Part I [Business](index=5&type=section&id=Item%201.%20Business) Kingstone is a regional property and casualty insurer focused on personal lines in the Northeast, expanding its footprint while exiting commercial liability - The company offers property and casualty insurance through its subsidiary KICO, with **85.0% of its direct written premiums in 2019 originating from New York**, though it is expanding into New Jersey, Rhode Island, Massachusetts, and Connecticut[11](index=11&type=chunk) - In July 2019, the company decided to **exit the commercial liability business** due to poor performance; in-force policies will be non-renewed at the end of their terms[18](index=18&type=chunk)[32](index=32&type=chunk) - Effective December 15, 2019, KICO entered into a **new 25% quota share reinsurance treaty** for its personal lines business[13](index=13&type=chunk) - Effective July 1, 2019, catastrophe reinsurance coverage was **increased from $450 million to $610 million**, covering more than a 1-in-250 year storm event[15](index=15&type=chunk) Gross Written Premiums by Product Line (2019) | Product Line | % of Gross Written Premiums | | :--- | :--- | | Personal Lines | 87.6% | | Livery Physical Damage | 6.2% | | Commercial Liability | 5.9% | | Other | 0.3% | [Business Strategy and Operations](index=7&type=section&id=Business_Strategy_and_Operations) The company pursues profitable growth through disciplined underwriting, strong producer relationships, and technology investment - The company's principal objectives are to grow profitably while managing risk through prudent use of reinsurance, aiming for underwriting income via adequate pricing and expense management[28](index=28&type=chunk) - KICO has achieved an **underwriting profit in nine of the last ten years**, demonstrating a history of profitable operations[34](index=34&type=chunk) - The company distributes its products through a network of **over 600 producers**, who are selected and monitored for performance and profitability[45](index=45&type=chunk) Homeowners & Dwelling Fire Premiums by Distribution Channel (2019) | Distribution Channel | Direct Written Premiums ($ thousands) | Percent of Total | | :--- | :--- | :--- | | Core Independent (NY) | $120,625 | 80.6% | | Expansion Independent (Outside NY) | $24,253 | 16.2% | | Alternative Distribution through Cosi | $4,799 | 3.2% | | **Total** | **$149,677** | **100.0%** | [Loss Reserves and Reinsurance](index=10&type=section&id=Loss_Reserves_and_Reinsurance) The company manages risk through loss reserves and a significant catastrophe reinsurance program providing $610 million in coverage - The company's reinsurance program limits exposure to catastrophe losses and reduces net liability on individual risks; the catastrophe reinsurance provides coverage up to **$610 million for a single event**, with a net retention of **$5.625 million**[39](index=39&type=chunk)[67](index=67&type=chunk)[74](index=74&type=chunk) Reconciliation of Net Loss and LAE (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Balance, Beginning of Period | $40,525,859 | $32,050,714 | | Total Incurred | $90,182,324 | $58,295,205 | | - Incurred related to Prior Years | $11,138,023 | $1,152,128 | | Total Paid | $65,937,795 | $49,820,060 | | **Net Balance, End of Period** | **$64,770,387** | **$40,525,859** | [Investments and Ratings](index=15&type=section&id=Investments_and_Ratings) The company maintains a conservatively managed investment portfolio and an A- (Excellent) A.M. Best rating - As of December 31, 2019, **80.2% of the company's corporate and municipal bonds were rated BBB or higher** by S&P or equivalent rating agencies[78](index=78&type=chunk) - KICO's financial strength rating was **upgraded by A.M. Best to A- (Excellent)** in April 2017, which has created significant additional demand from producers[81](index=81&type=chunk) Investment Portfolio Summary (Carrying Value) | Category | Dec 31, 2019 ($) | % of Portfolio | Dec 31, 2018 ($) | % of Portfolio | | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 32,391,485 | 14.0% | 21,138,403 | 10.8% | | Corporate and other bonds | 125,622,039 | 54.2% | 115,750,293 | 59.2% | | Residential mortgage backed securities | 26,231,230 | 11.3% | 21,465,234 | 11.0% | | Common stocks, mutual funds, ETFs | 15,959,495 | 6.9% | 10,419,660 | 5.3% | | Other | 31,505,664 | 13.6% | 26,792,925 | 13.7% | | **Total** | **$231,699,913** | **100.0%** | **$195,566,615** | **100.0%** | [Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks from a material weakness in internal controls, catastrophe exposure, and geographic concentration - A **material weakness has been identified in the internal control over financial reporting** concerning the establishment and monitoring of case reserves for losses and loss adjustment expenses as of December 31, 2019[106](index=106&type=chunk) - The company is exposed to significant losses from catastrophes and severe weather events; while it has catastrophe reinsurance up to **$610 million**, it retains **$5.625 million of risk per occurrence**[111](index=111&type=chunk) - A downgrade in the **A- (Excellent) financial strength rating from A.M. Best** could materially harm the company's competitiveness, marketability, and ability to grow[114](index=114&type=chunk) - The business is highly concentrated in New York, with **approximately 85% of revenue derived from the state**, making it vulnerable to local regulatory, economic, and competitive conditions[130](index=130&type=chunk) - The company is a defendant in a **putative class action lawsuit** alleging violations of federal securities laws related to its disclosures about winter catastrophe losses and claim reserves[144](index=144&type=chunk) [Properties](index=29&type=section&id=Item%202.%20Properties) The company owns its principal office in Kingston, NY, and leases additional space in Valley Stream, NY - The company **owns its principal executive office building** in Kingston, New York, free of mortgage[157](index=157&type=chunk)[158](index=158&type=chunk) - The company leases office space at 70 East Sunrise Highway, Valley Stream, New York for both its insurance underwriting and licensed general agency (Cosi) businesses[157](index=157&type=chunk) [Legal Proceedings](index=29&type=section&id=Item%203.%20Legal%20Proceedings) The company is defending a putative class action lawsuit alleging federal securities law violations - A **putative class action lawsuit was filed** against the company and certain officers on June 12, 2019, alleging securities law violations concerning the April 29, 2019 announcement of losses from winter catastrophe events and the adequacy of claim reserves[159](index=159&type=chunk) - The company believes the lawsuit is without merit and **filed a motion to dismiss** on February 18, 2020[160](index=160&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=30&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's stock trades on Nasdaq (KINS), with a history of quarterly dividends subject to regulatory limits - The company's common stock is traded on The Nasdaq Capital Market under the symbol **"KINS"**[163](index=163&type=chunk) - The company has paid a cash dividend each quarter since September 2011; however, **future dividends are not guaranteed** and are subject to Board discretion and regulatory limits on its subsidiary KICO[164](index=164&type=chunk)[165](index=165&type=chunk) - KICO's ability to pay dividends to the parent company is restricted by New York state law; as of December 31, 2019, the **maximum distribution KICO could pay without prior regulatory approval was approximately $2,384,000**[166](index=166&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=31&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) A net loss of $6.0 million in 2019 was driven by a high loss ratio, despite premium growth and investment gains - The 2019 net loss ratio was elevated primarily due to **prior year loss development of $11.1 million** (an 8.7 point impact), of which **$8.1 million was from the discontinued commercial liability claims**[225](index=225&type=chunk) - Direct written premiums from the **"Expansion" business outside of New York grew significantly to $25.6 million** in 2019 from $9.1 million in 2018[204](index=204&type=chunk) Consolidated Financial Highlights (in thousands) | Metric | 2019 | 2018 | % Change | | :--- | :--- | :--- | :--- | | Direct Written Premiums | $171,214 | $146,716 | 16.7% | | Net Premiums Earned | $127,624 | $103,415 | 23.4% | | Net Loss and LAE | $90,183 | $58,296 | 54.7% | | Total Revenues | $145,563 | $113,772 | 27.9% | | **Net (Loss) Income** | **($5,967)** | **$3,092** | **(293.0)%** | Key Underwriting Ratios | Ratio | 2019 | 2018 | Point Change | | :--- | :--- | :--- | :--- | | Net Loss Ratio | 70.7% | 56.4% | +14.3 | | Net Underwriting Expense Ratio | 38.1% | 38.4% | -0.3 | | **Net Combined Ratio** | **108.8%** | **94.8%** | **+14.0** | [Consolidated Results of Operations Analysis](index=34&type=section&id=Consolidated_Results_of_Operations_Analysis) Premium growth was offset by a surging net loss ratio, driven by adverse development in the discontinued commercial lines - **Direct written premiums increased 16.7%** in 2019, driven by a 14.1% increase in policies-in-force[203](index=203&type=chunk) - **Net premiums earned increased 23.4%**, outpacing written premium growth due to retaining more premiums following the expiration of a 10% quota share treaty on July 1, 2019[213](index=213&type=chunk) - The impact of catastrophes on the net loss ratio was **6.0 percentage points in both 2019 and 2018**, significantly above the five-year average of 3.8 points[226](index=226&type=chunk) - The commercial lines business, which is in run-off, recorded a **net loss ratio of 142.4% in 2019**, compared to 59.5% in 2018, validating the decision to exit the business[241](index=241&type=chunk) [Investments Analysis](index=47&type=section&id=Investments_Analysis) The investment portfolio generated increased income and significant gains in 2019, with a high-quality fixed-income focus - **Net investment income increased 11.0% to $6.9 million** in 2019, driven by higher average invested assets[220](index=220&type=chunk) - The company reported **net investment gains of $4.6 million in 2019**, compared to a net loss of $2.5 million in 2018, primarily due to unrealized gains on equity securities[222](index=222&type=chunk) Available-for-Sale Fixed-Maturity Securities by Credit Rating (Fair Value) | Rating | Dec 31, 2019 ($) | % of Total | Dec 31, 2018 ($) | % of Total | | :--- | :--- | :--- | :--- | :--- | | U.S. Treasury | 7,061,100 | 4.2% | 8,220,381 | 5.4% | | AAA | 1,996,676 | 1.2% | 979,123 | 0.6% | | AA | 8,809,480 | 5.2% | 8,350,910 | 5.5% | | A | 34,636,236 | 20.6% | 27,665,961 | 18.2% | | BBB | 89,501,460 | 53.2% | 85,095,907 | 56.1% | | Below BBB / Non-rated | 26,231,229 | 15.6% | 21,465,234 | 14.2% | | **Total Corporate/Municipal** | **$168,236,181** | **100.0%** | **$151,777,516** | **100.0%** | [Liquidity and Capital Resources Analysis](index=53&type=section&id=Liquidity_and_Capital_Resources_Analysis) Liquidity is sourced from operations and investments, with strong operating cash flow and concentrated reinsurance recoverables - In 2019, KICO paid **dividends of $7.0 million** to the parent holding company[260](index=260&type=chunk) Summary of Cash Flows (in thousands) | Cash Flow Source | 2019 | 2018 | | :--- | :--- | :--- | | Operating Activities | $29,859 | $22,295 | | Investing Activities | ($14,974) | ($43,401) | | Financing Activities | ($3,632) | ($6,137) | | **Net Change in Cash** | **$11,253** | **($27,243)** | Top Reinsurance Recoverables (as of Dec 31, 2019) | Reinsurer | Amount ($ thousands) | % of Total | | :--- | :--- | :--- | | Cavello Bay Reinsurance Limited | $6,463 | 30.6% | | Swiss Reinsurance America Corp. | $5,754 | 27.3% | | Hannover Rueck SE | $3,678 | 17.4% | | **Total Top 3** | **$15,895** | **75.3%** | [Controls and Procedures](index=56&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management identified a material weakness in internal controls over financial reporting related to loss reserves - Management concluded that **internal control over financial reporting was not effective** as of December 31, 2019[287](index=287&type=chunk) - A **material weakness was identified** in the operation of controls related to the establishment and ongoing monitoring of case reserves for losses and loss adjustment expenses[289](index=289&type=chunk) - Remediation efforts include **hiring a new Chief Claims Officer**, increasing the skill of claims personnel, reviewing policies, and enhancing internal audit testing[290](index=290&type=chunk)[294](index=294&type=chunk) - The independent registered public accounting firm, Marcum LLP, issued an **adverse attestation report** on the effectiveness of the company's internal control over financial reporting[291](index=291&type=chunk)[297](index=297&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=62&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company is led by CEO Barry Goldstein and a majority-independent board with an expert audit committee - **Barry B. Goldstein serves as Chief Executive Officer**, President, and Executive Chairman of the Board[307](index=307&type=chunk)[308](index=308&type=chunk) - **Meryl S. Golden was appointed Chief Operating Officer** on September 25, 2019, bringing over 25 years of insurance industry experience[309](index=309&type=chunk) - The Audit Committee is composed of three independent directors: Messrs. Tupper, Yankus, and McFadden; **Mr. Tupper is designated as the "audit committee financial expert"**[320](index=320&type=chunk)[321](index=321&type=chunk) [Executive Compensation](index=65&type=section&id=Item%2011.%20Executive%20Compensation) Executive compensation includes salary, bonuses, and significant stock incentives, with new agreements for key executives - Effective January 1, 2020, CEO Barry Goldstein's new employment agreement includes a **$500,000 base salary**, a performance bonus, and substantial restricted stock grants, including a January 2020 grant valued at **$1,250,000**[326](index=326&type=chunk)[327](index=327&type=chunk)[328](index=328&type=chunk) - Non-employee directors receive annual compensation including a **$60,000 cash retainer and a $40,000 stock award**[346](index=346&type=chunk) Summary Compensation Table (2019) | Name and Principal Position | Salary ($) | Stock Awards ($) | All Other Comp. ($) | Total ($) | | :--- | :--- | :--- | :--- | :--- | | Barry B. Goldstein (CEO) | 636,500 | - | 37,520 | 674,020 | | Dale A. Thatcher (Former CEO) | 625,000 | 750,000 | 43,200 | 1,418,200 | | Victor J. Brodsky (CFO) | 369,666 | 150,000 | 56,550 | 576,217 | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=71&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Insiders own 9.1% of common stock, with CEO Barry Goldstein being the largest individual insider shareholder - As of December 31, 2019, there were **327,900 securities remaining available for future issuance** under equity compensation plans approved by security holders[352](index=352&type=chunk) Security Ownership of Major Holders (as of March 9, 2020) | Name of Beneficial Owner | Number of Shares | Percent of Class | | :--- | :--- | :--- | | Barry B. Goldstein (CEO) | 707,158 | 6.5% | | The TCW Group, Inc. | 673,170 | 6.2% | | RenaissanceRe Ventures Ltd. | 595,238 | 5.5% | | All executive officers and directors as a group (9 persons) | 990,904 | 9.1% | [Certain Relationships and Related Transactions, and Director Independence](index=74&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company maintains a majority-independent board and discloses transactions with executives and their family members - The Board of Directors has determined that a **majority of its members are independent** under Nasdaq listing standards[353](index=353&type=chunk) - The daughter of CEO Barry Goldstein, Amanda Goldstein, is employed by the company and **earned $155,368 in compensation in 2019**[358](index=358&type=chunk) - The separation agreement with former CEO Dale Thatcher included **severance of $381,111**, a $5,000 bonus, health coverage, and continued vesting of unvested stock awards[357](index=357&type=chunk) [Principal Accountant Fees and Services](index=75&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Marcum LLP's fees for 2019 and 2018 consisted entirely of audit services pre-approved by the Audit Committee Accountant Fees (Marcum LLP) | Fee Category | Fiscal 2019 Fees ($) | Fiscal 2018 Fees ($) | | :--- | :--- | :--- | | Audit Fees | 306,940 | 309,684 | | Tax Fees | - | - | | Audit-Related Fees | - | - | | All Other Fees | - | - | | **Total** | **$306,940** | **$309,684** | Part IV [Exhibits and Financial Statement Schedules](index=76&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all filed exhibits, including governing documents, debt indentures, and executive agreements - Key exhibits filed include the Second Amended and Restated Employment Agreement with CEO Barry B. Goldstein and the Indenture for the **$30 million 5.50% Senior Unsecured Notes due 2022**[365](index=365&type=chunk) [Financial Statements and Notes](index=80&type=section&id=Financial%20Statements%20and%20Notes) The audited financial statements show asset growth but a net loss in 2019, with detailed notes on key accounts Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Investments | $199,308 | $174,428 | | Cash and cash equivalents | $32,391 | $21,138 | | **Total Assets** | **$321,203** | **$266,752** | | Loss and LAE reserves | $80,499 | $56,197 | | Unearned premiums | $90,383 | $79,032 | | Long-term debt, net | $29,471 | $29,295 | | **Total Liabilities** | **$232,981** | **$178,086** | | **Total Stockholders' Equity** | **$88,222** | **$88,666** | Consolidated Statement of Operations Highlights (in thousands) | Account | 2019 | 2018 | | :--- | :--- | :--- | | Net premiums earned | $127,623 | $103,415 | | Total revenues | $145,563 | $113,772 | | Loss and LAE | $90,182 | $58,295 | | Total expenses | $153,346 | $110,765 | | **Net (loss) income** | **($5,966)** | **$3,093** | [Note 11 - Property and Casualty Insurance Activity](index=114&type=section&id=Note_11_Property_and_Casualty_Insurance_Activity) This note reconciles loss reserves, highlighting $11.1 million in adverse prior-year development for 2019 - The unfavorable prior year loss development of **$11.1 million in 2019** was primarily due to increased case reserves for older liability claims, which mainly affected the ultimate loss projections for the commercial lines business[504](index=504&type=chunk) Reconciliation of Net Loss and LAE (in thousands) | Metric | 2019 | 2018 | | :--- | :--- | :--- | | Net Balance, Beginning of Period | $40,525,859 | $32,050,714 | | Incurred related to Current Year | $79,044,301 | $57,143,077 | | Incurred related to Prior Years | $11,138,023 | $1,152,128 | | Total Paid | ($65,937,795) | ($49,820,060) | | **Net Balance, End of Period** | **$64,770,387** | **$40,525,859** | [Note 13 - Statutory Financial Information](index=122&type=section&id=Note_13_Statutory_Financial_Information) Statutory surplus decreased to $93.8 million, and the insurance subsidiary's dividend capacity is restricted - KICO's **statutory surplus as regards policyholders was $93.8 million** as of December 31, 2019, compared to $98.7 million as of December 31, 2018[538](index=538&type=chunk) - KICO paid **dividends of $7.0 million** to its parent, Kingstone Companies, Inc., in 2019, and $3.6 million in 2018[538](index=538&type=chunk) [Note 17 - Commitments and Contingencies](index=127&type=section&id=Note_17_Commitments_and_Contingencies) The company discloses a class action lawsuit, operating lease commitments, and key executive employment agreements - The company is a defendant in a **putative class action lawsuit** related to its disclosures on catastrophe losses and claim reserves; management believes the suit is without merit and has not established an accrual[560](index=560&type=chunk) - The company has future commitments under non-cancellable operating leases for office space, with **total undiscounted lease payments of $1,411,095** as of December 31, 2019[567](index=567&type=chunk) - Details of employment agreements are provided, including the Second Amended and Restated Employment Agreement for CEO Barry Goldstein, which includes significant salary, bonus, and equity compensation components[570](index=570&type=chunk)[571](index=571&type=chunk)[572](index=572&type=chunk)

Financial Performance - The Company's book value per share at December 31, 2019 was $8.17, a decrease of 1.0% compared to $8.25 at December 31, 2018[9] - Net income (loss) was $1.455 million for the three months ended December 31, 2019, compared to a loss of $879,847 for the three months ended December 31, 2018[20] - Net income (loss) was $(5.966) million for the year ended December 31, 2019, compared to a profit of $3.093 million for the year ended December 31, 2018[20] - Net premiums earned increased by 12.7% to $32.606 million for the three months ended December 31, 2019, from $28.939 million for the three months ended December 31, 2018[11] - Net premiums earned increased by 23.4% to $127.623 million for the year ended December 31, 2019, from $103.415 million for the year ended December 31, 2018[11] - Net loss and loss adjustment expenses increased by 12.3% to $18.595 million for the three months ended December 31, 2019, from $16.556 million for the three months ended December 31, 2018[14] - Net loss and loss adjustment expenses increased by 54.7% to $90.182 million for the year ended December 31, 2019, from $58.295 million for the year ended December 31, 2018[14] Premiums - Direct written premiums increased by 8.4% to $42.881 million for the three months ended December 31, 2019, from $39.541 million for the three months ended December 31, 2018[11] - Direct written premiums increased by 16.7% to $171.214 million for the year ended December 31, 2019, from $146.716 million for the year ended December 31, 2018[11] - Core direct written premiums increased by 5.8% to $145.567 million for the year ended December 31, 2019, from $137.636 million for the year ended December 31, 2018[12] - Expansion direct written premiums increased by 182.5% to $25.647 million for the year ended December 31, 2019, from $9.080 million for the year ended December 31, 2018[12] Ratios - The net combined ratio was 96.0% for the three months ended December 31, 2019, compared to 96.4% for the three months ended December 31, 2018[15] - The net combined ratio was 108.8% for the year ended December 31, 2019, compared to 94.8% for the year ended December 31, 2018[15]

Financial Data and Key Metrics Changes - The company reported a fourth quarter profit for 2019, indicating a positive end to the year [6] - There was a prior year loss development of $11 million through three quarters of 2019, primarily related to unfavorable results in commercial liability lines [15][16] - The net carried reserves were reported at $65 million, with internal and appointed actuary estimates being within $250,000 of each other, reflecting strong reserve management [16][17] Business Line Data and Key Metrics Changes - The company exited commercial liability lines, leading to a reduction in premiums as these books run off [8] - Liability claims have been settling well, with about 40% closed by dollar and volume [9] - Rate increases were initiated in the fourth quarter to address rising loss costs, with a 9% increase for New York homeowners effective for new business from November 1, 2019 [13][14] Market Data and Key Metrics Changes - The company is preparing for its largest reinsurance renewal program, with expectations of securing higher limits than many competitors due to its A.M. Best A- rating [14] - The overall personal lines loss ratio increased by about 3 points from 2018 to 2019, prompting significant rate increases to address this trend [36] Company Strategy and Development Direction - The company is focused on profitability and has initiated a modernization effort called Kingstone 2.0, which includes adding experienced leadership and investing in technology [20][21] - The company aims to improve competitiveness and service quality through new product development and enhanced claims handling procedures [21][22] - Short-term expense ratios are expected to increase due to investments in talent and technology, but these are anticipated to lead to long-term growth and improved returns for shareholders [23] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's future, emphasizing the importance of learning from past challenges and making informed decisions moving forward [6][7] - The company acknowledged the need for a rebuilding year in 2020, with a focus on reducing claims volatility and enhancing profitability [40] Other Important Information - The company is undergoing a transformation from legacy systems to modern technology for policy management and claims [21] - The dividend policy is under review, with management considering stock buybacks as a more effective use of capital compared to dividends [35] Q&A Session Summary Question: Impact of reinsurance business on financials for next year - Management discussed the surplus relief from quota share reinsurance, which helps maintain a comfortable risk ratio while accepting a smaller margin [25][26] Question: Financial impact of July reinsurance renewals - Management anticipates a small rate increase in the low-single digits for reinsurance renewals, driven by market conditions [29][30] Question: Dividend policy going forward - The dividend policy is under review, with management considering stock buybacks over dividends due to current market conditions [34][35] Question: Non-weather-related water damage - Management noted an increase in claims related to non-weather water damage, primarily from interior pipe breaks, and is implementing rate changes to address this trend [36] Question: Earnings volatility with changes being made - Management indicated that while growth may slow, the changes are aimed at reducing claims volatility and enhancing profitability over time [40]

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, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission File Number 0-1665 KINGSTONE COMPANIES, INC. (Exact name of registrant as specified in its charter) Delaware(State or oth ...

Financial Performance - The Company's book value per share at September 30, 2019 was $8.04, a decrease of 5.9% compared to $8.54 at September 30, 2018[8] - Net loss for the three months ended September 30, 2019 was $(1,725,162) compared to net income of $3,933,730 for the three months ended September 30, 2018[19] - Net loss for the nine months ended September 30, 2019 was $(7,420,972) compared to net income of $3,973,093 for the nine months ended September 30, 2018[19] - Net operating loss for the three months ended September 30, 2019 was $(2,513,000) compared to net operating income of $3,656,000 for the three months ended September 30, 2018[12] - Net operating loss for the nine months ended September 30, 2019 was $(10,353,000) compared to net operating income of $4,193,000 for the nine months ended September 30, 2018[12] Premiums - Direct written premiums for the three months ended September 30, 2019 increased by 18.7% to $46,023,000 from $38,785,000 in 2018[10] - Direct written premiums for the nine months ended September 30, 2019 increased by 19.7% to $128,333,000 from $107,175,000 in 2018[10] - Net premiums earned for the three months ended September 30, 2019 increased by 24.3% to $34,220,000 from $27,534,000 in 2018[10] - Net premiums earned for the nine months ended September 30, 2019 increased by 27.6% to $95,017,000 from $74,476,000 in 2018[10] - Expansion direct written premiums for the three months ended September 30, 2019 increased by 158.2% to $7,371,000 from $2,855,000 in 2018[11] - Expansion direct written premiums for the nine months ended September 30, 2019 increased by 185.5% to $16,900,000 from $5,919,000 in 2018[11]

Financial Data and Key Metrics Changes - The company reported a significant headline loss for Q3 2019, which has caused disappointment among stakeholders [6] - An adverse development of $5 million in prior year reserves was recorded, with $4.4 million attributed to commercial lines [19][20] - The company aims to return to profitability in 2020, focusing on improving metrics employed by A.M. Best [12][13] Business Line Data and Key Metrics Changes - The majority of adverse development recorded in 2019 (80%) came from commercial liability lines, which have been shut down [7][8] - Personal lines business remains stable, with fast-paying property claims that are less affected by volatility [23] Market Data and Key Metrics Changes - The company has increased homeowner's rates effective November 1st and applied for increases in other states [14] - The expected growth rate for personal lines is projected to be in the low-to-mid-teens moving forward [31] Company Strategy and Development Direction - The company is shifting its focus from growth to profitability, reducing growth mandates to improve financial health [13] - A new management team member, Meryl Golden, has joined to bring energy and expertise to the company [15] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the loss of trust among shareholders and is committed to restoring it over time [26] - The company is confident that reserve levels have stabilized and will allow for a focus on profitable personal lines business [23][60] Other Important Information - The company is reviewing reinsurance options for commercial liability reserves, including a full loss portfolio transfer [22] - The average claim size for commercial lines has turned out to be higher than originally anticipated, impacting reserve estimates [20][43] Q&A Session Summary Question: Differences between internal and external reserve estimates - The company is booking to the central estimate based on internal review, confirming alignment with external actuary estimates [29][30] Question: Impact of profitability focus on growth rates - The expected growth rate for personal lines is projected to be in the low-to-mid-teens due to the new profitability focus [31] Question: Likelihood of not purchasing reinsurance - The company is comfortable with current reserves but is still in the market for reinsurance options [36][37] Question: Details on open claims and policy limits - Most open claims have a $1 million policy limit, with average paid claims severity now at about $50,000 [42][43] Question: Impact of commercial lines on future profitability - The company is non-renewing all commercial lines policies, which will be completed by the end of Q3 next year [60]

FORM 10-Q (Mark one) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2019 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 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 ...

Kingstone Companies, Inc. (NASDAQ:KINS) Q2 2019 Earnings Conference Call August 9, 2019 8:30 AM ET Company Participants Richard Swartz - Controller Barry Goldstein - Chairman and Chief Executive Officer Ben Walden - Chief Actuary Conference Call Participants Paul Newsome - Sandler O’Neill + Partners, L.P. Robert Farnam - Boenning & Scattergood, Inc. Operator Greetings. Welcome to Kingstone Companies 2019 Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-a ...

Kingstone Companies Inc. (NASDAQ:KINS) Q1 2019 Results Earnings Conference Call May 9, 2019 8:30 AM ET Company Participants Amanda Goldstein - Investor Relations Dale Thatcher - Chief Executive Officer Barry Goldstein - Executive Chairman of the Board Ben Walden - Executive VP & Chief Actuary of Kingstone Insurance Company Conference Call Participants Jon Newsome - Sandler O'Neill Bob Farnam - Boenning and Scattergood, Inc. Operator Greetings. Welcome to Kingstone Companies 2019 First Quarter Earnings Call ...

PART I — FINANCIAL INFORMATION [Item 1 — Financial Statements](index=4&type=section&id=Item%201%20%E2%80%94%20Financial%20Statements) This section presents Kingstone Companies' unaudited condensed consolidated financial statements and detailed notes for the period [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20at%20March%2031%2C%202019%20%28Unaudited%29%20and%20December%2031%2C%202018) Balance Sheet Summary (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 ($) | December 31, 2018 ($) | | :-------------------------------- | :------------- | :---------------- | | Total assets | $277,387,935 | $266,752,078 | | Total liabilities | $193,612,764 | $178,086,436 | | Total stockholders' equity | $83,775,171 | $88,665,642 | | Loss and loss adjustment expense reserves | $69,110,271 | $56,197,106 | | Unearned premiums | $79,660,003 | $79,032,131 | - Total assets increased by approximately **$10.6 million**, primarily driven by an increase in total investments. Total liabilities increased significantly by approximately **$15.5 million**, largely due to a substantial rise in loss and loss adjustment expense reserves. Consequently, total stockholders' equity decreased by approximately **$4.9 million**[10](index=10&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss%20for%20the%20three%20months%20ended%20March%2031%2C%202019%20%28Unaudited%29%20and%202018%20%28Unaudited%29) Statements of Operations and Comprehensive Loss (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | Change ($) | % Change | | :------------------------------------------ | :----------- | :----------- | :----------- | :------- | | Total revenues | $34,898,548 | $25,701,870 | +$9,196,678 | +35.8% | | Total expenses | $44,153,680 | $29,210,615 | +$14,943,065 | +51.2% | | Loss from operations before income taxes | $(9,255,132) | $(3,508,745) | $(5,746,387) | +163.8% | | Net loss | $(7,335,190) | $(2,717,934) | $(4,617,256) | +169.9% | | Basic Loss per common share | $(0.68) | $(0.25) | $(0.43) | +172.0% | | Diluted Loss per common share | $(0.68) | $(0.25) | $(0.43) | +172.0% | | Dividends declared and paid per common share | $0.1000 | $0.1000 | $0.0000 | 0.0% | - The company experienced a significant increase in net loss, rising by **169.9%** to **$(7,335,190)** in Q1 2019 from **$(2,717,934)** in Q1 2018. This was primarily driven by a **51.2%** increase in total expenses, particularly loss and loss adjustment expenses, which outpaced the **35.8%** growth in total revenues. Loss per common share also worsened considerably[11](index=11&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity%20for%20the%20three%20months%20ended%20March%2031%2C%202019%20and%202018%20%28Unaudited%29) Stockholders' Equity (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 ($) | December 31, 2018 ($) | | :-------------------------------- | :------------- | :---------------- | | Total stockholders' equity | $83,775,171 | $88,665,642 | | Retained earnings | $17,969,664 | $26,380,816 | | Accumulated other comprehensive income (loss) | $442,493 | $(2,884,313) | - Total stockholders' equity decreased by **$4.9 million**, primarily due to a net loss of **$7.3 million** and dividends paid of **$1.08 million**, partially offset by a positive change in accumulated other comprehensive income (loss) of **$3.3 million**[13](index=13&type=chunk)[14](index=14&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20three%20months%20ended%20March%2031%2C%202019%20%28Unaudited%29%20and%202018%20%28Unaudited%29) Cash Flow Summary (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :-------------------------------- | :----------- | :----------- | | Net cash flows provided by operating activities | $2,702,404 | $380,373 | | Net cash flows used in investing activities | $(6,884,358) | $(15,438,163) | | Net cash flows used in financing activities | $(1,191,969) | $(1,729,676) | | Decrease in cash and cash equivalents | $(5,373,923) | $(16,787,466) | | Cash and cash equivalents, end of period | $15,764,480 | $31,594,167 | - Operating cash flows significantly increased by **$2.3 million** in Q1 2019 compared to Q1 2018, despite a higher net loss. Investing activities used less cash, while financing activities also used less cash, leading to a smaller overall decrease in cash and cash equivalents compared to the prior year[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) [Note 1 - Nature of Business and Basis of Presentation](index=9&type=section&id=Note%201%20-%20Nature%20of%20Business%20and%20Basis%20of%20Presentation) - Kingstone Companies, Inc. underwrites property and casualty insurance through its subsidiary, Kingstone Insurance Company (KICO), primarily in New York (**91.4%** of direct written premiums in Q1 2019) and expanding into New Jersey, Rhode Island, Massachusetts, and Connecticut[18](index=18&type=chunk) [Note 2 – Accounting Policies](index=9&type=section&id=Note%202%20%E2%80%93%20Accounting%20Policies) - The company adopted ASU 2016-02 (Leases) effective January 1, 2019, recognizing a right-of-use asset and corresponding lease liability of **$855,000**, which did not materially affect results or liquidity[23](index=23&type=chunk) - The company adopted SEC Release No. 33-10532, "Disclosure Update and Simplification," effective January 1, 2019, expanding disclosure requirements for stockholders' equity analysis in interim financial statements[22](index=22&type=chunk) - The company is evaluating the impact of ASU 2016-13 (Credit Losses) which becomes effective January 1, 2020[24](index=24&type=chunk) [Note 3 - Investments](index=10&type=section&id=Note%203%20-%20Investments) Available-for-Sale Fixed-Maturity Securities (March 31, 2019) | Category | Amortized Cost ($) | Estimated Fair Value ($) | Net Unrealized Gains/(Losses) ($) | | :------------------------------------------------- | :------------- | :------------------- | :---------------------------- | | U.S. Treasury securities and obligations | $8,229,100 | $8,289,944 | $60,844 | | Political subdivisions of States, Territories and Possessions | $5,688,302 | $5,799,104 | $110,802 | | Corporate and other bonds (Industrial and miscellaneous) | $124,354,135 | $124,953,373 | $599,238 | | Residential mortgage and other asset backed securities | $21,648,213 | $21,434,731 | $(213,482) | | **Total** | **$159,919,750** | **$160,477,152** | **$557,402** | Equity Securities (March 31, 2019 vs. December 31, 2018) | Category | Cost (Mar 2019) ($) | Fair Value (Mar 2019) ($) | Cost (Dec 2018) ($) | Fair Value (Dec 2018) ($) | | :-------------------------------- | :-------------- | :-------------------- | :-------------- | :-------------------- | | Preferred stocks | $7,882,618 | $7,889,792 | $6,694,754 | $6,152,956 | | Common stocks and exchange traded mutual funds | $11,763,863 | $11,774,195 | $11,611,232 | $10,419,660 | | **Total** | **$19,646,481** | **$19,663,987** | **$18,305,986** | **$16,572,616** | Net Investment Income (Three Months Ended March 31, 2019 vs. 2018) | Category | 2019 ($) | 2018 ($) | | :---------------------- | :----------- | :----------- | | Fixed-maturity securities | $1,526,870 | $1,150,293 | | Equity securities | $207,144 | $200,497 | | Cash and cash equivalents | $40,401 | $73,259 | | Investment expenses | $(150,703) | $(40,060) | | **Net investment income** | **$1,623,712** | **$1,383,989** | Net Gains (Losses) on Investments (Three Months Ended March 31, 2019 vs. 2018) | Category | 2019 ($) | 2018 ($) | | :-------------------------- | :----------- | :----------- | | Net realized losses | $(25,192) | $(243,773) | | Net unrealized gains (losses) | $2,060,555 | $(279,354) | | **Net gains (losses) on investments** | **$2,035,363** | **$(523,127)** | - The company reported a significant shift from net investment losses of **$(523,127)** in Q1 2018 to net investment gains of **$2,035,363** in Q1 2019, primarily driven by substantial unrealized gains on equity and other investments[40](index=40&type=chunk) [Note 4 - Fair Value Measurements](index=19&type=section&id=Note%204%20-%20Fair%20Value%20Measurements) - The company categorizes fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) Fair Value Hierarchy (March 31, 2019) | Category | Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | | :------------------------------------------------- | :------------ | :------------ | :-------- | :------------ | | Fixed-maturity securities available-for-sale | $129,528,021 | $30,949,131 | $0 | $160,477,152 | | Equity securities | $19,663,987 | $0 | $0 | $19,663,987 | | **Total investments** | **$149,192,008** | **$30,949,131** | **$0** | **$180,141,139** | - As of March 31, 2019, **83%** of the investment portfolio measured at fair value was priced based upon quoted market prices[218](index=218&type=chunk) [Note 5 - Fair Value of Financial Instruments and Real Estate](index=22&type=section&id=Note%205%20-%20Fair%20Value%20of%20Financial%20Instruments%20and%20Real%20Estate) - The carrying values of cash and cash equivalents, premiums receivable, reinsurance receivables, and reinsurance balances payable approximate their fair values due to their short-term nature[56](index=56&type=chunk)[57](index=57&type=chunk) - The fair value of the company's real estate (land and building) approximates its carrying value and is classified as a Level 3 asset based on an appraisal using the sales comparison approach[58](index=58&type=chunk)[59](index=59&type=chunk) [Note 6 – Property and Casualty Insurance Activity](index=23&type=section&id=Note%206%20%E2%80%93%20Property%20and%20Casualty%20Insurance%20Activity) Premiums Earned (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :---------------------- | :----------- | :----------- | | Direct written premiums | $37,488,548 | $31,526,283 | | Ceded written premiums | $(7,127,909) | $(7,826,235) | | Net written premiums | $30,360,605 | $23,700,384 | | Net premiums earned | $29,595,889 | $22,837,617 | Loss and Loss Adjustment Expense Reserves (March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :-------------------------------- | :----------- | :----------- | | Balance at beginning of period | $56,197,106 | $48,799,622 | | Total incurred | $29,134,224 | $17,266,330 | | Total paid | $16,136,526 | $12,466,942 | | Balance at end of period | $69,110,271 | $56,272,113 | - Prior year incurred loss and LAE development was unfavorable by **$4,478,249** in Q1 2019, compared to a favorable development of **$(101,230)** in Q1 2018, primarily due to increased case reserves for older open liability claims in commercial lines[63](index=63&type=chunk) Ceding Commission Revenue (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :-------------------------------- | :----------- | :----------- | | Provisional ceding commissions earned | $1,317,751 | $2,067,505 | | Contingent ceding commissions earned | $(40,068) | $(372,347) | | **Total ceding commission revenue** | **$1,277,683** | **$1,695,158** | - The quota share ceding rate for personal lines was reduced from **20%** to **10%** effective July 1, 2018, impacting ceded premiums and ceding commission revenue[82](index=82&type=chunk) [Note 7 – Debt](index=32&type=section&id=Note%207%20%E2%80%93%20Debt) - KICO is a member of the FHLBNY, with an aggregate investment of **$18,079** in common stock as of March 31, 2019, providing access to a credit line. The maximum allowable advance was approximately **$9,849,000**, with available collateral of **$5,553,000** as of March 31, 2019. No borrowings were made in Q1 2019[100](index=100&type=chunk) Long-term Debt (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 ($) | December 31, 2018 ($) | | :-------------------------- | :------------- | :---------------- | | 5.50% Senior Unsecured Notes | $30,000,000 | $30,000,000 | | Discount | $(121,656) | $(129,796) | | Issuance costs | $(539,048) | $(574,953) | | **Long-term debt, net** | **$29,339,296** | **$29,295,251** | - The company has **$30 million** in **5.50%** Senior Unsecured Notes due December 30, 2022, which are unsecured obligations of the company and structurally subordinated to its subsidiaries' obligations[101](index=101&type=chunk) [Note 8 – Stockholders' Equity](index=33&type=section&id=Note%208%20%E2%80%93%20Stockholders%27%20Equity) Dividends Declared and Paid (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :-------------------------------- | :----------- | :----------- | | Dividends declared and paid | $1,075,962 | $1,068,375 | - Stock-based compensation expense was approximately **$1,000** in Q1 2019, down from **$2,000** in Q1 2018. No stock options were granted in either period[105](index=105&type=chunk)[106](index=106&type=chunk) Restricted Stock Awards (March 31, 2019) | Metric | Shares | Average Grant Date Fair Value per Share ($) | Aggregate Fair Value ($) | | :-------------------------- | :------- | :------------------------------------ | :------------------- | | Balance at January 1, 2019 | 120,499 | $17.66 | $2,129,175 | | Granted | 51,242 | $17.76 | $910,058 | | Vested | (27,501) | $18.67 | $(513,446) | | Forfeited | (3,804) | $15.51 | $(59,011) | | **Balance at March 31, 2019** | **140,436** | **$17.58** | **$2,466,776** | [Note 9 – Income Taxes](index=35&type=section&id=Note%209%20%E2%80%93%20Income%20Taxes) Deferred Tax Assets and Liabilities (March 31, 2019 vs. December 31, 2018) | Metric | March 31, 2019 ($) | December 31, 2018 ($) | | :-------------------------------- | :------------- | :---------------- | | Total deferred tax assets | $4,319,977 | $4,527,960 | | Total deferred tax liabilities | $5,360,618 | $4,173,727 | | **Net deferred income tax (liability) asset** | **$(1,040,641)** | **$354,233** | - The company shifted from a net deferred income tax asset of **$354,233** at December 31, 2018, to a net deferred income tax liability of **$(1,040,641)** at March 31, 2019[118](index=118&type=chunk) - A valuation allowance has been recorded against state net operating loss (NOL) carryovers due to uncertainty in generating sufficient state taxable income[119](index=119&type=chunk) [Note 10 – (Loss)/Earnings Per Common Share](index=37&type=section&id=Note%2010%20%E2%80%93%20%28Loss%29%2FEarnings%20Per%20Common%20Share) Weighted Average Common Shares Outstanding (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (Shares) | 2018 (Shares) | | :-------------------------------- | :----------- | :----------- | | Basic | 10,757,843 | 10,669,992 | | Diluted | 10,757,843 | 10,669,992 | - No stock options or restricted stock awards were included in the diluted EPS calculation for Q1 2019 and Q1 2018 as they would have been anti-dilutive due to the net loss[125](index=125&type=chunk) [Note 11 - Commitments and Contingencies](index=38&type=section&id=Note%2011%20-%20Commitments%20and%20Contingencies) - The company is involved in various legal proceedings in the ordinary course of business, primarily related to claims against insureds, which are considered in estimating loss and LAE expenses. No other material adverse legal proceedings are pending[128](index=128&type=chunk) Operating Lease Liabilities (March 31, 2019) | For the Year Ending December 31, | Total Undiscounted Lease Payments ($) | | :------------------------------- | :-------------------------------- | | 2019 (remainder) | $128,482 | | 2020 | $175,806 | | 2021 | $181,959 | | 2022 | $188,328 | | 2023 | $194,919 | | Thereafter | $49,145 | | **Total undiscounted lease payments** | **$918,639** | | Less: present value adjustment | $76,904 | | **Operating lease liability** | **$841,735** | [Note 12 – Deferred Compensation Plan](index=39&type=section&id=Note%2012%20%E2%80%93%20Deferred%20Compensation%20Plan) - The company adopted a Deferred Compensation Plan in June 2018 for management and highly compensated employees, allowing deferrals and potential matching contributions. The deferred compensation liability was **$440,045** as of March 31, 2019[136](index=136&type=chunk) [Note 13 – Subsequent Events](index=39&type=section&id=Note%2013%20%E2%80%93%20Subsequent%20Events) - On May 8, 2019, the Board of Directors approved a quarterly dividend of **$0.10** per share, payable on June 14, 2019[138](index=138&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=40&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results for Q1 2019, covering operations, investments, and liquidity [Overview](index=40&type=section&id=Overview) - Kingstone Companies, Inc. (KICO) underwrites property and casualty insurance, primarily in downstate New York (**91.4%** of direct written premiums in Q1 2019) and expanding into other Northeast states[139](index=139&type=chunk) - Revenue is primarily derived from earned premiums, ceding commissions, net investment income, and investment gains/losses, while expenses include policyholder claims (losses and LAE) and policy acquisition costs[140](index=140&type=chunk)[141](index=141&type=chunk) [Product Lines](index=40&type=section&id=Product%20Lines) - The company's active product lines include personal lines (homeowners, dwelling fire, etc.), commercial liability (businessowners, artisan's liability, special multi-peril, commercial umbrella), livery physical damage, and other (canine legal liability, state joint underwriting associations)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Key Measures](index=40&type=section&id=Key%20Measures) - Key performance indicators include Net loss ratio (net losses and LAE to net premiums earned), Net underwriting expense ratio (acquisition costs and other underwriting expenses less ceding commission revenue and other income to net premiums earned), Net combined ratio (sum of net loss and net underwriting expense ratios), and Underwriting income (pre-tax income from insurance underwriting before investment activity)[146](index=146&type=chunk)[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - Critical accounting policies involve significant management judgment and estimates, particularly for reserves for loss and LAE, amounts recoverable from reinsurers, deferred ceding commission revenue, deferred policy acquisition costs, deferred income taxes, impairment of investment securities, intangible assets, and stock-based compensation[151](index=151&type=chunk)[152](index=152&type=chunk) [Outlook](index=41&type=section&id=Outlook) - Despite disappointing Q1 results due to weather-related catastrophes and reserve re-evaluation, the company is pleased with year-over-year growth and plans to launch homeowners products in Maine in 2019[153](index=153&type=chunk) - For fiscal year 2019, the company expects a GAAP combined ratio (excluding catastrophe losses) between **88%** and **91%**, assuming no additional prior-year casualty reserve development, and anticipates catastrophe losses of approximately **4.0** to **5.0** points[153](index=153&type=chunk)[154](index=154&type=chunk) [Consolidated Results of Operations](index=42&type=section&id=Consolidated%20Results%20of%20Operations) Consolidated Results (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | Change (in thousands of $) | % Change | | :------------------------------------------ | :----------- | :----------- | :----------- | :------- | | Total revenues | $34,899 | $25,702 | +$9,197 | +35.8% | | Total expenses | $44,154 | $29,211 | +$14,943 | +51.2% | | Loss from operations before taxes | $(9,255) | $(3,509) | $(5,746) | +163.8% | | Net loss | $(7,335) | $(2,718) | $(4,617) | +169.9% | Key Ratios (Three Months Ended March 31, 2019 vs. 2018) | Ratio | 2019 (%) | 2018 (%) | Percentage Point Change | | :-------------------------- | :----- | :----- | :---------------------- | | Net loss ratio | 98.4% | 75.6% | +22.8 | | Net underwriting expense ratio | 38.5% | 38.7% | (0.2) | | Net combined ratio | 136.9% | 114.3% | +22.6 | - The net combined ratio increased significantly to **136.9%** in Q1 2019 from **114.3%** in Q1 2018, primarily driven by a substantial increase in the net loss ratio[158](index=158&type=chunk) [Direct Written Premiums](index=44&type=section&id=Direct%20Written%20Premiums) Direct Written Premiums (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :---------------------- | :----------- | :----------- | | Direct written premiums | $37,489 | $31,526 | - The **18.9%** increase in direct written premiums was primarily due to a **19.0%** increase in policies in-force and continued demand in existing and expansion markets (New Jersey, Rhode Island, Massachusetts, Connecticut)[159](index=159&type=chunk)[160](index=160&type=chunk) [Net Written Premiums and Net Premiums Earned](index=44&type=section&id=Net%20Written%20Premiums%20and%20Net%20Premiums%20Earned) Net Written Premiums (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------------ | :----------- | :----------- | | Net written premiums | $30,361 | $23,700 | - The **28.1%** increase in net written premiums was driven by growth in direct written premiums and a reduction in the personal lines quota share reinsurance rate from **20%** to **10%** effective July 1, 2018, leading to higher retention[164](index=164&type=chunk) Net Premiums Earned (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------------ | :----------- | :----------- | | Net premiums earned | $29,596 | $22,838 | [Ceding Commission Revenue](index=45&type=section&id=Ceding%20Commission%20Revenue) Ceding Commission Revenue (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :-------------------------------- | :----------- | :----------- | | Provisional ceding commissions earned | $1,318 | $2,067 | | Contingent ceding commissions earned | $(40) | $(372) | | **Total ceding commission revenue** | **$1,278** | **$1,695** | - Total ceding commission revenue decreased by **24.6%** due to a reduction in the quota share ceding rate from **20%** to **10%** effective July 1, 2018, which decreased provisional ceding commissions[171](index=171&type=chunk)[172](index=172&type=chunk) - Catastrophe losses in Q1 2019 did not impact contingent ceding commissions due to a fixed provisional ceding commission rate, unlike Q1 2018 where catastrophe losses led to a negative adjustment[174](index=174&type=chunk) [Net Investment Income](index=47&type=section&id=Net%20Investment%20Income) Net Investment Income (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------------ | :----------- | :----------- | | Net investment income | $1,624 | $1,384 | - The **17.4%** increase in net investment income was primarily due to an increase in average invested assets, which grew by **$17.6 million** to **$201.9 million** as of March 31, 2019[176](index=176&type=chunk)[177](index=177&type=chunk) [Net Gains and Losses on Investments](index=47&type=section&id=Net%20Gains%20and%20Losses%20on%20Investments) Net Gains (Losses) on Investments (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :-------------------------- | :----------- | :----------- | | Net gains (losses) on investments | $2,035 | $(523) | - The company swung from a net loss of **$523,000** in Q1 2018 to a net gain of **$2,035,000** in Q1 2019, driven by **$2,061,000** in unrealized gains on equity and other investments[178](index=178&type=chunk) [Other Income](index=47&type=section&id=Other%20Income) Other Income (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :--------- | :----------- | :----------- | | Other income | $366 | $308 | - The **18.5%** increase in other income was primarily due to higher installment and other fees from insurance underwriting[179](index=179&type=chunk) [Net Loss and LAE](index=47&type=section&id=Net%20Loss%20and%20LAE) Net Loss and LAE (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------------ | :----------- | :----------- | | Net loss and LAE | $29,134 | $17,266 | | Net loss ratio | 98.4% | 75.6% | - The net loss ratio significantly increased by **22.8** percentage points to **98.4%** in Q1 2019, primarily due to three factors: **$5.1 million** net impact from three winter weather catastrophe events (**17.2-point** impact), **$4.5 million** in prior year reserve strengthening (**15.1-point** impact), and a **14.3-point** increase in the underlying loss ratio due to higher average claim severity[182](index=182&type=chunk)[183](index=183&type=chunk)[185](index=185&type=chunk) - The company initiated steps in March 2019 to improve claims operations by hiring additional staff, strengthening reserves, and changing practices[186](index=186&type=chunk) [Commission Expense](index=48&type=section&id=Commission%20Expense) Commission Expense (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | % of Direct Earned Premiums (2019) | % of Direct Earned Premiums (2018) | | :---------------- | :----------- | :----------- | :--------------------------------- | :--------------------------------- | | Commission expense | $6,853 | $5,800 | 18.2% | 19.0% | - The **18.2%** increase in commission expense was primarily due to the increase in direct earned premiums[187](index=187&type=chunk) [Other Underwriting Expenses](index=48&type=section&id=Other%20Underwriting%20Expenses) Other Underwriting Expenses (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :-------------------------- | :----------- | :----------- | | Other underwriting expenses | $6,136 | $5,032 | - The **21.9%** increase in other underwriting expenses was mainly due to growth in direct written premiums and a **77.5%** increase in professional fees for an outside review of claims practices[188](index=188&type=chunk) - Employment costs, the largest component, increased by **16.7%** to **$2,551,000**, driven by additional staff and annual salary increases[189](index=189&type=chunk) Net Underwriting Expense Ratio Components (Three Months Ended March 31, 2019 vs. 2018) | Component | 2019 (%) | 2018 (%) | Percentage Point Change | | :------------------------------------------ | :----- | :----- | :---------------------- | | Ceding commission revenue - provisional | (4.5)% | (9.1)% | +4.6 | | Ceding commission revenue - contingent | 0.1% | 1.6% | (1.5) | | Other income | (1.1)% | (1.3)% | +0.2 | | Commission expense | 23.2% | 25.4% | (2.2) | | Other underwriting expenses (Employment costs) | 8.6% | 9.6% | (1.0) | | Other underwriting expenses (Professional fees) | 1.8% | 1.3% | +0.5 | | Other underwriting expenses (Other expenses) | 10.4% | 11.2% | (0.8) | | **Net underwriting expense ratio** | **38.5%** | **38.7%** | **(0.2)** | [Other Operating Expenses](index=50&type=section&id=Other%20Operating%20Expenses) Other Operating Expenses (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :---------------------- | :----------- | :----------- | | Other operating expenses | $972 | $247 | - The significant **293.5%** increase in other operating expenses was primarily due to the absence of a decrease in accrued executive bonus compensation in Q1 2019 (compared to a decrease in Q1 2018) and increased salary and equity compensation from new executive hires[194](index=194&type=chunk) [Depreciation and Amortization](index=50&type=section&id=Depreciation%20and%20Amortization) Depreciation and Amortization (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :-------------------------- | :----------- | :----------- | | Depreciation and amortization | $602 | $409 | - The **47.2%** increase was mainly due to depreciation of a new system platform for expansion states and newly purchased assets for system infrastructure upgrades and home office improvements[195](index=195&type=chunk) [Interest Expense](index=50&type=section&id=Interest%20Expense) Interest Expense (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------- | :----------- | :----------- | | Interest expense | $457 | $457 | - Interest expense remained flat at **$457,000**, related to the **$30.0 million** long-term debt issued in December 2017[196](index=196&type=chunk) [Income Tax Expense](index=50&type=section&id=Income%20Tax%20Expense) Income Tax Benefit (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :------------------ | :----------- | :----------- | | Income tax benefit | $(1,920) | $(791) | | Effective tax rate | 20.7% | 22.5% | - The income tax benefit increased by **142.7%** due to a higher loss before taxes in Q1 2019[197](index=197&type=chunk) [Net Loss](index=50&type=section&id=Net%20Loss) Net Loss (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 (in thousands of $) | 2018 (in thousands of $) | | :--------- | :----------- | :----------- | | Net loss | $(7,335) | $(2,718) | - The net loss increased by **169.9%** due to a higher net loss ratio, decreased ceding commission revenue, increased underwriting and operating expenses, and higher depreciation and amortization, partially offset by increased net premiums earned, net investment income, and net investment gains[198](index=198&type=chunk) [Additional Financial Information](index=51&type=section&id=Additional%20Financial%20Information) Net Loss Ratio by Product Type (Three Months Ended March 31, 2019 vs. 2018) | Product Type | 2019 (%) | 2018 (%) | | :-------------------------- | :----- | :----- | | Personal lines | 87.1% | 76.1% | | Commercial lines | 185.3% | 75.8% | | Livery physical damage | 48.4% | 46.2% | | Other | 259.4% | 125.6% | | **Total** | **98.4%** | **75.6%** | - Commercial lines and "Other" product types experienced substantial increases in net loss ratios, significantly contributing to the overall rise in the total net loss ratio[200](index=200&type=chunk) [Insurance Underwriting Business on a Standalone Basis](index=52&type=section&id=Insurance%20Underwriting%20Business%20on%20a%20Standalone%20Basis) Standalone Underwriting Results (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :------------------------------------------ | :----------- | :----------- | | Total revenues | $34,781,805 | $25,685,859 | | Total expenses | $42,701,984 | $28,507,212 | | Loss from operations | $(7,920,179) | $(2,821,353) | | Net loss | $(6,217,208) | $(2,211,073) | Key Measures (Standalone) (Three Months Ended March 31, 2019 vs. 2018) | Ratio | 2019 (%) | 2018 (%) | | :------------------------------------------ | :----- | :----- | | Net loss ratio | 98.4% | 75.6% | | Net underwriting expense ratio | 38.5% | 38.7% | | Net combined ratio | 136.9% | 114.3% | Underwriting Income (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :------------------ | :------------- | :------------- | | Underwriting income | $(10,935,321) | $(3,272,784) | [Investments](index=55&type=section&id=Investments) [Portfolio Summary](index=55&type=section&id=Portfolio%20Summary) Available-for-Sale Fixed-Maturity Securities (March 31, 2019 vs. December 31, 2018) | Category | Fair Value (Mar 2019) ($) | % of Total (Mar 2019) | Fair Value (Dec 2018) ($) | % of Total (Dec 2018) | | :------------------------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | U.S. Treasury securities and obligations | $8,289,944 | 5.2% | $8,220,381 | 5.4% | | Political subdivisions of States, Territories and Possessions | $5,799,104 | 3.6% | $6,341,608 | 4.2% | | Corporate and other bonds (Industrial and miscellaneous) | $124,953,373 | 77.8% | $115,750,293 | 76.3% | | Residential mortgage and other asset backed securities | $21,434,731 | 13.4% | $21,465,234 | 14.1% | | **Total** | **$160,477,152** | **100.0%** | **$151,777,516** | **100.0%** | [Equity Securities](index=57&type=section&id=Equity%20Securities) Equity Securities (March 31, 2019 vs. December 31, 2018) | Category | Fair Value (Mar 2019) ($) | % of Total (Mar 2019) | Fair Value (Dec 2018) ($) | % of Total (Dec 2018) | | :-------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | Preferred stocks | $7,889,792 | 40.1% | $6,152,956 | 37.1% | | Common stocks and exchange traded mutual funds | $11,774,195 | 59.9% | $10,419,660 | 62.9% | | **Total** | **$19,663,987** | **100.0%** | **$16,572,616** | **100.0%** | [Other Investments](index=58&type=section&id=Other%20Investments) Other Investments (March 31, 2019 vs. December 31, 2018) | Category | Fair Value (Mar 2019) ($) | Fair Value (Dec 2018) ($) | | :---------- | :-------------------- | :-------------------- | | Hedge fund | $2,147,945 | $1,855,225 | | **Total** | **$2,147,945** | **$1,855,225** | [Held-to-Maturity Securities](index=58&type=section&id=Held-to-Maturity%20Securities) Held-to-Maturity Securities (March 31, 2019 vs. December 31, 2018) | Category | Fair Value (Mar 2019) ($) | % of Total (Mar 2019) | Fair Value (Dec 2018) ($) | % of Total (Dec 2018) | | :------------------------------------------------- | :-------------------- | :-------------------- | :-------------------- | :-------------------- | | U.S. Treasury securities | $875,862 | 21.5% | $873,075 | 19.7% | | Political subdivisions of States, Territories and Possessions | $1,044,435 | 25.6% | $1,032,665 | 23.3% | | Corporate and other bonds (Industrial and miscellaneous) | $2,156,314 | 52.9% | $2,520,676 | 57.0% | | **Total** | **$4,076,611** | **100.0%** | **$4,426,416** | **100.0%** | [Credit Rating of Fixed-Maturity Securities](index=60&type=section&id=Credit%20Rating%20of%20Fixed-Maturity%20Securities) Credit Quality of Available-for-Sale Fixed-Maturity Securities (March 31, 2019) | Rating | Estimated Fair Value ($) | Percentage of Fair Value (%) | | :-------------------------------- | :------------------- | :----------------------- | | U.S. Treasury securities | $8,289,944 | 5.2% | | Corporate and municipal bonds (AAA-BBB) | $130,752,477 | 81.5% | | Residential mortgage backed securities (AAA-D, Non rated) | $21,434,731 | 13.3% | | **Total** | **$160,477,152** | **100.0%** | Average Yield by Fixed-Maturity Security Type (March 31, 2019 vs. December 31, 2018) | Category | 2019 (%) | 2018 (%) | | :------------------------------------------------- | :----- | :----- | | U.S. Treasury securities and obligations | 2.15% | 2.20% | | Political subdivisions of States, Territories and Possessions | 3.51% | 3.62% | | Corporate and other bonds (Industrial and miscellaneous) | 3.95% | 4.11% | | Residential mortgage and other asset backed securities | 1.98% | 1.94% | | **Total** | **3.58%** | **3.68%** | [Fair Value Consideration](index=62&type=section&id=Fair%20Value%20Consideration) - As of March 31, 2019, **83%** of the investment portfolio recorded at fair value was priced based on quoted market prices (Level 1 and Level 2 inputs)[218](index=218&type=chunk) - The company held **94** fixed-maturity securities with gross unrealized losses at March 31, 2019, none of which were deemed other-than-temporarily impaired, based on management's intent and ability to hold them for recovery[222](index=222&type=chunk) [Liquidity and Capital Resources](index=65&type=section&id=Liquidity%20and%20Capital%20Resources) [Cash Flows](index=65&type=section&id=Cash%20Flows) Cash Flow Summary (Three Months Ended March 31, 2019 vs. 2018) | Metric | 2019 ($) | 2018 ($) | | :-------------------------------- | :----------- | :----------- | | Operating activities | $2,702,404 | $380,373 | | Investing activities | $(6,884,358) | $(15,438,163) | | Financing activities | $(1,191,969) | $(1,729,676) | | **Net decrease in cash and cash equivalents** | **$(5,373,923)** | **$(16,787,466)** | - Operating cash flows increased significantly by **$2.3 million** in Q1 2019, while cash used in investing activities decreased by **$8.5 million**, and cash used in financing activities decreased by **$0.5 million**[228](index=228&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - KICO paid **$2,000,000** in dividends to the holding company in Q1 2019[224](index=224&type=chunk) [Reinsurance](index=66&type=section&id=Reinsurance) - The company's personal lines quota share ceding rate was reduced from **20%** to **10%** effective July 1, 2018, following the termination of a contract with one reinsurer[233](index=233&type=chunk)[235](index=235&type=chunk) - New excess of loss and catastrophe reinsurance treaties became effective July 1, 2018, with increased catastrophe loss coverage to **$445,000,000** (from **$315,000,000**) and higher reinstatement premium protection[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk) - The reinsurance program aims to support premium volume growth while maintaining regulatory capital and provides income through ceding commissions[91](index=91&type=chunk) [Off-Balance Sheet Arrangements](index=70&type=section&id=Off-Balance%20Sheet%20Arrangements) - The company has no material off-balance sheet arrangements that would significantly affect its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[244](index=244&type=chunk) [Factors That May Affect Future Results and Financial Condition](index=70&type=section&id=Factors%20That%20May%20Affect%20Future%20Results%20and%20Financial%20Condition) - Past financial performance should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate future results, as various factors can affect forward-looking statements[245](index=245&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to smaller reporting companies - This item is not applicable to smaller reporting companies[247](index=247&type=chunk) [Item 4. Controls and Procedures](index=71&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2019, with no material changes in internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2019[248](index=248&type=chunk)[249](index=249&type=chunk) - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[250](index=250&type=chunk) PART II — OTHER INFORMATION [Item 1 — Legal Proceedings](index=72&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) The company reported no legal proceedings - No legal proceedings were reported[253](index=253&type=chunk) [Item 1A — Risk Factors](index=72&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) No material changes to risk factors from the prior Annual Report on Form 10-K were reported - No material changes to risk factors from the prior Annual Report on Form 10-K[254](index=254&type=chunk) [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=72&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or purchases of common stock were made by the company during the quarter ended March 31, 2019 - No unregistered sales of equity securities[255](index=255&type=chunk) - No purchases of common stock by the company or affiliated purchasers during the quarter[260](index=260&type=chunk) [Item 3 — Defaults Upon Senior Securities](index=72&type=section&id=Item%203%20%E2%80%94%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities were reported[256](index=256&type=chunk) [Item 4 — Mine Safety Disclosures](index=72&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable - This item is not applicable[257](index=257&type=chunk) [Item 5 — Other Information](index=72&type=section&id=Item%205.%20Other%20Information) No other information was reported - No other information was reported[258](index=258&type=chunk) [Item 6 — Exhibits](index=73&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications, and XBRL-related documents - Exhibits include Restated Certificate of Incorporation, By-laws, Rule 13a-14(a)/15d-14(a) Certifications, Section 906 Certifications, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbases[261](index=261&type=chunk) [Signatures](index=74&type=section&id=Signatures) The report was signed on May 10, 2019, by Dale A. Thatcher, Chief Executive Officer, and Victor Brodsky, Chief Financial Officer - The report was signed by Dale A. Thatcher (CEO) and Victor Brodsky (CFO) on May 10, 2019[265](index=265&type=chunk)