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, 2021 

OR

 

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

 

For the transition period from _________to _________

 

Commission File Number 0-1665 

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-2476480

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

15 Joys Lane

Kingston, NY 12401
(Address of principal executive offices)

 

(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 ☐

 

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 17, 2021, there were 10,680,653 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 March 31, 2021 (Unaudited) and December 31, 2020

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 (Unaudited) and 2020 (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 (Unaudited) and 2020 (Unaudited)

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 (Unaudited) and 2020 (Unaudited)

 

5

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

Item 2 —

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

 

35

 

Item 3 —

Quantitative and Qualitative Disclosures About Market Risk

 

61

 

Item 4 —

Controls and Procedures

 

61

 

 

 

 

 

 

PART II — OTHER INFORMATION

63

Item 1 —

Legal Proceedings

 

63

 

Item 1A —

Risk Factors

 

63

 

Item 2 —

Unregistered Sales of Equity Securities and Use of Proceeds

 

64

 

Item 3 —

Defaults Upon Senior Securities

 

64

 

Item 4 —

Mine Safety Disclosures

 

64

 

Item 5 —

Other Information

 

64

 

Item 6 —

Exhibits

 

65

 

Signatures

66

   

 

Table of Contents

    

Forward-Looking Statements

 

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

 

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

 

 
1

Table of Contents

   

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 March 31,

 

 

 December 31,

 

 

 

2021

 

 

2020

 

 

 

 (unaudited)

 

 

 

 Assets

 

 

 

 

 

 

Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $9,564,055 at March 31, 2021 and $8,194,824 at December 31, 2020)

 

$9,180,786

 

 

$7,368,815

 

Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $139,299,693 at March 31, 2021 and $145,045,584 at December 31, 2020)

 

 

147,585,805

 

 

 

157,549,272

 

Equity securities, at fair value (cost of $32,651,343 at March 31, 2021 and $32,571,166 at December 31, 2020)

 

 

35,430,803

 

 

 

34,413,313

 

Other investments

 

 

6,348,590

 

 

 

3,518,626

 

Total investments

 

 

198,545,984

 

 

 

202,850,026

 

Cash and cash equivalents

 

 

22,179,960

 

 

 

19,463,742

 

Premiums receivable, net

 

 

10,885,621

 

 

 

11,819,639

 

Reinsurance receivables, net

 

 

37,366,742

 

 

 

45,460,729

 

Deferred policy acquisition costs

 

 

19,351,989

 

 

 

20,142,515

 

Intangible assets

 

 

500,000

 

 

 

500,000

 

Property and equipment, net

 

 

8,294,847

 

 

 

8,083,123

 

Other assets

 

 

9,759,071

 

 

 

9,262,493

 

Total assets

 

$306,884,214

 

 

$317,582,267

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

$84,457,059

 

 

$82,801,228

 

Unearned premiums

 

 

86,219,795

 

 

 

90,009,272

 

Advance premiums

 

 

4,145,845

 

 

 

2,660,354

 

Reinsurance balances payable

 

 

2,336,498

 

 

 

6,979,735

 

Deferred ceding commission revenue

 

 

93,318

 

 

 

93,519

 

Accounts payable, accrued expenses and other liabilities

 

 

7,789,131

 

 

 

8,433,233

 

Deferred income taxes, net

 

 

3,138,231

 

 

 

4,156,913

 

Long-term debt, net

 

 

29,691,656

 

 

 

29,647,611

 

Total liabilities

 

 

217,871,533

 

 

 

224,781,865

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 -

 

 

 

 -

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

Common stock, $.01 par value; authorized 20,000,000 shares; issued 11,935,321 shares at March 31, 2021 and 11,871,307 at December 31, 2020; outstanding 10,672,794 shares at March 31, 2021 and 10,616,815 shares at December 31, 2020

 

 

119,353

 

 

 

118,713

 

Capital in excess of par

 

 

71,116,917

 

 

 

70,769,165

 

Accumulated other comprehensive income

 

 

6,548,178

 

 

 

9,880,062

 

Retained earnings

 

 

15,190,031

 

 

 

15,928,345

 

 

 

 

92,974,479

 

 

 

96,696,285

 

Treasury stock, at cost, 1,262,527 shares at March 31, 2021 and 1,254,492 shares at December 31, 2020

 

 

(3,961,798)

 

 

(3,895,883)

Total stockholders’ equity

 

 

89,012,681

 

 

 

92,800,402

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$306,884,214

 

 

$317,582,267

 

 

See accompanying notes to condensed consolidated financial statements.

 

 
2

Table of Contents

    

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

Three months ended March 31,

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Revenues

 

 

 

 

 

 

Net premiums earned

 

$34,589,218

 

 

$26,941,450

 

Ceding commission revenue

 

 

(1,065)

 

 

3,831,099

 

Net investment income

 

 

1,783,196

 

 

 

1,665,844

 

Net gains (losses) on investments

 

 

2,960,407

 

 

 

(6,444,418)

Other income

 

 

171,446

 

 

 

259,630

 

Total revenues

 

 

39,503,202

 

 

 

26,253,605

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Loss and loss adjustment expenses

 

 

22,560,672

 

 

 

16,385,821

 

Commission expense

 

 

8,223,839

 

 

 

7,855,927

 

Other underwriting expenses

 

 

6,467,042

 

 

 

6,761,792

 

Other operating expenses

 

 

1,352,306

 

 

 

1,236,895

 

Depreciation and amortization

 

 

822,340

 

 

 

687,094

 

Interest expense

 

 

456,545

 

 

 

456,545

 

Total expenses

 

 

39,882,744

 

 

 

33,384,074

 

 

 

 

 

 

 

 

 

 

Loss from operations before income taxes

 

 

(379,542)

 

 

(7,130,469)

Income tax benefit

 

 

(68,445)

 

 

(1,686,266)

Net loss

 

 

(311,097)

 

 

(5,444,203)

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

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

 

 

(3,823,279)

 

 

(6,727,489)

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains included in net loss

 

 

(394,297)

 

 

(102,222)

Net change in unrealized losses

 

 

(4,217,576)

 

 

(6,829,711)

Income tax benefit related to items of other comprehensive loss

 

 

885,692

 

 

 

1,434,240

 

Other comprehensive loss, net of tax

 

 

(3,331,884)

 

 

(5,395,471)

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$(3,642,981)

 

$

(10,839,674

)

 

 

 

 

 

 

 

 

 

Loss per common share:

 

 

 

 

 

 

 

 

Basic

 

$(0.03)

 

$(0.50)

Diluted

 

$(0.03)

 

$(0.50)

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

10,676,298

 

 

 

10,807,841

 

Diluted

 

 

10,676,298

 

 

 

10,807,841

 

 

 

 

 

 

 

 

 

 

Dividends declared and paid per common share

 

$0.0400

 

 

$0.0625

 

 

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 March 31, 2021 and 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 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, 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 gains 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

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 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, 2021

 

 

-

 

 

$-

 

 

 

11,871,307

 

 

$118,713

 

 

$70,769,165

 

 

$9,880,062

 

 

$15,928,345

 

 

 

1,254,492

 

 

$(3,895,883)

 

$92,800,402

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

494,998

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

494,998

 

Vesting of restricted stock awards

 

 

-

 

 

 

-

 

 

 

85,922

 

 

 

859

 

 

 

(859)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Shares deducted from restricted stock awards for payment of withholding taxes

 

 

-

 

 

 

-

 

 

 

(21,908)

 

 

(219)

 

 

(146,387)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(146,606)

Acquisition of treasury stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

8,035

 

 

 

(65,915)

 

 

(65,915)

Dividends

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(427,217)

 

 

-

 

 

 

-

 

 

 

(427,217)

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(311,097)

 

 

-

 

 

 

-

 

 

 

(311,097)

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,331,884)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,331,884)

Balance, March 31, 2021

 

 

-

 

 

$-

 

 

 

11,935,321

 

 

$119,353

 

 

$71,116,917

 

 

$6,548,178

 

 

$15,190,031

 

 

 

1,262,527

 

 

$(3,961,798)

 

$89,012,681

 

    

See accompanying notes to condensed consolidated financial statements.

  

 
4

Table of Contents

  

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

Three months ended March 31,

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(311,097)

 

$(5,444,203)

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

 

 

 

 

 

 

 

 

Net gains on sale of investments

 

 

(1,127,234)

 

 

(274,581)

Net unrealized (gains) losses on equity investments

 

 

(1,003,209)

 

 

6,121,608

 

Net unrealized gains of other investments

 

 

(829,964)

 

 

597,391

 

Depreciation and amortization

 

 

822,340

 

 

 

687,094

 

Bad debts

 

 

59,876

 

 

 

35,737

 

Amortization of bond premium, net

 

 

31,639

 

 

 

105,189

 

Amortization of discount and issuance costs on long-term debt

 

 

44,045

 

 

 

44,045

 

Stock-based compensation

 

 

494,998

 

 

 

487,450

 

Deferred income tax (benefit) expense

 

 

(132,990)

 

 

397,593

 

(Increase) decrease in operating assets:

 

 

 

 

 

 

 

 

Premiums receivable, net

 

 

874,142

 

 

 

757,551

 

Reinsurance receivables, net

 

 

8,093,987

 

 

 

(1,958,517)

Deferred policy acquisition costs

 

 

790,526

 

 

 

1,062,490

 

Other assets

 

 

(478,564)

 

 

(521,521)

Increase (decrease) in operating liabilities:

 

 

 

 

 

 

 

 

Loss and loss adjustment expense reserves

 

 

1,655,831

 

 

 

(2,647,512)

Unearned premiums

 

 

(3,789,477)

 

 

(5,904,700)

Advance premiums

 

 

1,485,491

 

 

 

(47,633)

Reinsurance balances payable

 

 

(4,643,237)

 

 

(6,377,437)

Deferred ceding commission revenue

 

 

(201)

 

 

(799,997)

Accounts payable, accrued expenses and other liabilities

 

 

(644,102)

 

 

(1,576,461)

Net cash flows provided by (used in) operating activities

 

 

1,392,800

 

 

 

(15,256,414)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase - fixed-maturity securities held-to-maturity

 

 

(1,827,425)

 

 

-

 

Purchase - fixed-maturity securities available-for-sale

 

 

(5,424,374)

 

 

(961,000)

Purchase - equity securities

 

 

(5,732,648)

 

 

(5,220,778)

Purchase - other investments

 

 

(2,000,000)

 

 

-

 

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

 

 

11,548,405

 

 

 

10,553,818

 

Sale - equity securities

 

 

6,433,262

 

 

 

5,518,428

 

Acquisition of property and equipment

 

 

(1,034,064)

 

 

(432,112)

Net cash flows provided by investing activities

 

 

1,963,156

 

 

 

9,458,356

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Withholding taxes paid on vested retricted stock awards

 

 

(146,606)

 

 

(87,954)

Purchase of treasury stock

 

 

(65,915)

 

 

(242,724)

Dividends paid

 

 

(427,217)

 

 

(675,960)

Net cash flows used in financing activities

 

 

(639,738)

 

 

(1,006,638)

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

$2,716,218

 

 

$(6,804,696)

Cash and cash equivalents, beginning of period

 

 

19,463,742

 

 

 

32,391,485

 

Cash and cash equivalents, end of period

 

$22,179,960

 

 

$25,586,789

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$-

 

 

$-

 

Cash paid for interest

 

$-

 

 

$-

 

   

 See accompanying notes to condensed consolidated financial statements.

  

 
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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, 72.3% and 82.7% of KICO’s direct written premiums for the three months ended March 31, 2021 and 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, 2020 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2021. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2021 may not be indicative of the results that may be expected for the year ending December 31, 2021.

  

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

 

Note 2 – Accounting Policies

 

Use of Estimates

 

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

 

 
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Principles of Consolidation

 

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

 

Accounting Changes

 

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

 

Accounting Pronouncements

 

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

 

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

 

 

 
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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 March 31, 2021 and December 31, 2020 are summarized as follows:

 

 

 

March 31, 2021

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$2,014,895

 

 

$19,785

 

 

$-

 

 

$-

 

 

$2,034,680

 

 

$19,785

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

8,606,088

 

 

 

173,655

 

 

 

(86,507)

 

 

-

 

 

 

8,693,236

 

 

 

87,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds Industrial and miscellaneous

 

 

104,774,373

 

 

 

7,791,664

 

 

 

(78,069)

 

 

-

 

 

 

112,487,968

 

 

 

7,713,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other asset backed securities (1)

 

 

23,904,337

 

 

 

566,540

 

 

 

(8,225)

 

 

(92,731)

 

 

24,369,921

 

 

 

465,584

 

Total

 

$139,299,693

 

 

$8,551,644

 

 

$(172,801)

 

$(92,731)

 

$147,585,805

 

 

$8,286,112

 

 

(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, 2021, the estimated fair value of the eligible investments was approximately $10,962,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2021, there was no outstanding balance on the FHLBNY credit line.

 

 
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December 31, 2020

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S. government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

corporations and agencies

 

$3,020,710

 

 

$29,190

 

 

$-

 

 

$-

 

 

$3,049,900

 

 

$29,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

5,287,561

 

 

 

355,541

 

 

 

-

 

 

 

-

 

 

5,643,102

 

 

 

355,541

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds Industrial and miscellaneous

 

 

108,573,422

 

 

 

11,634,123

 

 

 

(13,216)

 

 

-

 

 

120,194,329

 

 

 

11,620,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other asset backed securities (1)

 

 

28,163,891

 

 

 

617,368

 

 

 

(7,371)

 

 

(111,947)

 

28,661,941

 

 

 

498,050

 

Total

 

$145,045,584

 

 

$12,636,222

 

 

$(20,587)

 

$(111,947)

 

$157,549,272

 

 

$12,503,688

 

 

(1)  

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

 

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, 2021 and December 31, 2020 is shown below:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$9,079,054

 

 

$9,181,876

 

 

$8,559,005

 

 

$8,668,064

 

One to five years

 

 

43,059,233

 

 

 

46,164,289

 

 

 

44,137,567

 

 

 

47,745,430

 

Five to ten years

 

 

51,273,291

 

 

 

55,781,784

 

 

 

55,508,712

 

 

 

63,159,775

 

More than 10 years

 

 

11,983,778

 

 

 

12,087,935

 

 

 

8,676,409

 

 

 

9,314,062

 

Residential mortgage and other asset backed securities

 

 

23,904,337

 

 

 

24,369,921

 

 

 

28,163,891

 

 

 

28,661,941

 

Total

 

$139,299,693

 

 

$147,585,805

 

 

$145,045,584

 

 

$157,549,272

 

 

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

 

 
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Equity Securities

 

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

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

 

 

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$19,827,370

 

 

$1,207,776

 

 

$(221,142)

 

$20,814,004

 

Common stocks, mutual funds, and exchange traded funds

 

 

12,823,973

 

 

 

1,810,617

 

 

 

(17,791)

 

 

14,616,799

 

Total

 

$32,651,343

 

 

$3,018,393

 

 

$(238,933)

 

$35,430,803

 

   

 

 

December 31, 2020

 

 

 

 

 

Gross

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Losses

 

 

Fair Value

 

 

 

 

 

 

 

 

Equity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stocks

 

$18,097,942

 

 

$853,277

 

 

$(426,942)

 

$18,524,277

 

Common stocks, mutual funds, and exchange traded funds

 

 

14,473,224

 

 

 

1,820,512

 

 

 

(404,700)

 

 

15,889,036

 

Total

 

$32,571,166

 

 

$2,673,789

 

 

$(831,642)

 

$34,413,313

 

 

Other Investments

 

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

 

 

Gross

 

 

Estimated

 

 

 

 

Gross

 

 

Estimated

 

Category

 

Cost

 

 

Gains

 

 

Fair Value

 

 

Cost

 

 

Gains

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge fund

 

$3,999,381

 

 

$2,199,209

 

 

$6,198,590

 

 

$1,999,381

 

 

$1,369,245

 

 

$3,368,626

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate limited partnership

 

 

150,000

 

 

 

-

 

 

 

150,000

 

 

 

150,000

 

 

 

-

 

 

 

150,000

 

Total

 

$4,149,381

 

 

$2,199,209

 

 

$6,348,590

 

 

$2,149,381

 

 

$1,369,245

 

 

$3,518,626

 

 

 
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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, 2021 and December 31, 2020 are summarized as follows:

 

 

 

March 31, 2021

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

Held-to-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$729,606

 

 

$210,129

 

 

$-

 

 

$-

 

 

$939,735

 

 

$210,129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

998,382

 

 

 

42,508

 

 

 

-

 

 

 

-

 

 

 

1,040,890

 

 

 

42,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exchange traded debt

 

 

1,812,762

 

 

 

28,106

 

 

 

(5,897)

 

 

-

 

 

 

1,834,971

 

 

 

22,209

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds Industrial and miscellaneous

 

 

5,640,036

 

 

 

242,695

 

 

 

(134,272)

 

 

-

 

 

 

5,748,459

 

 

 

108,423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$9,180,786

 

 

$523,438

 

 

$(140,169)

 

$-

 

 

$9,564,055

 

 

$383,269

 

 

 

 

December 31, 2020

 

 

 

Cost or

 

 

Gross

 

 

Gross Unrealized Losses

 

 

Estimated

 

 

Net

 

 

 

Amortized

 

 

Unrealized

 

 

Less than 12

 

 

More than 12

 

 

Fair

 

 

Unrealized

 

Category

 

Cost

 

 

Gains

 

 

Months

 

 

Months

 

 

Value

 

 

Gains

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held-to-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

$729,595

 

 

$319,714

 

 

$-

 

 

$-

 

 

$1,049,309

 

 

$319,714

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

998,428

 

 

 

50,917

 

 

 

-

 

 

 

-

 

 

 

1,049,345

 

 

 

50,917

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds Industrial and miscellaneous

 

 

5,640,792

 

 

 

455,378

 

 

 

-

 

 

 

-

 

 

 

6,096,170

 

 

 

455,378

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$7,368,815

 

 

$826,009

 

 

$-

 

 

$-

 

 

$8,194,824

 

 

$826,009

 

 

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

 

 
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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, 2021 and December 31, 2020 is shown below:

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

Remaining Time to Maturity

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

Less than one year

 

$500,639

 

 

$512,985

 

 

$-

 

 

$-

 

One to five years

 

 

2,098,011

 

 

 

2,244,083

 

 

 

2,598,193

 

 

 

2,777,936

 

Five to ten years

 

 

1,505,366

 

 

 

1,639,444

 

 

 

1,502,603

 

 

 

1,727,316

 

More than 10 years

 

 

5,076,770

 

 

 

5,167,543

 

 

 

3,268,019

 

 

 

3,689,572

 

Total

 

$9,180,786

 

 

$9,564,055

 

 

$7,368,815

 

 

$8,194,824

 

 

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

 

Investment Income

 

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

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Income:

 

 

 

 

 

 

Fixed-maturity securities

 

$1,491,127

 

 

$1,447,938

 

Equity securities

 

 

357,311

 

 

 

253,073

 

Cash and cash equivalents

 

 

924

 

 

 

44,223

 

Total

 

 

1,849,362

 

 

 

1,745,234

 

Expenses:

 

 

 

 

 

 

 

 

Investment expenses

 

 

66,166

 

 

 

79,390

 

Net investment income

 

$1,783,196

 

 

$1,665,844

 

 

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $-0- for the three months ended March 31, 2021 and 2020.

 

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $11,548,405 and $10,553,818 for the three months ended March 31, 2021 and 2020, respectively.

 

Proceeds from the sale of equity securities were $6,433,262 and $5,518,428 for the three months ended March 31, 2021 and 2020, respectively.

 

 
12

Table of Contents

    

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

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Realized Gains (Losses)

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities:

 

 

 

 

 

 

Gross realized gains

 

$410,311

 

 

$204,225

 

Gross realized losses

 

 

(15,986)

 

 

(32,342)

 

 

 

394,325

 

 

 

171,883

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

Gross realized gains

 

 

933,122

 

 

 

316,513

 

Gross realized losses

 

 

(200,213)

 

 

(213,815)

 

 

 

732,909

 

 

 

102,698

 

 

 

 

 

 

 

 

 

 

Net realized gains

 

 

1,127,234

 

 

 

274,581

 

 

 

 

 

 

 

 

 

 

Unrealized Gains (Losses)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

Gross gains

 

 

1,003,209

 

 

 

-

 

Gross losses

 

 

-

 

 

 

(6,121,608)

 

 

 

1,003,209

 

 

 

(6,121,608)

 

 

 

 

 

 

 

 

 

Other investments:

 

 

 

 

 

 

 

 

Gross gains

 

 

829,964

 

 

 

-

 

Gross losses

 

 

-

 

 

 

(597,391)

 

 

 

829,964

 

 

 

(597,391)

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses)

 

 

1,833,173

 

 

 

(6,718,999)

 

 

 

 

 

 

 

 

 

Net gains (losses) on investments

 

$2,960,407

 

 

$(6,444,418)

 

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 based on cash flow projections. For held-to-maturity fixed-maturity 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 based on timing of future estimated cash flows of the security.

 

OTTI losses are recorded in the 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, 2021 and December 31, 2020, there were 20 and 16 fixed-maturity securities, respectively, that accounted for the gross unrealized losses. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of investments for the three months ended March 31, 2021 and 2020. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to hold the investment for a period of time sufficient to allow for an anticipated recovery of estimated fair value to the Company’s cost basis.

 

 

 
13

Table of Contents

  

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at March 31, 2021 as follows:

 

 

 

March 31, 2021

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

4,236,366

 

 

 

(86,507)

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,236,366

 

 

 

(86,507)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

4,991,204

 

 

 

(78,069)

 

 

3

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,991,204

 

 

 

(78,069)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

3,512,982

 

 

 

(8,225)

 

 

4

 

 

 

3,477,111

 

 

 

(92,731)

 

 

10

 

 

 

6,990,093

 

 

 

(100,956)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

$12,740,552

 

 

$(172,801)

 

 

10

 

 

$3,477,111

 

 

$(92,731)

 

 

10

 

 

$16,217,663

 

 

$(265,532)

 

 
14

Table of Contents

  

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

 

 

 

December 31, 2020

 

 

 

Less than 12 months

 

 

12 months or more

 

 

Total

 

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

No. of

 

 

Estimated

 

 

 

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

 

Positions

 

 

Fair

 

 

Unrealized

 

Category

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

Held

 

 

Value

 

 

Losses

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

government corporations and agencies

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

-

 

 

$-

 

 

$-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Possessions

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds industrial and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

miscellaneous

 

 

1,006,901

 

 

 

(13,216)

 

 

1

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,006,901

 

 

 

(13,216)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

asset backed securities

 

 

6,137,522

 

 

 

(7,371)

 

 

5

 

 

 

3,735,732

 

 

 

(111,947)

 

 

10

 

 

 

9,873,254

 

 

 

(119,318)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fixed-maturity securities

 

$7,144,423

 

 

$(20,587)

 

 

6

 

 

$3,735,732

 

 

$(111,947)

 

 

10

 

 

$10,880,155

 

 

$(132,534)

 

 
15

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 March 31, 2021 and December 31, 2020 indicating the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

Fixed-maturity securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

government corporations and agencies

 

$2,034,680

 

 

$-

 

 

$-

 

 

$2,034,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

-

 

 

 

8,693,236

 

 

 

-

 

 

 

8,693,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds industrial and miscellaneous

 

 

110,434,895

 

 

 

2,053,073

 

 

 

-

 

 

 

112,487,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage backed securities

 

 

-

 

 

 

24,369,921

 

 

 

-

 

 

 

24,369,921

 

Total fixed maturities

 

 

112,469,575

 

 

 

35,116,230

 

 

 

-

 

 

 

147,585,805

 

Equity securities

 

 

35,430,803

 

 

 

-

 

 

 

-

 

 

 

35,430,803

 

Total investments

 

$147,900,378

 

 

$35,116,230

 

 

$-

 

 

$183,016,608

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

 

 

 

 

 

Fixed-maturity securities available-for-sale

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of U.S.

 

 

 

 

 

 

 

 

 

 

 

 

government corporations and agencies

 

$3,049,900

 

 

$-

 

 

$-

 

 

$3,049,900

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Political subdivisions of States, Territories and Possessions

 

 

-

 

 

 

5,643,102

 

 

 

-

 

 

 

5,643,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate and other bonds industrial and miscellaneous

 

 

118,123,890

 

 

 

2,070,439

 

 

 

-

 

 

 

120,194,329

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage and other asset backed securities

 

 

-

 

 

 

28,661,941

 

 

 

-

 

 

 

28,661,941

 

Total fixed maturities

 

 

121,173,790

 

 

 

36,375,482

 

 

 

-

 

 

 

157,549,272

 

Equity securities

 

 

34,413,313

 

 

 

-

 

 

 

-

 

 

 

34,413,313

 

Total investments

 

$155,587,103

 

 

$36,375,482

 

 

$-

 

 

$191,962,585

 

 

 
16

Table of Contents

 

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

 

Category

 

March 31,

2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

Other Investments:

 

 

 

 

 

 

Hedge fund

 

$6,198,590

 

 

$3,368,626

 

 

 

 

 

 

 

 

 

 

Real estate limited partnership

 

 

150,000

 

 

 

150,000

 

Total

 

$6,348,590

 

 

$3,518,626

 

 

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

 

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

 

 

 

March 31, 2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Notes due 2022

 

$-

 

 

$27,295,348

 

 

$-

 

 

$27,295,348

 

 

 

 

December 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Long-term debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior Notes due 2022

 

$-

 

 

$27,272,727

 

 

$-

 

 

$27,272,727

 

 

 
17

Table of Contents

  

Note 5 - Fair Value of Financial Instruments and Real Estate

 

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

 

 

 

March 31, 2021

 

 

December 31, 2020

 

 

 

Carrying

 

 

Estimated

 

 

Carrying

 

 

Estimated

 

 

 

Value

 

 

Fair Value

 

 

Value

 

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

 

Fixed-maturity securities-held-to maturity

 

$9,180,786

 

 

$9,564,055

 

 

$7,368,815

 

 

$8,194,824

 

Cash and cash equivalents

 

$22,179,960

 

 

$22,179,960

 

 

$19,463,742

 

 

$19,463,742

 

Premiums receivable, net

 

$10,885,621

 

 

$10,885,621

 

 

$14,020,716

 

 

$14,020,716

 

Reinsurance receivables, net

 

$37,366,742

 

 

$37,366,742

 

 

$45,460,729

 

 

$45,460,729

 

Real estate, net of accumulated depreciation

 

$2,199,771

 

 

$2,705,000

 

 

$2,219,999

 

 

$2,705,000

 

Reinsurance balances payable

 

$2,336,498

 

 

$2,336,498

 

 

$6,979,735

 

 

$