(2) Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed as a percentage of average beginning and ending total stockholders’ equity during the period. See "-Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to operating income.
The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A-" (Excellent) rating obtained by Kinsale Insurance is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.
(3) Operating return on equity is net operating earnings expressed as a percentage of average beginning and ending total stockholders’ equity during the period.
We categorize our reserves for unpaid losses and loss adjustment expenses into two types: case reserves and reserves for incurred but not reported losses ("IBNR"). Our gross reserves for losses and loss adjustment expenses at December 31, 2019 were $460.1 million, and of this amount, 82.2% related to IBNR. Our reserves for losses and loss adjustment expenses, net of reinsurance, at December 31, 2019 were $390.3 million, and of this amount, 83.2% related to IBNR. A 5% change in net IBNR reserves at December 31, 2019 would equate to an $16.2 million change in the reserve for losses and loss adjustment expenses at such date, as well as $12.8 million change in net income, a 3.2% change in stockholders' equity and a 3.2% change in tangible equity, in each case at or for the year ended December 31, 2019.
The table below quantifies the impact of potential reserve deviations from our carried reserve at December 31, 2019. We applied sensitivity factors to incurred losses for the three most recent accident years and to the carried reserve for all prior accident years combined. We believe that potential changes such as these would not have a material impact on our liquidity.
Performing independent estimates of loss reserves for all product lines, using a combination of the Company’s underlying historical claims data and industry data;
Property and equipment are included in "other assets" in the accompanying consolidated balance sheets and consists of the following:
Fair value is estimated for each class of financial instrument for which it was practical to estimate fair value. Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value.
The Company did not have any uncertain tax positions in 2019 or 2018. Management is not aware of any events that would give rise to any uncertain tax positions. The Company recognized its entire uncertain tax position of $1.0 million in 2017 due to lapse of the statute of limitations. The recognition of the uncertain tax position had no impact on the effective tax rate as it resulted in a decrease of current taxes and an offsetting increase to deferred taxes.
The accompanying condensed financial statements have been prepared using the equity method. Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition. These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements. Certain prior year amounts have been reclassified to conform to the current year's presentation.