Kingstone(KINS) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Financial Statements This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, investments, insurance activities, debt, equity, income taxes, and recent events Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show the company's financial position at June 30, 2021, and December 31, 2020, indicating a slight decrease in total assets and stockholders' equity, while total liabilities remained relatively stable Condensed Consolidated Balance Sheets | Metric | June 30, 2021 | December 31, 2020 | | :----------------------- | :-------------- | :---------------- | | Total Assets | $312,700,169 | $317,582,267 | | Total Liabilities | $222,735,523 | $224,781,865 | | Total Stockholders' Equity | $89,964,646 | $92,800,402 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The statements of operations and comprehensive income (loss) show a return to net income for the six months ended June 30, 2021, compared to a net loss in the prior year, driven by increased net premiums earned and net investment gains, however, net income for the three months ended June 30, 2021, decreased significantly year-over-year Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Net Premiums Earned | $70,025,644 | $53,578,306 | | Total Revenues | $79,103,651 | $60,942,937 | | Net Income (Loss) | $1,012,264 | $(836,013) | | Basic EPS | $0.09 | $(0.08) | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Three Months Ended June 30) | Metric (Three Months Ended June 30) | 2021 | 2020 | | :---------------------------------- | :----------- | :----------- | | Net Premiums Earned | $35,436,426 | $26,636,856 | | Total Revenues | $39,600,449 | $34,689,332 | | Net Income (Loss) | $1,323,361 | $4,608,190 | | Basic EPS | $0.12 | $0.43 | Condensed Consolidated Statements of Stockholders' Equity The condensed consolidated statements of stockholders' equity illustrate changes over the three and six months ended June 30, 2021 and 2020, reflecting the impact of net income/loss, stock-based compensation, treasury stock transactions, and fluctuations in accumulated other comprehensive income from available-for-sale securities Condensed Consolidated Statements of Stockholders' Equity (Six Months Ended June 30, 2021) | Metric (Six Months Ended June 30, 2021) | Amount | | :-------------------------------------- | :----------- | | Stock-based compensation | $981,067 | | Acquisition of treasury stock | $(1,040,050) | | Dividends | $(854,272) | | Net income | $1,012,264 | | Change in unrealized losses on available-for-sale securities, net of tax | $(2,753,059) | Condensed Consolidated Statements of Cash Flows The condensed consolidated statements of cash flows show a significant increase in cash provided by operating and investing activities for the six months ended June 30, 2021, compared to cash used in the prior year, resulting in a substantial increase in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity (Six Months Ended June 30) | 2021 | 2020 | | :------------------------------------------ | :----------- | :------------ | | Net cash flows provided by (used in) operating activities | $14,364,315 | $(9,981,438) | | Net cash flows provided by (used in) investing activities | $11,307,718 | $(226,785) | | Net cash flows used in financing activities | $(2,076,028) | $(2,029,530) | | Increase (decrease) in cash and cash equivalents | $23,596,005 | $(12,237,753) | | Cash and cash equivalents, end of period | $43,059,747 | $20,153,732 | Notes to Condensed Consolidated Financial Statements These notes provide essential context and detailed disclosures for the financial statements, covering the company's business, significant accounting policies, investment portfolio, fair value measurements, property and casualty insurance operations, debt structure, equity changes, income tax positions, earnings per share calculations, commitments, contingencies, deferred compensation, and subsequent events Note 1 - Nature of Business and Basis of Presentation Kingstone Companies, Inc., through its subsidiary KICO, underwrites property and casualty insurance primarily in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut, with the unaudited financial statements prepared in accordance with U.S. GAAP, and New York policies contributing the majority of direct written premiums - KICO offers property and casualty insurance in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut[29] - 79.8% of direct written premiums for the three months ended June 30, 2021, and 76.3% for the six months ended June 30, 2021, originated from New York policies[29] Note 2 - Accounting Policies This note outlines the company's accounting policies, emphasizing the use of estimates for loss and loss adjustment expense reserves and reinsurance contracts, detailing consolidation principles for its wholly-owned subsidiaries, and noting the adoption of ASU 2019-12 on income taxes had no material impact, while ASU 2016-13 on credit losses is currently being evaluated - Management makes estimates and assumptions, particularly for loss and loss adjustment expense reserves and reinsurance receivables, which are subject to inherent uncertainty[32] - The company adopted ASU 2019-12 (Income Taxes) on January 1, 2021, with no material impact on its condensed consolidated financial statements[34] - ASU 2016-13 (Financial Instruments - Credit Losses) will be effective for the company on January 1, 2023, and its effect is currently being evaluated[35] Note 3 - Investments This note provides a comprehensive breakdown of the company's investment portfolio, including fixed-maturity securities (available-for-sale and held-to-maturity), equity securities, and other investments, detailing their amortized cost, fair value, and unrealized gains and losses, noting that no unrealized losses were deemed other-than-temporarily impaired Investment Portfolio (June 30, 2021) | Investment Category (June 30, 2021) | Amortized Cost / Cost | Estimated Fair Value | Net Unrealized Gains | | :---------------------------------- | :-------------------- | :------------------- | :------------------- | | Fixed-maturity securities, available-for-sale | $128,897,850 | $137,916,652 | $9,018,802 | | Equity securities | $32,679,724 | $36,317,931 | $3,638,207 | | Other investments | $4,106,473 | $6,983,057 | $2,876,584 (Gross Gains) | | Fixed-maturity securities, held-to-maturity | $9,822,799 | $10,458,317 | $635,518 | - The company determined that none of the unrealized losses on its investment portfolio were other-than-temporarily impaired for the six months ended June 30, 2021 and 2020[53] Note 4 - Fair Value Measurements This note presents the fair value hierarchy for the company's investments measured on a recurring basis, categorizing inputs into Level 1, Level 2, and Level 3, with the majority of the investment portfolio's fair value determined using quoted market prices (Level 1 and Level 2 inputs) Fair Value Hierarchy (June 30, 2021) | Fair Value Hierarchy (June 30, 2021) | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :----------- | :----------- | :------ | :----------- | | Total investments | $141,619,380 | $32,615,203 | $0 | $174,234,583 | - As of June 30, 2021, 81% of the investment portfolio recorded at fair value was priced based upon quoted market prices (Level 1 and Level 2)[263] Note 5 - Fair Value of Financial Instruments and Real Estate This note provides the carrying value and estimated fair value for various financial instruments and real estate as of June 30, 2021, and December 31, 2020 Asset Values (June 30, 2021) | Asset (June 30, 2021) | Carrying Value | Estimated Fair Value | | :---------------------------------- | :------------- | :------------------- | | Real estate, net of accumulated depreciation | $2,181,335 | $2,705,000 | Note 6 - Property and Casualty Insurance Activity This note details the company's property and casualty insurance operations, including premiums earned, loss and loss adjustment expense reserves, reinsurance arrangements, and ceding commission revenue, highlighting the significant impact of the expiration of the 2019/2020 quota share treaty on ceded premiums and commissions Premiums Earned The company experienced a substantial increase in net premiums earned for both the three and six months ended June 30, 2021, primarily due to a significant reduction in ceded premiums following the expiration of the 2019/2020 quota share reinsurance treaty Premiums Earned (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Net Premiums Earned | $70,025,644 | $53,578,306 | | Direct Written Premiums | $82,744,761 | $79,347,406 | | Ceded Written Premiums | $(14,630,872) | $(28,066,253) | Premiums Earned (Three Months Ended June 30) | Metric (Three Months Ended June 30) | 2021 | 2020 | | :---------------------------------- | :----------- | :----------- | | Net Premiums Earned | $35,436,426 | $26,636,856 | Loss and Loss Adjustment Expense Reserves The company's net balance of loss and loss adjustment expense (LAE) reserves increased to $71,450,172 as of June 30, 2021, with management utilizing various actuarial methodologies and regularly reviewing estimates, noting favorable prior year development for both 2021 and 2020 Loss and Loss Adjustment Expense Reserves | Metric | June 30, 2021 | June 30, 2020 | | :-------------------------- | :------------ | :------------ | | Net balance, end of period | $71,450,172 | $59,541,702 | | Balance at end of period (Gross) | $85,025,038 | $76,608,359 | - Prior year incurred loss and LAE development was favorable by $8,460 for the six months ended June 30, 2021, and $174,020 for the six months ended June 30, 2020[63] - The reserving process relies on standard actuarial methodologies, including Paid Loss Development, Incurred Loss Development, Bornhuetter-Ferguson methods, Incremental Claim-Based Methods, and Frequency/Severity Based Methods[64][65][66][67][68][69][70] Reinsurance The 2019/2020 quota share reinsurance treaty for personal lines expired on December 30, 2020, and was not renewed, while new excess of loss and catastrophe reinsurance treaties became effective July 1, 2021, structured to support premium growth while managing regulatory capital - The personal lines quota share reinsurance treaty (2019/2020 Treaty) expired on December 30, 2020, on a cut-off basis and was not renewed[81][87] - New excess of loss and catastrophe reinsurance treaties became effective July 1, 2021[81][141] Reinsurance Coverage (July 1, 2021 - June 30, 2022) | Reinsurance Coverage (July 1, 2021 - June 30, 2022) | Amount | | :------------------------------------------------ | :----------- | | Personal Lines Excess of Loss Coverage | $8,000,000 in excess of $1,000,000 | | Catastrophe Loss Coverage | $490,000,000 in excess of $10,000,000 | Ceding Commission Revenue Ceding commission revenue significantly decreased for both the three and six months ended June 30, 2021, primarily due to the expiration of the 2019/2020 quota share reinsurance treaty, which previously provided provisional and contingent commissions Ceding Commission Revenue (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Total Ceding Commission Revenue | $44,676 | $7,311,313 | | Provisional ceding commissions earned | $95,088 | $7,161,036 | | Contingent ceding commissions earned | $(50,412) | $150,277 | Ceding Commission Revenue (Three Months Ended June 30) | Metric (Three Months Ended June 30) | 2021 | 2020 | | :---------------------------------- | :----------- | :----------- | | Total Ceding Commission Revenue | $45,741 | $3,480,214 | | Provisional ceding commissions earned | $49,589 | $3,440,676 | | Contingent ceding commissions earned | $(3,848) | $39,538 | - The decrease in ceding commission revenue was primarily due to the expiration of the 2019/2020 Treaty on December 30, 2020[91][93] Note 7 - Debt The company's long-term debt primarily consists of $30 million in 5.50% Senior Unsecured Notes due December 30, 2022, and KICO maintains membership in the Federal Home Loan Bank of New York (FHLBNY) for potential liquidity, with approximately $9.2 million available in advances as of June 30, 2021, though no borrowings were made during the period Long-term Debt | Metric | June 30, 2021 | December 31, 2020 | | :---------------- | :------------ | :---------------- | | Long-term debt, net | $29,735,701 | $29,647,611 | - The company issued $30 million of 5.50% Senior Unsecured Notes due December 30, 2022, in December 2017[95] - KICO had approximately $9,211,000 in available advances from FHLBNY as of June 30, 2021, with no outstanding borrowings[94] Note 8 - Stockholders' Equity This note details dividends declared and paid, as well as stock-based compensation activities under the 2014 Equity Participation Plan, with dividends decreasing for the six months ended June 30, 2021, while stock-based compensation expenses for both stock options and restricted stock awards were recognized Stockholders' Equity Metrics (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Dividends declared and paid | $854,272 | $1,103,400 | | Stock-based compensation expense (stock options) | $29,000 | $38,000 | | Stock-based compensation expense (restricted stock awards) | $952,000 | $905,000 | - As of June 30, 2021, there were 107,966 stock options outstanding and 586,043 restricted stock awards outstanding[105][109] Note 9 - Income Taxes This note outlines the company's income tax policies, including the determination of deferred tax assets and liabilities, highlighting the impact of the CARES Act, allowing a five-year carryback of 2020 NOLs to a higher corporate tax rate year, and the recording of a valuation allowance against state net operating losses due to uncertainty of realization Net Deferred Income Tax Liability | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Net deferred income tax liability | $(4,013,528) | $(4,156,913) | - The company will elect to carry back its 2020 NOLs to tax year 2015 (34% corporate tax rate) under the CARES Act, compared to the 21% rate in 2020[117] - A valuation allowance has been recorded against state net operating losses due to the uncertainty of generating sufficient state taxable income to utilize them[117] Note 10 - Earnings/(Loss) Per Common Share This note details the computation of basic and diluted earnings per common share, with no stock options included in the diluted EPS calculation for the six months ended June 30, 2021, as they were anti-dilutive Earnings Per Share (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Basic EPS | $0.09 | $(0.08) | | Diluted EPS | $0.09 | $(0.08) | - No stock options were included in the computation of diluted earnings per common share for the six months ended June 30, 2021, as they would have been anti-dilutive[122] Note 11 - Commitments and Contingencies This note outlines the company's commitments and contingencies, including ongoing legal proceedings, operating lease liabilities for office facilities totaling $871,771 as of June 30, 2021, and employment agreements for key executives, also acknowledging the highly uncertain financial impact of the COVID-19 pandemic - The company is involved in various legal proceedings in the ordinary course of business[124] - Operating lease liabilities for office facilities amounted to $871,771 as of June 30, 2021[128] - The extent of COVID-19's financial impact on the company's business activities is highly uncertain and cannot be determined at this time[138] Note 12 - Deferred Compensation Plan The Kingstone Companies, Inc. Deferred Compensation Plan allows eligible management and highly compensated employees to defer a portion of their compensation, with the deferred compensation liability increasing to $826,626 as of June 30, 2021 Deferred Compensation Liability | Metric | June 30, 2021 | December 31, 2020 | | :-------------------------- | :------------ | :---------------- | | Deferred compensation liability | $826,626 | $763,789 | - The Deferred Compensation Plan allows participants to defer up to 75% of base compensation and 100% of bonuses[139] Note 13 - Subsequent Events Key events occurring after June 30, 2021, include the effectiveness of new reinsurance treaties, a downgrade of KICO's A.M. Best financial strength rating, the adoption of an Employee Stock Purchase Plan, and the declaration of a quarterly dividend of $0.04 per share - New excess of loss and catastrophe reinsurance treaties became effective July 1, 2021[141] - On August 6, 2021, KICO's A.M. Best financial strength rating was downgraded from B++ to B+, and the company's Long-Term ICR was downgraded from 'bb' to 'bb-'[142] - An Employee Stock Purchase Plan was adopted on June 19, 2021, and approved by stockholders on August 10, 2021, authorizing up to 750,000 shares[143] - A quarterly dividend of $0.04 per share was declared on July 29, 2021, payable on September 15, 2021[144] Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, detailing business operations, product lines, key performance indicators, critical accounting policies, and a comparative analysis of financial results for the three and six months ended June 30, 2021 and 2020, also covering investment portfolio, liquidity, and future outlook Overview Kingstone, through KICO, underwrites property and casualty insurance primarily in New York, with Cosi Agency handling alternative distribution, and revenue largely derived from earned premiums, ceding commissions, and investment income, while expenses include claims, loss adjustment expenses, and policy acquisition costs - KICO's direct written premiums for the three and six months ended June 30, 2021, were 79.8% and 76.3% from New York policies, respectively[145] - Revenue sources include earned premiums, ceding commissions from reinsurance, net investment income, and net realized/unrealized investment gains/losses[147] - Expenses include policyholder losses, loss adjustment expenses (LAE), policy acquisition costs (commissions, premium taxes), and other operating expenses[149][150] Product Lines The company's primary business is personal lines insurance (homeowners, dwelling fire, etc.), with commercial liability and commercial umbrella lines discontinued in July 2019 due to poor performance, having no in-force policies as of June 30, 2021, and livery physical damage and other niche policies also offered - Personal lines (homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies) constitute the largest line of business[151] - Commercial lines and commercial umbrella risks were discontinued in July 2019 due to poor performance, with no in-force policies as of June 30, 2021[153] - The company also writes livery physical damage policies for for-hire vehicles and canine legal liability policies[154][155] Key Measures The company uses key measures to analyze its insurance underwriting business, including the net loss ratio (underwriting profitability), net underwriting expense ratio (operational efficiency), net combined ratio (overall underwriting profit), and underwriting income (pre-tax income before investment activity) - Key measures include Net loss ratio, Net underwriting expense ratio, Net combined ratio, and Underwriting income[156][157][159][160] - A net combined ratio at or above 100% indicates that an insurance company cannot be profitable without sufficient investment income[159] Critical Accounting Policies and Estimates Management's critical accounting policies and estimates involve significant judgment and assumptions, particularly concerning reserves for loss and loss adjustment expenses, 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 - Critical accounting policies and estimates include reserves for loss and LAE, reinsurance recoverables, deferred ceding commission revenue, deferred policy acquisition costs, deferred income taxes, impairment of investment securities, intangible assets, and stock-based compensation[163] - Actual results could differ from these estimates due to the exercise of judgment and use of assumptions about future uncertainties[162] Consolidated Results of Operations (Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020) For the six months ended June 30, 2021, the company reported a net income of $1,012,000, a significant improvement from a net loss of $836,000 in the prior year, with this turnaround primarily driven by a 30.7% increase in net premiums earned due to reinsurance treaty expiration and a swing to net investment gains, despite a higher net loss ratio of 61.9% Consolidated Results of Operations (Six Months Ended June 30) | Metric (Six Months Ended June 30) | 2021 | 2020 | Change | Percent Change | | :-------------------------------- | :----------- | :----------- | :----------- | :------------- | | Net Income (Loss) | $1,012 | $(836) | $1,848 | na% | | Net Premiums Earned | $70,026 | $53,578 | $16,448 | 30.7% | | Ceding Commission Revenue | $45 | $7,311 | $(7,266) | (99.4)% | | Net Gains (Losses) on Investments | $5,276 | $(3,746) | $9,022 | na% | | Net Loss Ratio | 61.9% | 54.5% | 7.4 pts | 13.6% | | Net Underwriting Expense Ratio | 41.9% | 39.0% | 2.9 pts | 7.4% | | Net Combined Ratio | 103.8% | 93.5% | 10.3 pts | 11.0% | - The increase in net premiums earned was primarily due to the expiration of the 2019/2020 quota share reinsurance treaty on December 30, 2020[177] - The higher net loss ratio was mainly due to an elevated frequency of personal lines liability claims and water damage property claims[185] Consolidated Results of Operations (Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020) For the three months ended June 30, 2021, net income decreased significantly to $1,324,000 from $4,608,000 in the prior year, with this decline primarily attributed to a higher net loss ratio of 58.6%, a substantial decrease in ceding commission revenue due to treaty expiration, and lower net investment gains, despite a 33.0% increase in net premiums earned Consolidated Results of Operations (Three Months Ended June 30) | Metric (Three Months Ended June 30) | 2021 | 2020 | Change | Percent Change | | :---------------------------------- | :----------- | :----------- | :----------- | :------------- | | Net Income | $1,324 | $4,608 | $(3,284) | (71.3)% | | Net Premiums Earned | $35,436 | $26,637 | $8,799 | 33.0% | | Ceding Commission Revenue | $46 | $3,480 | $(3,434) | (98.7)% | | Net Gains on Investments | $2,315 | $2,698 | $(383) | (14.2)% | | Net Loss Ratio | 58.6% | 48.1% | 10.5 pts | 21.8% | | Net Underwriting Expense Ratio | 41.8% | 38.8% | 3.0 pts | 7.7% | | Net Combined Ratio | 100.4% | 86.9% | 13.5 pts | 15.5% | - The higher net loss ratio was mainly due to an elevated frequency of personal lines liability claims and increased livery physical damage claims returning to pre-pandemic levels[223] - Catastrophe losses had a favorable impact of $(123,000) in 2021, compared to a $1,512,000 impact in 2020[201][225] Additional Financial Information This section provides a detailed breakdown of gross and net written premiums, net premiums earned, and net loss and loss adjustment expenses by major product type, including personal lines, livery physical damage, and commercial lines (in run-off), also presenting key insurance underwriting business measures on a standalone basis Net Loss Ratio by Product Type (Six Months Ended June 30, 2021) | Product Type (Net Loss Ratio, Six Months Ended June 30, 2021) | Ratio | | :---------------------------------------------------- | :---- | | Personal lines | 59.4% | | Livery physical damage | 47.7% | | Commercial lines (in run-off effective July 2019) | 61.9% | Key Insurance Underwriting Business Measures (Six Months Ended June 30) | Key Measure (Six Months Ended June 30) | 2021 | 2020 | | :------------------------------------- | :----------- | :----------- | | Net Combined Ratio | 103.8% | 93.5% | - Commercial lines business was in run-off effective July 2019, with no new underwriting[242] Investments This section provides a detailed overview of the company's investment portfolio, including fixed-maturity, equity, and other investments, with breakdowns by category, fair value, and credit ratings, also discussing the fair value hierarchy and the assessment of unrealized losses, which were deemed temporary Portfolio Summary The investment portfolio summary details the amortized cost, fair value, and unrealized gains/losses for fixed-maturity (available-for-sale and held-to-maturity), equity, and other investments as of June 30, 2021, and December 31, 2020 Investment Portfolio Summary (June 30, 2021) | Investment Category (June 30, 2021) | Estimated Fair Value | % of Estimated Fair Value | | :---------------------------------- | :------------------- | :------------------------ | | Fixed-Maturity Securities, available-for-sale | $137,916,652 | 100.0% | | Corporate and other bonds Industrial and miscellaneous | $105,319,527 | 76.3% | | Equity Securities | $36,317,931 | 100.0% | | Preferred stocks | $19,882,868 | 54.7% | | Other Investments | $6,983,057 | 100.0% | | Hedge fund | $6,875,965 | 98.5% | | Held-to-Maturity Securities | $10,458,317 | 100.0% | | Corporate and other bonds Industrial and miscellaneous | $7,499,388 | 71.7% | Credit Rating of Fixed-Maturity Securities This section provides a breakdown of the credit quality of available-for-sale fixed-maturity securities by rating from Standard & Poor's (or equivalent), along with the average yield and weighted average maturity and effective duration of the fixed-maturity portfolio Credit Rating of Available-for-Sale Fixed-Maturity Securities (June 30, 2021) | Credit Rating (Available-for-Sale Fixed-Maturity Securities, June 30, 2021) | Estimated Fair Market Value | Percentage of Fair Market Value | | :---------------------------------------------------------- | :-------------------------- | :------------------------------ | | Corporate and municipal bonds (BBB) | $84,036,791 | 61.0% | | Residential mortgage backed securities (AA) | $16,196,173 | 11.9% | Fixed-Maturity Securities Metrics (June 30, 2021) | Metric (Fixed-Maturity Securities, June 30, 2021) | Value | | :------------------------------------------ | :---- | | Average Yield | 3.23% | | Weighted average effective maturity | 5.0 years | | Effective duration | 4.7 years | Fair Value Consideration The company uses a fair value hierarchy (Level 1, 2, and 3) for investment valuation, with 81% of the fair value portfolio based on quoted market prices, and unrealized losses on fixed-maturity and equity securities were assessed and deemed temporary - As of June 30, 2021, 81% of the investment portfolio recorded at fair value was priced based upon quoted market prices (Level 1 and Level 2 inputs)[263] - Unrealized losses on fixed-maturity securities available-for-sale were considered temporary, with no other-than-temporary impairment recognized[265] Liquidity and Capital Resources The company's liquidity is primarily generated from KICO's operating activities, including premiums, ceding commissions, and investment income, with cash provided by operating activities significantly increasing for the six months ended June 30, 2021, and KICO also having access to FHLBNY advances for additional liquidity, and the reinsurance program structured to manage capital Cash Flow Activity (Six Months Ended June 30) | Cash Flow Activity (Six Months Ended June 30) | 2021 | 2020 | | :------------------------------------------ | :----------- | :------------ | | Net cash provided by (used in) operating activities | $14,364,315 | $(9,981,438) | | Net cash provided by (used in) investing activities | $11,307,718 | $(226,785) | | Cash and cash equivalents, end of period | $43,059,747 | $20,153,732 | - KICO paid $2,000,000 in dividends to the holding company for the six months ended June 30, 2021[267] - KICO has access to approximately $9,211,000 in FHLBNY advances as of June 30, 2021, with no borrowings during the period[268] Inflation Inflation can materially impact the company's financial results by increasing loss and loss adjustment expenses, particularly for medical and hospital rates, potentially requiring higher reserves and reducing earnings, and also influences interest rates, affecting investment values and operating expenses - Inflation in excess of anticipated levels could cause loss and loss adjustment expenses to be higher, requiring increased reserves and reduced earnings[278] - Fluctuations in inflation rates influence interest rates, impacting the market value of the investment portfolio and yields on new investments[279] Off-Balance Sheet Arrangements The company has no material off-balance sheet arrangements that are reasonably likely to have a current or future significant effect on its financial condition, revenues, results of operations, liquidity, or capital resources - The company has no material off-balance sheet arrangements[280] Outlook The company's outlook remains highly uncertain due to the rapidly evolving and unpredictable impacts of COVID-19 on economic conditions and premium volumes, with underwriting changes prioritizing profitability over growth also expected to lead to slower premium growth - The impacts of COVID-19 and related economic conditions on the company's results are highly uncertain and rapidly evolving[282] - Decreased economic activity due to COVID-19 has negatively impacted premium volumes and is expected to persist, though to a lesser extent, for the remainder of 2021[284] - Underwriting changes to emphasize profitability over growth may lead to a slowdown in premium growth, particularly in new business[284] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to Kingstone Companies, Inc. as it qualifies as a smaller reporting company - This item is not applicable to smaller reporting companies[285] Item 4 - Controls and Procedures The company's management, including the Chief Executive Officer and Principal Financial Officer, concluded that its disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting occurring during the most recently completed fiscal quarter - The company's disclosure controls and procedures were effective as of June 30, 2021[286][287] - There have been no material changes in internal control over financial reporting during the most recently completed fiscal quarter[288] PART II - OTHER INFORMATION Item 1 - Legal Proceedings The company reported no legal proceedings - The company reported no legal proceedings[292] Item 1A - Risk Factors This section refers to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K and updated in this Quarterly Report, confirming that no material changes have occurred to those risk factors - For a discussion of potential risks and uncertainties, refer to Part I, Item 1A of the 2020 Annual Report on Form 10-K and Part I, Item 2 of this Quarterly Report[293] - There have been no material changes to the risk factors disclosed in Part I, Item 1A of the company's 2020 Annual Report[294] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 120,550 shares of common stock during the quarter ended June 30, 2021, at an average price of $8.07 per share, as part of its $10,000,000 repurchase plan Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--------------- | :----------------------------- | :--------------------------- | | 4/1/21 - 4/30/21 | - | - | | 5/1/21 - 5/31/21 | 4,750 | $8.08 | | 6/1/21 - 6/30/21 | 115,800 | $8.07 | | Total | 120,550 | $8.07 | - Up to $10,000,000 of common stock may be purchased pursuant to the repurchase plan announced on March 18, 2021[296] Item 3 - Defaults Upon Senior Securities The company reported no defaults upon senior securities - The company reported no defaults upon senior securities[297] Item 4 - Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[298] Item 5 - Other Information The company reported no other information - The company reported no other information[299] Item 6 - Exhibits This section lists the exhibits filed with the Quarterly Report, including corporate governance documents, certifications from the Chief Executive Officer and Principal Financial Officer, and XBRL (eXtensible Business Reporting Language) documents - Exhibits include certifications from the Chief Executive Officer and Principal Financial Officer (Rule 13a-14(a)/15d-14(a) and 18 U.S.C. Section 1350)[300] - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbases are filed[300][303] Signatures The report is duly signed by Barry B. Goldstein, Chief Executive Officer, and Richard Swartz, Principal Financial Officer, on behalf of Kingstone Companies, Inc - The report is signed by Barry B. Goldstein, Chief Executive Officer, and Richard Swartz, Principal Financial Officer[303]