EDGAR 10-K Filing

Company CIK: 33992
Filing Year: 2022
Filename: 33992_10-K_2022_0001654954-22-004509.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS.
(a) Business Development
General
As used in this Annual Report, references to the “Company,” “we,” “us,” or “our” refer to Kingstone Companies, Inc. (“Kingstone”) and its subsidiaries.
We offer property and casualty insurance products to individuals through our wholly owned subsidiary, Kingstone Insurance Company (“KICO”), domiciled in the state of New York. KICO is a licensed property and casualty insurance company in New York, New Jersey, Connecticut, Massachusetts, Pennsylvania, Rhode Island, Maine, and New Hampshire. KICO is currently offering its property and casualty insurance products in New York, New Jersey, Rhode Island, Massachusetts and Connecticut.
In addition, through our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, we access alternative distribution channels. See “Distribution” below for a discussion of our distribution channels. Cosi receives commission revenue from KICO for the policies it places with others and pays commissions to these agencies. Cosi retains the profit between the commission revenue received and the commission expense paid. Net Cosi revenue is deducted against commission expense and Cosi related expenses are included in other operating expenses. Cosi related operating expenses are not included in our stand-alone insurance underwriting business and, accordingly, its expenses are not included in the calculation of our combined ratio as described below.
Recent Developments
Developments During 2021
·
Quota Share Reinsurance
Effective December 31, 2021, KICO entered into a 30% quota share reinsurance treaty for its personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023.
·
Catastrophe Reinsurance Coverage
Effective July 1, 2021, KICO increased the top limit of its catastrophe reinsurance coverage from $485,000,000 to $500,000,000, which, at the time, equated to more than a 1-in-130 year storm event according to the primary industry catastrophe model that we follow.
Additionally, effective October 20, 2021, KICO purchased stub coverage to reduce its retention from a catastrophe to $5 million covering the period October 20, 2021 through December 31, 2021.
·
A.M. Best Rating
In August 2021, A.M. Best downgraded KICO’s financial strength rating from B++ (Good) to B+ (Good) and Long-Term Issuer Credit Rating (ICR) from “bbb” (Good) to “bbb-” (Good) due to a revision of operating performance to adequate from strong which reflects volatility from underwriting results caused by weather-related losses and loss reserve strengthening. The outlook for each of these credit ratings was revised from “negative” to “stable”.
Developments During 2020
·
Quota Share Reinsurance
Effective December 30, 2020, KICO terminated the 25% quota share reinsurance treaty for its personal lines business, which primarily consisted of homeowners’ and dwelling fire policies, covering the period December 15, 2019 through December 30, 2020.
·
Catastrophe Reinsurance Coverage
Effective July 1, 2020, KICO decreased the top limit of its catastrophe reinsurance coverage from $610,000,000 to $485,000,000, which, at the time, equated to more than a 1-in-130 year storm event according to the primary industry catastrophe model that we follow.
·
A.M. Best Rating
In July 2020, A.M. Best downgraded KICO’s financial strength rating from A- (excellent) to B++ (Good) as a result of KICO’s revision to its catastrophe reinsurance program effective July 1, 2020 as described above.
(b) Business
Property and Casualty Insurance
Overview
Property and casualty insurance companies provide policies in exchange for premiums paid by their customers (the “insureds”). An insurance policy is a contract between the insurance company and its insureds where the insurance company agrees to pay for losses that are covered under the contract. Such contracts are subject to legal interpretation by courts, sometimes involving legislative rulings and/or arbitration. Property insurance generally covers the financial consequences of accidental losses to the insured’s property, such as a home and the personal property in it, or a business owner’s building, inventory and equipment. Casualty insurance (also referred to as liability insurance) generally covers the financial consequences related to the legal liability of an individual or an organization resulting from negligent acts and omissions that cause bodily injury and/or property damage to a third party. Claims for property coverage generally are reported and settled in a relatively short period of time, whereas those for casualty coverage may take many years to settle.
We generate revenues from earned premiums, ceding commissions from quota share reinsurance, net investment income generated from our investment portfolio, and net realized gains and losses on investment securities. We also collect a variety of policy fees including installment fees, reinstatement fees, and non-sufficient fund fees related to situations involving extended premium payment plans. Earned premiums represent premiums received from insureds, which are recognized as revenue over the period of time that coverage is provided (i.e., ratably over the life of the policy). All of our policies are 12 month policies; therefore, a significant period of time can elapse between the receipt of insurance premiums and the payment of claims. During this time, KICO invests the premiums, earning investment income and generating net realized and unrealized gains and losses on associated investments.
Insurance companies incur a significant amount of their total expenses from insured losses, which are commonly referred to as claims. In settling insured losses, various loss adjustment expenses (“LAE”) are incurred such as insurance adjusters’ fees and legal expenses. In addition, insurance companies incur policy acquisition expenses, such as commissions paid to producers, premium taxes, and other expenses related to the underwriting process, including their employees’ compensation and benefits.
The key measure of relative underwriting performance for an insurance company is the combined ratio. An insurance company’s combined ratio is calculated by taking the ratio of incurred loss and LAE to earned premiums (the “loss and LAE ratio”) and adding it to the ratio of policy acquisition and other underwriting expenses to earned premiums (the “expense ratio”). A combined ratio under 100% indicates that an insurance company is generating an underwriting profit prior to the impact of investment income. After considering investment income and investment gains or losses, insurance companies operating at a combined ratio of greater than 100% can also be profitable.
Business; Strategy
We are a multi-line regional property and casualty insurance company writing business exclusively through retail and wholesale agents and brokers (“producers”) appointed by our wholly owned subsidiary, KICO. We are licensed to write insurance policies in New York, New Jersey, Connecticut, Maine, Massachusetts, New Hampshire, Pennsylvania and Rhode Island. We are actively writing business in New York, New Jersey, Rhode Island, Massachusetts and Connecticut.
Additionally, through our subsidiary, Cosi, a multi-state licensed general agency, we access alternative distribution channels. See “Distribution” below for a discussion of our distribution channels.
We seek to deliver an attractive return on capital and to provide consistent earnings growth through underwriting profits and income from our investment portfolio. Our goal is to allocate capital efficiently to those lines of business that generate sustainable underwriting profits and to avoid lines of business for which an underwriting profit is not likely. Our strategy is to be the preferred multi-line property and casualty insurance company for selected producers in the geographic markets in which we operate. We believe producers place profitable business with us because we provide excellent, consistent service to insureds and claimants. Producers also value our financial stability coupled with competitive rate and commission structures.
Our principal objectives are to grow profitably while managing risk through prudent use of reinsurance in order to strengthen our capital base. We generate underwriting income through adequate pricing of insurance policies and by effectively managing our other underwriting and operating expenses. We are pursuing profitable growth through existing producers in existing markets, by developing new geographic markets and producer relationships, and by introducing niche products that are relevant to our producers and insureds.
For the year ended December 31, 2021, our gross written premiums totaled $181.7 million, an increase of 7.3% from the $169.3 million in gross written premiums for the year ended December 31, 2020.
Product Lines
Our product lines include the following:
Personal lines - Our largest line of business is personal lines, consisting of homeowners and dwelling fire multi-peril, cooperative/condominiums, renters, and personal umbrella policies. Personal lines policies accounted for 94.6% of our gross written premiums for the year ended December 31, 2021.
Livery physical damage - We write for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs, primarily based in New York City. These policies insure only the physical damage portion of insurance for such vehicles, with no liability coverage included. These policies accounted for 5.3% of our gross written premiums for the year ended December 31, 2021.
Other - We write canine legal liability policies and have a small participation in mandatory state joint underwriting associations. These policies accounted for 0.1% of our gross written premiums for the year ended December 31, 2021.
Our Competitive Strengths
History of Growing Our Profitable Operations
KICO has been in operation in the State of New York for over 130 years. We have consistently grown the amount of profitable business that we write by introducing new products, increasing volume written with our selected producers in existing markets, and developing new producer relationships and markets. KICO has earned an underwriting profit in seven of the past ten years, including in 2012 and 2013 when our financial results were adversely impacted by Superstorm Sandy. The extensive heritage of our insurance company subsidiary and our commitment to the markets in which we operate is a competitive advantage with producers and insureds.
Strong Producer Relationships
Within our selected producers’ offices, we compete with other property and casualty insurance carriers available to those producers. We carefully select the producers that distribute our insurance policies and continuously monitor and evaluate their performance. We believe our insurance producers value their relationships with us because we provide excellent, consistent personal service coupled with competitive rates and commission levels. We have consistently been rated by insurance producers as above average in the important areas of underwriting, claims handling and service. In the biennial performance surveys conducted by the Professional Insurance Agents of New York and New Jersey of its membership since 2010, KICO was rated as one of the top performing insurance companies in New York, twice ranking as the top rated carrier among all those surveyed.
We offer our selected producers access to a variety of personal lines and specialty products, including some that are unique to us. We provide a multi-policy discount on homeowners policies in order to attract and retain more of this multi-line business. We have had a consistent presence in the New York market and our producers value the longevity of the relationship. We believe that the excellent service provided to our selected producers, our broad product offerings, and our consistent prices and financial stability provide a strong foundation for continued profitable growth.
Sophisticated Underwriting and Risk Management Practices
We believe that a significant underwriting advantage exists due to our local market presence and expertise. Our underwriting process evaluates and screens out certain risks based on property reports, individual insurance scoring, and information collected from physical property inspections and driving records. We maintain certain policy exclusions that reduce our exposure to risks that can create severe losses. We target a preferred risk profile in order to reduce adverse selection from risks seeking the lowest premiums and minimal coverage levels.
Our underwriting procedures, premium rates and policy terms support the underwriting profitability of our personal lines policies. We apply premium surcharges for certain coastal properties and maintain deductibles for hurricane-prone exposures in order to provide an appropriate premium for the risk of loss. We manage coastal risk exposure through use of individual catastrophe risk scoring and prudent use of reinsurance.
Effective Utilization of Reinsurance
Our reinsurance treaties allow us to limit our exposure to the financial impact of catastrophe losses and to reduce our net liability on individual risks. Our reinsurance program is structured to enable us to grow our premium volume while maintaining regulatory capital and other financial ratios within thresholds used for regulatory oversight purposes.
Our reinsurance program also provides income from ceding commissions earned pursuant to quota share reinsurance contracts. The income we earn from ceding commissions subsidizes our fixed operating costs, which consist of other underwriting expenses. Quota share reinsurance treaties transfer a portion of the profit (or loss) associated with the subject insurance policies to the reinsurers.
Scalable, Low-Cost Operations
We focus on efficiently managing our expenses, and invest in tools and processes that improve the effectiveness of underwriting risks and processing claims. We evaluate the costs and benefits of each new tool or process in order to achieve optimal results. While the majority of our policies are written for risks in downstate New York, our Kingston, New York location provides a low-cost operating environment.
We continue to invest in improving our online application and quoting systems for our personal lines products. We have leveraged a paperless workflow management and document storage tool that has improved efficiency and reduced costs. We provide an online payment portal that allows insureds to make payments and to view policy information for all of our products in one location. Our ability to control the growth of operating and other expenses while expanding our operations and growing revenue is a key component of our business model and is important to our financial success.
In 2020, we implemented the Kingstone 2.0 program which is an effort to modernize our systems. In 2020 we implemented our new claims system, filed our new homeowners program in New York, and filed our new condo/tenant and dwelling fire programs in New York, introduced a new interface for our select producers and started the conversion to our new policy management system.
Underwriting and Claims Management Philosophy
Our underwriting philosophy is to target niche segments for which we have detailed expertise and can take advantage of market conditions. We monitor results on a regular basis and our selected producers are reviewed by management on at least a quarterly basis.
We believe that our rates are appropriately competitive with other carriers in our target markets. We do not seek to grow by competing based solely upon price. We seek to develop long-term relationships with our selected producers who understand and appreciate the path we have chosen. We carefully underwrite our business utilizing industry claims databases, insurance scoring reports, physical inspection of risks and other individual risk underwriting tools. We write homeowners and dwelling fire business in coastal markets and are cognizant of our exposure to hurricanes. We have mitigated this risk through appropriate catastrophe reinsurance and application of hurricane deductibles. We handle claims fairly while ensuring that coverage provisions and exclusions are properly applied. Our claims and underwriting expertise supports our ability to grow our profitable business.
Distribution
We generate business through our relationships with over 600 producers. We carefully select our producers by evaluating numerous factors such as their need for our products, premium production potential, loss history with other insurance companies that they represent, product and market knowledge, and agency size. We only distribute through agents and have never sought to distribute our products direct to the consumer. We monitor and evaluate the performance of our producers through periodic reviews of volume and profitability. Our senior executives are actively involved in managing our producer relationships.
Each producer is assigned to a staff underwriter and the producer can call that underwriter directly on any matter. We believe that the close relationship and personal service received from their underwriters is a principal reason producers place their business with us. Our producers have access to a KICO website portal that provides them the ability to quote risks for various products and to review policy forms and underwriting guidelines for all lines of business. We send out frequent “Producer Grams” in order to inform our producers of updates at KICO. In addition, we have an active Producer Council, made up of 11 active producers, to advise us on market developments; and we have at least one annual meeting with all of our producers.
During 2019, we initiated an alternative distribution program through Cosi. The goal of this program is to enhance our personal lines distribution channel to include nationally recognized name-brand carriers along with nationwide call center and digital insurance agencies.
Competition; Market
The insurance industry is highly competitive. We constantly assess and make projections of market conditions and appropriate prices for our products, but we cannot fully know our profitability until all claims have been reported and settled.
Our policyholders are located primarily in the downstate regions of New York State, but we are actively growing into other Northeast markets, including New Jersey and Rhode Island during 2017 followed by Massachusetts in 2018 and Connecticut in 2019. In addition, we are licensed to write insurance policies in Maine, New Hampshire and Pennsylvania. These homeowners markets align well with the niche markets that have generated profitable results in New York, and we believe that our market expertise can be effectively utilized in new markets.
In 2020, KICO was the 15th largest writer of homeowners insurance in the State of New York, according to data compiled by SNL Financial LLC. Based on the same data, in 2020, we had a 1.6% market share for this business. We compete with large national carriers as well as regional and local carriers in the property and casualty marketplace in New York and other states. We believe that many national and regional carriers have chosen to limit their rate of premium growth or to decrease their presence in Northeastern states due to the relatively high coastal population and associated catastrophe risk that exists in the region.
Given present market conditions, we believe that we have the opportunity to continue expanding the size of our personal lines business in New York, New Jersey, and other northeastern states in which we are licensed.
Loss and Loss Adjustment Expense Reserves
We are required to establish reserves for unpaid losses, including reserves for claims loss adjustment expenses (“LAE”), which represent the expenses of settling and adjusting those claims. These reserves are balance sheet liabilities representing estimates of future amounts required to pay losses and loss expenses for claims that have occurred at or before the balance sheet date, whether already known to us or not yet reported. We establish these reserves after considering all information known to us as of the date they are recorded.
Loss reserves fall into two categories: case reserves for reported losses and LAE associated with specific reported claims, and reserves for losses and LAE that are incurred but not reported (“IBNR”). We establish these two categories of loss reserves as follows:
Reserves for reported losses - When a claim is received, we establish a case reserve for the estimated amount of its ultimate settlement and its estimated loss expenses. We establish case reserves based upon the known facts about each claim at the time it is received and we may subsequently adjust case reserves as additional facts and information about the claim develops.
IBNR reserves - We also estimate reserves for loss and LAE amounts incurred but not reported (“IBNR”). IBNR reserves are calculated in bulk as an estimate of ultimate losses and LAE less reported losses and LAE. There are two types of IBNR; the first is a provision for claims that have occurred but are not yet reported or known. We refer to this as ‘Pure’ IBNR, and due to the fact that we write primarily quickly reported property lines of business, this type of IBNR does not make up a large portion of KICO’s total IBNR. The second type of IBNR is a provision for expected future development on known claims, from the evaluation date until the time claims are settled and closed. We refer to this as ‘Case Development’ IBNR and it makes up the majority of the IBNR that KICO records. Ultimate losses driving the determination of appropriate IBNR levels are projected by using generally accepted actuarial techniques.
The liability for loss and LAE represents our best estimate of the ultimate cost of all reported and unreported losses that are unpaid as of the balance sheet evaluation date. The liability for loss and LAE is estimated on an undiscounted basis, using individual case-based valuations, statistical analyses, and various actuarial procedures. The projection of future claim payments and reporting patterns is based on an analysis of our historical experience, supplemented by analyses of industry loss data. We believe that the reserves for loss and LAE are adequate to cover the ultimate cost of losses and claims to date. However, because of uncertainty from various sources, including changes in claims settlement patterns and handling procedures, litigation trends, judicial decisions, and economic conditions, actual loss experience may not conform to the assumptions used in determining the estimated amounts for such liabilities at the balance sheet date. As adjustments to these estimates become necessary, they are reflected in the period in which the estimates are changed. Because of the nature of the business historically written, we believe that we have limited exposure to asbestos and environmental claim liabilities.
We engage an independent external actuarial specialist (the ‘Appointed Actuary’) to opine on our recorded statutory reserves. The Appointed Actuary estimates a range of ultimate losses, along with a range and recommended central estimate of IBNR reserve amounts. Our carried IBNR reserves are based on an internal actuarial analysis and reflect management’s best estimate of unpaid loss and LAE liabilities, and fall within the range of those determined as reasonable by the Appointed Actuary.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Principal Revenue and Expense Items” in Item 7 of this Annual Report and Note 2 and Note 11 in the accompanying Consolidated Financial Statements for additional information and details regarding loss and LAE reserves.
Reconciliation of Loss and Loss Adjustment Expenses
The table below shows the reconciliation of loss and LAE on a gross and net basis, reflecting changes in losses incurred and paid losses:
Years ended
December 31,
Balance at beginning of period
$ 82,801,228
$ 80,498,611
Less reinsurance recoverables
(20,154,251 )
(15,728,224 )
Net balance, beginning of period
62,646,977
64,770,387
Incurred related to:
Current year
101,987,855
66,389,907
Prior years
(15,259 )
41,165
Total incurred
101,972,596
66,431,072
Paid related to:
Current year
60,171,695
41,100,578
Prior years
20,136,812
27,453,904
Total paid
80,308,507
68,554,482
Net balance at end of period
84,311,066
62,646,977
Add reinsurance recoverables
10,637,679
20,154,251
Balance at end of period
$ 94,948,745
$ 82,801,228
Our claims reserving practices are designed to set reserves that, in the aggregate, are adequate to pay all claims at their ultimate settlement value.
Loss and Loss Adjustment Expenses Development
The table below shows the net loss development of reserves held as of each calendar year-end from 2012 through 2021.
The first section of the table reflects the changes in our loss and LAE reserves after each subsequent calendar year of development. The table displays the re-estimated values of incurred losses and LAE at each succeeding calendar year-end, including payments made during the years indicated. The second section of the table shows by year the cumulative amounts of loss and LAE payments, net of amounts recoverable from reinsurers, as of the end of each succeeding year. An example with respect to the net loss and LAE reserves of $8,520,000 as of December 31, 2011 is as follows. By December 31, 2013 (two years later), $5,661,000 had actually been paid in settlement of the claims that relate to liabilities as of December 31, 2011. The re-estimated ultimate reserves for those claims as of December 31, 2012 (two years later) had grown to $11,022,000.
The “cumulative redundancy (deficiency)” represents, as of December 31, 2021, the difference between the latest re-estimated liability and the amounts as originally estimated. A redundancy means that the original estimate was higher than the current estimate. A deficiency means that the current estimate is higher than the original estimate.
(in thousands of $)
Reserve for loss and loss adjustment expenses, net of reinsurance recoverables
8,520
12,065
17,139
21,663
23,170
25,960
32,051
40,526
64,770
62,647
84,311
Net reserve estimated as of One year later
9,261
13,886
18,903
21,200
23,107
25,899
33,203
51,664
64,811
62,632
Two years later
11,022
16,875
18,332
21,501
24,413
26,970
42,723
55,145
65,113
Three years later
12,968
16,624
18,687
22,576
25,509
33,298
43,780
56,346
Four years later
12,552
16,767
19,386
23,243
28,638
33,342
43,973
Five years later
12,440
16,985
19,449
25,442
28,506
33,120
Six years later
12,367
16,959
20,265
25,353
28,849
Seven years later
12,307
17,198
20,069
25,445
Eight years later
12,317
17,089
20,129
Nine years later
12,325
17,101
Ten years later
12,326
Net cumulative redundancy (deficiency)
(3,806 )
(5,036 )
(2,990 )
(3,782 )
(5,679 )
(7,160 )
(11,922 )
(15,820 )
(343 )
(in thousands of $)
Cumulative amount of reserve paid, net of reinsurance recoverable through
One year later
3,237
4,804
6,156
8,500
8,503
9,900
15,795
23,075
27,454
20,137
Two years later
5,661
8,833
10,629
12,853
14,456
17,187
26,168
35,924
35,142
Three years later
8,221
11,873
13,571
16,564
19,533
23,484
32,704
40,264
Four years later
10,100
13,785
16,166
19,838
22,816
27,203
35,510
Five years later
10,903
15,479
17,262
21,976
25,210
28,833
Six years later
11,417
15,882
18,265
23,280
26,298
Seven years later
11,725
16,152
18,954
24,146
Eight years later
11,864
16,516
19,511
Nine years later
12,205
16,667
Ten years later
12,212
Net reserve -
December 31,
8,520
12,065
17,139
21,663
23,170
25,960
32,051
40,526
64,770
62,647
84,311
* Reinsurance Recoverable
9,960
18,420
17,364
18,250
16,707
15,777
16,749
15,671
15,728
20,154
10,638
* Gross reserves -
December 31,
18,480
30,485
34,503
39,913
39,877
41,737
48,800
56,197
80,499
82,801
94,949
Net re-estimated reserve
12,326
17,101
20,129
25,445
28,849
33,120
43,973
56,346
65,113
62,632
Re-estimated reinsurance recoverable
13,573
28,330
22,400
23,585
21,600
21,031
21,009
19,337
15,698
18,814
Gross re-estimated reserve
25,899
45,431
42,529
49,030
50,449
54,151
64,982
75,683
80,811
81,446
Gross cumulative redundancy (deficiency)
(7,419 )
(14,946 )
(8,026 )
(9,117 )
(10,572 )
(12,414 )
(16,182 )
(19,486 )
(312 )
1,355
(Components may not sum to totals due to rounding)
Reinsurance
We purchase reinsurance to reduce our net liability on individual risks, to protect against possible catastrophes, to remain within a target ratio of net premiums written to policyholders’ surplus, and to expand our underwriting capacity. Participation in reinsurance arrangements does not relieve us from our obligations to policyholders. Our reinsurance program is structured to reflect our obligations and goals.
Reinsurance via quota share allows a carrier to write business without increasing its underwriting leverage above a level determined by management. The business written under a quota share reinsurance structure obligates a reinsurer to assume some portion of the risks involved, and gives the reinsurer the profit (or loss) associated with such in exchange for a ceding commission.
Effective December 31, 2021, we entered into a quota share reinsurance treaty for our personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business, which primarily consists of homeowners’ policies, which covered the period from December 15, 2019 through December 30, 2020 (“2019/2020 Treaty”). Effective December 31, 2020, the 2019/2020 Treaty expired on a cut-off basis; this treaty was not renewed. In addition to the 2019/2020 Treaty, our personal lines quota share reinsurance treaty in effect for the year ended December 31, 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-off”).
Excess of loss contracts provide coverage for individual loss occurrences exceeding a certain threshold. The quota share reinsurance treaties inure to the benefit of our excess of loss treaties, as the maximum net retention on any single risk occurrence is first limited through the excess of loss treaty, and then that loss is shared again through the quota share reinsurance treaty. Our maximum net retention under the quota share and excess of loss treaties for any one personal lines occurrence for dates of loss on or after December 31, 2020 through December 30, 2021 was $1,000,000. Effective December 31, 2021 through January 1, 2023, our maximum net retention under the 2021/2023 Treaty decreased to $700,000. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance treaty covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses, other than from a named storm, of $400,000 in excess of $600,000. Our maximum net retention for any one personal lines occurrence is further reduced from $700,000 to $500,000. Our maximum net retention under the excess of loss treaties for any one commercial general liability occurrence for dates of loss on or after July 1, 2020 is $750,000.
We earned ceding commission revenue under the quota share reinsurance treaties based on a provisional commission rate on all premiums ceded to the reinsurers as adjusted by a sliding scale based on the ultimate treaty year loss ratios on the policies reinsured under each agreement. The sliding scale provided minimum and maximum ceding commission rates in relation to specified ultimate loss ratios. Under the 2021/2023 Treaty, KICO will receive a fixed provisional rate with no adjustment for sliding scale contingent commissions Under the 2019/2020 Treaty, KICO received a fixed provisional rate with no adjustment for sliding scale contingent commissions.
The 2021/2023 Treaty and 2019/2020 Treaty are on a “net” of catastrophe reinsurance basis, as opposed to the “gross” arrangement that existed in prior treaties. Under a “net” arrangement, all catastrophe reinsurance coverage is purchased directly by us. Since we pay for all of the catastrophe coverage, none of the losses covered under a catastrophic event will be included in the quota share ceded amounts, drastically reducing the adverse impact that a catastrophic event can have on ceding commissions.
In 2021, we purchased catastrophe reinsurance to provide coverage of up to $500,000,000 for losses associated with a single event. One of the most commonly used catastrophe forecasting models prepared for us indicates that the catastrophe reinsurance treaties provide coverage in excess of our estimated probable maximum loss associated with a single more than one-in-130 year storm event. The direct retention for any single catastrophe event is $10,000,000. Effective October 18, 2021, we entered into a stub catastrophe reinsurance treaty (“Stub Treaty”) covering the period from October 18, 2021 through December 31, 2021. The Stub Treaty provided reinsurance coverage for catastrophe losses of $5,000,000 in excess of $5,000,000. The Stub Treaty reduced direct retention to $5,000,000 during the period it was in effect. Effective December 31, 2021 through January 1, 2023, losses on personal lines policies are subject to the 2021/2023 Treaty, which will cover 26% of catastrophe losses and will result in a net retention by us of $7,400,000 of exposure per catastrophe occurrence. For the period December 15, 2019 through December 30, 2020 losses on personal lines policies were subject to the 25% quota share treaty, which resulted in a net retention by us of $8,125,000 of exposure per catastrophe occurrence. Effective July 1, 2020, we have reinstatement premium protection on the first $70,000,000 layer of catastrophe coverage in excess of $10,000,000. This protects us from having to pay an additional premium to reinstate catastrophe coverage for an event up to this level.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Principal Revenue and Expense Items” in Item 7 of this Annual Report and Note 2 and Note 11 in the accompanying Consolidated Financial Statements for additional information.
Ratings
Many insurance buyers, agents, brokers and secured lenders use the ratings assigned by A.M. Best and other agencies to assist them in assessing the financial strength and overall quality of the companies with which they do business and from which they are considering purchasing insurance or in determining the financial strength of the company that provides insurance with respect to the collateral they hold. A.M. Best financial strength ratings are derived from an in-depth evaluation of an insurance company’s balance sheet strengths, operating performances and business profiles. A.M. Best evaluates, among other factors, the company’s capitalization, underwriting leverage, financial leverage, asset leverage, capital structure, quality and appropriateness of reinsurance, adequacy of reserves, quality and diversification of assets, liquidity, profitability, spread of risk, revenue composition, market position, management, market risk and event risk. A.M. Best financial strength ratings are intended to provide an independent opinion of an insurer’s ability to meet its obligations to policyholders and are not an evaluation directed at investors.
KICO has a financial strength rating from A.M. Best of B+ (Good). Other ratings assigned to KICO and Kingstone by A.M. Best and Kroll Bond Rating Agency are as follows:
Kingstone
KICO
Companies
A.M. Best Long-Term issuer credit rating (ICR)
bbb- (stable outlook)
bb- (stable outlook)
A.M. Best Long-Term issue credit rating (IR)
$30.0 million, 5.50% senior unsecured notes due Dec. 30, 2022
n/a
bb- (stable outlook)
Kroll Bond Rating Agency insurance financial strength rating (IFSR)
A- (stable outlook)
n/a
Kroll Bond Rating Agency issuer rating
n/a
BBB- (stable outlook)
$30.0 million, 5.50% senior unsecured notes due Dec. 30, 2022
n/a
BBB- (stable outlook)
KICO also has a Demotech financial stability rating of A (Exceptional) which generally makes its policies acceptable to mortgage lenders that require homeowners to purchase insurance from highly rated carriers.
Catastrophe Losses
In 2021 we had catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers. Our predominant market, downstate New York, was affected by several events during 2021, including three named storms. The remnants of Hurricane Ida, included as one of the named storms, increased our loss ratio by 7.1 percentage points. The effects of this catastrophe and other catastrophes during the year increased our net loss ratio by 10.3 percentage points in 2021. Our predominant market, downstate New York, was affected by several events, including one large event, Tropical Storm Isaias, during 2020. The effects of this catastrophe and other minor catastrophes during the year increased our net loss ratio by 10.7 percentage points in 2020.
Government Regulation
Holding Company Regulation
We, as the parent of KICO, are subject to the insurance holding company laws of the state of New York. These laws generally require an insurance company to register with the New York State Department of Financial Services (the “DFS”) and to furnish annually financial and other information about the operations of companies within our holding company system. Generally, under these laws, all material transactions among companies in the holding company system to which KICO is a party must be fair and reasonable and, if material or of a specified category, require prior notice and approval or acknowledgement (absence of disapproval) by the DFS.
Change of Control
The insurance holding company laws of the state of New York require approval by the DFS for any change of control of an insurer. “Control” is generally defined as the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of the company, whether through the ownership of voting securities, by contract or otherwise. Control is generally presumed to exist through the direct or indirect ownership of 10% or more of the voting securities of a domestic insurance company or any entity that controls a domestic insurance company. Any future transactions that would constitute a change of control of KICO, including a change of control of Kingstone Companies, Inc., would generally require the party acquiring control to obtain the approval of the DFS (and in any other state in which KICO may operate). Obtaining these approvals may result in the material delay of, or deter, any such transaction. These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Kingstone Companies, Inc., including through transactions, and in particular unsolicited transactions, that some or all of our stockholders might consider to be desirable.
State Insurance Regulation
Insurance companies are subject to regulation and supervision by the department of insurance in the state in which they are domiciled and, to a lesser extent, other states in which they conduct business. The primary purpose of such regulatory powers is to protect individual policyholders. State insurance authorities have broad regulatory, supervisory and administrative powers, including, among other things, the power to grant and revoke licenses to transact business, set the standards of solvency to be met and maintained, determine the nature of, and limitations on, investments and dividends, approve policy forms and rates, and in some instances to regulate unfair trade and claims practices.
KICO is required to file detailed financial statements and other reports with the insurance regulatory authorities in the states in which it is licensed to transact business. These financial statements are subject to periodic examination by the insurance regulators.
In addition, many states have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit an insurer’s ability to cancel or not renew policies. Furthermore, certain states prohibit an insurer from withdrawing from one or more lines of business written in the state, except pursuant to a plan that is approved by the insurance regulatory authority. The state regulator may reject a plan that may lead to market disruption. Laws and regulations, including those in New York, that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict the ability of KICO to exit unprofitable markets. Such laws did not affect KICO’s ability to withdraw from the commercial liability market in New York State in 2019 and the commercial auto market in New York State in 2015.
Federal and State Legislative and Regulatory Changes
From time to time, various regulatory and legislative changes have been proposed in the insurance industry. Among the proposals that either have been or are being considered are the possible introduction of Federal regulation in addition to, or in lieu of, the current system of state regulation of insurers, and proposals in various state legislatures. Some of these proposals have been enacted to conform portions of their insurance laws and regulations to various model acts adopted by the National Association of Insurance Commissioners (the “NAIC”).
In 2017, the DFS implemented new comprehensive cybersecurity regulations, which became effective on March 1, 2017, with transitional implementation periods. The regulations require covered entities, including KICO, to establish a cybersecurity policy, a chief information security officer, oversight over third party service providers, penetration and vulnerability assessments, secure systems to maintain an audit trail, risk assessments to include access privileges to nonpublic information, use of multi-factor authentication, and an incident response plan, among other provisions. KICO must annually certify compliance to the DFS with the applicable cybersecurity regulatory provisions. Annual certifications are due April 15. Recently, the DFS has provided additional guidance on ransomware, and potential cyber-attacks from Russia’s invasion of Ukraine.
In 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) became law. It established a Federal Insurance Office (the “FIO”) within the U.S. Department of the Treasury. The FIO is initially charged with monitoring all aspects of the insurance industry (other than health insurance, certain long-term care insurance and crop insurance), gathering data, and conducting a study on methods to modernize and improve the insurance regulatory system in the United States. In December 2013, the FIO issued a report (as required under the Dodd-Frank Act) entitled “How to Modernize and Improve the System of Insurance Regulation in the United States”, which stated that, given the “uneven” progress the states have made with several near-term state reforms, should the states fail to accomplish the necessary modernization reforms in the near term, “Congress should strongly consider direct federal involvement.” The FIO continues to support the current state-based regulatory regime, but will consider federal regulation should the states fail to take steps to greater uniformity (e.g., federal licensing of insurers.) In its September 2021 Annual Report on the Insurance Industry (the “Report”), the FIO provided an overview of its statutory responsibilities and its role. The Report then summarized the FIO’s key activities since those described in its 2021 Annual Report on the Insurance Industry. The Report observed that, in 2020, the property/casualty sector direct premium written was $717 billion, a one percent growth over 2019 levels, despite economic challenges of the COVID-19 pandemic. In addition to reviewing the financial status of the property/casualty industry, the Report includes Topical Updates and FIO activities, providing pandemic-related updates (including remote operations, policyholder relief, insurer relief, business interruption issues, and federal pandemic risk insurance proposals), climate change, mitigation and resilience (the Report notes the DFS’s September 2020 expectation guidance, and its March 2021, Proposed Guidance for New York Domestic Insurers on Managing Financial Risks form Climate Change) and Cyber Risks, Ransomware, and Cyber Insurance.
On December 22, 2017, a budget reconciliation act commonly referred to as the Tax Cuts and Jobs Act (TCJA) was signed into law. Overall, the reduction of the U.S. corporate tax rate to 21 percent generally lowers the effective tax rates of insurance companies operating in the United States.
On December 20, 2020, the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA of 2019) was enacted and is now scheduled to expire on December 31, 2027. The Terrorism Risk Insurance Program serves as a federal “backstop” for insurance claims related to acts of terrorism.
On November 15, 2021, the DFS issued its final Guidance for New York Domestic Insurers On Managing the Financial Risks from Climate Change.
In 2021, the NYS Governor signed into law, effective January 28, 2022, legislation seeking to prevent homeowner insurers from discriminating solely on the basis of breed of dog. Legislation has been introduced to further clarify the scope of the new law.
State Regulatory Examinations
As part of their regulatory oversight process, state regulatory authorities conduct periodic detailed examinations of the financial reporting of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance regulators of other states under guidelines promulgated by the NAIC. The DFS commenced its examination of KICO in 2019 as of December 31, 2018. The examination was completed on April 30, 2020.
Risk-Based Capital Regulations
State regulatory authorities impose risk-based capital (“RBC”) requirements on insurance enterprises. The RBC Model serves as a benchmark for the regulation of insurance companies. RBC provides for targeted surplus levels based on formulas, which specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk, and are set forth in the RBC requirements. Such formulas focus on four general types of risk: (a) the risk with respect to the company’s assets (asset or default risk); (b) the risk of default on amounts due from reinsurers, policyholders, or other creditors (credit risk); (c) the risk of underestimating liabilities from business already written or inadequately pricing business to be written in the coming year (underwriting risk); and (d) the risk associated with items such as excessive premium growth, contingent liabilities, and other items not reflected on the balance sheet (off-balance sheet risk). The amount determined under such formulas is called the authorized control level RBC (“ACL”).
The RBC guidelines define specific capital levels based on a company’s ACL that are determined by the ratio of the company’s total adjusted capital (“TAC”) to its ACL. TAC is equal to statutory capital, plus or minus certain other specified adjustments. KICO’s TAC is above the ACL and is in compliance with New York’s RBC requirements as of December 31, 2021.
Dividend Limitations
Our ability to receive dividends from KICO is restricted by the state laws and insurance regulations of New York. These restrictions are related to surplus and net investment income. Dividends are restricted to the lesser of 10% of surplus or 100% of investment income (on a statutory accounting basis) for the trailing 36 months, less dividends by KICO paid during such period.
Insurance Regulatory Information System Ratios
The Insurance Regulatory Information System (“IRIS”) was developed by the NAIC and is intended primarily to assist state insurance regulators in meeting their statutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies thirteen industry ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more of the ratios can lead to inquiries from individual state insurance commissioners as to certain aspects of an insurer’s business. As of December 31, 2021, KICO had one ratio outside the usual range.
Accounting Principles
Statutory accounting principles (“SAP”) are a basis of accounting developed by the NAIC. They are used to prepare the statutory financial statements of insurance companies and to assist insurance regulators in monitoring and regulating the solvency of insurance companies. SAP is primarily concerned with measuring an insurer’s policyholder surplus. Accordingly, statutory accounting focuses on valuing assets and liabilities of insurers at financial reporting dates in accordance with appropriate insurance law and regulatory provisions applicable in each insurer’s domiciliary state.
Generally accepted accounting principles (“GAAP”) are concerned with a company’s solvency, but are also concerned with other financial measurements, principally results of operations and cash flows. Accordingly, GAAP gives more consideration to appropriate matching of revenue and expenses and accounting for management’s stewardship of assets than does SAP. As a direct result, different types and amounts of assets and liabilities will be reflected in financial statements prepared in accordance with GAAP as compared to SAP.
Statutory accounting practices established by the NAIC and adopted in part by New York insurance regulators determine, among other things, the amount of statutory surplus and statutory net income of KICO and thus determine, in part, the amount of funds that are available to Kingstone Companies, Inc. from which to pay dividends.
Legal Structure
We were incorporated in 1961 and assumed the name DCAP Group, Inc. in 1999. On July 1, 2009, we changed our name to Kingstone Companies, Inc.
Employees
As of December 31, 2021, we had 91 employees. None of our employees are covered by a collective bargaining agreement. We believe that our relationship with our employees is good.
Availability of Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the “SEC”). Such reports and other information filed by us with the SEC are available free of charge at the investor relations section of our website at www.kingstonecompanies.com as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the SEC. Copies are also available, without charge, by writing to Kingstone Companies, Inc., Investor Relations, 15 Joys Lane, Kingstone, New York 12401. The SEC also maintains a website, www.sec.gov, which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The inclusion of our website address in this Annual Report does not include or incorporate by reference the information on our website into this Annual Report.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS.
Factors That May Affect Future Results and Financial Condition
Based upon the following factors, as well as other factors affecting our operating results and financial condition, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. These factors, among others, may affect the accuracy of certain forward-looking statements contained in this Annual Report.
Risks Related to Our Business
The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity.
Beginning in March 2020, the global pandemic related to the novel coronavirus COVID-19 began to impact the global economy and our results of operations. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 include, among others, the following:
Revenues. We expect that the impact of COVID-19 on general economic activity will negatively impact our premium volumes. We began to experience this impact in March 2020; however, it became less severe in 2021 as we observed an increase in premium volume in our livery physical damage line of business, which experienced the greatest impact from the pandemic.
Investments. The disruption in the financial markets related to COVID-19 has contributed to net investment losses, primarily due to the impact of changes in fair value on our equity investments and in our fixed-income investment portfolio. Our corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries. In addition, in recent years, many state and local governments have been operating under deficits or projected deficits. These deficits may be exacerbated by the costs of responding to COVID-19 and reduced tax revenues due to adverse economic conditions. The severity and duration of these deficits could have an adverse impact on the collectability and valuation of our municipal bond portfolio. Our investment portfolio also includes mortgage-backed securities which could be adversely impacted by declines in real estate valuations and/or financial market disruption. Further disruptions in global financial markets could adversely impact our net investment income in future periods.
Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. For example, we may be subject to legislative and/or regulatory action that seeks to retroactively mandate coverage for losses which our insurance policies were not designed or priced to cover. Currently, in some states there is proposed legislation to require insurers to cover business interruption claims irrespective of terms, exclusions or other conditions included in the policies that would otherwise preclude coverage. Regulatory restrictions or requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel or non-renew policies and our right to collect premiums.
Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our producers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Having shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities.
Reinsurance Risks. We purchase reinsurance to reduce our net liability on individual risks, to protect against possible catastrophes, to remain within a target ratio of net premiums written to policyholders’ surplus and to expand our underwriting capacity. Participation in reinsurance arrangements does not relieve us from our obligations to policyholders. Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes. Market conditions beyond our control, including the effect of COVID-19 on the reinsurance market, have impacted and may continue to impact the availability and cost of the reinsurance we purchase. No assurances can be given that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available in the future. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we will have to either accept an increase in our exposure risk, reduce our insurance writings or seek other alternatives.
Major public health issues could have an adverse effect on our business and operating results.
Major public health issues, including a large-scale pandemic, such as the novel coronavirus COVID-19, may have a material adverse effect on our workforce and business operations and cause disruptions in commerce and reduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets, changes in interest rates, reduced liquidity and economic activity caused by a large-scale pandemic. Accordingly, a large-scale pandemic could have a material adverse effect on our revenue, liquidity and operating results.
As a property and casualty insurer, we may face significant losses from catastrophes and severe weather events.
Because of the exposure of our property and casualty business to catastrophic events and other severe weather events, our operating results and financial condition may vary significantly from one period to the next. Catastrophes can be caused by various natural and man-made disasters, including earthquakes, wildfires, tornadoes, hurricanes, severe winter weather, storms and certain types of terrorism. We currently have catastrophe reinsurance coverage with regard to losses of up to $500,000,000 ($490,000,000 in excess of $10,000,000). Effective December 31, 2021, $10,000,000 of losses in a catastrophe are subject to a quota share reinsurance treaty, which covers 26% of catastrophe losses such that we retain $7,400,000 of risk per catastrophe occurrence. With respect to any additional catastrophe losses of up to $490,000,000, we are 100% reinsured under our catastrophe reinsurance program. Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. We may incur catastrophe losses in excess of: (i) those that we project would be incurred, (ii) those that external modeling firms estimate would be incurred, (iii) the average expected level used in pricing or (iv) our current reinsurance coverage limits. Despite our catastrophe management programs, we are exposed to catastrophes that could have a material adverse effect on our operating results and financial condition. Our liquidity could be constrained by a catastrophe, or multiple catastrophes, which may result in extraordinary losses or a downgrade of our financial strength ratings. In addition, the reinsurance losses that are incurred in connection with a catastrophe could have an adverse impact on the terms and conditions of future reinsurance treaties.
In addition, we are subject to claims arising from non-catastrophic weather events such as hurricanes, tropical storms, severe winter weather, rain, hail and high winds. The incidence and severity of weather conditions are largely unpredictable. There is generally an increase in the frequency and severity of claims when severe weather conditions occur.
Unanticipated increases in the severity or frequency of claims may adversely affect our operating results and financial condition.
Changes in the severity or frequency of claims may affect our profitability. Changes in homeowners claim severity are driven by inflation in the construction industry, in building materials and home furnishings, and by other economic and environmental factors, including increased demand for services and supplies in areas affected by catastrophes. Changes in bodily injury claim severity are driven primarily by inflation in the medical sector of the economy and by litigation costs. Changes in auto physical damage claim severity are driven primarily by inflation in auto repair costs, prices of auto parts and used car prices. However, changes in the level of the severity of claims are not limited to the effects of inflation and demand surge in these various sectors of the economy. Increases in claim severity can arise from unexpected events that are inherently difficult to predict, such as a change in the law or an inability to enforce exclusions and limitations contained in our policies. Although we pursue various loss management initiatives to mitigate future increases in claim severity, there can be no assurances that these initiatives will successfully identify or reduce the effect of future increases in claim severity, and a significant increase in claim frequency could have an adverse effect on our operating results and financial condition.
Recent decline in the financial strength rating assigned to our insurance subsidiary by A.M. Best will impact our revenues and earnings.
Financial strength ratings are an important factor influencing the competitive position of insurance companies. The objective of the rating agencies’ rating systems is to provide an opinion as to an insurer’s financial strength and ability to meet ongoing obligations to its policyholders. The ratings of Kingstone Insurance Company (“KICO”), our insurance subsidiary, reflect the rating agencies’ opinion as to its financial strength and are not evaluations directed to investors in our securities, nor are they recommendations to buy, sell or hold our securities.
Our ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of, the rating agencies. Our ability to write business, particularly commercial liability lines, is influenced by our financial strength rating from A.M. Best. On August 6, 2021, A.M. Best lowered the financial strength rating of KICO from “B++” (Good). to “B+” (Good). The outlook of A.M. Best’s credit rating is stable. A.M. Best indicated that the ratings downgrade of KICO reflects its balance sheet strength, which A.M. Best categorizes as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. It stated that the ratings action was driven by a revision in KICO’s operating performance, which reflects volatility from underwriting results caused by weather-related losses and loss reserve strengthening.
Management believes that A.M. Best’s financial strength rating is more significant with regard to commercial liability insurance, as opposed to personal lines business. Since we have discontinued our commercial lines business, we believe that A.M. Best’s rating action will not result in a material decrease in the amount of business that KICO will be able to write. However, the A.M Best ratings downgrade has resulted in a material decrease in the business of our subsidiary, Cosi, a multi-state licensed general agency that had partnered with name-brand carriers which require an A.M. Best “A-” rating from its partners.
Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs, including with regard to our indebtedness due on December 30, 2022, or our ability to obtain credit on acceptable terms.
Our $30,000,000 in aggregate principal amount of 5.5% Senior Unsecured Notes are due on December 30, 2022. The capital and credit markets can experience periods of volatility and disruption. In some cases, markets have exerted downward pressure on the availability of liquidity and credit capacity. Our ability to obtain such capital may be limited and the cost of any such capital may be significant. Our access to additional financing will depend on a variety of factors, such as market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity as well as lenders' perception of our long or short-term financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If a combination of these factors occurs, our internal sources of liquidity may prove to be insufficient and, in such case, we may not be able to successfully obtain additional financing on favorable terms. We believe that our plan to satisfy our debt obligation by December 30, 2022, as discussed in Note 2 to our Consolidated Financial Statements included in this Annual Report, is probable of being implemented.
We are exposed to significant financial and capital markets risk which may adversely affect our results of operations, financial condition and liquidity, and our net investment income can vary from period to period.
We are exposed to significant financial and capital markets risk, including changes in interest rates, equity prices, market volatility, general economic conditions, the performance of the economy in general, the performance of the specific obligors included in our portfolio, and other factors outside our control. Our exposure to interest rate risk relates primarily to the market price and cash flow variability associated with changes in interest rates. Our investment portfolio contains interest rate sensitive instruments, such as fixed income securities, which may be adversely affected by changes in interest rates from governmental monetary policies, domestic and international economic and political conditions and other factors beyond our control. A rise in interest rates would increase the net unrealized loss position of our investment portfolio, which would be offset by our ability to earn higher rates of return on funds reinvested. Conversely, a decline in interest rates would decrease the net unrealized loss position of our investment portfolio, which would be offset by lower rates of return on funds reinvested.
In addition, market volatility can make it difficult to value certain of our securities if trading becomes less frequent. As such, valuations may include assumptions or estimates that may have significant period to period changes which could have a material adverse effect on our consolidated results of operations or financial condition. If significant, continued volatility, changes in interest rates, changes in defaults, a lack of pricing transparency, market liquidity and declines in equity prices, individually or in tandem, could have a material adverse effect on our results of operations, financial condition or cash flows through realized losses, impairments, and changes in unrealized positions.
Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business or maintain our financial strength rating from A.M. Best.
We purchase reinsurance to reduce our net liability on individual risks, to protect against possible catastrophes, to remain within a target ratio of net premiums written to policyholders’ surplus and to expand our underwriting capacity. Participation in reinsurance arrangements does not relieve us from our obligations to policyholders. Our personal lines catastrophe reinsurance program was designed, utilizing our risk management methodology, to address our exposure to catastrophes. Market conditions beyond our control impact the availability and cost of the reinsurance we purchase. No assurances can be given that reinsurance will remain continuously available to us to the same extent and on the same terms and rates as currently available. For example, our ability to afford reinsurance to reduce our catastrophe risk may be dependent upon our ability to adjust premium rates for its cost, and there are no assurances that the terms and rates for our current reinsurance program will continue to be available in the future. If we are unable to maintain our current level of reinsurance or purchase new reinsurance protection in amounts that we consider sufficient and at prices that we consider acceptable, we will have to either accept an increase in our exposure risk, reduce our insurance writings or seek other alternatives. Our ability to maintain our financial strength rating from A.M. Best depends, in part, on our ability to purchase a sufficient level of catastrophe reinsurance.
Reinsurance subjects us to the credit risk of our reinsurers, which may have a material adverse effect on our operating results and financial condition.
The collectability of reinsurance recoverables is subject to uncertainty arising from a number of factors, including changes in market conditions, whether insured losses meet the qualifying conditions of the reinsurance contract and whether reinsurers, or their affiliates, have the financial capacity and willingness to make payments under the terms of a reinsurance treaty or contract. Since we are primarily liable to an insured for the full amount of insurance coverage, our inability to collect a material recovery from a reinsurer could have a material adverse effect on our operating results and financial condition.
Applicable insurance laws regarding the change of control of our company may impede potential acquisitions that our shareholders might consider desirable.
We are subject to statutes and regulations of the state of New York which generally require that any person or entity desiring to acquire direct or indirect control of KICO, our insurance company subsidiary, obtain prior regulatory approval. In addition, a change of control of Kingstone Companies, Inc. would require such approval. These laws may discourage potential acquisition proposals and may delay, deter or prevent a change of control of our company, including through transactions, and in particular unsolicited transactions. Some of our shareholders might consider such transactions to be desirable. Similar regulations may apply in other states in which we may operate.
The insurance industry is subject to extensive regulation that may affect our operating costs and limit the growth of our business, and changes within this regulatory environment may adversely affect our operating costs and limit the growth of our business.
We are subject to extensive laws and regulations. State insurance regulators are charged with protecting policyholders and have broad regulatory, supervisory and administrative powers over our business practices. These include, among other things, the power to grant and revoke licenses to transact business and the power to regulate and approve underwriting practices and rate changes, which may delay the implementation of premium rate changes, prevent us from making changes we believe are necessary to match rate to risk or delay or prevent our entry into new states. In addition, many states have laws and regulations that limit an insurer’s ability to cancel or not renew policies and that prohibit an insurer from withdrawing from one or more lines of business written in the state, except pursuant to a plan that is approved by state regulatory authorities. Laws and regulations that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict our ability to exit unprofitable markets.
Because the laws and regulations under which we operate are administered and enforced by a number of different governmental authorities, including state insurance regulators, state securities administrators and the SEC, each of which exercises a degree of interpretive latitude, we are subject to the risk that compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal and regulatory environment may, even in the absence of any change to a particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thereby necessitating changes to our practices that may, in some cases, limit our ability to grow and/or to improve the profitability of our business.
While the United States federal government does not directly regulate the insurance industry, federal legislation and administrative policies can affect us. Congress and various federal agencies periodically discuss proposals that would provide for a federal charter for insurance companies. We cannot predict whether any such laws will be enacted or the effect that such laws would have on our business. Moreover, there can be no assurance that changes will not be made to current laws, rules and regulations, or that any other laws, rules or regulations will not be adopted in the future, that could adversely affect our business and financial condition.
We may not be able to maintain the requisite amount of risk-based capital, which may adversely affect our profitability and our ability to compete in the property and casualty insurance markets.
The DFS imposes risk-based capital requirements on insurance companies to ensure that insurance companies maintain appropriate levels of surplus to support their overall business operations and to protect customers against adverse developments, after taking into account default, credit, underwriting and off-balance sheet risks. If the amount of our capital falls below certain thresholds, we may face restrictions with respect to soliciting new business and/or keeping existing business. Similar regulations apply in other states in which we operate.
Changing climate conditions may adversely affect our financial condition, profitability or cash flows.
We recognize the scientific view that the world is getting warmer. Climate change, to the extent it produces rising temperatures and changes in weather patterns, could impact the frequency and/or severity of weather events and affect the affordability and availability of homeowners insurance.
Our operating results and financial condition may be adversely affected by the cyclical nature of the property and casualty business.
The property and casualty market is cyclical and has experienced periods characterized by relatively high levels of price competition, less restrictive underwriting standards and relatively low premium rates, followed by periods of relatively lower levels of competition, more selective underwriting standards and relatively high premium rates. A downturn in the profitability cycle of the property and casualty business could have a material adverse effect on our operating results and financial condition.
Because substantially all of our revenue is currently derived from sources located in New York, our business may be adversely affected by conditions in such state.
Approximately 80% of our revenue is currently derived from sources located in the State of New York and, accordingly, is affected by the prevailing regulatory, economic, demographic, competitive and other conditions in the state. Changes in any of these conditions could make it costlier or difficult for us to conduct our business. Adverse regulatory developments in New York, which could include fundamental changes to the design or implementation of the insurance regulatory framework, could have a material adverse effect on our results of operations and financial condition.
We are highly dependent on a relatively small number of insurance brokers for a large portion of our revenues.
We market our insurance products primarily through insurance brokers. A large percentage of our gross premiums written are sourced through a limited number of brokers. For the year ended December 31, 2021, thirty brokers provided a total of 36.1% of our total gross premiums written. The nature of our dependency on these brokers relates to the high volume of business they consistently refer to us. Our relationship with these brokers is based on the quality of the underwriting and claims services we provide to our clients and on our financial strength ratings. Any deterioration in these factors could result in these brokers advising clients to place their risks with other insurers rather than with us. A loss of all or a substantial portion of the business provided by one or more of these brokers could have a material adverse effect on our financial condition and results of operations.
Actual claims incurred may exceed current reserves established for claims, which may adversely affect our operating results and financial condition.
Recorded claim reserves for our business are based on our best estimates of losses after considering known facts and interpretations of circumstances. Internal and external factors are considered. Internal factors include, but are not limited to, actual claims paid, pending levels of unpaid claims, product mix and contractual terms. External factors include, but are not limited to, changes in the law, court decisions, changes in regulatory requirements and economic conditions. Because reserves are estimates of the unpaid portion of losses that have occurred, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses may vary materially from recorded reserves, and such variance may adversely affect our operating results and financial condition.
As a holding company, we are dependent on the results of operations of our subsidiary, KICO; there are restrictions on the payment of dividends by KICO.
We are a holding company and a legal entity separate and distinct from our operating subsidiary, KICO. As a holding company with limited operations of our own, currently the principal sources of our funds are dividends and other payments from KICO. Consequently, we must rely on KICO for our ability to repay debts, pay expenses and pay cash dividends to our shareholders.
State insurance laws limit the ability of KICO to pay dividends and require KICO to maintain specified minimum levels of statutory capital and surplus. Maximum allowable dividends by KICO to us are restricted to the lesser of 10% of surplus or 100% of net investment income (on a statutory accounting basis) for the trailing 36 months, less dividends paid by KICO during such period. As of December 31, 2021, the maximum permissible distribution that KICO could pay without prior regulatory approval was approximately $3,448,000. Since our $30,000,000 in aggregate principal amount of 5.5% Senior Unsecured Notes are due on December 30, 2022 (the “Notes”), the distributions by KICO to us will be insufficient to pay the amount due pursuant to the Notes. The aggregate maximum amount of dividends permitted by law to be paid by an insurance company does not necessarily define an insurance company’s actual ability to pay dividends. The actual ability to pay dividends may be further constrained by business and regulatory considerations, such as the impact of dividends on surplus, by our competitive position and by the amount of premiums that we can write. State insurance regulators have broad discretion to limit the payment of dividends by insurance companies. Our ability to pay interest on the Notes as it comes due may be, and the principal of the Notes at their maturity will be, limited by these regulatory constraints.
We will not be able to generate sufficient cash from operations to service the balloon principal payment of the Notes.
Our ability to make payments on and to refinance our indebtedness, including the Notes, will depend on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. With regard to the Notes, the cash flows from operating activities will be insufficient for us to pay the principal, payable under the Notes and we will implement management’s plan to refinance or satisfy the Notes to alleviate such risks.
Our future results are dependent in part on our ability to successfully operate in an insurance industry that is highly competitive.
The insurance industry is highly competitive. Many of our competitors have well-established national reputations, substantially more capital and significantly greater marketing and management resources. Because of the competitive nature of the insurance industry, including competition for customers, agents and brokers, there can be no assurance that we will continue to effectively compete with our industry rivals, or that competitive pressures will not have a material adverse effect on our ability to grow our business and to maintain profitable operating results or financial condition.
If we lose key personnel or are unable to recruit qualified personnel, our ability to implement our business strategies could be delayed or hindered.
Our future success will depend, in part, upon the efforts of Barry Goldstein, our President, Chief Executive Officer and Executive Chairman, and Meryl Golden, our Chief Operating Officer and KICO’s President. The loss of Mr. Goldstein or Ms. Golden or other key personnel could prevent us from fully implementing our business strategies and could materially and adversely affect our business, financial condition and results of operations. As we continue to grow, we will need to recruit and retain additional qualified management personnel, but we may not be able to do so. Our ability to recruit and retain such personnel will depend upon a number of factors, such as our results of operations and prospects and the level of competition prevailing in the market for qualified personnel. Mr. Goldstein and we are parties to an amended and restated employment agreement which expires on December 31, 2022. Ms. Golden and we are parties to an amended and restated employment agreement which expires on December 31, 2022.
Difficult conditions in the economy generally could adversely affect our business and operating results.
As with most businesses, we believe that difficult conditions in the economy could have an adverse effect on our business and operating results. General economic conditions also could adversely affect us in the form of consumer behavior, which may include decreased demand for our products. As consumers become more cost conscious, they may choose to purchase lower levels of insurance.
Changes in accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies may adversely affect our reported results of operations and financial condition.
Our financial statements are subject to the application of generally accepted accounting principles, which are periodically revised, interpreted and/or expanded. Accordingly, we are required to adopt new guidance or interpretations, which may have a material adverse effect on our results of operations and financial condition that is either unexpected or has a greater impact than expected.
Our business could be adversely affected by a security breach or other attack involving our computer systems or those of one or more of our vendors.
Our business requires that we develop and maintain computer systems to run our operations and to store a significant volume of confidential data. Some of these systems rely on third-party vendors, through either a connection to, or an integration with, those third-parties’ systems. In the course of our operations, we acquire the personal confidential information of our customers and employees. We also store our intellectual property, trade secrets, and other sensitive business and financial information.
All of these systems are subject to “cyber attacks” by sophisticated third parties with substantial computing resources and capabilities, and to unauthorized or illegitimate actions by employees, consultants, agents and other persons with legitimate access to our systems. Such attacks or actions may include attempts to:
·
steal, corrupt, or destroy data, including our intellectual property, financial data or the personal information of our customers or employees
·
misappropriate funds
·
disrupt or shut down our systems
·
deny customers, agents, brokers, or others access to our systems, or
·
infect our systems with viruses or malware.
While we can take defensive measures, there can be no assurance that we will be successful in preventing attacks or detecting and stopping them once they have begun. Our business could be significantly damaged by a security breach, data loss or corruption, or cyber attack. In addition to the potentially high costs of investigating and stopping such an event and implementing necessary fixes, we could incur substantial liability if confidential customer or employee information is stolen. In addition, such an event could cause a significant disruption of our ability to conduct our insurance operations. We have a cyber insurance policy to protect against the monetary impact of some of these risks. However, the occurrence of a security breach, data loss or corruption, or cyber-attack, if sufficiently severe, could have a material adverse effect on our business results.
We rely on our information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business.
Our business is highly dependent upon the successful and uninterrupted functioning of our information technology and telecommunications systems. We rely on these systems to support our operations. The failure of these systems could interrupt our operations and result in a material adverse effect on our business.
Risks Related to Our Common Stock
Our stock price may fluctuate significantly and be highly volatile and this may make it difficult for shareholders to resell shares of our common stock at the volume, prices and times they find attractive.
The market price of our common stock could be subject to significant fluctuations and be highly volatile, which may make it difficult for shareholders to resell shares of our common stock at the volume, prices and times they find attractive. There are many factors that will impact our stock price and trading volume, including, but not limited to, the factors listed above under “Risks Related to Our Business.”
Stock markets, in general, have experienced in recent years, and continue to experience, significant price and volume volatility, and the market price of our common stock may continue to be subject to similar market fluctuations that may be unrelated to our operating performance and prospects. Increased market volatility and fluctuations could result in a substantial decline in the market price of our common stock.
The trading volume in our common stock has been limited. As a result, shareholders may not experience liquidity in their investment in our common stock, thereby potentially limiting their ability to resell their shares at the volume, times and prices they find attractive.
Our common stock is currently traded on The Nasdaq Capital Market (“Nasdaq”). Our common stock has substantially less liquidity than the average trading market for many other publicly traded insurance and other companies. An active trading market for our common stock may not develop or, if developed, may not be sustained. Such stocks can be more volatile than stocks trading in an active public market. Therefore, shareholders have reduced liquidity and may not be able to sell their shares at the volume, prices and times that they desire.
There may be future issuances or resales of our common stock which may materially and adversely affect the market price of our common stock.
Subject to any required state insurance regulatory approvals, we are not restricted from issuing additional shares of our common stock in the future, including securities convertible into, or exchangeable or exercisable for, shares of our common stock. Our issuance of additional shares of common stock in the future will dilute the ownership interests of our then existing shareholders.
We have effective registration statements on Form S-8 under the Securities Act of 1933, as amended (the “Securities Act”), covering an aggregate of 1,400,000 shares of our common stock issuable under our 2014 Equity Participation Plan (the “2014 Plan”). In addition, we have an effective registration statement on Form S-8 under the Securities Act covering an aggregate of 750,000 shares of our common stock, issuable pursuant to our Employee Stock Purchase Plan (the “ESPP”).
As of December 31, 2021, options to purchase 107,201 shares of our common stock, and 628,531 shares subject to unvested restricted stock grants, were outstanding under the 2014 Plan and 440,774 shares were reserved for issuance thereunder. As of December 31, 2021, there were no shares purchased pursuant to the ESPP. We have also registered up to $39,290,000 of our securities pursuant to registration statements on Form S-3, which we may sell from time to time in one or more offerings. The shares subject to the registration statements on Form S-3 will be freely tradeable in the public market. In addition, the shares issuable pursuant to the registration statements on Form S-8 will be freely tradable in the public market, except for shares held by our affiliates.
The sale of a substantial number of shares of our common stock or securities convertible into, or exchangeable or exercisable for, shares of our common stock, whether directly by us, by selling shareholders in future offerings or by our existing shareholders in the secondary market, the perception that such issuances or resales could occur or the availability for future issuances or resale of shares of our common stock or securities convertible into, or exchangeable or exercisable for, shares of our common stock could materially and adversely affect the market price of our common stock and our ability to raise capital through future offerings of equity or equity-related securities on attractive terms or at all.
In addition, our board of directors is authorized to designate and issue preferred stock without further shareholder approval, and we may issue other equity and equity-related securities that are senior to our common stock in the future for a number of reasons, including, without limitation, to support operations and growth, to maintain our capital ratios, and to comply with any future changes in regulatory standards.
Our executive officers and directors own a substantial number of shares of our common stock. This will enable them to significantly influence the vote on all matters submitted to a vote of our shareholders.
As of March 21, 2022, our executive officers and directors beneficially owned 1,046,510 shares of our common stock, representing 9.8% of the outstanding shares of our common stock.
Accordingly, our executive officers and directors, through their beneficial ownership of our common stock, will be able to significantly influence the vote on all matters submitted to a vote of our shareholders, including the election of directors, amendments to our restated certificate of incorporation or amended and restated bylaws, mergers or other business combination transactions and certain sales of assets outside the usual and regular course of business. The interests of our executive officers and directors may not coincide with the interests of our other shareholders, and they could take actions that advance their own interests to the detriment of our other shareholders.
Anti-takeover provisions and the regulations to which we may be subject may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to our shareholders.
We are a holding company incorporated in Delaware. Anti-takeover provisions in Delaware law and our restated certificate of incorporation and bylaws, as well as regulatory approvals required under state insurance laws, could make it more difficult for a third party to acquire control of us and may prevent shareholders from receiving a premium for their shares of common stock. Our certificate of incorporation provides that our board of directors may issue up to 2,500,000 shares of preferred stock, in one or more series, without shareholder approval and with such terms, preferences, rights and privileges as the board of directors may deem appropriate. These provisions, the control of our executive officers and directors over the election of our directors, and other factors may hinder or prevent a change in control, even if the change in control would be beneficial to, or sought by, our shareholders.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES.
Our principal executive offices are currently located at 15 Joys Lane, Kingston, New York 12401. Our insurance underwriting business is located principally at 15 Joys Lane, Kingston, New York 12401. Our insurance underwriting business also maintains an executive office located at 70 East Sunrise Highway, Valley Stream, New York 11581, at which we lease 4,985 square feet of space. Our licensed general agency, Cosi, maintained an office located at 70 East Sunrise Highway, Valley Stream, New York 11581, at which it leased 2,323 square feet of space. Effective January 31, 2022, Cosi terminated its lease pursuant to a mutual agreement with its landlord.
We own the building at which our insurance underwriting business principally operates, free of mortgage.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS.
None.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is quoted on The Nasdaq Capital Market under the symbol “KINS.”
Holders
As of March 21, 2022, there were 186 record holders of our common stock.
Dividends
Holders of our common stock are entitled to dividends when, as and if declared by our Board of Directors out of funds legally available. We have paid a cash dividend in each quarter since September 2011.
Future dividend policy will be subject to the discretion of our Board of Directors and will be contingent upon future earnings, if any, our financial condition, capital requirements, general business conditions, and other factors. Therefore, we can give no assurance that future dividends of any kind will continue to be paid to holders of our common stock.
Our ability to pay dividends depends, in part, on the ability of KICO to pay dividends to us. KICO, as an insurance subsidiary, is subject to significant regulatory restrictions limiting its ability to declare and pay dividends. These restrictions are related to surplus and net investment income. Without the prior approval of the DFS, dividends are restricted to the lesser of 10% of surplus or 100% of investment income (on a statutory accounting basis) for the trailing 36 months, less dividends paid by KICO during such period. As of December 31, 2021, the maximum distribution that KICO could pay without prior regulatory approval was approximately $3,448,000, which is based on investment income for the trailing 36 months, net of dividends paid by KICO during such period. See “Business - Government Regulation” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Liquidity” in Items 1 and 7, respectively, of this Annual Report.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Overview
We offer property and casualty insurance products to individuals through our wholly owned subsidiary, Kingstone Insurance Company (“KICO”). KICO’s insureds are located primarily in downstate New York, consisting of New York City, Long Island and Westchester County, although we are actively writing business in New Jersey, Rhode Island, Connecticut and Massachusetts. We are licensed in the States of New York, New Jersey, Rhode Island, Connecticut, Massachusetts, Pennsylvania, Maine, and New Hampshire. For the year ended December 31, 2021, 79.5% of KICO’s direct written premiums came from the New York policies.
In addition, through our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, we access alternative distribution channels. Cosi receives commission revenue from KICO for the policies it places with others and pays commissions to these agencies. Cosi retains the profit between the commission revenue received and the commission expense paid (“Net Cosi Revenue”). Commission expense is reduced by Net Cosi Revenue and Cosi-related operating expenses are included in other operating expenses. Cosi-related operating expenses are not included in our stand-alone insurance underwriting business and, accordingly, Cosi’s expenses are not included in the calculation of our combined ratio as described below.
We derive substantially all of our revenue from KICO, which includes revenues from earned premiums, ceding commissions from quota share reinsurance, net investment income generated from its portfolio, and net realized gains and losses on investment securities. All of KICO’s insurance policies are written for a one-year term. Earned premiums represent premiums received from insureds, which are recognized as revenue over the period of time that insurance coverage is provided (i.e., ratably over the one-year life of the policy). A significant period of time can elapse from the receipt of insurance premiums to the payment of insurance claims. During this time, KICO invests the premiums, earns investment income and generates net realized and unrealized investment gains and losses on investments. Our holding company earns investment income from its cash holdings and may also generate net realized and unrealized investment gains and losses on future investments.
Our expenses include the insurance underwriting expenses of KICO and other operating expenses. Insurance companies incur a significant amount of their total expenses from losses incurred by policyholders, which are referred to as claims. In settling these claims, various loss adjustment expenses (“LAE”) are incurred such as insurance adjusters’ fees and legal expenses. In addition, insurance companies incur policy acquisition costs. Policy acquisition costs include commissions paid to producers, premium taxes, and other expenses related to the underwriting process, including employees’ compensation and benefits.
Other operating expenses include our corporate expenses as a holding company and operating expenses of Cosi. These corporate expenses include legal and auditing fees, executive employment costs, and other costs directly associated with being a public company. Cosi operating expenses primarily include employment, occupancy and consulting costs.
Principal Revenue and Expense Items
Net premiums earned: Net premiums earned is the earned portion of our written premiums, less that portion of premium that is ceded to third party reinsurers under reinsurance agreements. The amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement. Insurance premiums are earned on a pro rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Our insurance policies have a term of one year. Accordingly, for a one-year policy written on July 1, 2021, we would earn half of the premiums in 2021 and the other half in 2022.
Ceding commission revenue: Commissions on reinsurance premiums ceded to quota share treaties are earned in a manner consistent with the recognition of the direct acquisition costs of the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured.
Net investment income and net gains (losses) on investments: We invest in cash and cash equivalents, short-term investments, fixed-maturity and equity securities, and other investments. Our net investment income includes interest and dividends earned on our invested assets, less investment expenses. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when our investment securities are sold for less than their costs or amortized costs, as applicable, or are written down as a result of other-than-temporary impairment. We classify our fixed-maturity securities as either available-for-sale or held-to-maturity. Net unrealized gains (losses) on those securities classified as available-for-sale are reported separately within accumulated other comprehensive income on our balance sheet while our equity securities and other investments report changes in fair value through earnings. See Note 2 in the accompanying consolidated financial statements for further discussion over our accounting policies following Item 16 of this Annual Report.
Other income: We recognize installment fee income and fees charged to reinstate a policy after it has been cancelled for non-payment.
Loss and loss adjustment expenses incurred: Loss and LAE incurred represent our largest expense item, and for any given reporting period include estimates of future claim payments, changes in those estimates from prior reporting periods and costs associated with investigating, defending and servicing claims. These expenses fluctuate based on the amount and types of risks we insure. We record loss and LAE related to estimates of future claim payments based on case-by-case valuations, statistical analyses and actuarial procedures. We seek to establish all reserves at the most likely ultimate liability based on our historical claims experience. It is typical for certain claims to take several years to settle and we revise our estimates as we receive additional information on such claims. Our ability to estimate loss and LAE accurately at the time of pricing our insurance policies is a critical factor affecting our profitability.
Commission expenses and other underwriting expenses: Other underwriting expenses include policy acquisition costs and other expenses related to the underwriting of policies. Policy acquisition costs represent the costs of originating new insurance policies that vary with, and are primarily related to, the production of insurance policies (principally commissions, premium taxes and certain underwriting salaries). Policy acquisition costs are deferred and recognized as expense as the related premiums are earned. Other underwriting expenses represent general and administrative expenses of our insurance business and are comprised of other costs associated with our insurance activities such as regulatory fees, telecommunication and technology costs, occupancy costs, employment costs, and legal and auditing fees.
Other operating expenses: Other operating expenses include the corporate expenses of our holding company, Kingstone Companies, Inc., and operating expenses of Cosi. These expenses include executive employment costs, legal and auditing fees, and other costs directly associated with being a public company. Cosi operating expenses primarily include employment costs, occupancy costs and consulting costs.
Stock-based compensation: Non-cash equity compensation includes the fair value of stock grants issued to our directors, officers and employees, and amortization of stock options issued to the same.
Depreciation and amortization: Depreciation and amortization includes the amortization of intangibles related to the acquisition of KICO, depreciation of the real estate used in KICO’s operations, as well as depreciation of capital expenditures for information technology projects, office equipment and furniture.
Interest expense: Interest expense represents amounts we incur on our outstanding indebtedness at the applicable interest rates. Interest expense also includes amortization of debt discount and issuance costs.
Income tax expense: We incur federal income tax expense on our consolidated statement of operations as well as state income tax expense for our non-insurance underwriting subsidiaries.
Product Lines
Our product lines include the following:
Personal lines: Our largest line of business is personal lines, consisting of homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies.
Commercial liability: Through July 2019, we offered businessowners policies, which consist primarily of small business retail, service, and office risks, with limited property exposures. We also wrote artisan’s liability policies for small independent contractors with smaller sized workforces. In addition, we wrote special multi-peril policies for larger and more specialized businessowners risks, including those with limited residential exposures. Further, we offered commercial umbrella policies written above our supporting commercial lines policies.
In May 2019, due to the poor performance of this line we placed a moratorium on new commercial lines and new commercial umbrella submissions while we further reviewed this business. In July 2019, due to the continuing poor performance of these lines, we made the decision to no longer underwrite commercial lines or commercial umbrella risks. In-force policies as of July 31, 2019 for these lines were non-renewed at the end of their annual terms. As of December 31, 2021 and 2020, there were no commercial liability policies in-force. As of December 31, 2021, these expired policies represent approximately 20.2% of loss and LAE reserves net of reinsurance recoverables. See discussion below under “Additional Financial Information”.
Livery physical damage: We write for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs. These policies insure only the physical damage portion of insurance for such vehicles, with no liability coverage included.
Other: We write canine legal liability policies and have a small participation in mandatory state joint underwriting associations.
Key Measures
We utilize the following key measures in analyzing the results of our insurance underwriting business:
Net loss ratio: The net loss ratio is a measure of the underwriting profitability of an insurance company’s business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.
Net underwriting expense ratio: The net underwriting expense ratio is a measure of an insurance company’s operational efficiency in administering its business. Expressed as a percentage, this is the ratio of the sum of acquisition costs (the most significant being commissions paid to our producers) and other underwriting expenses less ceding commission revenue less other income to net premiums earned.
Net combined ratio: The net combined ratio is a measure of an insurance company’s overall underwriting profit. This is the sum of the net loss and net underwriting expense ratios. If the net combined ratio is at or above 100 percent, an insurance company cannot be profitable without investment income, and may not be profitable if investment income is insufficient.
Underwriting income: Underwriting income is net pre-tax income attributable to our insurance underwriting business before investment activity. It excludes net investment income, net realized gains from investments, and depreciation and amortization (net premiums earned less expenses included in combined ratio). Underwriting income is a measure of an insurance company’s overall operating profitability before items such as investment income, depreciation and amortization, interest expense and income taxes.
Critical Accounting Policies and Estimates
Our consolidated financial statements include the accounts of Kingstone Companies, Inc. and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related notes. In preparing these consolidated financial statements, our management has utilized information including our past history, industry standards, and the current economic environment, and other factors, in forming its estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by our management in formulating its estimates in these financial statements may not materialize. Application of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of similar companies.
We believe that the most critical accounting policies relate to the reporting of reserves for loss and LAE, including losses that have occurred but have not been reported prior to the reporting date, amounts recoverable from third party reinsurers, deferred income taxes, the impairment of investment securities, and the valuation of stock-based compensation. See Note 2 to the Consolidated Financial Statements following Item 16 of this Annual Report.
Consolidated Results of Operations
The following table summarizes the changes in the results of our operations for the periods indicated:
Years ended December 31,
($ in thousands)
Change
Percent
Revenues
Direct written premiums
$ 181,665
$ 169,318
$ 12,347
7.3 %
Assumed written premiums
-
-
-
na
%
181,665
169,318
12,347
7.3 %
Ceded written premiums
Ceded to quota share treaties in force during the period
33,250
(32,672 )
(98.3 )%
Unearned premiums ceded to new quota share treaty (1)
22,932
-
22,932
na
%
Return of premiums previously ceded to prior quota share treaties (1)
-
(17,440 )
17,440
na
%
Ceded to quota share treaties
23,510
15,810
7,700
48.7 %
Ceded to excess of loss treaties
2,613
2,007
30.2 %
Ceded to catastrophe treaties
26,787
24,438
2,349
9.6 %
Total ceded written premiums
52,910
42,255
10,655
25.2 %
Net written premiums
128,755
127,063
1,692
1.3 %
Change in unearned premiums
Direct and assumed
(7,750 )
(8,124 )
na
%
Ceded to quota share treaties
22,877
(19,356 )
42,233
na
%
Change in net unearned premiums
15,127
(18,982 )
34,109
na
%
Premiums earned
Direct and assumed
173,915
169,692
4,223
2.5 %
Ceded to reinsurance treaties
(30,033 )
(61,611 )
31,578
51.3 %
Net premiums earned
143,882
108,081
35,801
33.1 %
Ceding commission revenue
14,202
(14,112 )
(99.4 )%
Net investment income
6,621
6,506
1.8 %
Net gains on investments
9,787
1,591
8,196
515.1 %
Other income
(139 )
(14.0 )%
Total revenues
161,231
131,370
29,861
22.7 %
Expenses
Loss and loss adjustment expenses
Direct and assumed:
Loss and loss adjustment expenses excluding the effect of catastrophes
87,308
72,842
14,466
19.9 %
Losses from catastrophes (2)
15,632
4,683
10,949
233.8 %
Total direct and assumed loss and loss adjustment expenses
102,940
77,525
25,415
32.8 %
Ceded loss and loss adjustment expenses:
Loss and loss adjustment expenses excluding the effect of catastrophes
18,013
(17,858 )
(99.1 )%
Losses from catastrophes (2)
1,206
(393 )
(32.6 )%
Total ceded loss and loss adjustment expenses
19,219
(18,251 )
(95.0 )%
Net loss and loss adjustment expenses:
Loss and loss adjustment expenses excluding the effect of catastrophes
87,153
54,829
32,324
59.0 %
Losses from catastrophes (2)
14,819
3,477
11,342
326.2 %
Net loss and loss adjustment expenses
101,973
58,306
43,666
74.9 %
Commission expense
33,114
31,828
1,286
4.0 %
Other underwriting expenses
26,254
25,425
3.3 %
Other operating expenses
4,183
4,283
(100 )
(2.3 )%
Depreciation and amortization
3,290
2,865
14.8 %
Interest expense
1,826
1,826
-
-
%
Total expenses
170,640
124,533
46,106
37.0 %
Loss before taxes
(9,409 )
6,837
(16,246 )
237.6 %
Income tax benefit
(2,031 )
(2,260 )
10.1 %
Net (loss) income
$ (7,378 )
$ 9,097
$ (16,475 )
na
%
(Columns in the table above may not sum to totals due to rounding)
(1)
Effective December 31, 2020, our personal lines 25% quota share treaty expired on a cut-off basis. Effective December 31, 2021, we entered into a 30% quota share treaty.
(2)
The years ended December 31, 2021 and 2020 include catastrophe losses, which are defined as losses from an event for which a catastrophe bulletin and related serial number has been issued by the Property Claims Services (PCS) unit of the Insurance Services Office (ISO). PCS catastrophe bulletins are issued for events that cause more than $25 million in total insured losses and affect a significant number of policyholders and insurers.
Years ended December 31,
Percentage Point Change
Percent Change
Key ratios:
Net loss ratio
70.9 %
61.5 %
9.4
15.3 %
Net underwriting expense ratio
40.6 %
38.9 %
1.7
4.4 %
Net combined ratio
111.5 %
100.4 %
11.1
11.1 %
Direct Written Premiums
Direct written premiums during the year ended December 31, 2021 (“Year Ended 2021”) were $181,665,000 compared to $169,318,000 during the year ended December 31, 2020 (“Year Ended 2020”). The increase of $12,347,000, or 7.3%, was primarily due an increase in premiums from our personal lines business. Direct written premiums from our personal lines business for Year Ended 2021 were $171,720,000, an increase of $9,536,000, or 5.9%, from $162,184,000 in Year Ended 2020. Direct written premiums from our livery physical damage business for Year Ended 2021 were $9,717,000, an increase of $2,661,000, or 37.7%, from $7,056,000 in Year Ended 2020. The increase in livery physical damage direct written premiums was due to the declining effect of the COVID-19 pandemic in our geographic area.
Beginning in 2017 we started writing homeowners policies in New Jersey. Through 2019 we expanded to Rhode Island, Massachusetts and Connecticut. We refer to our New York business as our “Core” business and the business outside of New York as our “Expansion” business. Direct written premiums from our Expansion business were $37,276,000 in Year Ended 2021 compared to $33,914,000 in Year Ended 2020. Direct written premiums from our Core business were $144,385,000 in Year Ended 2021 compared to $135,455,000 in Year Ended 2020.
Net Written Premiums and Net Premiums Earned
Effective December 31, 2021, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”).Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December 30, 2020 (“2019/2020 Treaty”). Effective December 31, 2020, the 2019/2020 Treaty expired on a cut off basis; this treaty was not renewed. In addition to the 2019/2020 Treaty, our personal lines quota share reinsurance treaty in effect for Year Ended 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-Off”). The following table describes the quota share reinsurance ceding rates in effect during Year Ended 2021 and Year Ended 2020. This table should be referred to in conjunction with the discussions for net written premiums, net premiums earned, ceding commission revenue and net loss and loss adjustment expenses that follow.
Years ended December 31,
Quota share reinsurance rates
Personal lines
2021/2023 Treaty
30% (1
)
n/a
2019/2020 Treaty
n/a
25% (2
)
2018/2019 Treaty
n/a
10% (3
)
(1)
The 2021/2023 Treaty is effective December 31, 2021 with a quota share reinsurance rate of 30%.
(2)
The 2019/2020 Treaty was effective from December 15, 2019 through December 30, 2020 with a quota share reinsurance rate of 25%.
(3)
The 2018/2019 Treaty expired on a run-off basis from July 1, 2019 through June 30, 2020.
Net written premiums increased $1,692,000, or 1.3%, to $128,755,000 in Year Ended 2021 from $127,063,000 in Year Ended 2020. Net written premiums include direct and assumed premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). In Year Ended 2021, our premiums ceded under quota share treaties decreased by $32,672,000 in comparison to ceded premiums in Year Ended 2020 (see table above). Our personal lines business was subject to the 2019/2020 Treaty from December 15, 2019 through December 30, 2020. Our personal lines business was subject to the 2018/2019 Treaty through June 30, 2019. Following June 30, 2019, any earned premium and associated claims for policies still in force continued to be ceded under the 10% quota share rate until such policies expired (run-off) over the next year. The 2019/2020 run-off period was from July 1, 2019 through June 30, 2020 and there was no return of unearned premiums under this arrangement.
Excess of loss reinsurance treaties
An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In Year Ended 2021, our ceded excess of loss reinsurance premiums increased by $606,000 over the comparable ceded premiums for Year Ended 2020. The increase was due to an increase in subject premiums and increase in rate.
Catastrophe reinsurance treaty
Most of the premiums written under our personal lines policies are also subject to our catastrophe treaties. An increase in our personal lines business gives rise to more property exposure, which increases our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties will increase. This results in an increase in premiums ceded under our catastrophe treaties provided that reinsurance rates are stable or are increasing. In Year Ended 2021, our premiums ceded under catastrophe treaties increased by $2,349,000 over the comparable ceded premiums in Year Ended 2020. The change was due to an increase in reinsurance rates effective July 1, 2020, partially offset by a decrease in our limit effective July 1, 2020. Through June 30, 2020, our ceded catastrophe premiums were paid based on the total direct written premiums subject to the catastrophe reinsurance treaty. Effective July 1, 2020, and continuing through June 30, 2021, our ceded catastrophe premiums were paid based on the total insured value of our risks calculated as of August 31, 2020. Effective July 1, 2021, and continuing through June 30, 2022, our ceded catastrophe premiums will be paid based on the total insured value of our risks as of August 31, 2021.
Net premiums earned
Net premiums earned increased $35,801,000, or 33.1%, to $143,882,000 in Year Ended 2021 from $108,081,000 in Year Ended 2020. The increase was due to the expiration of both the 2019/2020 Treaty on December 30, 2020 on a cut-off basis and the 2019/2020 Run-Off as of June 30, 2020.
Ceding Commission Revenue
The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:
Years ended December 31,
($ in thousands)
Change
Percent
Provisional ceding commissions earned
$ 234
$ 14,119
$ (13,885 )
(98.3 )%
Contingent ceding commissions earned
(144 )
(227 )
n/a
%
Total ceding commission revenue
$ 90
$ 14,202
$ (14,112 )
(99.4 )%
Ceding commission revenue was $90,000 in Year Ended 2021 compared to $14,202,000 in Year Ended 2020. The decrease of $14,112,000 was due to a decrease in both provisional ceding commissions earned and contingent ceding commissions earned. See below for a discussion of provisional ceding commissions earned and contingent ceding commissions earned.
Provisional Ceding Commissions Earned
Through December 30, 2020, we received a provisional ceding commission based on ceded written premiums. The $13,885,000 decrease in provisional ceding commissions earned was due to the expiration of both the 2019/2020 Treaty on December 30, 2020 on a cut-off basis and the 2019/2020 Run-Off as of June 30, 2020.
Contingent Ceding Commissions Earned
The structure of the 2019/2020 Treaty and 2019/2020 Run-Off called for a fixed provisional ceding commission and there was not an opportunity to earn additional contingent ceding commissions under those treaties. The amount of contingent ceding commissions we are eligible to receive under our prior years’ quota share treaties is subject to change based on losses incurred related to claims with accident dates before July 1, 2017. Under our prior years’ quota share treaties, we received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we receive.
Net Investment Income
Net investment income was $6,621,000 in Year Ended 2021compared to $6,506,000 in Year Ended 2020, an increase of $115,000, or 1.8%. The average yield on invested assets was 3.25% as of December 31, 2021 compared to 3.39% as of December 31, 2020.
Cash and invested assets were $237,885,000 as of December 31, 2021 compared to $222,314,000 as of December 31, 2020. The $15,571,000 increase in cash and invested assets was primarily attributable to an increase in operating cash flows for the Year Ended 2021.
Net Gains on Investments
Net gains on investments were $9,787,000 in Year Ended 2021 compared to $1,591,000 in Year Ended 2020. Unrealized gains on our equity securities and other investments in Year Ended 2021 were $2,469,000, compared to $758,000 in Year Ended 2020. Realized gains on sales of investments were $7,317,000 in Year Ended 2021 compared to $832,000 in Year Ended 2020.
Other Income
Other income was $851,000 in Year Ended 2021 compared to $990,000 in Year Ended 2020. The decrease of $139,000, or 14.0%, was primarily due to not having any active commercial lines policies in 2021 to generate fees.
Net Loss and LAE
Net loss and LAE was $101,973,000 in Year Ended 2021 compared to $66,431,000 in Year Ended 2020. The net loss ratio was 70.9% in Year Ended 2021 compared to 61.5% in Year Ended 2020, an increase of 9.4 percentage points.
The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business:
(Percent components may not sum to totals due to rounding)
The loss ratio during Year Ended 2021 was higher than Year Ended 2020 due to an elevated frequency of liability claims, as well as a higher impact from large fire losses and water damage claims. The elevated reported liability claim frequency began in early 2021 for both Homeowners and Dwelling Fire lines. Liability frequency has improved since June 2021 for Homeowners, our largest line of business. Dwelling Fire Liability frequency was still higher than the historical average in the fourth quarter but has improved compared to the first three quarters of the year. The high liability frequency is suspected to be related to the COVID-19 pandemic and is expected to return to a more typical level as people return to work. The impact of water damage claims during Year Ended 2021 was higher than the prior year, driven by a few large losses that emerged in the fourth quarter.
The impact of catastrophe losses was high for Year Ended 2021. The winter was mild, but there were seven catastrophe events during the second half of 2021, including three named storms, Elsa, Henri and Ida. Ida was one of the largest catastrophe events in the company’s history, resulting in over 1,500 reported claims. The estimated net impact of Ida is $10,300,000, or a 7.1-point impact on the Year Ended 2021 loss ratio. The total impact of all catastrophe events on the loss ratio was 10.3 points for Year Ended 2021. This compares to a 10.7-point impact from catastrophe events for Year Ended 2020, which also had a mild winter but was heavily impacted by Tropical Storm Isaias in the third quarter.
Prior year development was stable during Year Ended 2021. There was an overall favorable development of $15,000, which had a marginal impact on the loss ratio.
See table below under “Additional Financial Information” summarizing net loss ratios by line of business.
Commission Expense
Commission expense was $33,114,000 in Year Ended 2021 or 19.0% of direct earned premiums. Commission expense was $31,828,000 in Year Ended 2020 or 18.8% of direct earned premiums. The increase of $1,286,000 was primarily due to increases in both the annual contingent commissions and direct earned premiums in Year Ended 2021 as compared to Year Ended 2020.
Other Underwriting Expenses
Other underwriting expenses were $26,254,000 in Year Ended 2021 compared to $25,425,000 in Year Ended 2020. The modest increase of $829,000, or 3.3%, was primarily due to an initiative to reduce expenses with the use of technology.
Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $10,189,000 in Year Ended 2021 compared to $10,830,000 in Year Ended 2020. The decrease of $641,000, or 5.9%, compares favorably with the 7.3% increase in direct written premiums. The decrease in employment costs was attributable to staff reductions.
Our net underwriting expense ratio in Year Ended 2021 was 40.6% compared to 38.9% in Year Ended 2020. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:
Years ended
December 31,
Percentage
Point Change
Other underwriting expenses
Employment costs
7.1 %
10.0 %
(2.9 )
Underwriting fees (inspections/surveys)
1.3
2.6
(1.3 )
IT expenses
3.2
2.6
0.6
Profesional fees
1.2
1.0
0.2
Other expenses
5.5
7.4
(1.9 )
Total other underwriting expenses
18.3
23.6
(5.3 )
Commission expense
23.0
29.4
(6.4 )
Ceding commission revenue
Provisional
(0.2 )
(13.1 )
12.9
Contingent
0.1
(0.1 )
0.2
Total ceding commission revenue
(0.1 )
(13.2 )
13.1
Other income
(0.6 )
(0.9 )
0.3
Net underwriting expense ratio
40.6 %
38.9 %
1.7
The overall 13.1 percentage point decrease in the benefit from ceding commissions in Year Ended 2021 was driven by the reduction in provisional ceding commission revenue due to the expiration of the 2019/2020 Treaty on December 30, 2020. The components of our net underwriting expense ratio related to other underwriting expenses and commissions decreased in all categories except for IT expenses and professional fees. The components that decreased, did so due to more retention, given the reduction of ceded premiums after the expiration of the 2019/2020 Treaty on December 30, 2020. IT expenses and professional fees increased in Year Ended 2021 due to our Kingstone 2.0 effort to modernize systems and create a more sophisticated suite of products for our customers.
Other Operating Expenses
Other operating expenses, related to the expenses of our holding company and Cosi, were $4,183,000 for Year Ended 2021 compared to $4,283,000 for Year Ended 2020. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:
Years ended
December 31,
($ in thousands)
Change
Percent
Other operating expenses
Employement costs
$ 795
$ 757
$ 38
5.0 %
Bonuses
-
(15 )
(100.0 )
Equity compensation
1,905
1,770
7.6
Professional
(281 )
(44.7 )
Directors fees
(38 )
(10.4 )
Insurance
(28 )
(11.7 )
Other expenses
17.6
Total other operating expenses
$ 4,183
$ 4,283
$ (100 )
(2.3 )%
(Columns in the table above may not sum to totals due to rounding)
The decrease in Year Ended 2021 of $100,000, or 2.3%, as compared to Year Ended 2020 was primarily due to a decrease in professional fees. This aforementioned decrease was partially offset by an increase in employment costs due to an increase in equity compensation, and compensation paid pursuant to a relinquishment agreement with Dale A. Thatcher, our former Chef Executive Officer (see Note 17 to the consolidated financial statements).
Depreciation and Amortization
Depreciation and amortization was $3,290,000 in Year Ended 2021 compared to $2,865,000 in Year Ended 2020. The increase of $425,000, or 14.8%, in depreciation and amortization was primarily due to depreciation of new system platforms for policy and claims management and newly purchased assets used to upgrade our other systems.
Interest Expense
Interest expense in Year Ended 2021 and Year Ended 2020 was $1,826,000. We incurred interest expense in connection with our $30.0 million issuance of long-term debt in December 2017.
Income Tax Benefit
Income tax benefit in Year Ended 2021 was $2,031,000, which resulted in an effective tax expense rate of 21.6%. Income tax benefit in Year Ended 2020 was $2,260,000, which resulted in an effective tax expense rate of 175.5%. Loss before taxes was $9,409,000 in Year Ended 2021 compared to loss before taxes of $1,288,000 in Year Ended 2020. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, allowing for a five year carryback of 2020 and 2019 NOLs. We elected on our 2020 and 2019 federal income tax returns to carry back the entire annual 2020 NOL of $5,715,000 to tax year 2015 and to carry back the 2019 NOL of $9,737,000 to tax years 2014 and 2015. The corporate tax rate in 2014 and 2015 was 34%, compared to the corporate tax rate of 21% in 2019 and 2020. The $2,029,000 tax benefit of carrying back these NOLs to 2014 and 2015 was recognized in Year Ended 2020.
Net (Loss) Income
Net loss was $7,378,000 in Year Ended 2021 compared to net income of $972,000 in Year Ended 2020. The decrease in net income of $8,350,000 was due to the circumstances described above.
Additional Financial Information
We operate our business as one segment, property and casualty insurance. Within this segment, we offer a wide array of property and casualty policies to our producers. The following table summarizes gross and net premiums written, net premiums earned, and loss and loss adjustment expenses by major product type, which were determined based primarily on similar economic characteristics and risks of loss.
Years ended December 31,
Gross premiums written:
Personal lines
$ 171,719,993
$ 162,184,437
Livery physical damage
9,716,658
7,055,668
Other(1)
229,383
245,842
Total without commercial lines
181,666,034
169,485,947
Commercial lines (in run-off effective July 2019)(2)
(856 )
(168,043 )
Total gross premiums written
$ 181,665,178
$ 169,317,904
Net premiums written:
Personal lines(3)
$ 118,842,870
$ 120,362,688
Livery physical damage
9,716,658
7,055,668
Other(1)
196,812
218,853
Total without commercial lines
128,756,340
127,637,209
Commercial lines (in run-off effective July 2019)(2)
(856 )
(574,688 )
Total net premiums written
$ 128,755,484
$ 127,062,521
Net premiums earned:
Personal lines(3)
$ 135,738,484
$ 96,463,184
Livery physical damage
7,909,791
8,706,984
Other(1)
234,300
198,853
Total without commercial lines
143,882,575
105,369,021
Commercial lines (in run-off effective July 2019)(2)
(856 )
2,711,608
Total net premiums earned
$ 143,881,719
$ 108,080,629
Net loss and loss adjustment expenses(4):
Personal lines
$ 92,475,850
$ 56,312,702
Livery physical damage
4,235,255
2,641,801
Other(1)
1,368,343
27,425
Unallocated loss adjustment expenses
3,696,380
4,304,095
Total without commercial lines
101,775,828
63,286,023
Commercial lines (in run-off effective July 2019)(2)
196,768
3,145,049
Total net loss and loss adjustment expenses
$ 101,972,596
$ 66,431,072
Net loss ratio(4):
Personal lines
68.1 %
58.4 %
Livery physical damage
53.5 %
30.3 %
Other(1)
584.0 %
13.8 %
Total without commercial lines
70.7 %
60.1 %
Commercial lines (in run-off effective July 2019)(2)
-22986.9 %
116.0 %
Total
70.9 %
61.5 %
(1)
“Other” includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.
(2)
In July 2019, we decided that we will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.
(3)
See discussions above with regard to “Net Written Premiums and Net Premiums Earned”, as to changes in quota share ceding rates effective December 31, 2021 and 2020, December 15, 2019 and July 1, 2019.
(4)
See discussions above with regard to “Net Loss and LAE”, as to catastrophe losses in the years ended December 31, 2021 and 2020.
Insurance Underwriting Business on a Standalone Basis
Our insurance underwriting business reported on a standalone basis for the years ended December 31, 2021 and 2020 follows:
Years ended
December 31,
Revenues
Net premiums earned
$ 143,881,719
$ 108,080,629
Ceding commission revenue
89,681
14,202,353
Net investment income
6,621,392
6,504,983
Net gains on investments
9,627,948
1,549,099
Other income
849,155
970,595
Total revenues
161,069,895
131,307,659
Expenses
Loss and loss adjustment expenses
101,972,596
66,431,072
Commission expense
33,114,103
31,828,174
Other underwriting expenses
26,254,143
25,424,779
Depreciation and amortization
3,150,489
2,732,128
Total expenses
164,491,331
126,416,153
Loss (income) from operations
(3,421,436 )
4,891,506
Income tax (benefit) expense
(877,002 )
200,339
Net (loss) income
$ (2,544,434 )
$ 4,691,167
Key Measures:
Net loss ratio
70.9 %
61.5 %
Net underwriting expense ratio
40.6 %
38.9 %
Net combined ratio
111.5 %
100.4 %
Reconciliation of net underwriting expense ratio:
Acquisition costs and other underwriting expenses
$ 59,368,246
$ 57,252,953
Less: Ceding commission revenue
(89,681 )
(14,202,353 )
Less: Other income
(849,155 )
(970,595 )
Net underwriting expenses
$ 58,429,410
$ 42,080,005
Net premiums earned
$ 143,881,719
$ 108,080,629
Net Underwriting Expense Ratio
40.6 %
38.9 %
An analysis of our direct, assumed and ceded earned premiums, loss and loss adjustment expenses, and loss ratios is shown below:
Direct
Assumed
Ceded
Net
Year ended December 31, 2021
Written premiums
$ 181,665,178
$ -
$ (52,909,694 )
$ 128,755,484
Change in unearned premiums
(7,750,334 )
-
22,876,569
15,126,235
Earned premiums
$ 173,914,844
$ -
$ (30,033,125 )
$ 143,881,719
Loss and loss adjustment expenses excluding the effect of catastrophes
$ 87,308,372
$ -
$ (155,322 )
$ 87,153,050
Catastrophe loss
15,632,444
-
(812,898 )
14,819,546
Loss and loss adjustment expenses
$ 102,940,816
$ -
$ (968,220 )
$ 101,972,596
Loss ratio excluding the effect of catastrophes
50.2 %
0.0 %
0.5 %
60.6 %
Catastrophe loss
9.0 %
0.0 %
2.7 %
10.3 %
Loss ratio
59.2 %
0.0 %
3.2 %
70.9 %
Year ended December 31, 2020
Written premiums
$ 169,317,904
$ -
$ (42,255,383 )
$ 127,062,521
Change in unearned premiums
373,966
-
(19,355,858 )
(18,981,892 )
Earned premiums
$ 169,691,870
$ -
$ (61,611,241 )
$ 108,080,629
Loss and loss adjustment expenses excluding the effect of catastrophes
$ 72,841,957
$ -
$ (18,012,645 )
$ 54,829,312
Catastrophe loss
21,540,120
-
(9,938,360 )
11,601,760
Loss and loss adjustment expenses
$ 94,382,077
$ -
$ (27,951,005 )
$ 66,431,072
Loss ratio excluding the effect of catastrophes
42.9 %
0.0 %
29.2 %
50.8 %
Catastrophe loss
12.7 %
0.0 %
16.2 %
10.7 %
Loss ratio
55.6 %
0.0 %
45.4 %
61.5 %
The key measures for our insurance underwriting business for the years ended December 31, 2021 and 2020 are as follows:
Years ended
December 31,
Net premiums earned
$ 143,881,719
$ 108,080,629
Ceding commission revenue
89,681
14,202,353
Other income
849,155
970,595
Loss and loss adjustment expenses (1)
101,972,596
66,431,072
Acquisition costs and other underwriting expenses:
Commission expense
33,114,103
31,828,174
Other underwriting expenses
26,254,143
25,424,779
Total acquisition costs and other underwriting expenses
59,368,246
57,252,953
Underwriting loss
$ (16,520,287 )
$ (430,448 )
Key Measures:
Net loss ratio excluding the effect of catastrophes
60.6 %
50.8 %
Effect of catastrophe loss on net loss ratio (1)
10.3 %
10.7 %
Net loss ratio
70.9 %
61.5 %
Net underwriting expense ratio excluding the effect of catastrophes
40.6 %
38.9 %
Effect of catastrophe loss on net underwriting expense ratio
0.0 %
0.0 %
Net underwriting expense ratio
40.6 %
38.9 %
Net combined ratio excluding the effect of catastrophes
101.2 %
89.7 %
Effect of catastrophe loss on net combined ratio (1)
10.3 %
10.7 %
Net combined ratio
111.5 %
100.4 %
Reconciliation of net underwriting expense ratio:
Acquisition costs and other underwriting expenses
$ 59,368,246
$ 57,252,953
Less: Ceding commission revenue
(89,681 )
(14,202,353 )
Less: Other income
(849,155 )
(970,595 )
$ 58,429,410
$ 42,080,005
Net earned premium
$ 143,881,719
$ 108,080,629
Net Underwriting Expense Ratio
40.6 %
38.9 %
(1)
For the years ended December 31, 2021 and 2020, includes the sum of net catastrophe losses and loss adjustment expenses of $14,819,546 and $11,601,760, respectively.
Investments
Portfolio Summary
The following table presents a breakdown of the amortized cost, aggregate estimated fair value and unrealized gains and losses by investment type as of December 31, 2021 and 2020:
Available-for-Sale Securities
December 31, 2021
Cost or
Gross
Gross Unrealized Losses
Estimated
% of
Amortized
Unrealized
Less than 12
More than 12
Fair
Estimated
Category
Cost
Gains
Months
Months
Value
Fair Value
Political subdivisions of States, Territories and Possessions
$ 17,236,750
$ 246,748
$ (197,984 )
$ -
$ 17,285,514
10.9 %
Corporate and other bonds Industrial and miscellaneous
80,534,769
2,603,411
(126,926 )
-
83,011,254
52.5 %
Residential mortgage and other asset backed securities (1)
58,036,959
355,985
(489,258 )
(120,344 )
57,783,342
36.6 %
Total fixed-maturity securities
$ 155,808,478
$ 3,206,144
$ (814,168 )
$ (120,344 )
$ 158,080,110
100.0 %
December 31, 2020
Cost or
Gross
Gross Unrealized Losses
Estimated
% of
Amortized
Unrealized
Less than 12
More than 12
Fair
Estimated
Category
Cost
Gains
Months
Months
Value
Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$ 3,020,710
$ 29,190
$ -
$ -
$ 3,049,900
1.9 %
Political subdivisions of States, Territories and Possessions
5,287,561
355,541
-
-
5,643,102
3.6 %
Corporate and other bonds Industrial and miscellaneous
108,573,422
11,634,123
(13,216 )
-
120,194,329
76.3 %
Residential mortgage and other asset backed securities (1)
28,163,891
617,368
(7,371 )
(111,947 )
28,661,941
18.2 %
Total fixed-maturity securities
$ 145,045,584
$ 12,636,222
$ (20,587 )
$ (111,947 )
$ 157,549,272
100.0 %
(1)
As of December 31, 2020, KICO placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York (“FHLBNY”) see Note 9, in the accompanying consolidated financial statements following Item 16 of this Annual Report). As of December 31, 2021 KICO did not have any securities pledged to FHLBNY. The eligible collateral would be pledged to FHLBNY if KICO drew an advance from the FHLBNY credit line. As of December 31, 2020, the estimated fair value of the eligible investments was approximately $11,391,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2020, there was no outstanding balance on the FHLBNY credit line.
Equity Securities
The following table presents a breakdown of the cost, estimated fair value, and gross gains and losses of investments in equity securities as of December 31, 2021 and 2020:
December 31, 2021
Estimated
% of
Gross
Gross
Fair
Estimated
Category
Cost
Gains
Losses
Value
Fair Value
Equity Securities:
Preferred stocks
$ 22,019,509
$ 1,007,009
$ (184,617 )
$ 22,841,901
57.6 %
Common stocks and exchange traded mutual funds
15,451,160
1,573,653
(179,712 )
16,845,101
42.4 %
Total
$ 37,470,669
$ 2,580,662
$ (364,329 )
$ 39,687,002
100.0 %
December 31, 2020
Estimated
% of
Gross
Gross
Fair
Estimated
Category
Cost
Gains
Losses
Value
Fair Value
Equity Securities:
Preferred stocks
$ 18,097,942
$ 853,277
$ (426,942 )
$ 18,524,277
53.8 %
Common stocks and exchange traded mutual funds
14,473,224
1,820,512
(404,700 )
15,889,036
46.2 %
Total
$ 32,571,166
$ 2,673,789
$ (831,642 )
$ 34,413,313
100.0 %
Other Investments
Pursuant to the definition of “Fair Value Measurement,” set forth in the Accounting Standards Codification 820 “Fair Value Measurement” (“ASC 820”), an entity is permitted, as a practical expedient, to estimate the fair value of an investment within the scope of ASC 820 using the net asset value (“NAV”) per share (or its equivalent) of the investment. The following table presents a breakdown of the cost, estimated fair value, and gross gain of our other investments as of December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Gross
Estimated
Gross
Estimated
Category
Cost
Gains
Fair Value
Cost
Gains
Fair Value
Other Investments:
Hedge fund
$ 3,999,381
$ 3,562,034
$ 7,561,415
$ 1,999,381
$ 1,369,245
$ 3,368,626
Real estate limited partnership
-
-
-
150,000
-
150,000
Total
$ 3,999,381
$ 3,562,034
$ 7,561,415
$ 2,149,381
$ 1,369,245
$ 3,518,626
Held-to-Maturity Securities
The following table presents a breakdown of the amortized cost, aggregate estimated fair value and unrealized gains and losses by investment type as of December 31, 2021 and 2020:
December 31, 2021
Cost or
Gross
Gross Unrealized Losses
Estimated
% of
Amortized
Unrealized
Less than 12
More than 12
Fair
Estimated
Category
Cost
Gains
Months
Months
Value
Fair Value
Held-to-Maturity Securities:
U.S. Treasury securities
$ 729,642
$ 209,633
$ -
$ -
$ 939,275
10.7 %
Political subdivisions of States, Territories and Possessions
998,239
22,856
-
-
1,021,095
11.7 %
Exchange traded debt
304,111
(13,921 )
290,275
3.3 %
Corporate and other bonds Industrial and miscellaneous
6,234,342
280,951
(12,779 )
-
6,502,514
74.3 %
Total
$ 8,266,334
$ 513,525
$ (26,700 )
$ -
$ 8,753,159
100.0 %
December 31, 2020
Cost or
Gross
Gross Unrealized Losses
Estimated
% of
Amortized
Unrealized
Less than 12
More than 12
Fair
Estimated
Category
Cost
Gains
Months
Months
Value
Fair Value
U.S. Treasury securities
$ 729,595
$ 319,714
$ -
$ -
$ 1,049,309
12.8 %
Political subdivisions of States, Territories and Possessions
998,428
50,917
-
-
1,049,345
12.8 %
Corporate and other bonds Industrial and miscellaneous
5,640,792
455,378
-
-
6,096,170
74.4 %
Total
$ 7,368,815
$ 826,009
$ -
$ -
$ 8,194,824
100.0 %
Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum fund requirements.
A summary of the amortized cost and estimated fair value of our investments in held-to-maturity securities by contractual maturity as of December 31, 2021 and 2020 is shown below:
December 31, 2021
December 31, 2020
Amortized
Estimated
Amortized
Estimated
Remaining Time to Maturity
Cost
Fair Value
Cost
Fair Value
Less than one year
$ 994,712
$ 1,008,180
$ -
$ -
One to five years
1,205,829
1,290,465
2,598,193
2,777,936
Five to ten years
1,513,942
1,648,808
1,502,603
1,727,316
More than 10 years
4,551,851
4,805,706
3,268,019
3,689,572
Total
$ 8,266,334
$ 8,753,159
$ 7,368,815
$ 8,194,824
Credit Rating of Fixed-Maturity Securities
The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of December 31, 2021 and 2020 as rated by Standard and Poor’s (or, if unavailable from Standard and Poor’s, then Moody’s or Fitch):
December 31, 2021
December 31, 2020
Estimated
Percentage of
Estimated
Percentage of
Fair
Estimated
Fair
Estimated
Value
Fair Value
Value
Fair Value
Rating
U.S. Treasury securities
$ -
0.0 %
$ 3,049,900
1.9 %
Corporate and municipal bonds
AAA
1,321,809
0.8 %
1,453,924
0.9 %
AA
11,532,572
7.3 %
3,572,164
2.3 %
A
36,693,911
23.2 %
23,989,619
15.2 %
BBB
47,844,195
30.3 %
95,814,824
60.9 %
Non rated
1,026,001
0.6 %
1,006,901
0.6 %
Total corporate and municipal bonds
98,418,488
62.2 %
125,837,432
79.9 %
Residential mortgage backed securities
AAA
17,350,192
11.0 %
5,467,075
3.5 %
AA
34,241,907
21.7 %
18,865,749
12.0 %
A
4,053,981
2.6 %
2,451,635
1.6 %
BBB
24,254
0.0 %
50,276
0.0 %
CCC
664,628
0.4 %
960,042
0.6 %
CC
125,412
0.1 %
62,029
0.0 %
C
-
0.0 %
15,161
0.0 %
D
55,306
0.0 %
119,144
0.1 %
Non rated
3,145,942
2.0 %
670,829
0.4 %
Total residential mortgage backed securities
59,661,622
37.8 %
28,661,940
18.2 %
Total
$ 158,080,110
100.0 %
$ 157,549,272
100.0 %
The table below details the average yield by type of fixed-maturity security as of December 31, 2021 and 2020:
Category
December 31, 2021
December 31, 2020
U.S. Treasury securities and obligations of U.S. government corporations and agencies
3.06 %
2.59 %
Political subdivisions of States, Territories and Possessions
2.77 %
3.05 %
Corporate and other bonds Industrial and miscellaneous
3.23 %
3.52 %
Residential mortgage backed securities
2.77 %
1.18 %
Total
2.92 %
3.07 %
The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of December 31, 2021 and 2020:
December 31, 2021
December 31, 2020
Weighted average effective maturity
5.7
5.2
Weighted average final maturity
10.2
6.6
Effective duration
4.8
4.7
Fair Value Consideration
As disclosed in Note 4 to the condensed consolidated financial statements, with respect to “Fair Value Measurements,” we define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction involving identical or comparable assets or liabilities between market participants (an “exit price”). The fair value hierarchy distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities (“Level 2”), and unobservable inputs, including the reporting entity’s estimates of the assumption that market participants would use, having the lowest priority (“Level 3”). As of December 31, 2021 and December 31, 2020, 62% and 81%, respectively, of the investment portfolio recorded at fair value was priced based upon quoted market prices.
The table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale by length of time the security has continuously been in an unrealized loss position as of December 31, 2021 and 2020:
December 31, 2021
Less than 12 months
12 months or more
Total
Estimated
No. of
Estimated
No. of
Estimated
Fair
Unrealized
Positions
Fair
Unrealized
Positions
Fair
Unrealized
Category
Value
Losses
Held
Value
Losses
Held
Value
Losses
Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$ -
$ -
-
$ -
$ -
-
$ -
$ -
Political subdivisions of States, Territories and Possessions
6,768,123
(197,984 )
-
-
-
6,768,123
(197,984 )
Corporate and other bonds industrial and miscellaneous
17,593,707
(126,926 )
-
-
-
17,593,707
(126,926 )
Residential mortgage and other asset backed securities
45,399,451
(489,258 )
2,923,182
(120,344 )
48,322,633
(609,602 )
Total fixed-maturity securities
$ 69,761,281
$ (814,168 )
$ 2,923,182
$ (120,344 )
$ 72,684,463
$ (934,512 )
December 31, 2020
Less than 12 months
12 months or more
Total
Estimated
No. of
Estimated
No. of
Estimated
Fair
Unrealized
Positions
Fair
Unrealized
Positions
Fair
Unrealized
Category
Value
Losses
Held
Value
Losses
Held
Value
Losses
Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$ -
$ -
-
$ -
$ -
-
$ -
$ -
Political subdivisions of States, Territories and Possessions
-
-
-
-
-
-
-
-
Corporate and other bonds industrial and miscellaneous
1,006,901
(13,216 )
-
-
-
1,006,901
(13,216 )
Residential mortgage and other asset backed securities
6,137,522
(7,371 )
3,735,732
(111,947 )
9,873,254
(119,318 )
Total fixed-maturity securities
$ 7,144,423
$ (20,587 )
$ 3,735,732
$ (111,947 )
$ 10,880,155
$ (132,534 )
There were 48 securities at December 31, 2021 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. There were 16 securities at December 31, 2020 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. Significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of fair value to our cost basis.
Liquidity and Capital Resources
Cash Flows
The primary sources of cash flow are from our insurance underwriting subsidiary, KICO, and include direct premiums written, ceding commissions from our quota share reinsurers, loss recovery payments from our reinsurers, investment income and proceeds from the sale or maturity of investments. Funds are used by KICO for ceded premium payments to reinsurers, which are paid on a net basis after subtracting losses paid on reinsured claims and reinsurance commissions. KICO also uses funds for loss payments and loss adjustment expenses on our net business, commissions to producers, salaries and other underwriting expenses as well as to purchase investments and fixed assets.
For the year ended December 31, 2021, the primary source of cash flow for our holding company was the dividends received from KICO, subject to statutory restrictions. For the year ended December 31, 2021, KICO paid dividends of $3,500,000 to us.
KICO is a member of the Federal Home Loan Bank of New York (“FHLBNY”), which provides additional access to liquidity. Members have access to a variety of flexible, low cost funding through FHLBNY’s credit products, enabling members to customize advances. Advances are to be fully collateralized; eligible collateral to pledge to FHLBNY includes residential and commercial mortgage backed securities, along with U.S. Treasury and agency securities. KICO currently does not have any securities pledged to FHLBNY; as such, there were no borrowings under this facility during the years ended December 31, 2021 and 2020.
On December 19, 2017, we issued $30 million of our 5.50% Senior Unsecured Notes due December 30, 2022. As of December 31, 2021, invested assets and cash in our holding company was approximately $1,108,000. If the aforementioned sources of cash flow currently available are insufficient to cover our holding company debt service and other cash requirements, we will seek to obtain additional financing.See Notes 2 and 9 to our Consolidated Financial Statements included in this Annual Report for a discussion of our plans in this regard.
Our reconciliation of net income to net cash provided by operations is generally influenced by the collection of premiums in advance of paid losses, the timing of reinsurance, issuing company settlements and loss payments.
Cash flow and liquidity are categorized into three sources: (1) operating activities; (2) investing activities; and (3) financing activities, which are shown in the following table:
Years ended December 31,
Cash flows provided by (used in):
Operating activities
$ 24,346,237
$ (10,234,626 )
Investing activities
(15,947,862 )
581,293
Financing activities
(3,571,519 )
(3,274,410 )
Net increase (decrease) in cash and cash equivalents
4,826,856
(12,927,743 )
Cash and cash equivalents, beginning of period
19,463,742
32,391,485
Cash and cash equivalents, end of period
$ 24,290,598
$ 19,463,742
Net cash provided by operating activities was $24,346,000 in Year Ended 2021 as compared to $10,235,000 used in operating activities in Year Ended 2020. The $34,581,000 increase in cash flows provided by operating activities in Year Ended 2021 was primarily the result of an increase in cash arising from net fluctuations in assets and liabilities, partially offset by our net loss (adjusted for non-cash items) of $21,618,000. The net fluctuations in assets and liabilities are related to operating activities of KICO as affected by growth or declines in its operations, changes to its personal lines quota share, payments on claims, and other changes, which are described above.
Net cash used in investing activities was $15,948,000 in Year Ended 2021 compared to $581,000 provided by investing activities in Year Ended 2020. The $16,529,000 increase in net cash used in investing activities was the result of a $72,048,000 increase in the acquisition of invested assets, partially offset by a $56,691,000 increase in disposals of invested assets in Year Ended 2021.
Net cash used in financing activities was $3,572,000 in Year Ended 2021 compared to $3,274,000 used in Year Ended 2020. The $298,000 increase in net cash used in financing activities was attributable to a $488,000 increase in purchases of treasury stock offset by a $263,000 reduction in dividends paid in Year Ended 2021 compared to Year Ended 2020.
Reinsurance
The following table provides summary information with respect to each reinsurer that accounted for more than 10% of our reinsurance recoverables on paid and unpaid losses and loss adjustment expenses as of December 31, 2021:
Amount
Recoverable
A.M.
as of
($ in thousands)
Best Rating
December 31, 2021
%
Cavello Bay Reinsurance Ltd
A-
$ 5,379
31.4 %
Swiss Reinsurance America Corporation
A+
4,700
27.4 %
Hannover Rueck SE
A+
3,650
21.3 %
13,729
80.1 %
Others
3,405
19.9 %
Total
$ 17,134
100.0 %
Reinsurance recoverable from Cavello Bay Reinsurance Limited is secured pursuant to a collateralized trust agreement. Assets held in the trust are not included in our invested assets and investment income earned on this asset is credited to the reinsurer.
Effective December 31, 2021, we entered into a quota share reinsurance treaty for our personal lines business, which primarily consisted of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). Effective December 15, 2019, we entered into a quota share reinsurance treaty for our personal lines business covering the period from December 15, 2019 through December 30, 2020 (“2019/2020 Treaty”). Effective December 31, 2020, the 2019/2020 Treaty expired on a cut off basis; this treaty was not renewed. In addition to the 2019/2020 Treaty, our personal lines quota share reinsurance treaty in effect for Year Ended 2020 also included the run-off of the personal lines quota share treaty (“2018/2019 Treaty”) that expired on June 30, 2019. The run-off covered the period from July 1, 2019 through June 30, 2020 (“2019/2020 Run-off”).
We entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2021. Effective October 18, 2021, we entered into a stub catastrophe reinsurance treaty covering the period from October 18, 2021 through December 31, 2021. The treaty provides reinsurance coverage for catastrophe losses of $5,000,000 in excess of $5,000,000. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance treaty covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows:
Treaty Year
(2021/2023 Treaty)
(2019/2020 Treaty)
July 1,
December 31,
July 1,
December 31,
July 1,
December 15,
to
to
to
to
to
to
January 1,
June 30,
December 30,
June 30,
December 30,
June 30,
Line of Business
Personal Lines:
Homeowners, dwelling fire and and canine legal liability
Quota share treaty:
Percent ceded
30 %
30 %
None
(7)
None
(7)
25 %
25 %
Risk retained on intial $1,000,000 of losses (7) (9)
$ 700,000
$ 700,000
$ 1,000,000
$ 1,000,000
$ 750,000
$ 750,000
Losses per occurrence subject to quota share reinsurance coverage
$ 1,000,000
$ 1,000,000
None
(7)
None
(7)
$ 1,000,000
$ 1,000,000
Expiration date
January 1, 2023
January 1, 2023
NA
(7)
NA
(7)
December 30, 2020
December 30, 2020
Excess of loss coverage and facultative facility coverage (1) (9) (10)
$ 400,000
$ 8,400,000
$ 8,000,000
$ 8,000,000
$ 8,000,000
$ 9,000,000
in excess of
in excess of
in excess of
in excess of
in excess of
in excess of
$ 600,000
$ 600,000
$ 1,000,000
$ 1,000,000
$ 1,000,000
$ 1,000,000
Total reinsurance coverage per occurrence (7) (9) (10)
$ 500,000
$ 8,500,000
$ 8,000,000
$ 8,000,000
$ 8,250,000
$ 9,250,000
Losses per occurrence subject to reinsurance coverage (7) (10)
$ 1,000,000
$ 9,000,000
$ 9,000,000
$ 9,000,000
$ 9,000,000
$ 10,000,000
Expiration date
(10)
June 30, 2022
June 30, 2022
June 30, 2021
June 30, 2021
June 30, 2020
Catastrophe Reinsurance:
Initial loss subject to personal lines quota share treaty
10,000,000
10,000,000
None
(7)
None
(7)
7,500,000
7,500,000
Risk retained per catastrophe occurrence (2) (7) (11)
None
(10)
$ 7,400,000
$ 10,000,000
$ 10,000,000
$ 8,125,000
$ 5,625,000
Catastrophe loss coverage in excess of quota share coverage (3) (7)
None
(10)
$ 490,000,000
$ 490,000,000
$ 475,000,000
$ 475,000,000
$ 602,500,000
Catastrophe stub coverage for the period from October 18, 2021 through December 31, 2021 (8)
NA
NA
$ 5,000,000
NA
NA
NA
in excess of
$ 5,000,000
Reinstatement premium protection (4) (5) (6) (10)
Yes
Yes
Yes
Yes
Yes
Yes
(1)
For personal lines, includes the addition of an automatic facultative facility (“Facultative Facility”) allowing KICO to obtain homeowners single risk coverage up to $10,000,000 in total insured value, which covers direct losses from $3,500,000 to $10,000,000 through June 30, 2020. For the period July 1, 2020 through June 30, 2022, the Facultative Facility covers direct losses from $3,500,000 to $9,000,000.
(2)
Plus losses in excess of catastrophe coverage. For the period July 1, 2020 through December 30, 2020, there was no reinsurance coverage for the $2,500,000 gap between quota share limit of $7,500,000 and first $10,000,000 layer of catastrophe coverage (see note (7) below).
(3)
Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.
(4)
For the period July 1, 2019 through June 30, 2020, reinstatement premium protection for $292,500,000 of catastrophe coverage in excess of $7,500,000.
(5)
For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.
(6)
For the period July 1, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.
(7)
The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through December 30, 2021 is only for excess of loss and catastrophe reinsurance.
(8)
Excludes freeze and freeze related claims.
(9)
For the period January 1, 2022 through January 1, 2023, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty. Excludes losses from named storms.
(10)
Excess of loss and catastrophe reinsurance treaties will expire on June 30, 2022; reinsurance coverage in effect from July 1, 2022 through January 1, 2023 is only for personal lines quota share (homeowners, dwelling fire and canine legal liability) and underlying excess of loss reinsurance.
(11)
For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event.
Treaty Year
July 1, 2021
July 1, 2020
July 1, 2019
to
to
to
Line of Business
June 30, 2022
June 30, 2021
June 30, 2020
Personal Lines:
Personal Umbrella
Quota share treaty:
Percent ceded - first $1,000,000 of coverage
90 %
90 %
90 %
Percent ceded - excess of $1,000,000 dollars of coverage
95 %
95 %
100 %
Risk retained
$ 300,000
$ 300,000
$ 100,000
Total reinsurance coverage per occurrence
$ 4,700,000
$ 4,700,000
$ 4,900,000
Losses per occurrence subject to quota share reinsurance coverage
$ 5,000,000
$ 5,000,000
$ 5,000,000
Expiration date
June 30, 2022
June 30, 2021
June 30, 2020
Commercial Lines (1):
General liability commercial policies
Quota share treaty
None
None
Risk retained
$ 750,000
$ 750,000
Excess of loss coverage above risk retained
$ 3,750,000
$ 3,750,000
in excess of
in excess of
$ 750,000
$ 750,000
Total reinsurance coverage per occurrence
$ 3,750,000
$ 3,750,000
Losses per occurrence subject to reinsurance coverage
$ 4,500,000
$ 4,500,000
Commercial Umbrella
Quota share treaty
None
None
(1)
Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss.
Inflation
Premiums are established before we know the amount of losses and loss adjustment expenses or the extent to which inflation may affect such amounts. We attempt to anticipate the potential impact of inflation in establishing our reserves, especially as it relates to medical and hospital rates where historical inflation rates have exceeded the general level of inflation. Inflation in excess of the levels we have assumed could cause loss and loss adjustment expenses to be higher than we anticipated, which would require us to increase reserves and reduce earnings.
Fluctuations in rates of inflation also influence interest rates, which in turn impact the market value of our investment portfolio and yields on new investments. Operating expenses, including salaries and benefits, generally are impacted by inflation.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, or liquidity that are material to investors.
Outlook
The impacts of COVID-19 and related economic conditions on our results are highly uncertain and outside our control. The scope, duration and magnitude of the direct and indirect effects of COVID-19 are evolving rapidly and in ways that are difficult or impossible to anticipate. The impact of COVID-19 on our results for the year ended December 31, 2021 may not be indicative of its impact on our future results. For additional information on the risks posed by COVID-19, see “The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity” included in Part I, Item 1A - “Risk Factors” in this Annual Report.
Our net premiums earned may be impacted by a number of factors. Net premiums earned are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. Net written premiums from both renewal and new business are impacted by competitive market conditions as well as general economic conditions. As a result of COVID-19, economic conditions in the United States rapidly deteriorated. The decreased levels of economic activity have negatively impacted, and may continue to negatively impact, premium volumes generated by new business. We began to experience this impact in March 2020 and it became more significant in the second and third quarters of 2020. While we are now seeing a reversal of this impact, it may resume in the future, but the degree of any new impact will depend on the extent and duration of any economic contraction and could be material. We have also made underwriting changes to emphasize profitability over growth and have culled out the type of risks that do not generate an acceptable level of return. This action has led, and may continue to lead, to a slowdown in premium growth, particularly in new business.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to smaller reporting companies.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements required by this Item 8 are included in this Annual Report following Item 16 hereof. As a smaller reporting company, we are not required to provide supplementary financial information.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Changes in Internal Control over Financial Reporting
Except for the steps taken to remediate the material weakness identified below, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter to which this report relates that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of management, including our Chief Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Inherent Limitation on Effectiveness of Controls
Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Principal Financial Officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Executive Officers and Directors
The following table sets forth the positions and offices presently held by each of our current directors and executive officers and their ages:
Name
Age
Positions and Offices Held
Barry B. Goldstein
Chief Executive Officer, President, Executive Chairman of the Board and Director
Meryl S. Golden
Chief Operating Officer and Director
Sarah (Minlei) Chen
Chief Actuary, Kingstone Insurance Company
Floyd R. Tupper
Secretary and Director
William L. Yankus
Director
Carla A. D’Andre
Director
Timothy P. McFadden
Director
Barry B. Goldstein
Mr. Goldstein has served as our Chief Executive Officer and President, as well as Chief Executive Officer and President of Kingstone Insurance Company, our wholly-owned New York property and casualty insurer (“KICO”), since July 2019. He previously served as our Chief Executive Officer, President and Chairman of the Board from March 2001 through December 31, 2018 and as Chief Executive Officer and President of KICO from January 2012 through December 31, 2018. Mr. Goldstein has served as our Executive Chairman of the Board since January 1, 2019 and as one of our directors since March 2001. He served as our Chief Financial Officer from March 2001 to November 2007 and as our Treasurer from May 2001 to August 2013. Since January 2006, Mr. Goldstein has served as Chairman of the Board of KICO. He has served as Chairman of its Executive Committee since October 2019 (having previously served in such capacity from 2006 to 2018). Mr. Goldstein has served as Chief Investment Officer of KICO since August 2008. He was Treasurer of KICO from March 2010 through September 2010. Effective July 1, 2009, we acquired a 100% equity interest in KICO. Mr. Goldstein is a certified public accountant (inactive). Mr. Goldstein received his B.A. degree and M.B.A. from State University of New York at Buffalo. We believe that Mr. Goldstein’s extensive experience in the insurance industry, including his executive-level service with KICO since 2006, give him the qualifications and skills to serve as one of our directors.
Meryl S. Golden
Ms. Golden has served as our Chief Operating Officer since September 2019 and as one of our directors since March 2020. She has also served as Chief Operating Officer, a director and a member of the Executive Committee of KICO since September 2019 and as its President since October, 2021. Ms. Golden has over 25 years of experience in the insurance industry. She served as Northeast General Manager of Progressive Insurance from 2000 to 2004 (having served as Connecticut General Manager at Progressive from 1996 to 2000). Ms. Golden was Senior Vice President/General Manager at Liberty Mutual from 2005 to 2007. From 2007 to 2009, she was a Management Committee advisor to Bridgewater Associates, a hedge fund. Ms. Golden served as General Manager of North America for Earnix, a banking and insurance software company, from 2010 to 2018 and was Sales Manager, Insurance Solutions for Arity, a mobility and data analytics company founded by Allstate, from 2018 until September 2019. Ms. Golden received her B.S. degree in Accounting from the Wharton School of the University of Pennsylvania and her M.B.A. in Marketing and Finance from the University of Chicago. We believe that Ms. Golden’s executive level experience in the insurance industry gives her the qualifications and skills to serve as one of our directors.
Sarah (Minlei) Chen
Ms. Chen has served as KICO’s Chief Actuary since November 2020. From January 2018 to October 2020, she was Actuarial Manager/Senior Pricing Manager and Actuary for Homesite Insurance, a property and casualty insurance company. Ms. Chen served as Actuarial Manager of Plymouth Rock Assurance, an auto and home insurer, from November 2013 to January 2018. Ms. Chen received a B.S. degree in Mathematics from Tsinghua University and an M.S. degree in Applied Mathematics from Brown University.
Floyd R. Tupper
Mr. Tupper is a certified public accountant in New York City. For over 30 years, Mr. Tupper has counseled high-net worth individuals by creating tax planning strategies to achieve their goals as well as those of their families. He has also helped small businesses by developing business strategies to meet their current and future needs. He began his career in public accounting with Ernst & Young LLP prior to becoming self-employed. Mr. Tupper holds an M.B.A. in Taxation from the New York University Stern School of Business and a B.S. degree from New York University. Mr. Tupper served as a director of KICO from 2006 to 2018 and has served as Chairman of its Audit Committee since 2006. From 1990 until 2010, Mr. Tupper served as a Trustee of The Acorn School in New York City. He was also a member of the school’s Executive Committee and served as its Treasurer from 1990 to 2010. Mr. Tupper is a member of the American Institute of Certified Public Accountants and the New York State Society of Certified Public Accountants. He has served as one of our directors and Chairman of our Audit Committee since June 2014 and as our Secretary since June 2015. We believe that Mr. Tupper’s accounting experience, as well as his service on the Board of KICO (including his service as Chairman of its Audit Committee), give him the qualifications and skills to serve as one of our directors.
William L. Yankus
Mr. Yankus brings to the Board over 30 years’ experience in the insurance industry. Since September 2015, Mr. Yankus has provided insurance-related consulting services through Pheasant Hill Advisors, LLC. From 2011 to 2015, he was Managing Director - Investment Banking at Stern Agee where he focused on small and mid-sized insurers. Mr. Yankus served as Managing Director-Insurance Research at Fox-Pitt, Kelton from 1993 to 2009 and then as Head of Insurance Research at its successor, Macquerie, from 2009 to 2010. Mr. Yankus served as Vice President, Insurance Research at Conning & Company from 1985 to 1993. He completed the CFA program in 1989 and passed the CT uniform CPA exam in 1984. Mr. Yankus has served as one of our directors since March 2016, Chairman of our Compensation Committee since April 2017 and Chairman of our Investment Committee since February 2020. He received his B.A. degree in Economics and Accounting from The College of the Holy Cross. We believe that Mr. Yankus’ executive level experience in the insurance industry gives him the qualifications and skills to serve as one of our directors.
Carla A. D’Andre
Ms. D’Andre has more than 40 years of experience in the insurance industry. Since 2009, Ms. D’Andre has been Chairman, CEO and President of D’Andre Insurance Group, Inc., which she co-founded. D’Andre Insurance Group, Inc. is the parent of two independent insurance agencies. Prior to co-founding D’Andre Insurance Group, Ms. D’Andre held executive-level roles at several companies in the insurance industry, including Executive Vice President, Head - Global Corporate Practice and Member - Partner’s Council at Willis Group Holdings plc, a multinational risk advisor, insurance brokerage and reinsurance brokerage company; Managing Director and Strategic Account Manager at AON Risk Services, a global provider of risk management solutions; Chief Operating Officer at XL Capital’s insurance and technology start-up firm, Inquis Logic Inc.; Member of Senior Management and Managing Director of Swiss Re New Markets and Director of Alternative Markets at Swiss ReAmerica, affiliates of Swiss Reinsurance Company Ltd, a global reinsurance company; Senior Vice President of Sedgwick North America, an insurance brokerage firm; and Vice President of Johnson & Higgins, an insurance brokerage firm. Ms. D’Andre serves in senior capacities in several insurance industry groups. In January 2019 she was elected by her peers to a three-year term as a member of The Institutes’ CPCU Society Leadership Council. She also serves as a member of the Executive Advisory Council of St. John’s University School of Risk Management, Insurance and Actuarial Science. She has served as one of our directors since May 2017 and currently serves as Chair of our Finance Committee. Ms. D’Andre has an M.B.A. from Pace University’s Lubin School of Business and a B.B.A. degree from St. John’s University’s School of Risk Management, Insurance and Actuarial Science. We believe that Ms. D’Andre’s extensive experience in multiple capacities in the insurance industry gives her the qualifications and skills to serve as one of our directors.
Timothy P. McFadden
Mr. McFadden has more than 30 years of experience in the insurance industry. Since 2012, Mr. McFadden has served as CEO and President of State Farm Indemnity Auto Insurance Company and Senior Vice President of State Farm Insurance, Eastern Market Area. Since 2015, he has also served as CEO and President of State Farm Florida Fire Company. Mr. McFadden served as Senior Vice President of State Farm Insurance Companies, Southern Zone from 2008 to 2011 and Senior Vice President of State Farm Insurance Companies, Southern & Mid Atlantic Zones from 2011 to 2013. Prior to joining the insurance industry, he was a Captain in the United States Army. Mr. McFadden is a member of Stetson University’s College of Law Board of Overseers. He formerly served as a member of the Board of State Farm Indemnity Auto Insurance Company, Local Initiatives Support Corporation, American College Ethics Board, State Farm Florida Fire Company, Top Layer Reinsurance and Florida Council of 100. Mr. McFadden received his B.S. degree from the United States Military Academy at West Point and his J.D. from Stetson College of Law. He also completed the General Management Program at Harvard Business School and received his Chartered Life Underwriter Designation from The American College of Financial Services. Mr. McFadden has served as one of our directors and Chair of our Nominating and Corporate Governance Committee since August 2018. We believe that Mr. McFadden’s executive level experience in the insurance industry gives him the qualifications and skills to serve as one of our directors.
Family Relationships
There are no family relationships among any of our executive officers and directors; however, see Item 13 (“Certain Relationships and Related Transactions, and Director Independence - Other”) of this Annual Report.
Term of Office
Each director will hold office until the next annual meeting of stockholders and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Each executive officer will hold office until the initial meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is elected and qualified or until his or her earlier resignation or removal.
Audit Committee
The Audit Committee of the Board of Directors is responsible for overseeing our accounting and financial reporting processes and the audits of our financial statements. The members of the Audit Committee are Messrs. Tupper, Yankus and McFadden.
Audit Committee Financial Expert
Our Board of Directors has determined that Mr. Tupper qualifies as an “audit committee financial expert,” as that term is defined in Item 407(d)(5) of Regulation S-K. Mr. Tupper is an “independent director” based on the definition of independence in Listing Rule 5605(a)(2) of The Nasdaq Stock Market.
Delinquent Section 16(a) Reports
Section 16 of the Exchange Act requires that reports of beneficial ownership of common stock and changes in such ownership be filed with the SEC by Section 16 “reporting persons,” including directors, certain officers, holders of more than 10% of the outstanding common stock and certain trusts of which reporting persons are trustees. We are required to disclose in this Annual Report each reporting person whom we know to have failed to file any required reports under Section 16 on a timely basis during the fiscal year ended December 31, 2021. To our knowledge, based solely on a review of copies of Forms 3, 4 and 5 filed with the SEC and written representations that no other reports were required, during the fiscal year ended December 31, 2021, our officers, directors and 10% stockholders complied with all Section 16(a) filing requirements applicable to them, except that Richard Swartz, our Chief Accounting Officer, filed one Form 4 late, reporting one transaction, and Sarah (Minlei) Chen, KICO’s Chief Actuary, filed one Form 4 late, reporting one transaction.
Code of Ethics; Officer and Director Trading Restrictions Policy
Our Board of Directors has adopted a Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our Board of Directors has also adopted an Officer and Director Trading Restrictions Policy for our officers and directors as well as the officers and directors of KICO. Copies of the Code of Ethics and Officer and Director Trading Restrictions Policy are posted on our website, www.kingstonecompanies.com. We intend to satisfy the disclosure requirement under Item 5.05(c) of Form 8-K regarding an amendment to, or a waiver from, our Code of Ethics or Officer and Director Trading Restrictions Policy by posting such information on our website, www.kingstonecompanies.com.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth certain information concerning the compensation for the fiscal years ended December 31, 2021 and 2020 for certain executive officers, including our Chief Executive Officer:
Name and Principal Position
Year
Salary
Bonus
Stock
Awards(1)
Option Awards(1)
Non-Equity
Incentive Plan
Compensation
All Other
Compensation
Total
Barry B. Goldstein
$ 500,000
$ -
$ 1,386,500 (2)
$ -
$ -
$ 34,935 (6)
$ 1,921,435
Chief Executive Officer; Executive Chairman of the Board
$ 500,000
$ -
$ 1,386,500 (3)
$ -
$ -
$ 32,609 (7)
$ 1,919,109
Meryl S. Golden
$ 500,000
$ -
$ 211,020 (4)
$ -
$ -
$ 23,600 (8)
$ 734,620
Chief Operating Officer; President, Kingstone Insurance Company
$ 500,000
$ 73,646
$ -
$ -
$ -
$ 23,400 (9)
$ 597,046
Sarah (Minlei) Chen
$ 267,515
$ 40,000
$ 36,520 (5)
$ -
$ -
$ 6,588 (10)
$ 350,623
Chief Actuary, Kingstone Insurance Company
______________
(1)
Amounts reflect the aggregate grant date fair value of grants made in each respective fiscal year computed in accordance with stock-based accounting rules (FASB ASC Topic 718-Stock Compensation), excluding the effect of estimated forfeitures. Assumptions used in the calculations of these amounts are included in Note 12 to our Consolidated Financial Statements included in this Annual Report.
(2)
In January 2021, Mr. Goldstein was granted an aggregate of 251,769 shares of restricted common stock under the 2014 Plan. Such grant vested to the extent of 125,885 shares as of the first anniversary of the date of grant and vests to the extent of 125,884 shares as of December 31, 2022. See “Termination of Employment and Change-in-Control Arrangements - Barry B. Goldstein” below for a discussion of certain provisions relating to the restricted stock granted to Mr. Goldstein.
(3)
In January 2020, Mr. Goldstein was granted an aggregate of 174,622 shares of restricted common stock under the 2014 Plan. Such grant vested to the extent of 58,208 shares as of the first anniversary of the date of grant and vests to the extent of 58,207 shares as of each of the second anniversary of the date of grant and December 31, 2022. See “Termination of Employment and Change-in-Control Arrangements - Barry B. Goldstein” below for a discussion of certain provisions relating to the restricted stock granted to Mr. Goldstein.
(4)
In January 2021, Ms. Golden was granted 30,000 shares of restricted common stock under the 2014 Plan. Such grant vested to the extent of 10,000 shares as of the first anniversary of the date of grant and vests to the extent of 10,000 shares as of each of the second and third anniversaries of the date of grant. See “Termination of Employment and Change-in-Control Arrangements - Meryl Golden” below for a discussion of certain provisions relating to the restricted stock granted to Ms. Golden.
(5)
In January 2021, Ms. Chen was granted 3,572 shares of restricted common stock under our 2014 Plan. Such grant vested to the extent of 1,191 shares as of the first anniversary of the date of grant and vests to the extent of 1,191 and 1,190 shares as of the second and third anniversaries of the date of grant, respectively. In addition, in December 2021, Ms. Chen was granted 2,400 shares of restricted stock under our 2014 Plan. Such grant vests to the extent of 800 shares as of each of the first, second and third anniversaries of the date of grant.
(6)
Represents employer matching contributions under our deferred compensation plan of $11,335, employer matching contributions under our defined contribution plan of $11,600 and a car allowance of $12,000.
(7)
Represents employer matching contributions under our deferred compensation plan of $11,909, employer matching contributions under our defined contribution plan of $8,700 and a car allowance of $12,000.
(8)
Represents employer matching contributions under our defined contribution plan of $11,600 and a car allowance of $12,000.
(9)
Represents employer matching contributions under our defined contribution plan of $11,400 and a car allowance of $12,000.
(10)
Represents employer matching contributions under our defined contribution plan.
Employment Contracts
Barry B. Goldstein
On October 14, 2019, we entered into a second amended and restated employment agreement with Mr. Goldstein which took effect as of January 1, 2020 and expires on December 31, 2022 (the “Second Amended and Restated Goldstein Employment Agreement”).
Pursuant to the Second Amended and Restated Goldstein Employment Agreement, Mr. Goldstein is entitled to receive an annual base salary of $500,000 and an annual bonus equal to 6% of our consolidated income from operations before taxes, exclusive of our consolidated net investment income (loss), net unrealized gains (losses) on equity securities and net realized gains (losses) on investments, up to a maximum of 2.5 times his base salary. In addition, pursuant to the Second Amended and Restated Goldstein Employment Agreement, Mr. Goldstein is entitled to receive a long-term compensation (“LTC”) payment of between $945,000 and $2,835,000 based on a specified minimum increase in our adjusted book value per share (as defined in the Second Amended and Restated Goldstein Employment Agreement) as of December 31, 2022 as compared to December 31, 2019 (with the maximum LTC payment being due if the average per annum increase is at least 14%).
Pursuant to the Second Amended and Restated Goldstein Employment Agreement, Mr. Goldstein received a grant, under the terms of the 2014 Plan, during January 2020, of a number of shares of restricted stock determined by dividing $1,250,000 by the fair market value of our common stock on the date of grant. The January 2020 grant vested with respect to one-third of the award on each of the first and second anniversaries of the grant date and will vest with respect to one-third of the award on December 31, 2022 based on the continued provision of services through such date. Also pursuant to the Second Amended and Restated Goldstein Employment Agreement, Mr. Goldstein received a grant, under the terms of the 2014 Plan, during January 2021, of a number of shares of restricted stock determined by dividing $1,500,000 by the fair market value of our common stock on the date of grant. The January 2021 grant vested with respect to one-half of the award on the first anniversary of the grant date and will vest with respect to one-half of the award on December 31, 2022 based on the continued provision of services such date. Further, pursuant to the Second Amended and Restated Goldstein Employment Agreement, Mr. Goldstein received in 2020, 2021 and 2022 a grant, under the terms of the 2014 Plan, of a number of shares of restricted stock determined by dividing $136,500 by the fair market value of our common stock on the date of grant. The 2020 grant vested with respect to one-third of the award on each of the first and second anniversaries of the grant date and will vest with respect to one-third of the award on December 31, 2022 based on the continued provision of services through such date. The 2021 grant vested with respect to one-half of the award on the first anniversary of the grant date and will vest with respect to one-half of the award on December 31, 2022 based on the continued provision of services through such date. The 2022 grant will vest on December 31, 2022 based on the continued provision of services through such date.
See “Termination of Employment and Change-in-Control Arrangements - Barry B. Goldstein” below for a discussion of the provisions of the Second Amended and Restated Goldstein Employment Agreement with regard to payments due in the event of the termination of Mr. Goldstein’s employment.
Meryl S. Golden
We and Ms. Golden are parties to an employment agreement dated as of August 27, 2019 (as amended, the “Golden Employment Agreement”). Pursuant to the Golden Employment Agreement, which expires on December 31, 2022, Ms. Golden serves as our Chief Operating Officer and is entitled to receive an annual base salary of $500,000. In addition, pursuant to the Golden Employment Agreement and the 2014 Plan, in September 2019, Ms. Golden was granted an option to purchase 50,000 shares of common stock which has vested to the extent of 12,500 shares on each of the date of grant and each of the first and second anniversaries of the date of grant and will vest to the extent of 12,500 shares on the third anniversary of the date of grant. Further, pursuant to the Golden Employment Agreement and the 2014 Plan, in each of January 2021 and January 2022, Ms. Golden was granted 30,000 shares of restricted stock. Each such grant vests to the extent of 10,000 shares on each of the first, second and third anniversaries of the date of grant.
See “Termination of Employment and Change-in-Control Arrangements - Meryl S. Golden” below for a discussion of the provisions of the Golden Employment Agreement with regard to payments due in the event of the termination of Ms. Golden’s employment.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth certain information concerning exercisable and unexercisable stock options and unvested stock grants held by the above Named Executive Officers as of December 31, 2021:
Option Awards
Stock Awards
Name
Number of Securities Underlying
Unexercised
Options
Exercisable
Number of Securities Underlying Unexercised Options Unexercisable
Option
Exercise Price
Option Expiration Date
Number of Shares of
Stock
That Have Not Vested
Market
Value of Shares of Stock That Have Not Vested
Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares That Have Not Vested
Barry B. Goldstein
-
-
-
-
368,183 (1)
$ 1,840,915
-
$ -
Meryl S. Golden
37,500
12,500 (2)
$ 8.72
9/25/24
32,400 (3)
$ 162,000
-
$ -
Sarah (Minlei) Chen
-
-
-
-
8,836 (4)
$ 44,180
-
$ -
_____________________
(1)
Such shares vested to the extent of 58,207 shares on January 3, 2022 and 125,885 shares on January 4, 2022 and will vest to the extent of 184,091 shares on December 31, 2022.
(2)
Such option is exercisable on September 25, 2022.
(3)
Such shares vested to the extent of 10,000 shares on January 4, 2022 and will vest to the extent of 10,000 shares on each of January 4, 2023 and 2024 and 800 shares on each of December 13, 2022, 2023 and 2024.
(4)
Such shares vested to the extent of 1,191 shares on January 28, 2022 and will vest to the extent of 1,432 shares on each of November 2, 2022 and 2023, 1,191 shares on January 28, 2023, 1,190 shares on January 28, 2024 and 800 shares on each of December 13, 2022, 2023 and 2024.
Termination of Employment and Change-in-Control Arrangements
Barry B. Goldstein
Pursuant to the Second Amended and Restated Goldstein Employment Agreement, in the event that Mr. Goldstein’s employment is terminated by us without cause or he resigns for good reason (each as defined in the Second Amended and Restated Goldstein Employment Agreement), Mr. Goldstein would be entitled to receive his annual base salary, bonus and LTC payment for the remainder of the term. In addition, in the event of Mr. Goldstein’s death, his estate would be entitled to receive his annual base salary, accrued bonus and accrued LTC payment through the date of death. Further, in the event that Mr. Goldstein’s employment is terminated by us without cause or he resigns for good reason, or, in the event of the termination of Mr. Goldstein’s employment due to disability or death, Mr. Goldstein’s granted but unvested restricted stock awards will vest.
Mr. Goldstein would be entitled to receive, under certain circumstances, a payment equal to 3.82 times his then annual base salary, the target LTC payment of $1,890,000 and his accrued bonus in the event of the termination of his employment within eighteen months following a change of control of our company.
Meryl S. Golden
Pursuant to the Golden Employment Agreement, in the event that Ms. Golden’s employment is terminated by us without cause or she resigns for good reason (each as defined in the Golden Employment Agreement), Ms. Golden would be entitled to receive her annual base salary for the remainder of the term or for twelve months, whichever is sooner. In addition, pursuant to the 2014 Plan, in the event of a termination of employment due to the death or disability of Ms. Golden or following a change of control of our company, the option and stock grants scheduled to vest on the next vesting date following such event shall vest under certain circumstance notwithstanding such event. Further, in the event that Ms. Golden’s employment is terminated by us without cause or she resigns for good reason, Ms. Golden’s granted but unvested restricted stock awards will vest.
Ms. Golden would be entitled to receive, under certain circumstances, a payment equal to 1.5 times her then annual base salary in the event of the termination of her employment within eighteen months following a change in control of our company.
Compensation of Directors
The following table sets forth certain information concerning the compensation of our non-employee directors for the fiscal year ended December 31, 2021:
DIRECTOR COMPENSATION
Name
Fees Earned
or
Paid in Cash
Stock
Awards(1)
Option
Awards
Total
William L. Yankus
$ 83,000
$ 40,000
$ -
$ 123,000
Floyd R. Tupper
$ 88,000
$ 40,000
$ -
$ 128,000
Carla A. D’Andre
$ 78,000
$ 40,000
$ -
$ 118,000
Timothy P. McFadden
$ 78,000
$ 40,000
$ -
$ 118,000
(1)
Amounts reflect the aggregate grant date fair value of grants made in the fiscal year computed in accordance with stock-based accounting rules (FASB ASC Topic 718-Stock Compensation), excluding the effect of estimated forfeitures. Assumptions used in the calculations of these amounts are included in Note 12 to our consolidated financial statements included in this Annual Report. The aggregate number of unvested restricted stock awards outstanding as of fiscal year end for each non-employee director is as follows:
Name
Unvested Restricted
Stock Awards (#)
Floyd R. Tupper
6,154
William L. Yankus
6,154
Carla A. D’Andre
6,154
Timothy P. McFadden
6,154
Our non-employee directors are entitled to receive annual compensation for their services as directors as follows:
·
$63,000;
·
an additional $25,000 for service as audit committee chair, an additional $20,000 for service as compensation committee chair, an additional $10,000 for service as investment committee chair, and an additional $15,000 for service as chair of other committees; and
·
$40,000 of our common stock determined by the closing stock price on the first business day of the year, which vest on the first anniversary of the grant date.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security Ownership
The following table sets forth certain information as of March 21, 2022 regarding the beneficial ownership of our shares of common stock by (i) each person who we believe to be the beneficial owner of more than 5% of our outstanding shares of common stock, (ii) each present director, (iii) each Named Executive Officer and (iv) all of our present executive officers and directors as a group.
Name and Address
of Beneficial Owner
Number of Shares
Beneficially Owned
Approximate
Percent of Class
Barry B. Goldstein
15 Joys Lane
Kingston, New York
832,076 (1)
7.8 %
Floyd R. Tupper
79,576 (2)
*
Meryl S. Golden
47,500 (3)
*
William L. Yankus
29,945
*
Carla A. D’Andre
28,095 (4)
*
Timothy P. McFadden
27,740
*
Sarah (Minlei) Chen
1,578
*
The TCW Group, Inc.
on behalf of the TCW Business Unit
865 South Figueroa Street
Los Angeles, California
743,903 (5)
7.0 %
Michael Doak
Griffin Highline Capital LLC
4514 Cole Avenue
Dallas, Texas
595,238 (6)
5.6 %
Punch & Associates
Investment Management, Inc.
7701 France Avenue South, Suite 300
Edina, Minnesota
584,000
5.5 %
All executive officers and directors as a group (6 persons)
1,046,510 (1)(2)(3)(4)
9.8 %
_______________
*
Less than 1%.
(1)
The information regarding Mr. Goldstein is based solely on publicly available information filed with the SEC. Includes (i) 73,168 shares of common stock owned by Mr. Goldstein’s wife and (ii) 15,000 shares held in a retirement trust for the benefit of Mr. Goldstein. Mr. Goldstein has sole voting and dispositive power over 758,908 shares of common stock and shared voting and dispositive power over 73,168 shares of common stock. The inclusion of the shares owned by Mr. Goldstein’s wife and the retirement trust shall not be construed as an admission that Mr. Goldstein is, for purposes of Section 13(d) or 13(g) of the Exchange Act, the beneficial owner of such shares.
(2)
Includes (i) 32,395 shares owned by Mr. Tupper’s wife (ii) 6,675 shares held in a retirement trust for the benefit of Mr. Tupper and (iii) 810 shares held in a retirement trust for the benefit of Mr. Tupper’s wife. Mr. Tupper has sole voting and dispositive power over 46,371 shares of common stock and shared voting and dispositive power over 33,205 shares of common stock. The inclusion of the shares owned by Mr. Tupper’s wife and the retirement trusts for the benefit of Mr. Tupper and his wife shall not be construed as an admission that Mr. Tupper is, for purposes of Section 13(d) or 13(g) of the Exchange Act, the beneficial owner of such shares.
(3)
Includes 37,500 shares issuable upon the exercise of options that are exercisable currently.
(4)
Includes (i) 1,400 shares held in a retirement trust for the benefit of Ms. D’Andre and (ii) 10,000 shares held in a retirement trust for the benefit of Ms. D’Andre’s husband. Ms. D’Andre has sole voting and dispositive power over 18,095 shares of common stock and shared voting and dispositive power over 10,000 shares of common stock. The inclusion of the shares owned by the retirement trust for the benefit of Ms. D’Andre’s husband shall not be construed as an admission that Ms. D’Andre is, for purposes of Section 13(d) or 13(g) of the Exchange Act, the beneficial owner of such shares.
(5)
The information regarding The TCW Group, Inc. on behalf of the TCW Business Unit is based solely on Amendment No. 2 to Schedule 13G filed by such reporting person with the SEC on February 9, 2022 (the “TCW 13G/A”). According to the TCW 13G/A, such reporting person has shared voting and dispositive power over the 743,903 shares of common stock.
(6)
The information regarding Michael Doak (“Doak”) and Griffin Highline Capital LLC (“Griffin”) is based solely on Amendment No. 1 to Schedule 13D filed by such reporting persons with the SEC on January 19, 2022 (the “Doak/Griffin 13D/A”). According to the Doak/Griffin 13D/A, each of Doak and Griffin has shared voting and dispositive power over the 595,238 shares of common stock.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth information as of December 31, 2021 with respect to compensation plans (including individual compensation arrangements) under which our common stock is authorized for issuance, aggregated as follows:
·
All compensation plans previously approved by security holders; and
·
All compensation plans not previously approved by security holders.
EQUITY COMPENSATION PLAN INFORMATION
Number of securities to be issued upon exercise of outstanding
options,
warrants and
rights
Weighted
average exercise price of
outstanding
options,
warrants and
rights
Number of securities remaining
available for
future issuance under equity compensation
plans (excluding securities
reflected in
column (a))
(a)
(b)
(c)
Equity compensation plans approved by security holders
107,201
$ 8.31
1,069,305 (1)
Equity compensation plans not approved by security holders
-
-
-
Total
107,201
$ 8.31
1,069,305
(1)
Includes 628,531 shares reserved for issuance pursuant to unvested restricted stock grants.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Director Independence
Board of Directors
Our Board of Directors is currently comprised of Barry B. Goldstein, Floyd R. Tupper, William L. Yankus, Carla A. D’Andre, Timothy P. McFadden and Meryl S. Golden. Our board of directors has determined that each of Messrs. Tupper, Yankus and McFadden and Ms. D’Andre is independent under applicable Nasdaq listing standards and federal securities rules and regulations.
Audit Committee
The members of our Board’s Audit Committee currently are Messrs. Tupper, Yankus and McFadden, each of whom is independent under applicable Nasdaq listing standards and federal securities rules and regulations on independence of Audit Committee members.
Nominating and Corporate Governance Committee
The members of our Board’s Nominating and Corporate Governance Committee currently are Messrs. McFadden and Tupper and Ms. D’Andre, each of whom is independent under applicable Nasdaq listing standards and federal securities rules and regulations on independence.
Compensation Committee
The members of our Board’s Compensation Committee currently are Messrs. Yankus and Tupper and Ms. D’Andre, each of whom is independent under applicable Nasdaq listing standards and federal securities rules and regulations on independence.
Victor Brodsky
In connection with the cessation of employment of Victor Brodsky as our Chief Financial Officer effective September 30, 2020 (the “Brodsky Separation Date”), we entered into an Agreement and General Release (the “Brodsky Separation Agreement”) with Mr. Brodsky. Pursuant to the Brodsky Separation Agreement, we agreed to provide the following payments and benefits to Mr. Brodsky in full satisfaction of all payments and benefits and other amounts due to him upon his cessation of employment: (i) $155,969 (representing five months of base salary); (ii) continuing group health coverage commencing on October 1, 2020 and ending no later than February 28, 2021; and (iii) continued vesting of all granted but unvested stock and option awards as if Mr. Brodsky had remained in our employ.
Benjamin Walden
In connection with the cessation of employment of Benjamin Walden as Executive Vice President and Chief of Actuary of KICO effective September 30, 2020 (the “Walden Separation Date”), we entered into an Agreement and General Release (the “Walden Separation Agreement”) with Mr. Walden. Pursuant to the Walden Separation Agreement, we agreed to provide the following payments and benefits to Mr. Walden in full satisfaction of all payments and benefits and other amounts due to him upon his cessation of employment: (i) an amount equal to the base salary he would have received had he remained employed through November 30, 2020 (with an extension thereof to December 31, 2020 under certain circumstances); (ii) continuing group health coverage commencing on the Walden Separation Date and ending no later than December 31, 2020; and (iii) the grant to Mr. Walden of an option to purchase 19,207 shares of common stock, which option vests two years from the date of grant.
Other
The daughter of Barry Goldstein, Amanda Rofsky, is employed as our Investor Relations Director and serves as Vice President of Cosi Agency, Inc., one of our subsidiaries. For the fiscal year ended December 31, 2021, she earned $166,188 in compensation.
Related Party Transactions
Due to the infrequency of related party transactions, we have not formally adopted procedures for the review of, or standards for approval of, such transactions; however, our Board of Directors (or a designated committee thereof) will review related party transactions on a case-by-case basis.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following is a summary of the fees billed to us by Marcum LLP, our independent auditors, for professional services rendered for the fiscal years ended December 31, 2021 and 2020.
Fee Category
Fiscal 2021
Fees
Fiscal 2020
Fees
Audit Fees(1)
$ 308,350
$ 241,535
Tax Fees(2)
$ -
$ -
Audit-Related Fees(3)
$ -
$ -
All Other Fees(4)
$ -
$ -
$ 308,350
$ 241,535
(1)
Audit Fees consist of fees billed for services rendered for the audit of our consolidated financial statements and review of our condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q, services rendered in connection with the filing of Form S-8, and services provided in connection with other statutory or regulatory filings.
(2)
Marcum did not provide any tax services during the fiscal year.
(3)
Marcum did not provide any “Audit-Related” services during the fiscal year.
(4)
Marcum did not provide any other services during the fiscal year.
The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent auditors and approves in advance any services to be performed by the independent auditors, whether audit-related or not. The Audit Committee reviews each proposed engagement to determine whether the provision of services is compatible with maintaining the independence of the independent auditors. Substantially all of the fees shown above were pre-approved by the Audit Committee.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number
Description of Exhibit
3(a)
Restated Certificate of Incorporation, as amended (incorporated by reference to Exhibit 3(a) to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2014 filed on May 15, 2014).
3(b)
By-laws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 9, 2009).
4(a)
Indenture, dated as of December 19, 2017, between Kingstone Companies, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 20, 2017).
4(b)
First Supplemental Indenture, dated as of December 19, 2017, between Kingstone Companies, Inc. and Wilmington Trust, National Association (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on December 20, 2017).
4(c)
Form of Global Note representing $30,000,000 aggregate principal amount of 5.50% Senior Unsecured Notes due 2022 (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K filed on December 20, 2017).
10(a)
Amended and Restated 2014 Equity Participation Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 1, 2020).
10(b)
Second Amended and Restated Employment Agreement, dated October 14, 2019, by and between Kingstone Companies, Inc. and Barry B. Goldstein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 18, 2019).
10(c)
Stock Grant Agreement, dated as of January 3, 2020, between Kingstone Companies, Inc. and Barry B. Goldstein (157,431 shares) (incorporated by reference to Exhibit 10(c) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020).
10(d)
Stock Grant Agreement, dated as of January 3, 2020, between Kingstone Companies, Inc. and Barry B. Goldstein (17,191 shares) (incorporated by reference to Exhibit 10(d) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed on March 16, 2020).
10(e)
Stock Grant Agreement, dated as of January 4, 2021, between Kingstone Companies, Inc. and Barry B. Goldstein (230,769 shares).*
10(f)
Stock Grant Agreement, dated as of January 4, 2021, between Kingstone Companies, Inc. and Barry B. Goldstein (21,000 shares).*
10(g)
Stock Grant Agreement, dated as of January 3, 2022, between Kingstone Companies, Inc. and Barry B. Goldstein.*
10(h)
Employment Agreement, dated as of August 27, 2019, by and between Kingstone Companies, Inc. and Meryl S. Golden (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on September 17, 2019).
10(i)
Stock Grant Agreement, dated as of January 4, 2021, between Kingstone Companies, Inc. and Meryl S. Golden.*
10(j)
Stock Grant Agreement, dated as of January 3, 2022, between Kingstone Companies, Inc. and Meryl S. Golden.*
10(k)
Deferred Compensation Plan, dated as of June 18, 2018 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 20, 2018).
Subsidiaries (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 filed on March 16, 2017).
Consent of Marcum LLP.*
31(a)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31(b)
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS
XBRL Instance Document.*
101.SCH
101.SCH XBRL Taxonomy Extension Schema.*
101.CAL
101.CAL XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF
101.DEF XBRL Taxonomy Extension Definition Linkbase.*
101.LAB
101.LAB XBRL Taxonomy Extension Label Linkbase.*
101.PRE
101.PRE XBRL Taxonomy Extension Presentation Linkbase.*
*Filed herewith
**Furnished herewith