KINGSTONE COMPANIES, INC. [KINS] Filings

10-Q 1 king_10q.htm FORM 10-Q king_10q.htm

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, 2022

☐

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

For the transition period from _________to _________

Commission File Number 0-1665

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

36-2476480

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

15 Joys Lane

Kingston, NY 12401

(Address of principal executive offices)

(845) 802-7900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	KINS	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of November 14, 2022, there were 10,684,499 shares of the registrant’s common stock outstanding.

KINGSTONE COMPANIES, INC.

INDEX

		PAGE

PART I — FINANCIAL INFORMATION		4
Item 1 —	Financial Statements	4
	Condensed Consolidated Balance Sheets at September 30, 2022 (Unaudited) and December 31, 2021	4
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months and nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity for the three months and nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3 —	Quantitative and Qualitative Disclosures About Market Risk	76
Item 4 —	Controls and Procedures	76

PART II — OTHER INFORMATION		77
Item 1 —	Legal Proceedings	77
Item 1A —	Risk Factors	77
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds	77
Item 3 —	Defaults Upon Senior Securities	77
Item 4 —	Mine Safety Disclosures	77
Item 5 —	Other Information	77
Item 6 —	Exhibits	78
Signatures		79

Forward-Looking Statements

This Quarterly Report contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The events described in forward‑looking statements contained in this Quarterly Report may not occur. Generally, these statements relate to business plans or strategies, projected or anticipated results or other consequences of our plans or strategies, projected or anticipated results from acquisitions to be made by us, or projections involving anticipated revenues, earnings, costs or other aspects of our operating results. The words “may,” “will,” “expect,” “believe,” “anticipate,” “project,” “plan,” “intend,” “estimate,” and “continue,” and their opposites and similar expressions are intended to identify forward‑looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, which may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may cause actual results and outcomes to differ materially from those contained in the forward-looking statements include, but are not limited to the risks and uncertainties discussed in Part I Item 1A (“Risk Factors”) of our Annual Report under “Factors That May Affect Future Results and Financial Condition” on Form 10-K for the year ended December 31, 2021, Part I, Item 2 of this Quarterly Report and Part II, Item 1A of this Quarterly Report.

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

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
	September 30,			December 31,
	2022			2021
	(unaudited)
Assets
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $6,611,858 at September 30, 2022 and $8,753,159 at December 31, 2021)	$	7,767,183		$	8,266,334
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $165,534,467 at September 30, 2022 and $155,808,478 at December 31, 2021)		145,305,707			158,080,110
Equity securities, at fair value (cost of $26,776,016 at September 30, 2022 and $37,470,669 at December 31, 2021)		21,468,446			39,687,002
Other investments		2,576,272			7,561,415
Total investments		177,117,608			213,594,861
Cash and cash equivalents		15,111,206			24,290,598
Premiums receivable, net		12,891,464			12,318,336
Reinsurance receivables, net		59,365,937			40,292,438
Deferred policy acquisition costs		23,205,684			22,238,987
Intangible assets		500,000			500,000
Property and equipment, net		10,161,507			9,291,597
Deferred income taxes, net		8,856,948			192,253
Other assets		8,497,592			8,593,205
Total assets	$	315,707,946		$	331,312,275

Liabilities
Loss and loss adjustment expense reserves	$	106,928,898		$	94,948,745
Unearned premiums		103,789,380			97,759,607
Advance premiums		6,627,275			2,693,466
Reinsurance balances payable		11,475,247			12,961,568
Deferred ceding commission revenue		10,320,370			9,748,508
Accounts payable, accrued expenses and other liabilities		7,740,737			7,704,396
Debt, net		29,955,926			29,823,791
Total liabilities		276,837,833			255,640,081

Commitments and Contingencies (Note 11)

Stockholders' Equity
Preferred stock, $0.01 par value; authorized 2,500,000 shares		-			-
Common stock, $0.01 par value; authorized 20,000,000 shares; issued 12,117,081 shares at September 30, 2022 and 11,955,660 shares at December 31, 2021; outstanding 10,645,675 shares at September 30, 2022 and 10,484,254 shares at December 31, 2021		121,171			119,557
Capital in excess of par		73,290,935			72,467,483
Accumulated other comprehensive (loss) income		(15,978,570	)		1,796,739
(Accumulated deficit) retained earnings		(12,995,942	)		6,855,896
		44,437,594			81,239,675
Treasury stock, at cost, 1,471,406 shares at September 30, 2022 and December 31, 2021		(5,567,481	)		(5,567,481	)
Total stockholders' equity		38,870,113			75,672,194

Total liabilities and stockholders' equity	$	315,707,946		$	331,312,275

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Revenues
Net premiums earned	$	29,360,976		$	36,803,251		$	83,936,424		$	106,828,895
Ceding commission revenue		4,886,094			(7,276	)		14,283,077			37,400
Net investment income		1,418,521			1,676,596			3,411,946			5,137,867
Net (losses) gains on investments		(397,658	)		204,534			(9,313,436	)		5,480,202
Other income		269,702			280,869			750,169			577,261
Total revenues		35,537,635			38,957,974			93,068,180			118,061,625

Expenses
Loss and loss adjustment expenses		22,027,516			35,740,235			63,624,755			79,060,117
Commission expense		8,702,190			8,201,935			25,534,307			24,711,115
Other underwriting expenses		7,276,101			6,562,743			20,717,047			19,722,705
Other operating expenses		809,597			855,499			2,357,367			3,141,077
Depreciation and amortization		824,975			820,091			2,472,348			2,480,085
Interest expense		456,545			456,545			1,369,635			1,369,635
Total expenses		40,096,924			52,637,048			116,075,459			130,484,734

Loss from operations before taxes		(4,559,289	)		(13,679,074	)		(23,007,279	)		(12,423,109	)
Income tax benefit		(561,668	)		(3,060,809	)		(4,432,507	)		(2,817,108	)
Net loss		(3,997,621	)		(10,618,265	)		(18,574,772	)		(9,606,001	)

Other comprehensive loss, net of tax
Gross change in unrealized losses
on available-for-sale-securities		(5,047,679	)		(829,298	)		(22,556,319	)		(3,578,413	)

Reclassification adjustment for losses (gains)
included in net loss		4,247			(335,668	)		55,927			(1,071,439	)
Net change in unrealized losses		(5,043,432	)		(1,164,966	)		(22,500,392	)		(4,649,852	)
Income tax benefit related to items
of other comprehensive loss		1,059,120			244,643			4,725,083			976,470
Other comprehensive loss, net of tax		(3,984,312	)		(920,323	)		(17,775,309	)		(3,673,382	)

Comprehensive loss	$	(7,981,933	)	$	(11,538,588	)	$	(36,350,081	)	$	(13,279,383	)

Loss per common share:
Basic	$	(0.38	)	$	(1.01	)	$	(1.75	)	$	(0.90	)
Diluted	$	(0.38	)	$	(1.01	)	$	(1.75	)	$	(0.90	)

Weighted average common shares outstanding
Basic		10,645,675			10,523,515			10,640,290			10,622,988
Diluted		10,645,675			10,523,515			10,640,290			10,622,988

Dividends declared and paid per common share	$	0.04		$	0.04		$	0.12		$	0.12

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Three months ended September 30, 2022 and 2021

														Accumulated
											Capital			Other
	Preferred Stock				Common Stock						in Excess			Comprehensive			Retained			Treasury Stock
	Shares		Amount		Shares			Amount			of Par			Income (Loss)			Earnings			Shares		Amount			Total
Balance, July 1, 2021		-	$	-		11,944,220		$	119,442		$	71,567,797		$	7,127,003		$	16,086,337			1,383,077	$	(4,935,933	)	$	89,964,646
Stock-based compensation		-		-		-			-			466,658			-			-			-		-			466,658
Vesting of restricted stock awards		-		-		4,907			49			(49	)		-			-			-		-			-
Shares deducted from restricted stock awards for payment of withholding taxes		-		-		(1,508	)		(15	)		(9,371	)		-			-			-		-			(9,386	)
Acquisition of treasury stock		-		-		-			-			-			-			-			88,329		(631,548	)		(631,548	)
Dividends		-		-		-			-			-			-			(420,525	)		-		-			(420,525	)
Net loss		-		-		-			-			-			-			(10,618,265	)		-		-			(10,618,265	)
Change in unrealized losses on available-		-		-		-			-			-			-			-			-		-
for-sale securities, net of tax		-		-		-			-			-			(920,323	)		-			-		-			(920,323	)
Balance, September 30, 2021		-	$	-		11,947,619		$	119,476		$	72,025,035		$	6,206,680		$	5,047,547			1,471,406	$	(5,567,481	)	$	77,831,257

											Accumulated
									Capital		Other
	Preferred Stock				Common Stock				in Excess		Comprehensive			Accumulated			Treasury Stock
	Shares		Amount		Shares		Amount		of Par		Loss			Deficit			Shares		Amount			Total
Balance, July 1, 2022		-	$	-		12,117,081	$	121,171	$	73,102,513	$	(11,994,258	)	$	(8,572,521	)		1,471,406	$	(5,567,481	)	$	47,089,424
Stock-based compensation		-		-		-		-		188,422		-			-			-		-			188,422
Vesting of restricted stock awards		-		-		-		-		-		-			-			-		-			-
Shares deducted from restricted stock awards for payment of withholding taxes		-		-		-		-		-		-			-			-		-			-
Dividends		-		-		-		-		-		-			(425,800	)		-		-			(425,800	)
Net loss		-		-		-		-		-		-			(3,997,621	)		-		-			(3,997,621	)
Change in unrealized losses on available-for-sale securities, net of tax		-		-		-		-		-		(3,984,312	)		-			-		-			(3,984,312	)
Balance, September 30, 2022		-	$	-		12,117,081	$	121,171	$	73,290,935	$	(15,978,570	)	$	(12,995,942	)		1,471,406	$	(5,567,481	)	$	38,870,113

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders' Equity (Unaudited)
Nine months ended September 30, 2022 and 2021

														Accumulated
											Capital			Other
	Preferred Stock				Common Stock						in Excess			Comprehensive			Retained			Treasury Stock
	Shares		Amount		Shares			Amount			of Par			Income (Loss)			Earnings			Shares		Amount			Total
Balance, January 1, 2021		-	$	-		11,871,307		$	118,713		$	70,769,165		$	9,880,062		$	15,928,345			1,254,492	$	(3,895,883	)	$	92,800,402
Stock-based compensation		-		-		-			-			1,447,725			-			-			-		-			1,447,725
Vesting of restricted stock awards		-		-		104,030			1,040			(1,040	)		-			-			-		-			-
Shares deducted from restricted stock awards for payment of withholding taxes		-		-		(27,718	)		(277	)		(190,815	)		-			-			-		-			(191,092	)
Acquisition of treasury stock		-		-		-			-			-			-			-			216,914		(1,671,598	)		(1,671,598	)
Dividends		-		-		-			-			-			-			(1,274,797	)		-		-			(1,274,797	)
Net loss		-		-		-			-			-			-			(9,606,001	)		-		-			(9,606,001	)
Change in unrealized losses on available-for-sale securities, net of tax		-		-		-			-			-			(3,673,382	)		-			-		-			(3,673,382	)
Balance, September 30, 2021		-	$	-		11,947,619		$	119,476		$	72,025,035		$	6,206,680		$	5,047,547			1,471,406	$	(5,567,481	)	$	77,831,257

														Accumulated			Retained
											Capital			Other			Earnings
	Preferred Stock				Common Stock						in Excess			Comprehensive			(Accumulated			Treasury Stock
	Shares		Amount		Shares			Amount			of Par			Income (Loss)			Deficit)			Shares		Amount			Total
Balance, January 1, 2022		-	$	-		11,955,660		$	119,557		$	72,467,483		$	1,796,739		$	6,855,896			1,471,406	$	(5,567,481	)	$	75,672,194
Stock-based compensation		-		-		-			-			1,204,865			-			-			-		-			1,204,865
Vesting of restricted stock awards		-		-		234,219			2,342			(2,342	)		-			-			-		-			-
Shares deducted from restricted stock awards for payment of withholding taxes		-		-		(72,798	)		(728	)		(379,071	)		-			-			-		-			(379,799	)
Dividends		-		-		-			-			-			-			(1,277,066	)		-		-			(1,277,066	)
Net loss		-		-		-			-			-			-			(18,574,772	)		-		-			(18,574,772	)
Change in unrealized losses on available-for-sale securities, net of tax		-		-		-			-			-			(17,775,309	)		-			-		-			(17,775,309	)
Balance, September 30, 2022		-	$	-		12,117,081		$	121,171		$	73,290,935		$	(15,978,570	)	$	(12,995,942	)		1,471,406	$	(5,567,481	)	$	38,870,113

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30,	2022			2021

Cash flows from operating activities:
Net loss	$	(18,574,772	)	$	(9,606,001	)
Adjustments to reconcile net loss to net cash flows
(used in) provided by operating activities:
Net gains on investments		(599,773	)		(2,793,522	)
Net unrealized losses (gains) on equity investments		7,549,640			(592,397	)
Net unrealized losses (gains) on other investments		2,363,568			(2,094,283	)
Depreciation and amortization		2,472,348			2,480,085
Bad debt expense		43,365			150,024
Amortization of bond premium, net		922,257			165,413
Amortization of discount and issuance costs on debt		132,135			132,135
Stock-based compensation		1,204,865			1,447,725
Deferred income tax benefit		(3,939,612	)		(2,642,595	)
Decrease (increase) in operating assets:
Premiums receivable, net		(616,493	)		360,296
Reinsurance receivables, net		(19,073,499	)		22,498,715
Deferred policy acquisition costs		(966,697	)		(1,119,401	)
Other assets		95,613			(406,756	)
Increase (decrease) in operating liabilities:
Loss and loss adjustment expense reserves		11,980,153			18,242,890
Unearned premiums		6,029,773			2,644,506
Advance premiums		3,933,809			2,665,160
Reinsurance balances payable		(1,486,321	)		(2,713,643	)
Deferred ceding commission revenue		571,862			(5,673	)
Accounts payable, accrued expenses and other liabilities		36,341			267,109
Net cash flows (used in) provided by operating activities		(7,921,438	)		29,079,787

Cash flows from investing activities:
Purchase - fixed-maturity securities held-to-maturity		(498,711	)		(3,175,686	)
Purchase - fixed-maturity securities available-for-sale		(24,874,443	)		(32,753,786	)
Purchase - equity securities		(637,897	)		(17,834,076	)
Purchase - other investments		-			(2,000,000	)
Redemption - fixed-maturity securities held-to-maturity		1,000,000			1,312,500
Sale and maturity - fixed-maturity securities available-for-sale		14,213,435			33,335,036
Sale - equity securities		11,962,513			14,507,384
Sale - real estate partnership		-			233,798
Redemption - other investments		2,576,272			-
Acquisition of property and equipment		(3,342,258	)		(2,923,124	)
Net cash flows provided by (used in) investing activities		398,911			(9,297,954	)

Cash flows from financing activities:
Withholding taxes paid on vested retricted stock awards		(379,799	)		(191,092	)
Purchase of treasury stock		-			(1,671,598	)
Dividends paid		(1,277,066	)		(1,274,797	)
Net cash flows used in financing activities		(1,656,865	)		(3,137,487	)

(Decrease) increase in cash and cash equivalents	$	(9,179,392	)	$	16,644,346
Cash and cash equivalents, beginning of period		24,290,598			19,463,742
Cash and cash equivalents, end of period	$	15,111,206		$	36,108,088

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	825,000		$	825,000

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Nature of Business and Basis of Presentation

Kingstone Companies, Inc. (referred to herein as "Kingstone"), through its wholly-owned subsidiary, Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance exclusively through retail and wholesale agents and brokers. KICO is a licensed insurance company in the States of New York, New Jersey, Rhode Island, Massachusetts, Pennsylvania, Connecticut, Maine and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts, and Connecticut. Although New Jersey, Rhode Island, Massachusetts and Connecticut continue to be growing markets for the Company,over 80% of KICO’s direct written premiums for both the three months and nine months ended September 30, 2022, came from the New York policies. Kingstone, through its wholly-owned subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, accesses alternate forms of distribution outside of the independent agent and broker network, through which KICO currently distributes its various products. Kingstone and its wholly-owned subsidiaries are collectively referred to as the “Company”.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2021 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2022. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations. The results of operations for the nine months ended September 30, 2022 may not be indicative of the results that may be expected for the year ending December 31, 2022.

Certain prior year balances were reclassified to conform with the current year presentation. The reclassification had no effect on the Company’s previously reported financial condition, results of operations or cash flows.

Note 2 – Accounting Policies

Basis of Presentation; Going Concern

See Note 2 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for further information.

Kingstone’s $30,000,000 5.5% Senior Unsecured Notes (the “Notes”) mature on December 30, 2022. The Company’s continuation as a going concern is dependent on its ability to obtain financing to satisfy the Notes at maturity unless agreements are entered into with the holders of a substantial principal amount of the Notes to extend the maturity date of the Notes or exchange the Notes for new debt and/or equity securities of Kingstone (see “Management’s Plan Related to Going Concern” below). Management believes that KICO’s insurance operations would be able to continue in the event that the required financing by Kingstone is not obtained and agreements with the holders of the Notes are not entered into.

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In accordance with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40) (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its future financial obligations as they become due within one year after the date that the financial statements are issued. This evaluation requires management to perform two steps. First, management must evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern. Second, if management concludes that substantial doubt is raised, management is required to consider whether it has plans in place to alleviate that doubt. Disclosures in the notes to the consolidated financial statements are required if management concludes that substantial doubt exists and if its plans alleviate the substantial doubt that was raised.

The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP assuming that the Company will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Management’s Plan Related to Going Concern

In order to continue as a going concern, Kingstone will need to refinance the Notes that become due on December 30, 2022, either through (a) new debt or equity financing at Kingstone that will provide the funds necessary, together with available cash, to pay the Notes in full at maturity, (b) Kingstone entering into arrangements with holders of the Notes to exchange their Notes for new debt and/or equity securities of Kingstone or (c) a combination of (a) and (b). No assurance can be given that Kingstone will be successful in this regard. Management has been exploring and continues to explore a number of financing and other options and has engaged investment bankers to assist it in pursuing such options. Subject to regulatory requirements, Kingstone can also receive dividends and/or loans from its insurance subsidiary, KICO, that could be utilized to repay a portion of the Notes. As of September 30, 2022, the maximum distribution that KICO could pay to Kingstone without prior regulatory approval was approximately $3.0 million. Subsequent to September 30, 2022, Kingstone received a $3.0 million distribution from KICO. In addition, subsequent to September 30, 2022, Kingstone received a loan from KICO of $6.45 million without the need for prior regulatory approval and also received a Federal income tax refund of approximately $1.5 million. With the foregoing proceeds, together with liquid investments and available cash, Kingstone currently has total funds of approximately $12.0 million.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described above, which the Company believes is probable, but there can be no assurance in this regard.

Use of Estimates

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

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Principles of Consolidation

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

Recent Accounting Pronouncements

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

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

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Note 3 - Investments

Fixed-Maturity Securities

The amortized cost, estimated fair value, and unrealized gains and losses on investments in fixed-maturity securities classified as available-for-sale as of September 30, 2022 and December 31, 2021 are summarized as follows:

	September 30, 2022
	Cost or		Gross		Gross Unrealized Losses						Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12			Fair		Unrealized
Category	Cost		Gains		Months			Months			Value		Losses

Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	9,946,032	$	930	$	(123	)	$	-		$	9,946,839	$	807

Political subdivisions of States, Territories and Possessions		17,117,473		-		(3,250,196	)		(590,936	)		13,276,341		(3,841,132	)

Corporate and other bonds
Industrial and miscellaneous		84,163,055		-		(9,154,182	)		(269,694	)		74,739,179		(9,423,876	)

Residential mortgage and other asset backed securities (1)		54,307,907		68,159		(4,333,707	)		(2,699,011	)		47,343,348		(6,964,559	)
Total fixed-maturity securities	$	165,534,467	$	69,089	$	(16,738,208	)	$	(3,559,641	)	$	145,305,707	$	(20,228,760	)

(1)

KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of September 30, 2022, the estimated fair value of the eligible investments was approximately $12,393,000. KICO will retain all rights regarding all securities if pledged as collateral. As of September 30, 2022 there was no outstanding balance on the FHLBNY credit line.

	December 31, 2021
	Cost or		Gross		Gross Unrealized Losses								Net
	Amortized		Unrealized		Less than 12			More than 12			Estimated Fair		Unrealized Gains/
Category	Cost		Gains		Months			Months			Value		(Losses)

Fixed-Maturity Securities:
Political subdivisions of States, Territories and Possessions	$	17,236,750	$	246,748	$	(197,984	)	$	-		$	17,285,514	$	48,764

Corporate and other bonds
Industrial and miscellaneous		80,534,769		2,603,411		(126,926	)		-			83,011,254		2,476,485

Residential mortgage and other asset backed securities		58,036,959		355,985		(489,258	)		(120,344	)		57,783,342		(253,617	)
Total fixed-maturity securities	$	155,808,478	$	3,206,144	$	(814,168	)	$	(120,344	)	$	158,080,110	$	2,271,632

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A summary of the amortized cost and estimated fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of September 30, 2022 and December 31, 2021 is shown below:

	September 30, 2022				December 31, 2021
	Amortized		Estimated		Amortized		Estimated
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value

Less than one year	$	14,852,441	$	14,824,136	$	1,153,099	$	1,156,636
One to five years		44,959,185		42,305,309		43,007,110		44,914,759
Five to ten years		30,271,976		24,680,308		26,808,853		27,332,581
More than 10 years		21,142,958		16,152,606		26,802,457		26,892,792
Residential mortgage and other asset backed securities		54,307,907		47,343,348		58,036,959		57,783,342
Total	$	165,534,467	$	145,305,707	$	155,808,478	$	158,080,110

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

Equity Securities

The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of September 30, 2022 and December 31, 2021 are as follows:

	September 30, 2022
			Gross		Gross			Estimated
Category	Cost		Gains		Losses			Fair Value

Equity Securities:
Preferred stocks	$	16,047,207	$	-	$	(3,488,481	)	$	12,558,726
Common stocks, mutual funds, and exchange traded funds		10,728,809		103,902		(1,922,991	)		8,909,720
Total	$	26,776,016	$	103,902	$	(5,411,472	)	$	21,468,446

	December 31, 2021
			Gross		Gross			Estimated
Category	Cost		Gains		Losses			Fair Value

Equity Securities:
Preferred stocks	$	22,019,509	$	1,007,009	$	(184,617	)	$	22,841,901
Common stocks, mutual funds, and exchange traded funds		15,451,160		1,573,653		(179,712	)		16,845,101
Total	$	37,470,669	$	2,580,662	$	(364,329	)	$	39,687,002

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Other Investments

The cost and estimated fair value of, and gross gains on, the Company’s other investments as of September 30, 2022 and December 31, 2021 are as follows:

	September 30, 2022						December 31, 2021
			Gross		Estimated				Gross		Estimated
Category	Cost		Gains		Fair Value		Cost		Gains		Fair Value

Other Investments:
Hedge fund	$	1,987,040	$	589,232	$	2,576,272	$	3,999,381	$	3,562,034	$	7,561,415

Held-to-Maturity Securities

The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses on, investments in held-to-maturity fixed-maturity securities as of September 30, 2022 and December 31, 2021 are summarized as follows:

	September 30, 2022
	Cost or		Gross		Gross Unrealized Losses					Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12		Fair		Unrealized Gains/
Category	Cost		Gains		Months			Months		Value		(Losses)

Held-to-Maturity Securities:
U.S. Treasury securities	$	1,228,485	$	73,468	$	(36,802	)	$	-	$	1,265,151	$	36,666

Political subdivisions of States, Territories and Possessions		498,508		-		(1,498	)		-		497,010		(1,498	)

Exchange traded debt		304,111		-		(43,361	)		-		260,750		(43,361	)

Corporate and other bonds
Industrial and miscellaneous		5,736,079		35,503		(1,182,635	)		-		4,588,947		(1,147,132	)
Total	$	7,767,183	$	108,971	$	(1,264,296	)	$	-	$	6,611,858	$	(1,155,325	)

	December 31, 2021
	Cost or		Gross		Gross Unrealized Losses					Estimated		Net
	Amortized		Unrealized		Less than 12			More than 12		Fair		Unrealized Gains/
Category	Cost		Gains		Months			Months		Value		(Losses)

Held-to-Maturity Securities:
U.S. Treasury securities	$	729,642	$	209,633	$	-		$	-	$	939,275	$	209,633

Political subdivisions of States, Territories and Possessions		998,239		22,856		-			-		1,021,095		22,856

Exchange traded debt		304,111		85		(13,921	)				290,275		(13,836	)

Corporate and other bonds
Industrial and miscellaneous		6,234,342		280,951		(12,779	)		-		6,502,514		268,172
Total	$	8,266,334	$	513,525	$	(26,700	)	$	-	$	8,753,159	$	486,825

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

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A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of September 30, 2022 and December 31, 2021 is shown below:

	September 30, 2022				December 31, 2021
	Amortized		Estimated		Amortized		Estimated
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value

Less than one year	$	708,325	$	742,533	$	994,712	$	1,008,180
One to five years		1,120,315		1,082,015		1,205,829		1,290,465
Five to ten years		1,399,725		1,177,545		1,513,942		1,648,808
More than 10 years		4,538,818		3,609,765		4,551,851		4,805,706
Total	$	7,767,183	$	6,611,858	$	8,266,334	$	8,753,159

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

Investment Income

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

	Three months ended				Nine months ended
	September 30				September 30
	2022		2021		2022		2021

Income:
Fixed-maturity securities	$	1,243,177	$	1,288,277	$	2,841,307	$	4,238,746
Equity securities		247,275		436,833		872,005		1,145,244
Cash and cash equivalents		26,630		9,636		29,796		11,194
Other investments		-		42,908		-		-
Total		1,517,082		1,777,654		3,743,108		5,395,184
Expenses:
Investment expenses		89,811		101,058		322,412

KINGSTONE COMPANIES, INC. [KINS] Filings
10-Q	[2022-11-14]
10-Q	[2022-08-15]
10-Q	[2022-05-16]
10-K	[2022-04-04]
10-Q	[2021-11-15]
10-Q	[2021-08-16]
10-Q	[2021-05-17]
10-K	[2021-03-31]
10-Q	[2020-11-09]
10-Q	[2020-08-11]
10-Q	[2020-05-11]
10-K	[2020-03-16]
10-Q	[2019-11-12]
10-Q	[2019-08-09]
10-Q	[2019-05-10]
10-K	[2019-03-18]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-15]
10-Q	[2017-11-09]
10-Q	[2017-08-10]
10-Q	[2017-05-11]
10-K	[2017-03-16]
10-Q	[2016-11-10]
10-Q	[2016-08-11]
10-Q	[2016-05-12]
10-K	[2016-03-24]
10-Q	[2015-11-12]
10-Q	[2015-08-12]
10-Q	[2015-05-13]
10-K	[2015-03-25]
10-Q	[2014-11-13]
10-Q	[2014-08-12]
10-Q	[2014-05-15]
10-K	[2014-03-31]
10-Q	[2013-11-14]
S-1	[2013-10-15]
10-Q	[2013-08-14]
10-Q	[2013-05-15]
10-K	[2013-04-01]
10-Q	[2012-11-14]
10-Q	[2012-08-14]
10-Q	[2012-05-15]
10-K	[2012-03-30]