,768,870

 

Retained earnings

 

 

13,318,838

 

 

 

16,913,097

 

 Stockholder equity before treasury stock

 

 

92,827,765

 

 

 

90,934,133

 

 

 

 

 

 

 

 

 

Treasury stock, at cost, 1,196,109 shares at September 30, 2020 and 1,027,439 shares at December 31, 2019

 

 

(3,514,340)

 

 

(2,712,552)

Total stockholders' equity

 

 

89,313,425

 

 

 

88,221,581

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$327,359,655

 

 

$321,202,812

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
2

Table of Contents

   

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

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

  

 

 

For the Three Months Ended

 

 

For the Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Revenues 

 

 

 

 

 

 

 

 

 

 

 

 

 Net premiums earned 

 

$27,521,081

 

 

$34,220,010

 

 

$81,099,387

 

 

$95,017,178

 

 Ceding commission revenue 

 

 

3,448,774

 

 

 

1,029,582

 

 

 

10,760,087

 

 

 

2,982,960

 

 Net investment income 

 

 

1,494,086

 

 

 

1,856,553

 

 

 

4,771,936

 

 

 

5,200,034

 

 Net gains (losses) on investments 

 

 

2,107,876

 

 

 

998,162

 

 

 

(1,638,674)

 

 

3,712,180

 

 Other income

 

 

250,654

 

 

 

343,391

 

 

 

772,672

 

 

 

998,927

 

 Total revenues 

 

 

34,822,471

 

 

 

38,447,698

 

 

 

95,765,408

 

 

 

107,911,279

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Expenses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss and loss adjustment expenses 

 

 

20,117,975

 

 

 

24,781,318

 

 

 

49,317,427

 

 

 

71,587,850

 

 Commission expense 

 

 

8,036,298

 

 

 

7,722,825

 

 

 

23,652,765

 

 

 

21,866,420

 

 Other underwriting expenses 

 

 

6,346,846

 

 

 

6,430,734

 

 

 

19,434,110

 

 

 

17,983,174

 

 Other operating expenses  

 

 

1,038,453

 

 

 

609,924

 

 

 

3,364,483

 

 

 

2,647,221

 

 Depreciation and amortization

 

 

710,181

 

 

 

646,201

 

 

 

2,070,435

 

 

 

1,876,202

 

 Interest expense 

 

 

456,545

 

 

 

456,545

 

 

 

1,369,635

 

 

 

1,369,635

 

 Total expenses 

 

 

36,706,298

 

 

 

40,647,547

 

 

 

99,208,855

 

 

 

117,330,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Loss from operations before income taxes 

 

 

(1,883,827)

 

 

(2,199,849)

 

 

(3,443,447)

 

 

(9,419,223)

 Income tax benefit

 

 

(655,971)

 

 

(474,687)

 

 

(1,379,578)

 

 

(1,998,251)

 Net loss

 

 

(1,227,856)

 

 

(1,725,162)

 

 

(2,063,869)

 

 

(7,420,972)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross change in unrealized gains  on available-for-sale-securities

 

 

1,778,478

 

 

 

1,323,626

 

 

 

5,938,600

 

 

 

9,191,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Reclassification adjustment for (gains) losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 included in net loss

 

 

(606,969)

 

 

46,841

 

 

 

(560,696)

 

 

81,636

 

 Net change in unrealized gains 

 

 

1,171,509

 

 

 

1,370,467

 

 

 

5,377,904

 

 

 

9,273,453

 

 Income tax expense related to items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 of other comprehensive income

 

 

(246,017)

 

 

(287,798)

 

 

(1,129,359)

 

 

(1,947,424)

 Other comprehensive income, net of tax

 

 

925,492

 

 

 

1,082,669

 

 

 

4,248,545

 

 

 

7,326,029

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Comprehensive (loss) income

 

$(302,364)

 

$(642,493)

 

$2,184,676

 

 

$(94,943)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$(0.12)

 

$(0.16)

 

$(0.19)

 

$(0.69)

Diluted

 

$(0.12)

 

$(0.16)

 

$(0.19)

 

$(0.69)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

10,673,077

 

 

 

10,779,641

 

 

 

10,737,853

 

 

 

10,769,817

 

Diluted

 

 

10,673,077

 

 

 

10,779,641

 

 

 

10,737,853

 

 

 

10,769,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$0.0400

 

 

$0.0625

 

 

$0.1425

 

 

$0.2625

 

 

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 September 30, 2020 and 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, July 1, 2019

 

             -

 

 

$-

 

 

 

11,802,087

 

 

$118,020

 

 

$68,373,590

 

 

$3,359,047

 

 

$18,531,657

 

 

 

1,027,439

 

 

$(2,712,552)

 

 

87,669,762

 

Stock-based compensation

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

407,714

 

 

 

-

 

 

 

-

 

 

 

 

 

 

-

 

 

 

407,714

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

12,050

 

 

 

120

 

 

 

(120)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(3,126)

 

 

(30)

 

 

(25,408)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(25,438)
Dividends

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(637,927)

 

 

 

 

 

-

 

 

 

(637,927)

Net loss

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,725,162)

 

 

 

 

 

-

 

 

 

(1,725,162)

Change in unrealized gains on available-for-sale securities, net of tax

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

1,082,669

 

 

 

-

 

 

 

 

 

 

-

 

 

 

1,082,669

 

Balance, September 30, 2019

 

 

-

 

 

$-

 

 

 

11,811,011

 

 

$118,110

 

 

$68,755,776

 

 

$4,441,716

 

 

$16,168,568

 

 

 

1,027,439

 

 

$(2,712,552)

 

$86,771,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, July 1, 2020

 

 

-

 

 

$-

 

 

 

11,866,254

 

 

$118,662

 

 

$69,951,549

 

 

$8,091,923

 

 

$14,973,684

 

 

 

1,196,109

 

 

$(3,514,340)

 

$89,621,478

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430,896

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

430,896

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

6,790

 

 

 

69

 

 

 

(69)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(1,737)

 

 

(18)

 

 

(9,577)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(9,595)
Dividends

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(426,990)

 

 

 

 

 

-

 

 

 

(426,990)

Net loss

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,227,856)

 

 

 

 

 

-

 

 

 

(1,227,856)

Change in unrealized gains on available-

for-sale securities, net of tax

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

925,492

 

 

 

-

 

 

 

 

 

 

-

 

 

 

925,492

 

Balance, September 30, 2020

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,372,799

 

 

$9,017,415

 

 

$13,318,838

 

 

 

1,196,109

 

 

$(3,514,340)

 

$89,313,425

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
4

Table of Contents

    

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

  

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)

Nine months ended September 30, 2020 and 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

            -

 

 

$-

 

 

 

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

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

1,116,921

 

 

 

-

 

 

 

-

 

 

 

 

 

 

-

 

 

 

1,116,921

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

43,596

 

 

 

434

 

 

 

(434)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(10,733)

 

 

(105)

 

 

(148,173)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(148,278)

Exercise of stock options

 

 

-

 

 

 

-

 

 

 

3,000

 

 

 

30

 

 

 

23,522

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,552

 

Dividends

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,827,276)

 

 

 

 

 

-

 

 

 

(2,827,276)

Net loss

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,420,972)

 

 

 

 

 

-

 

 

 

(7,420,972)

Change in unrealized gains on available-

for-sale securities, net of tax

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

7,326,029

 

 

 

-

 

 

 

 

 

 

-

 

 

 

7,326,029

 

Balance, September 30, 2019

 

 

-

 

 

$-

 

 

 

11,811,011

 

 

$118,110

 

 

$68,755,776

 

 

$4,441,716

 

 

$16,132,568

 

 

 

1,027,439

 

 

$(2,712,552)

 

$86,735,618

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

in Excess

 

 

Comprehensive

 

 

Retained

 

 

Treasury Stock

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

of Par

 

 

Income

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Total

 

Balance, January 1, 2020

 

           -

 

 

$-

 

 

 

11,824,889

 

 

$118,248

 

 

$69,133,918

 

 

$4,768,870

 

 

$16,913,097

 

 

 

1,027,439

 

 

$(2,712,552)

 

$88,221,581

 

Stock-based compensation

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

1,373,283

 

 

 

-

 

 

 

-

 

 

 

 

 

 

-

 

 

 

1,373,283

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

67,686

 

 

 

676

 

 

 

(676)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(21,268)

 

 

(211)

 

 

(133,726)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(133,937)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

168,670

 

 

 

(801,788)

 

 

(801,788)
Dividends

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,530,390)

 

 

 

 

 

-

 

 

 

(1,530,390)

Net loss

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,063,869)

 

 

 

 

 

-

 

 

 

(2,063,869)

Change in unrealized gains on available-

for-sale securities, net of tax

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

-

 

 

 

4,248,545

 

 

 

-

 

 

 

 

 

 

-

 

 

 

4,248,545

 

Balance, September 30, 2020

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,372,799

 

 

$9,017,415

 

 

$13,318,838

 

 

 

1,196,109

 

 

$(3,514,340)

 

$89,313,425

 

  

See accompanying notes to condensed consolidated financial statements.

  

 
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Table of Contents

      

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows (Unaudited)  

Nine months ended September 30,

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(2,063,869)

 

$(7,420,972)

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

 

 

 

 

 

 

 

 

Net (gains) losses on sale of investments

 

 

(857,650)

 

 

54,759

 

Net unrealized losses (gains) on equity investments

 

 

2,740,489

 

 

 

(3,196,260)

Net unrealized gains of other investments

 

 

(244,165)

 

 

(570,679)

Depreciation and amortization

 

 

2,070,435

 

 

 

1,876,202

 

Bad debts

 

 

70,666

 

 

 

-

 

Amortization of bond premium, net

 

 

518,146

 

 

 

283,620

 

Amortization of discount and issuance costs on long-term debt

 

 

132,135

 

 

 

132,135

 

Stock-based compensation

 

 

1,373,283

 

 

 

1,116,921

 

Deferred income tax expense (benefit)

 

 

1,154,475

 

 

 

(2,133,486)

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Premiums receivable, net

 

 

(1,247,963)

 

 

(390,922)

Reinsurance receivables, net

 

 

(14,778,870)

 

 

(213,334)

Deferred policy acquisition costs

 

 

718,053

 

 

 

(2,583,831)

Other assets

 

 

(2,010,253)

 

 

(882,320)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

 

4,480,413

 

 

 

21,212,317

 

Unearned premiums

 

 

(2,215,602)

 

 

11,036,552

 

Advance premiums

 

 

1,727,744

 

 

 

1,629,862

 

Reinsurance balances payable

 

 

(1,652,075)

 

 

(1,123,540)

Deferred ceding commission revenue

 

 

(528,256)

 

 

(857,805)

Accounts payable, accrued expenses and other liabilities

 

 

1,147,858

 

 

 

1,568,746

 

Net cash flows (used in) provided by operating activities

 

 

(9,465,006)

 

 

19,537,965

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase - fixed-maturity securities held-to-maturity

 

 

(4,041,750)

 

 

-

 

Purchase - fixed-maturity securities available-for-sale

 

 

(12,447,259)

 

 

(15,373,113)

Purchase - equity securities

 

 

(15,614,675)

 

 

(6,657,676)

Sale and redemption - fixed-maturity securities held-to-maturity

 

 

500,000

 

 

 

400,000

 

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

 

 

29,666,158

 

 

 

9,835,464

 

Sale - equity securities

 

 

8,103,697

 

 

 

2,941,492

 

Acquisition of property and equipment

 

 

(2,238,432)

 

 

(3,231,483)

Net cash flows provided by (used in) investing activities

 

 

3,927,739

 

 

 

(12,085,316)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

-

 

 

 

23,552

 

Withholding taxes paid on vested retricted stock awards

 

 

(133,937)

 

 

(148,278)

Purchase of treasury stock

 

 

(801,788)

 

 

-

 

Dividends paid

 

 

(1,530,390)

 

 

(2,827,276)

Net cash flows used in financing activities

 

 

(2,466,115)

 

 

(2,952,002)

 

 

 

 

 

 

 

 

 

(Decrease) increase in cash and cash equivalents

 

$(8,003,382)

 

$4,500,647

 

Cash and cash equivalents, beginning of period

 

 

32,391,485

 

 

 

21,138,403

 

Cash and cash equivalents, end of period

 

$24,388,103

 

 

$25,639,050

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$-

 

 

$388,000

 

Cash paid for interest

 

$825,000

 

 

$825,000

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
6

Table of Contents

   

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 - Nature of Business and Basis of Presentation

 

Kingstone Companies, Inc. (referred to herein as “Kingstone” or the “Company”), through its wholly owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance exclusively through retail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut continue to be growing markets for the Company, 80.6% and 79.9% of KICO’s direct written premiums for the three months and nine months ended September 30, 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.

 

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 Securities and Exchange Commission (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 nine months ended September 30, 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.

 

 
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Table of Contents

   

Principles of Consolidation

 

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

 

Accounting Changes

 

The Company has determined that it was not subject to any new accounting pronouncements that became effective during the nine months ended September 30, 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.

 

 
8

Table of Contents

   

Note 3 - Investments 

 

Fixed-Maturity Securities

 

The amortized cost, estimated fair value, and unrealized gains and losses on investments in fixed-maturity securities classified as available-for-sale as of September 30, 2020 and December 31, 2019 are summarized as follows:

  

 

 

September 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$3,026,477

 

 

$42,853

 

 

$-

 

 

$-

 

 

$3,069,330

 

 

$42,853

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

5,593,778

 

 

 

322,297

 

 

 

-

 

 

 

-

 

 

 

5,916,075

 

 

 

322,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

112,504,206

 

 

 

10,698,206

 

 

 

(1,654)

 

 

-

 

 

 

123,200,758

 

 

 

10,696,552

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities (1)

 

 

24,002,398

 

 

 

535,772

 

 

 

(38,491)

 

 

(147,253)

 

 

24,352,426

 

 

 

350,028

 

Total

 

$145,126,859

 

 

$11,599,128

 

 

$(40,145)

 

$(147,253)

 

$156,538,589

 

 

$11,411,730

 

 

 

(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 September 30, 2020, the estimated fair value of the eligible investments was approximately $6,685,000. KICO will retain all rights regarding all securities if pledged as collateral. As of September 30, 2020, there was no outstanding balance on the FHLBNY credit line.

  

 
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Table of Contents

   

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

A summary of the amortized cost and estimated fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of September 30, 2020 and December 31, 2019 is shown below:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$8,879,582

 

 

$8,986,248

 

 

$11,986,401

 

 

$12,025,804

 

One to five years

 

 

46,530,097

 

 

 

49,878,416

 

 

 

49,715,422

 

 

 

51,000,025

 

Five to ten years

 

 

57,021,277

 

 

 

64,194,995

 

 

 

69,850,104

 

 

 

74,410,275

 

More than 10 years

 

 

8,693,505

 

 

 

9,126,504

 

 

 

4,511,795

 

 

 

4,568,847

 

Residential mortgage and other asset backed securities

 

 

24,002,398

 

 

 

24,352,426

 

 

 

26,138,633

 

 

 

26,231,230

 

Total

 

$145,126,859

 

 

$156,538,589

 

 

$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.

  

 
10

Table of Contents

   

Equity Securities

 

The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of September 30, 2020 and December 31, 2019 are as follows:

 

 

 

September 30, 2020

 

 

 

 

 

Gross

 

 

Gross

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$14,260,019

 

 

$325,070

 

 

$(339,125)

 

$14,245,964

 

Common stocks, mutual funds, and exchange traded funds

 

 

16,040,820

 

 

 

777,813

 

 

 

(1,441,330)

 

 

15,377,303

 

Total

 

$30,300,839

 

 

$1,102,883

 

 

$(1,780,455)

 

$29,623,267

 

 

 

 

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 gains on, the Company’s other investments as of September 30, 2020 and December 31, 2019 are as follows:

 

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

 

 

Gross

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

Unrealized

 

 

Estimated

 

 

 

 

Unrealized

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Fair Value

 

 

Cost

 

 

Gains

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge fund

 

$1,999,381

 

 

$829,697

 

 

$2,829,078

 

 

$1,999,381

 

 

$585,532

 

 

$2,584,913

 

Total

 

$1,999,381

 

 

$829,697

 

 

$2,829,078

 

 

$1,999,381

 

 

$585,532

 

 

$2,584,913

 

   

 
11

Table of Contents

    

Held-to-Maturity Securities

 

The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses on, investments in held-to-maturity fixed-maturity securities as of September 30, 2020 and December 31, 2019 are summarized as follows:

 

 

 

September 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

 

$729,583

 

 

$162,442

 

 

$-

 

 

$-

 

 

$892,025

 

 

$162,442

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Territories and Possessions

 

 

998,480

 

 

 

56,700

 

 

 

-

 

 

 

-

 

 

 

1,055,180

 

 

 

56,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial and miscellaneous

 

 

5,641,545

 

 

 

334,412

 

 

 

(23,858)

 

 

-

 

 

 

5,952,099

 

 

 

310,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$7,369,608

 

 

$553,554

 

 

$(23,858)

 

$-

 

 

$7,899,304

 

 

$529,696

 

 

 

 

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

 

 

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

  

 
12

Table of Contents

   

A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of September 30, 2020 and December 31, 2019 is shown below:

 

 

 

September 30, 2020

 

 

December 31, 2019

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$-

 

 

$-

 

 

$500,000

 

 

$499,165

 

One to five years

 

 

2,597,739

 

 

 

2,793,089

 

 

 

2,099,268

 

 

 

2,215,640

 

Five to ten years

 

 

1,499,837

 

 

 

1,710,586

 

 

 

620,134

 

 

 

655,923

 

More than 10 years

 

 

3,272,032

 

 

 

3,395,629

 

 

 

606,550

 

 

 

754,039

 

Total

 

$7,369,608

 

 

$7,899,304

 

 

$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

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities

 

$1,264,633

 

 

$1,499,135

 

 

$4,106,404

 

 

$4,500,346

 

Equity securities

 

 

290,834

 

 

 

253,594

 

 

 

787,702

 

 

 

666,247

 

Cash and cash equivalents

 

 

1,834

 

 

 

75,253

 

 

 

89,993

 

 

 

288,334

 

Total

 

 

1,557,301

 

 

 

1,827,982

 

 

 

4,984,099

 

 

 

5,454,927

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment expenses

 

 

63,215

 

 

 

(28,571)

 

 

212,163

 

 

 

254,893

 

Net investment income

 

$1,494,086

 

 

$1,856,553

 

 

$4,771,936

 

 

$5,200,034

 

 

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $500,000and $400,000 for the nine months ended September 30, 2020 and 2019, respectively.

 

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $29,666,158 and $9,835,464 for the nine months ended September 30, 2020 and 2019, respectively.

 

Proceeds from the sale of equity securities were $8,103,697 and $2,941,492 for the nine months ended September 30, 2020 and 2019, respectively.

  

 
13

Table of Contents

   

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

 

 

 

Three months ended

 

 

Nine months ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Realized  Gains (Losses)

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

$714,162

 

 

$10

 

 

$967,573

 

 

$10,954

 

Gross realized losses

 

 

(107,193)

 

 

(46,851)

 

 

(304,118)

 

 

(92,591)

 

 

 

606,969

 

 

 

(46,841)

 

 

560,696

 

 

 

(81,637)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross realized gains

 

 

199,439

 

 

 

38,477

 

 

 

644,111

 

 

 

83,737

 

Gross realized losses

 

 

(209,069)

 

 

-

 

 

 

(449,916)

 

 

(56,859)

 

 

 

(9,630)

 

 

38,477

 

 

 

194,195

 

 

 

26,878

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net realized (losses) gains

 

 

597,339

 

 

 

(8,364)

 

 

857,650

 

 

 

(54,759)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross gains

 

 

1,223,779

 

 

 

916,496

 

 

 

-

 

 

 

3,196,260

 

Gross losses

 

 

-

 

 

 

-

 

 

 

(2,740,489)

 

 

-

 

 

 

 

1,223,779

 

 

 

916,496

 

 

 

(2,740,489)

 

 

3,196,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross gains

 

 

286,758

 

 

 

90,030

 

 

 

244,165

 

 

 

570,679

 

Gross losses

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

286,758

 

 

 

90,030

 

 

 

244,165

 

 

 

570,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses)

 

 

1,510,537

 

 

 

1,006,526

 

 

 

(2,496,324)

 

 

3,766,939

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains (losses) on investments

 

$2,107,876

 

 

$998,162

 

 

$(1,638,674)

 

$3,712,180

 

  

Impairment Review

 

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities to evaluate the necessity of recording impairment losses for other-than-temporary declines in the estimated fair value of investments. In evaluating potential impairment, GAAP specifies (i) if the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss. When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in comprehensive income. 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 income (loss) as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At September 30, 2020 and December 31, 2019, there were 19 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 nine months ended September 30, 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.

  

 
14

Table of Contents

  

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at September 30, 2020 as follows:

 

 

 

September 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

 

 

522,450

 

 

 

(1,654)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

522,450

 

 

 

(1,654)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

4,003,377

 

 

 

(38,491)

 

 

6

 

 

 

5,020,026

 

 

 

(147,253)

 

 

12

 

 

 

9,023,403

 

 

 

(185,744)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$4,525,827

 

 

$(40,145)

 

 

7

 

 

$5,020,026

 

 

$(147,253)

 

 

12

 

 

$9,545,853

 

 

$(187,398)

  

 
15

Table of Contents

   

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

 

 

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

 

 

3,067,428

 

 

 

(11,316)

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,067,428

 

 

 

(11,316)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

3,730,478

 

 

 

(16,685)

 

 

7

 

 

 

1,300,915

 

 

 

(13,473)

 

 

3

 

 

 

5,031,393

 

 

 

(30,158)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

5,862,636

 

 

 

(68,793)

 

 

5

 

 

 

13,534,768

 

 

 

(276,451)

 

 

21

 

 

 

19,397,404

 

 

 

(345,244)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$12,660,542

 

 

$(96,794)

 

 

15

 

 

$14,835,683

 

 

$(289,924)

 

 

24

 

 

$27,496,225

 

 

$(386,718)

  

 
16

Table of Contents

    

Note 4 - Fair Value Measurements

 

The following table presents information about the Company’s investments that are measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019 indicating the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

 

 

September 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