kins_10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark one)

☒

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

For the fiscal year ended December 31, 2023

☐

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

For the transition period from _________to _________

Commission File Number 0-1665

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware

36-2476480

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

15 Joys Lane

Kingston, NY 12401

(Address of principal executive offices)

(845) 802-7900

(Registrant’s telephone number, including area code)

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

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

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

None

(Title of each class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Note – Checking the box above will not relieve any registrant required to ﬁle reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Persons who respond to the collection of information contained in this form are not

required to respond unless the form displays a currently valid OMB control number.

SEC 1673 (04-20)

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

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

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

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to the previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10-D1(b). ☐

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

As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $11,334,362 based on the closing sale price as reported on the Nasdaq Capital Market.

Note.—If a determination as to whether a particular person or entity is an aﬃliate cannot be made without involving unreasonable eﬀort and expense, the aggregate market value of the common stock held by non-aﬃliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form.

APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has ﬁled all documents and reports required to be ﬁled by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan conﬁrmed by a court. Yes ☐ No ☐

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of March 21, 2024, there were 11,007,824 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

INDEX

		Page No.
Forward-Looking Statements		3

PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	21
Item 1B.	Unresolved Staff Comments.	32
Item 1C.	Cybersecurity.	32
Item 2.	Properties.	34
Item 3.	Legal Proceedings.	34
Item 4.	Mine Safety Disclosures.	34

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	35
Item 6.	Reserved.	36
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	71
Item 8.	Financial Statements and Supplementary Data.	71
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	71
Item 9A.	Controls and Procedures.	72
Item 9B.	Other Information.	72
Item 9C.	Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.	72

PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	73
Item 11.	Executive Compensation.	78
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	83
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	85
Item 14.	Principal Accountant Fees and Services.	86

PART IV
Item 15.	Exhibits and Financial Statement Schedules.	87
Item 16.	Form 10-K Summary.	89
Signatures		90

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PART I

Forward-Looking Statements

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

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

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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 through our wholly-owned subsidiary, Kingstone Insurance Company (“KICO”). KICO is a New York domiciled carrier writing business through retail and wholesale agents and brokers. KICO is actively writing personal lines and commercial auto insurance in New York, and in 2023 was the 15th largest writer of homeowners insurance in New York. KICO is also licensed in the states of New Jersey, Rhode Island, Massachusetts, Connecticut, Pennsylvania, New Hampshire, and Maine. For the years ended December 31, 2023 and 2022, respectively, 88.3% and 80.6% of KICO’s direct written premiums came from the New York policies. We refer to our New York business as our “Core” business and the business outside of New York as our “non-Core” business.

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 2023*

	·	Catastrophe Reinsurance Coverage

Effective July 1, 2023, KICO decreased the top limit of its catastrophe reinsurance coverage from $345,000,000 to $325,000,000, which, at the time, equated to more than a 1-in-100 year storm event according to the primary industry catastrophe model that we follow.

A.M. Best Rating

On July 6, 2023, A.M. Best withdrew KICO’s ratings as KICO requested to no longer participate in A.M. Best’s interactive rating process.

Withdrawal from New Jersey

On October 2, 2023, the New Jersey Department of Banking & Insurance acknowledged KICO’s request to withdraw from the state effective January 1, 2024. The Department requested that KICO complete the withdrawal over a two year period.

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	*Developments During 2022*

	·	Debt Exchange

On December 9, 2022, we entered into a Note and Warrant Exchange Agreement (the “Exchange Agreement”) with several holders (the “Exchanging Noteholders”) of our outstanding 5.50% Senior Notes due 2022 (the “2017 Notes”). On the date of the Exchange Agreement, the Exchanging Noteholders held 2017 Notes in the aggregate principal amount of $21,545,000 of the $30,000,000 aggregate principal amount of 2017 Notes then outstanding.

Catastrophe Reinsurance Coverage

Effective July 1, 2022, KICO decreased the top limit of its catastrophe reinsurance coverage from $500,000,000 to $345,000,000, which, at the time, equated to more than a 1-in-100 year storm event according to the primary industry catastrophe model that we follow.

A.M. Best Rating

In July 2022, A.M. Best downgraded KICO’s financial strength rating from B+ (Good) to B (Fair) and Long-Term Issuer Credit Rating (ICR) from “bbb-” (Good) to “bb” (Fair) due to a significant deterioration in KICO’s risk-adjusted capitalization. Such deterioration was driven by a sizeable increase in KICO’s net probable maximum loss (“PML”) as a result of its latest reinsurance renewal and a decline in surplus from weather-related losses and dividend payments by KICO in 2022. The outlook for each of these credit ratings was revised to “negative” from “stable”. Concurrently, A.M. Best’s public rating for Kingstone Companies, Inc. was withdrawn.

(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.

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We derive substantially all of our revenue from KICO, including 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 insurance claims. During this time, KICO invests the premiums, earning investment income and generating net realized and unrealized gains and losses on associated investments. Our holding company earns investment income from its cash holdings.

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. These corporate expenses include legal and auditing fees, executive employment costs, and other costs directly associated with being a public company.

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. KICO is actively writing its property and casualty insurance products in New York. Additionally, our subsidiary, Cosi, a multi-state licensed general agency, receives commission revenue from KICO for the policies it places with others and pays commissions to these agencies.

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 broad underwriting appetite coupled with competitive rate and commission structures.

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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, 2023, our gross written premiums totaled $200.2 million, a decrease of 0.5% from the $201.2 million in gross written premiums for the year ended December 31, 2022.

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. Personal lines policies accounted for 92.6% of our gross written premiums for the year ended December 31, 2023.

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. These policies accounted for 7.3% of our gross written premiums for the year ended December 31, 2023.

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, 2023.

Our Competitive Strengths

Long History of Operations

KICO has been in operation in the State of New York since 1886. We have consistently sought to grow the amount of profitable business that we write by introducing new products, increasing volume written with our Select producers in existing markets, and developing new producer relationships and markets. 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 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.

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We offer our Select 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 Select producers, our broad product offerings, and our competitive prices provide a strong foundation for profitable growth.

Sophisticated Pricing, 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 their prior loss experience, cost of reinsurance, property condition, insurance scoring and driving record, and then is augmented by information collected from physical property inspections. 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, premiums and policy terms support the goal of underwriting profitability of our personal lines policies. We adhere to a quarterly indication process and perform a rate review in each state and for each product at least annually. In 2022, we introduced our new Select homeowners, condo/tenant and dwelling fire programs in New York. This product incorporates by-peril rating and a host of new data sources to better match rate to risk. We have also updated property replacement costs to address inflation.

We manage coastal risk exposure through the use of individual catastrophe risk scoring, the inclusion of hurricane deductibles, non-renewals and the prudent use of reinsurance. We measure our risk exposure regularly and adjust our underwriting to manage growth in our probable maximum loss (PML).

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.

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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 producers and 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 2022, we completed the implementation of Kingstone 2.0, an effort to modernize the Company. Kingstone 2.0 included strategic hiring, development of the Select product, investments in new systems and retirement of the legacy systems. We also adopted a framework of stronger rating, underwriting and catastrophe management disciplines. As a result, Kingstone 2.0 positioned the Company to be better able to navigate today’s challenging environment. In 2023, we embarked on a new strategy to optimize our in-force business, which we coined as “Kingstone 3.0”. The four pillars of this new strategy entail:

	1.	Aggressively reducing the non-Core book of business, which has had a disproportionately negative impact on underwriting results.
	2.	Adjusting pricing to stay ahead of loss trends, including inflation.
	3.	Tightly managing reinsurance requirements and costs, using risk selection and other underwriting capabilities to manage the growth rate of our PML.
	4.	Continuing expense reduction focus with a goal of reducing the net expense ratio to 33% by year-end 2024.

See detailed description of Kingstone 2.0 and Kingstone 3.0 in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) in this Annual Report.

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 Select producers are reviewed by management on at least a semi-annual 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 Select 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 700 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.

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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 producer interface and 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.

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 active policyholders are located primarily in the downstate regions of New York State, our Core business. Under Kingstone 3.0, we are reducing our non-Core Northeast markets, which include New Jersey, Rhode Island, Massachusetts and Connecticut. In addition, we are licensed to write insurance policies in Maine, New Hampshire and Pennsylvania.

In 2022, we made the decision to reduce our footprint outside New York due to profitability concerns. We entered these states to diversify Kingstone’s footprint starting in 2017, and they have had a disproportionate impact on our underwriting results, especially in 2022. We have attempted to address these challenges and achieve profitability with a series of rate and underwriting actions, but the impact we have worked towards was largely nullified by inflation. In addition to a new business moratorium in our non-Core states of Connecticut, Massachusetts, New Jersey and Rhode Island, we have been actively non-renewing policies subject to regulatory constraints and have materially lowered commission rates to our producers. Subject to our withdrawal agreement with the state of New Jersey, we will be non-renewing our entire book in such state over a two year period starting January 1, 2024. These actions reduced the size of our policies in force outside New York by 48% in 2023.

In 2023, KICO was the 15th largest writer of homeowners insurance in the State of New York, according to data compiled by S&P Capital IQ. Based on the same data, in 2023, 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. Additionally, some of our largest competitors historically have stopped writing business this year.

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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. 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.

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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,
	2023			2022

Balance at beginning of period	$	118,339,513		$	94,948,745
Less reinsurance recoverables		(27,659,500	)		(10,637,679	)
Net balance, beginning of period		90,680,013			84,311,066

Incurred related to:
Current year		82,856,483			85,690,180
Prior years		(7,273	)		2,699,862
Total incurred		82,849,210			88,390,042

Paid related to:
Current year		49,146,173			49,602,585
Prior years		35,853,838			32,418,510
Total paid		85,000,011			82,021,095

Net balance at end of period		88,529,212			90,680,013
Add reinsurance recoverables		33,288,650			27,659,500
Balance at end of period	$	121,817,862		$	118,339,513

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 2013 through 2023.

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 $17,139,000 as of December 31, 2013 is as follows. By December 31, 2015 (two years later), $10,629,000 had actually been paid in settlement of the claims that relate to liabilities as of December 31, 2013. The re-estimated ultimate reserves two years later for those claims as of December 31, 2013 had grown to $18,332,000.

The “cumulative redundancy (deficiency)” represents, as of December 31, 2023, 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.

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(in thousands of $)	2013			2014			2015			2016			2017			2018			2019			2020			2021			2022		2023
Reserve for loss and loss adjustment expenses, net of reinsurance recoverables		17,139			21,663			23,170			25,960			32,051			40,526			64,770			62,647			84,311			90,680		88,529
Net reserve estimated as of One year later		18,903			21,200			23,107			25,899			33,203			51,664			64,811			62,632			87,011			90,673
Two years later		18,332			21,501			24,413			26,970			42,723			55,145			65,113			65,339			88,418
Three years later		18,687			22,576			25,509			33,298			43,780			56,346			67,291			67,135
Four years later		19,386			23,243			28,638			33,342			43,973			58,048			68,612
Five years later		19,449			25,442			28,506			33,120			43,774			57,957
Six years later		20,265			25,353			28,849			32,936			43,777
Seven years later		20,069			25,445			28,734			32,617
Eight years later		20,129			25,324			28,499
Nine years later		19,963			25,200
Ten years later		19,853
Net cumulative redundancy (deficiency)		(2,714	)		(3,537	)		(5,329	)		(6,657	)		(11,726	)		(17,431	)		(3,842	)		(4,488	)		(4,107	)		7

(in thousands of $)	2013			2014			2015			2016			2017			2018			2019			2020			2021			2022		2023
Cumulative amount of reserve paid, net of reinsurance recoverable through
One year later		6,156			8,500			8,503			9,900			15,795			23,075			27,454			20,137			32,419			35,854
Two years later		10,629			12,853			14,456			17,187			26,168			35,924			35,142			30,262			47,547
Three years later		13,571			16,564			19,533			23,484			32,704			40,264			42,365			40,702
Four years later		16,166			19,838			22,816			27,203			35,510			45,085			49,581
Five years later		17,262			21,976			25,210			28,833			37,846			48,650
Six years later		18,265			23,280			26,298			30,141			39,596
Seven years later		18,954			24,146			26,945			30,693
Eight years later		19,511			24,633			27,013
Nine years later		19,635			24,654
Ten years later		19,640

Net reserve -
December 31,		17,139			21,663			23,170			25,960			32,051			40,526			64,770			62,647			84,311			90,680		88,529
* Reinsurance Recoverable		17,364			18,250			16,707			15,777			16,749			15,671			15,728			20,154			10,638			27,660		33,289
* Gross reserves -
December 31,		34,503			39,913			39,877			41,737			48,800			56,197			80,499			82,801			94,949			118,340		121,818

Net re-estimated reserve		19,853			25,200			28,499			32,617			43,777			57,957			68,612			67,135			88,418			90,673
Re-estimated reinsurance recoverable		22,135			23,289			21,143			20,390			20,504			18,535			14,944			19,105			10,524			27,209
Gross re-estimated reserve		41,988			48,489			49,642			53,007			64,281			76,492			83,556			86,240			98,942			117,882
Gross cumulative redundancy (deficiency)		(7,485	)		(8,576	)		(9,765	)		(11,270	)		(15,481	)		(20,295	)		(3,057	)		(3,439	)		(3,993	)		458

(Components may not sum to totals due to rounding)

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Reinsurance

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”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, we entered into a new 30% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”).Upon the expiration of the 2023/2024 Treaty on January 1, 2024, we entered into a new 27% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”).

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 2021/2023 Treaty and excess of loss treaties for any one personal lines occurrence for dates of loss on or after December 31, 2021 through January 1, 2024 was $700,000. Effective January 1, 2024 through January 1, 2025, our maximum net retention under the 2024/2025 Treaty increased to $730,000. Effective January 1, 2022, we entered into an underlying excess of loss reinsurance treaty (“Underlying XOL Treaty”) covering the period from January 1, 2022 through January 1, 2023. The Underlying XOL Treaty provides 50% reinsurance coverage for losses, other than from a named storm, of $400,000 in excess of $600,000. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. From January 1, 2022 through January 1, 2024, under the Underlying XOL Treaty, our maximum net retention for any one personal lines occurrence was further reduced from the retention of $700,000 under the 2021/2023 Treaty and the 2023/2024 Treaty to $500,000. From January 1, 2024 through January 1, 2025, under the Underlying XOL Treaty, our maximum net retention for any one personal lines occurrence was reduced from the retention of $730,000 under 2024/2025 Treaty to $530,000.

We previously 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 and the 2023/24 Treaty, KICO received a fixed provisional rate with no adjustment for sliding scale contingent commissions. Under the 2024/2025 Treaty, KICO will receive a fixed provisional rate with no adjustment for sliding scale contingent commissions.

The 2021/2023 Treaty, 2023/2024 Treaty and 2024/2025 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.

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In 2023, we purchased catastrophe reinsurance to provide coverage of up to $325,000,000 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-100 year storm event. Effective December 31, 2021 through January 1, 2023, losses on personal lines policies are subject to the 2021/2023 Treaty, which covered 26% of catastrophe losses and resulted in a net retention by us of $7,400,000 of exposure per catastrophe occurrence. Effective January 1, 2023 through January 1, 2024, losses on personal lines policies were subject to the 2023/2024 Treaty, which covered 12.5% of catastrophe losses and resulted in a net retention by us of $8,750,000 of exposure per catastrophe occurrence. Effective January 1, 2024 through January 1, 2025, losses on personal lines policies will be subject to the 2024/2025 Treaty, which will cover 5.0% of catastrophe losses and will result in a net retention by us of $9,500,000 of exposure per catastrophe occurrence. From July 1, 2020 through June 30, 2022, we had reinstatement premium protection on the first $70,000,000 layer of catastrophe coverage in excess of $10,000,000. Effective July 1, 2022 and through June 30, 2023, we had reinstatement premium protection for $9,800,000 of catastrophe coverage in excess of $10,000,000. Effective July 1, 2023 and through June 30, 2024, we have reinstatement premium protection for $12,500,000 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.

Ratings

Many insurance buyers, agents, brokers and secured lenders use the ratings assigned by ratings 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. 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. We currently have a Demotech rating of A (Excellent) which qualifies our policies for banks and finance companies. Demotech is the rating agency most commonly used by carriers focused on coastal property risks. The previous ratings from A.M. Best and Kroll Rating Agency for KICO and Kingstone Companies, Inc. were withdrawn at our request.

Catastrophe Losses

In 2023 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 2023, one of which was a named storm, and one was a major freezing event. The effects of catastrophes during 2023 increased our net loss ratio by 7.1 percentage points. We were affected by several events during 2022, including the remnants of Hurricane Ida, as one of the named storms. The effects of catastrophes during 2022 increased our net loss ratio by 6.7 percentage points.

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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; however, the ownership of less than 10% of such voting securities could constitute control under certain circumstances. 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.

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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. On November 1, 2023, the DFS adopted substantive amendments updating the 2017 cybersecurity regulations. The adopted regulations require that a covered entity’s chief information security officer (“CISO”) have sufficient authority to ensure that cybersecurity risks are appropriately managed and require the CISO to report material cybersecurity issues. Covered entities are further required under the amendments to implement asset inventory management, develop and implement a business continuity and disaster recovery plan, and maintain backups protected from unauthorized alterations or destruction. The regulations update certain cybersecurity event reporting requirements, including notice and explanation of extortion payments, and amends the April 15 annual reporting requirement to include a written acknowledgment of any areas of material noncompliance and remediation plans signed by the entity’s highest-ranking executive and the CISO. Finally, the regulations update the factors the Superintendent may consider in assessing violations.

The newly-adopted regulations also apply newly enhanced requirements around periodic system testing, record keeping and maintenance of written incident and recovery plans. They further mandate specific technical approaches such as blocking common passwords and the use of multifactor authentication in certain instances.

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 2022 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 prior Annual Report on the Insurance Industry. The Report observed that, in 2021, the property/casualty sector direct premium written was $798 billion, a 9% growth over 2020 levels, the highest annual growth in the past decade. In September 2021, the FIO issued a Preemption Report. This document noted “that during the fiscal year ending September 30, 2021, FIO did not take any action regarding the preemption of any state insurance measures that were inconsistent with a covered agreement.” In addition to reviewing the financial status of the property/casualty industry, the Report includes Topical Updates and FIO activities, climate change, mitigation and resilience and Cyber Risks, Ransomware, and Cyber Insurance. The FIO’s September 2023 annual report made similar observations as prior years, including noting in the preceding year’s Preemption Report a lack of “any action regarding the preemption of any state insurance measures that were inconsistent with a covered agreement.” The 2023 report further noted that, since the 2022 report, the FIO issued a proposal for the collection of data from insurers to assess climate-related risks across the United States. The request for comment explained that the FIO proposes to collect data from property and casualty insurers regarding current and historical underwriting data on homeowners’ insurance at the zip code level, in order to “assist FIO’s assessment of climate-related exposures and their effects on insurance availability for policyholders, including whether climate change may create the potential for any major disruptions of private insurance coverage in regions of the country that are particularly vulnerable to climate change impacts.”

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On December 20, 2020, the Terrorism Risk Insurance Program Reauthorization Act 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. On June 15, 2022, the DFS released its 2021 annual report. The report references the creation of a standalone Climate Division, which was the source of the aforementioned guidance.

In 2021, the Governor of the State of New York signed into law, effective January 28, 2022 and subsequently clarified by law taking effect March 15, 2023, legislation that seeks to prevent homeowner insurers from discriminating solely on the basis of breed of dog.

In 2021, the Comprehensive Insurance Disclosure Act was enacted in New York State. This law, as amended by a subsequent chapter amendment, requires any defendant to provide to the plaintiff, within a limited timeframe, proof of existence and the contents of any insurance agreement under which any person or entity may be liable to satisfy part or all of a judgment and details what the information and documentation includes. The new law applies to actions commenced on or after December 31, 2021.

In 2022, the New York legislature passed legislation to greatly expand wrongful death actions. This bill sought to expand the categories of claimants and scope of losses for which a wrongful death lawsuit could be brought. The bill was vetoed in January 2023. It was again passed in identical form in 2023 and again vetoed in December 2023.The bill was reintroduced in identical form in February 2024.

In 2023, two related bills were chaptered amending the time periods available to an insurer for the investigation and settlement of claims arising out of states of emergency and disasters. This bill codified elements of existing regulations but shortened certain time periods and added additional reporting requirements. Specifically, the law requires that, within fifteen business days after receiving all the items, statements, and forms that the insurer required from the claimant for a non-commercial claim not suspected to be related to arson, the insurer advise the claimant in writing whether the insurer has accepted or rejected the claim. An insurer would be allowed two extensions of fifteen additional business days to continue its investigation, provided that the insurer notifies the claimant of the reasons additional time is needed for the investigation, with the second extension being available if the property is inaccessible. Commercial claims are granted a one-time thirty-day extension to determine whether the claim should be accepted or rejected, and additional thirty-day extensions are available if certain written notifications are made. If the insurer has accepted the claim, the claimant will have to be notified of the amount the insurer is offering to settle the claim and of all applicable policy provisions regarding the claimant's right to reject and appeal the insurer's offer. If the insurer rejects the claim, the insurer will have to inform the claimant of all applicable policy provisions regarding the claimant's right to appeal the decision including policy information, insurer contact information and DFS complaint filing procedure information. An insurer will be required to pay the claim not later than four business days from the settlement of the claim.

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The DFS released a proposed circular letter regarding the use of “external consumer data and information sources (“ECDIS”) and artificial intelligence systems (“AIS”) by insurers. In broad strokes it reiterates the need to make sure that AI processes do not lead to outcomes that run afoul of the extensive body of existing anti-discrimination laws, including use of credit as governed by Insurance Law Article 28 credit usage. The circular letter does not have the force of law, but articulated DFS’ expectations about the use of AIS and ECDIS. In the past, the release of a circular letter has preceded the issuance of draft and eventually final regulations in the area addressed.

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 2023 for the years 2019 through 2022. The examination is expected to be completed in 2024.

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. As of December 31, 2023, the ratio of TAC to ACL was 4.45 and is in compliance with New York’s RBC requirements.

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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 may be paid, without the need for DFS approval, from unassigned surplus and 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. At December 31, 2023, unassigned deficit was $7,661,958, and, accordingly, dividends may not be paid without DFS approval. See Item 5 (“Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Dividends”) of this Annual Report for a further discussion as to KICO’s ability to pay dividends to us.

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, 2023, 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 for KICO to pay dividends to Kingstone Companies, Inc.

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, 2023, we had 84 employees. None of our employees are covered by a collective bargaining agreement. We believe that our relationship with our employees is good.

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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.

ITEM 1A. RISK FACTORS.

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

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 $325,000,000 ($315,000,000 in excess of $10,000,000). Effective January 1, 2024, $10,000,000 of losses in a catastrophe are subject to a quota share reinsurance treaty, which covers 5.0% of catastrophe losses such that we retain $9,500,000 of risk per catastrophe occurrence. With respect to any additional catastrophe losses of up to $315,000,000, 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.

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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.

A financial strength rating assigned to our insurance subsidiary was withdrawn at its request; this may 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.

In July 2023, A.M. Best withdrew the financial strength rating and long-term issuer credit rating of KICO at KICO’s request. Previously, A.M. Best’s public rating for Kingstone Companies, Inc. was withdrawn.

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 the withdrawal of A.M. Best’s ratings will not result in a material decrease in the amount of business that KICO will be able to write. Also, KICO 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.

However, a prior A.M Best ratings downgrade 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.

The impact of pandemics and other public health issues (like 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 COVID-19 began to impact the global economy and our results of operations. Risks presented by the effects of pandemics like COVID-19 include, among others, the following:

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Investments. 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. 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 pandemic and other public health issues (like 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.

The failure to comply with certain financial covenants could result in a default with regard to our debt due on December 30, 2024.

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At the closing of the Exchange Agreement, the Exchanging Noteholders exchanged their respective 2017 Notes for, among other things, new 12.0% Senior Notes due December 30, 2024 in the aggregate principal amount of $19,950,000 (the “2022 Notes”). Pursuant to the Exchange Agreement, we are required to satisfy certain financial covenants, among other covenants, related to our performance. In the event we do not satisfy such covenants, the holders of the 2022 Notes could declare a default and seek to accelerate the due date for payment, among other remedies. We were not in compliance with one of such covenants as of September 30, 2023; however, we received a waiver from the required holders of the 2022 Notes with regard to such failure to comply. We were in compliance with such covenant as of December 31, 2023.

We may not be able to generate sufficient cash to service our debt obligations, including the 2022 Notes, which may affect our ability to continue as a going concern.

Our ability to make payments on our indebtedness, including the 2022 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. We may be unable to maintain a sufficient level of cash flows from operating activities to permit us to pay the principal, premium, if any, and interest on our indebtedness. If we are unable to service the debt obligation under the 2022 Notes, we may not have the ability to continue as a going concern.

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, 2024, or our ability to obtain credit on acceptable terms.

As indicated above, our $19,950,000 in aggregate principal amount of 12.0% Senior Notes are due on December 30, 2024. 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. In the event that we need access to additional capital to support our operating expenses, make payments on our outstanding and any future indebtedness, pay for capital expenditures, or increase the amount of insurance that we seek to underwrite or to otherwise grow our business, 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 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.

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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.

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 on terms and rates that are commercially reasonable. 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.

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.

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Applicable insurance laws regarding the change of control of our company may impede potential acquisitions that our stockholders 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 stockholders 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.

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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 88% 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, 2023, 35 brokers provided a total of 40% 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.

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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; our ability to pay the principal of the 2022 Notes on the due date of December 30, 2024 may be limited by these restrictions.

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 stockholders.

State insurance laws limit the ability of KICO to pay dividends from unassigned surplus 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, 2023, KICO could not pay any dividends to us without prior regulatory approval due to negative unassigned surplus of approximately $7,662,000. 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 the principal amount of the 2022 Notes on December 30, 2024 may be limited by these regulatory constraints.

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.

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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 Meryl Golden, our President and Chief Executive Officer, and Barry Goldstein, our Executive Chairman. The loss of Ms. Golden or Mr. Goldstein 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. Ms. Golden and we are parties to an employment agreement which expires on December 31, 2024. Mr. Goldstein and we are parties to an employment agreement which expires on the earlier of December 31, 2024 or at the time of our 2024 annual meeting of stockholders if he is not re-elected Chairman of the Board at such time.

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.

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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 stockholders 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 stockholders 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, stockholders 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, stockholders have reduced liquidity and may not be able to sell their shares at the volume, prices and times that they desire.

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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 stockholders.

We have effective registration statements on Form S-8 under the Securities Act of 1933, as amended (the “Securities Act”), covering an aggregate of 1,900,000 shares of our common stock issuable under our 2014 Equity Participation Plan (the “2014 Plan”).

As of December 31, 2023, options to purchase 107,201 shares of our common stock, and 550,581 shares subject to unvested restricted stock grants, were outstanding under the 2014 Plan and 584,596 shares were reserved for issuance thereunder. 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. As of December 31, 2023, there were also outstanding warrants for the purchase of 969,525 shares of our common stock. The shares issuable pursuant to an exercise of the warrants may be freely tradeable in the public market under certain circumstances.

The 2014 Plan terminates in August 2024. We plan to submit to our stockholders for approval a new 2024 equity participation plan.

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 stockholders in future offerings or by our existing stockholders 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 stockholder 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 repay our indebtedness, support operations and growth, maintain our capital ratios, and 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 stockholders.

As of March 21, 2024, our executive officers and directors beneficially owned 1,349,810 shares of our common stock, representing 12.2% 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 stockholders, 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 stockholders, and they could take actions that advance their own interests to the detriment of our other stockholders.

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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 stockholders.

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 stockholders 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 stockholder 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 stockholders.

We do not currently pay dividends and are restricted pursuant to our debt agreement from paying dividends.

We have not paid cash dividends since September 2022. Our 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. In addition, pursuant to the Exchange Agreement, we are not permitted to pay any cash dividends without the approval of the holders of a majority of the outstanding principal amount of the 2022 Notes. Therefore, we can give no assurance that any dividends will be paid to holders of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 1C. CYBERSECURITY.

Risk Management and Strategy

We regularly assess risks from cybersecurity threats; monitor our information systems for potential vulnerabilities; and test those systems pursuant to our cybersecurity policies, processes, and practices, which are integrated into our overall risk management program. To protect our information systems from cybersecurity threats, we use various security tools that are designed to help identify, escalate, investigate, resolve, and recover from security incidents in a timely manner.

KICO’s Risk Management Committee, which is comprised of representatives of its technology team, assesses risks based on probability and potential impact on key business systems and processes. Risks that are considered high are incorporated into its overall risk management program. A mitigation plan is developed for each identified high risk, with progress reported to the Risk Management Committee and tracked as part of its overall risk management program overseen by the Corporate Sustainability and Risk Management Committee of our Board of Directors.

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We collaborate with third parties to assess the effectiveness of our cybersecurity prevention and response systems and processes. These include cybersecurity assessors, consultants, and other external cybersecurity experts to assist in the identification, verification, and validation of cybersecurity risks, as well as to support associated mitigation plans when necessary.

Additionally, we require security training for all employees on a quarterly basis. The training covers a wide range of topics, including phishing, social engineering and data protection.

Risk Management

We assess and identify security risk to the organization by:

	·	conducting assessments of risk, including likelihood and magnitude, from unauthorized access, use, disclosure, disruption, modification or destruction of information systems and the related information processes, stored or transmitted;
	·	performing risk assessments and producing security assessment reports that document the results of the assessment for use and review by information technology senior leadership, including the Chief Technology Officer;
	·	ensuring security controls are assessed for effectiveness, are implemented correctly, operating as intended and producing the desired outcome; and
	·	continuously scanning for vulnerabilities and remedying all vulnerabilities in accordance with the associated risk.

We have not experienced a material cybersecurity breach in the past five years and, as a result, there have been no charges related to a breach in the past five years. Moreover, no risks from cybersecurity threats have materially affected our business strategy, results of operations, or financial condition. While we have implemented processes and procedures that we believe are tailored to address and mitigate the cybersecurity threats that we face, there can be no assurances that such an incident will not occur despite our efforts, as more fully described in Item 1A (“Risk Factors – 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.”) in this Annual Report.

Monitoring

We have established a continuous monitoring strategy and program, which includes:

	·	a set of defined security metrics to be monitored;
	·	performance of security control assessments on an ongoing basis;
	·	addressing results of analysis and reporting security status to the executive team;
	·	monitoring information systems to detect attacks and indicators of potential attacks;
	·	identification of unauthorized use of the information system resources; and
	·	deployment of monitoring devices strategically within the information system environment.

Governance

Our Corporate Sustainability and Risk Management Committee of the Board of Directors has been delegated the power and authority to oversee and make recommendations to the Board with regard to our overall approach to risks relating to business operations, including with regard to information technology and cybersecurity. In an annual presentation, the committee received a presentation from our Chief Technology Officer regarding our approach to cybersecurity, which included the following topics: the confidentiality of nonpublic information and the integrity and security of our information system, the cybersecurity policies and procedures, material cybersecurity risks to us, and the overall effectiveness of our Company’s cybersecurity program.

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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. Until March 2024, our insurance underwriting business also maintained an executive office located at 70 East Sunrise Highway, Valley Stream, New York 11581, at which we leased 4,985 square feet of space. In March 2024, the lease expired and was not renewed.

We own the building and the surrounding property at which our insurance underwriting business principally operates, free of mortgage. The property consists of a complex which includes the office building discussed above, a house and vacant land located in Kingston, New York. In late 2023, the property was rezoned to allow for residential development.

ITEM 3. LEGAL PROCEEDINGS.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

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PART II

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, 2024, there were 229 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 paid a cash dividend in each quarter from September 2011 through September 2022. On November 11, 2022, our Board of Directors determined to suspend regular quarterly dividends in connection with the 2017 Notes refinancing and the need to retain cash to pay a portion of 2017 Notes due on December 30, 2022.

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 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. In addition, there are restrictions related to surplus and net investment income. Without the prior approval of the DFS, dividends may be paid by insurance carriers from unassigned surplus and 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, 2023, KICO could not pay any dividends to us without prior regulatory approval due to negative unassigned surplus of approximately $7,662,000. KICO has agreed with the DFS that when KICO satisfies the regulatory requirements that allow for the payment of dividends, KICO must receive approval from the DFS to pay dividends. See “Business – Government Regulation”, “Risk Factors – 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; our ability to pay the principal amount of the 2022 Notes on the due date of December 30, 2024 may be limited by these regulatory constraints” and “Management’s Discussion and Analysis of Financial Condition and Results of Operation – Liquidity” in Items 1, 1A and 7, respectively, of this Annual Report.

In addition, pursuant to the Exchange Agreement, we are not permitted to pay any cash dividends without the approval of the holders of a majority of the outstanding principal amount of the 2022 Notes. Therefore, we can give no assurance that any dividends will be paid to holders of our common stock.

Recent Sales of Unregistered Securities

None.

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Issuer Purchases of Equity Securities

None.

ITEM 6. RESERVED.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

In addition, our subsidiary, Cosi Agency, Inc. (“Cosi”), a multi-state licensed general agency, 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. Cosi-related operating expenses are minimal and 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.

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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, 2022, we would earn half of the premiums in 2022 and the other half in 2023.

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 (loss) 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 a further discussion of 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.

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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, 2023 and 2022, there were no commercial liability policies in-force. As of December 31, 2023, these expired policies represent approximately 15.8% of loss and LAE reserves net of reinsurance recoverables. See discussion below under “Additional Financial Information”.

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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 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.

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See below a description of these critical accounting estimates. Also, see Note 2 to the consolidated financial statements following Item 16 of this Annual Report.

Loss and Loss Adjustment Expense Reserves

Property and Casualty loss and loss adjustment expense (“LAE”) reserves are established to provide for the estimated cost of settling both reported (“case”) and incurred but not reported (“IBNR”) claims and claims adjusting expenses. The liability for these reserves is estimated on an undiscounted basis, using individual case-basis valuations and paid claims, pending claims, statistical analyses and various actuarial reserving methodologies. Due to the inherent uncertainty of the reserve process, actual loss costs could vary significantly compared to estimated loss costs. The below table provides detail of our reserves as of December 31, 2023 and 2022:

	As of						As of
	December 31, 2023						December 31, 2022

($ in thousands)	Gross		Ceded		Net		Gross		Ceded		Net
Case loss	$	67,108	$	19,538	$	47,570	$	62,745	$	16,619	$	46,126
Case LAE		5,726		1,121		4,605		5,543		898		4,645
IBNR loss		37,262		10,665		26,597		42,687		10,023		32,664
IBNR LAE		11,722		1,965		9,757		7,364		120		7,244
Total	$	121,818	$	33,289	$	88,529	$	118,340	$	27,660	$	90,679

(Components may not sum due to rounding)

Case Reserves – Reserves for reported losses are based on an estimate of ultimate loss costs of an individual claim derived from individual case-basis valuations, actual claims paid, pending claims, statistical analyses and various actuarial reserving methodologies.

IBNR Reserves – IBNR reserves are estimates of claims that have occurred but as to which we have not yet been notified to establish the case reserve. IBNR is determined using historical information aggregated by line of insurance and adjusted to current conditions.

Reinsurance

We purchase reinsurance to manage our underwriting risk on certain policies. Reinsurance receivables represent management’s best estimate of loss and LAE recoverable from reinsurers. Reinsurance receivables are estimated using the same methodologies as loss and LAE reserves. Changes in the methods and assumptions used could result in significant variances between actual and estimated losses.

Deferred Income Taxes

Our effective tax rate is based on GAAP income at statutory tax rates, adjusted for non-taxable and non-deductible items, and tax credits. Changes in estimates used in preparing the income statement could result in significant changes to our deferred tax asset or liability.

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Deferred tax assets or liabilities are recognized for estimated future tax consequences which result in differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. These assets and liabilities are carried at the enacted tax rates expected to apply when the asset or liability is expected to be recovered or settled. Changes in estimates and assumptions in the income statement, or changes in the enacted tax rate, could result in significant variances between our carried deferred tax and tax recognized on the recovery or settlement of the asset or liability.

Investments

Bonds are classified as held-to-maturity (“HTM”) or available-for-sale (“AFS”), and stocks are generally classified as AFS. Investments classified as HTM are carried at amortized cost, which requires very little judgement. Investments classified as AFS are generally carried at fair value with an unrealized gain/loss recorded in income. Actual results could vary significantly to the fair values recognized in the income statement.

Kingstone 2.0 (completed) and Kingstone 3.0 (underway)

Beginning in the fourth quarter of 2019, a series of strategic initiatives, coined “Kingstone 2.0”, were commenced to modernize our company. The pillars of the new strategy were as follows:

	1.	Strengthen the management team by adding highly qualified professionals with deep domain experience and diverse backgrounds;

	2.	Reduce expenses and increase efficiency by embracing technology, including converting to a new policy management system, retiring multiple legacy systems and starting up a new claims system, among other technology initiatives;

	3.	Develop and implement a new, more highly segmented product suite (Kingstone Select) which better matches rate to risk using advanced analytics and an abundance of data; and

	4.	Better manage our catastrophe exposure in order to reduce loss cost and the growth rate of our probable maximum loss (“PML”) in order to mitigate the impact of the emerging “hard market” in catastrophe reinsurance.

We announced the substantive completion of Kingstone 2.0 in late 2022 and embarked on a new strategy to optimize our in-force business, which we coined as “Kingstone 3.0”. The four pillars of this new strategy entail:

Aggressively reducing the non-Core book of business, which has had a disproportionately negative impact on underwriting results, by slowing new business, re-underwriting the book, culling the agent base, reducing commissions, or other means, subject to regulatory constraints. We stopped writing all new non-Core business and have been aggressively reducing policy count. As of December 31, 2023, our non-Core policy count was down by 48% compared to December 31, 2022;

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	2.	Adjusting pricing to stay ahead of loss trends, including inflation, by filing the maximum annual rate change that can be supported in each state and product and ensuring all policyholders are insured to value. Inflation has been a dominant headwind that is showing signs of stabilizing. We have been cognizant that inflation’s impact on loss costs places added pressure on premiums and, as such, we have been more frequent and aggressive with our rate change requests. Similarly, home replacement values reflect that same inflationary pressure. In September 2023, we completed our first cycle of valuation adjustments, making sure that all homes were insured to value. As a result, we have seen a rise in premiums attributable to the heightened replacement costs. Overall average written premium for our legacy Core homeowners policies for the last 12 months, reflecting both rate and replacement cost changes, increased by 24.4%;

	3.	Tightly managing reinsurance requirements and costs, using risk selection and other underwriting capabilities to manage the growth rate of our PML. We needed to contain our exposure to spiking reinsurance pricing. We did so and were able to reduce the required limit to be purchased while maintaining our same risk tolerance. We used all the tools available to us to limit new business that was deemed to be too expensive and at the same time re-underwrote the book to cull those risks which presented the greatest risk. The combination of stricter new business underwriting and increased non-renewals gave rise to the 5.8% decline in policy count for our Core business. We have now reverted most of our new business underwriting standards back to what they were previously so Core new business growth should increase going forward; and

	4.	Continuing expense reduction focus with a goal of reducing the net expense ratio to 33% by year-end 2024. For the year ended December 31, 2023, we achieved our goal, with a net underwriting expense ratio of 32.9%, a reduction of 3.1 points compared to the year ended December 31, 2022.

See the tables below comparing the quarterly trends and changes from our Core and non-Core business for policies in force and direct written premiums from September 30, 2022 through December 31, 2023. For the three months ended December 31, 2023, our Core direct written premiums increased by 7.0% compared to the three months ended September 30, 2022, while Core policies in force decreased by 5.8% as of December 31, 2023. For the same periods, our non-Core policies in force decreased by 50.8% and non-Core direct written premiums decreased by 44.5%. We believe that the above actions taken will continue to have the intended effect and will result in a return to annual profitability.

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	For the Three Months Ended
	September 30, 2022		December 31, 2022			March 31, 2023			June 30, 2023			September 30, 2023			December 31, 2023
(000’s except percentages and Policies in Force)

Policies In Force, as of end of Three Month Period
Core		71,705		71,359			72,081			70,132			68,498			67,575
Non-Core		22,007		20,695			18,945			16,224			13,457			10,823
Total policies in force		93,712		92,054			91,026			86,356			81,955			78,398

Direct written premiums
Core	$	43,949	$	43,923		$	41,427		$	42,211		$	46,025		$	47,027
Non-Core		10,642		9,978			6,170			5,435			5,966			5,911
Total direct written premiums	$	54,592	$	53,901		$	47,597		$	47,647		$	51,992		$	52,938

Change from September 30, 2022
Core
Policies In Force
$ change	na		$	(346	)	$	376		$	(1,573	)	$	(3,207	)	$	(4,130	)
% change	na			-0.5	%		0.5	%		-2.2	%		-4.5	%		-5.8	%
Direct written premiums
$ change	na		$	(26	)	$	(2,522	)	$	(1,738	)	$	2,076		$	3,078
% change	na			-0.1	%		-5.7	%		-4.0	%		4.7	%		7.0	%

Non- Core
Policies In Force
$ change	na		$	(1,312	)	$	(3,062	)	$	(5,783	)	$	(8,550	)	$	(11,184	)
% change	na			-6.0	%		-13.9	%		-26.3	%		-38.9	%		-50.8	%
Direct written premiums
$ change	na		$	(664	)	$	(4,472	)	$	(5,207	)	$	(4,676	)	$	(4,731	)
% change	na			-6.2	%		-42.0	%		-48.9	%		-43.9	%		-44.5	%

(Components may not sum due to rounding)

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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)	2023			2022			Change			Percent
Revenues
Direct written premiums	$	200,175		$	201,255		$	(1,080	)		(0.5	) %
Assumed written premiums		-			-			-		na		%
		200,175			201,255			(1,080	)		(0.5	)%
Ceded written premiums
Ceded to quota share treaties (1)		51,125			47,409			3,716			7.8	%
Ceded to excess of loss treaties		7,122			3,880			3,242			83.6	%
Ceded to catastrophe treaties		48,317			42,952			5,365			12.5	%
Total ceded written premiums		106,564			94,241			12,323			13.1	%

Net written premiums		93,611			107,014			(13,403	)		(12.5	)%

Change in unearned premiums
Direct and assumed		1,871			(9,733	)		11,604		na		%
Ceded to quota share treaties (1)		18,903			17,104			1,799			10.5	%
Change in net unearned premiums		20,774			7,371			13,403			181.8	%

Premiums earned
Direct and assumed		202,046			191,522			10,524			5.5	%
Ceded to reinsurance treaties		(87,661	)		(77,137	)		(10,524	)		(13.6	)%
Net premiums earned		114,384			114,385			(1	)	-		%

Ceding commission revenue (1)		21,053			19,319			1,734			9.0	%
Net investment income		6,009			4,937			1,072			21.7	%
Net gains (losses) on investments		2,135			(9,392	)		11,527		na		%
Other income		610			910			(300	)		(33.0	)%
Total revenues		144,191			130,159			14,032			10.8	%
Expenses
Loss and loss adjustment expenses
Direct and assumed:
Loss and loss adjustment expenses excluding the effect of catastrophes		111,997			114,943			(2,946	)		(2.6	)%
Losses from catastrophes (2)		11,944			13,106			(1,162	)		(8.9	)%
Total direct and assumed loss and loss adjustment expenses		123,940			128,048			(4,108	)		(3.2	)%

Ceded loss and loss adjustment expenses:
Loss and loss adjustment expenses excluding the effect of catastrophes		37,302			34,185			3,117			9.1	%
Losses from catastrophes (2)		3,789			5,474			(1,685	)		(30.8	)%
Total ceded loss and loss adjustment expenses		41,091			39,658			1,432			3.6	%

Net loss and loss adjustment expenses:
Loss and loss adjustment expenses excluding the effect of catastrophes		74,694			80,758			(6,064	)		(7.5	)%
Losses from catastrophes (2)		8,155			7,632			523			6.9	%
Net loss and loss adjustment expenses		82,849			88,390			(5,541	)		(6.3	)%

Commission expense		33,365			34,582			(1,217	)		(3.5	)%
Other underwriting expenses		25,910			26,697			(787	)		(2.9	)%
Other operating expenses		2,456			3,113			(657	)		(21.1	)%
Depreciation and amortization		2,973			3,300			(327	)		(9.9	)%
Interest expense		4,003			2,019			1,984			98.3	%
Total expenses		151,556			158,102			(6,545	)		(4.1	)%

Loss before taxes		(7,365	)		(27,942	)		20,577			73.6	%
Income tax benefit		(1,197	)		(5,418	)		4,221			77.9	%
Net loss	$	(6,168	)	$	(22,525	)	$	16,356			72.6	%

(Columns in the table above may not sum to totals due to rounding)

	(1)	Effective December 31, 2021, we entered into a 30% personal lines quota share treaty.

	(2)	The years ended December 31, 2023 and 2022 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.

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	Years Ended December 31,
	2023			2022			Percentage Point Difference			Percent Change

Key ratios:
Net loss ratio		72.4	%		77.3	%		(4.9	)		(6.3	)%
Net underwriting expense ratio		32.9	%		36.0	%		(3.1	)		(8.6	)%
Net combined ratio		105.3	%		113.3	%		(8.0	)		(7.1	)%

Direct Written Premiums

Direct written premiums during the year ended December 31, 2023 (“Year Ended 2023”) were $200,175,000 compared to $201,255,000 during the year ended December 31, 2022 (“Year Ended 2022”). The decrease of $1,080,000, or 0.5%, was primarily due to a decrease in premiums from our personal lines business.

Direct written premiums from our personal lines business for Year Ended 2023 were $185,426,000, a decrease of $2,679,000, or 1.4%, from $188,105,000 in Year Ended 2022. The 1.4% decrease in premiums from our personal lines business was primarily due to the decrease in premiums associated with our non-Core business of 39.8% offsetting a 8.6% increase in our Core business. The decrease in our non-Core business premiums and the increase in our Core business premiums is in accordance with both our Kingstone 2.0 and Kingstone 3.0 strategic plans.

Direct written premiums from our livery physical damage business for Year Ended 2023 were $14,648,000, an increase of $1,655,000, or 12.7%, from $12,993,000 in Year Ended 2022. The increase in livery physical damage direct written premiums was due to an increasing number of policies and an increase in the values of the autos insured.

Direct written premiums from our Core business were $176,692,000 in Year Ended 2023 compared to $162,255,000 in Year Ended 2022, an increase of $14,437,000, or 8.9%. Policies in force from our Core business decreased by 5.3% in Year Ended 2023 compared to Year Ended 2022. Beginning in 2017, we commenced our non-Core business and started writing personal lines policies in New Jersey. Through 2019 we expanded our non-Core business to Rhode Island, Massachusetts and Connecticut. Direct written premiums from our non-Core business were $23,482,000 in Year Ended 2023 down from $39,000,000 in Year Ended 2022, a decrease of $15,518,000, or 39.8%. The decrease in direct written premiums from our non-Core business is a result of our decision to aggressively reduce the book of business in these states. Policies in force from our non-Core business decreased by 47.7% in Year Ended 2023 compared to Year Ended 2022. The increase in our Core business and the decrease in our non-Core business is consistent with a key pillar of our Kingstone 3.0 strategy to reduce our non-Core business due to profitability concerns.

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Net Written Premiums and Net Premiums Earned

Net written premiums decreased $13,403,000, or 12.5%, to $93,611,000 in Year Ended 2023 from $107,014,000 in Year Ended 2022. Net written premiums include direct premiums, less the amount of written premiums ceded under our reinsurance treaties (quota share, excess of loss, and catastrophe). The decrease in Year Ended 2023 is primarily due to a decrease in direct written premiums and an increase in catastrophe premiums rates.

Quota share reinsurance treaties

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”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, we entered into a new 30% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”). In Year Ended 2023, our premiums ceded under quota share treaties increased by $3,716,000 in comparison to ceded premiums in Year Ended 2022 (see table above). The increase in Year Ended 2023 was attributable to the runoff of an 8.5% portion of the 30% 2021/2023 Treaty. The remainder of the 2021/2023 Treaty was on a cutoff basis and the new 2023/2024 Treaty was placed for 30% on January 1, 2023. Our personal lines business was subject to the 2023/2024 Treaty in Year Ended 2023, and the 2021-2023 Treaty in Year Ended 2022.

Excess of loss reinsurance treaties

An increase in written premiums will increase the premiums ceded under our excess of loss treaties. In Year Ended 2023, our ceded excess of loss (“XOL”) reinsurance premiums increased by $3,242,000 over the comparable ceded premiums for Year Ended 2022. The increase was due to an increase in subject premiums and the heightened cost of coverage obtained. Effective January 1, 2022, we entered into an underlying XOL 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. Effective January 1, 2023, the underlying XOL treaty was renewed covering the period from January 1, 2023 through January 1, 2024.

Catastrophe reinsurance treaties

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. An increase in our personal lines business results in an increase in premiums ceded under our catastrophe treaties if reinsurance rates are stable or are increasing. Catastrophe premiums increased $5,365,000, or 12.5%, to $48,317,000 in Year Ended 2023 from $42,952,000 in Year Ended 2022. The increase was primarily due to an increase in catastrophe reinsurance rates. In accordance with our Kingstone 2.0 and Kingstone 3.0 goals, we have reduced our PML in Year Ended 2023, which partially offset the increase in premiums effective July 1, 2023.

Net premiums earned

Net premiums earned remained flat at $114,384,000 in Year Ended 2023 compared to $114,385,000 in Year Ended 2022.

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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)	2023		2022		Change		Percent

Provisional ceding commissions earned	$	20,397	$	19,106	$	1,291		6.8	%
Contingent ceding commissions earned		656		214		442		206.5	%

Total ceding commission revenue	$	21,053	$	19,319	$	1,734		9.0	%

(Columns in the table above may not sum to totals due to rounding)

Ceding commission revenue was $21,053,000 in Year Ended 2023 compared to $19,319,000 in Year Ended 2022. The increase of $1,734,000 was due to an increase 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

In Year Ended 2023, we earned provisional ceding commissions of $20,397,000 from personal lines earned premiums ceded under the 2023/2024 Treaty, and in Year Ended 2022, we earned provisional ceding commissions of $19,106,000 from personal lines earned premiums ceded under the 2021/2023 Treaty. The increase of $1,291,000 in provisional ceding commissions earned was due to the increase in premiums ceded under these treaties during Year Ended 2023 compared to Year Ended 2022.

Contingent Ceding Commissions Earned

The structure of the 2023/2024 Treaty and the 2021/2023 Treaty calls for a fixed provisional ceding commission with no opportunity to earn additional contingent ceding commissions. 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 received. The increase in Year Ended 2023 was primarily attributable to a one time true up from a prior year treaty.

Net Investment Income

Net investment income was $6,009,000 in Year Ended 2023 compared to $4,937,000 in Year Ended 2022, an increase of $1,072,000, or 21.7%. The increase in investment income was attributable to a $766,000 reversal in Year Ended 2022 of prior years’ estimated accrued interest income stemming from an error in third party investment reporting. The increase was also due to higher interest rates earned on cash balances. The average yield on non-cash invested assets was 3.75% as of December 31, 2023 compared to 3.42% as of December 31, 2022.

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Cash and invested assets were $183,610,000 as of December 31, 2023 compared to $191,046,000 as of December 31, 2022. The $7,436,000 decrease in cash and invested assets was primarily attributable to the cash used to fund disbursements of claims resulting from higher severity losses and inflation’s impact on losses, along with catastrophe losses incurred in Year Ended 2023 and prior periods. The increase in disbursement of losses was partially offset by an increase in unrealized gains on our investment portfolio.

Net Gains (Losses) on Investments

Net gains on investments were $2,135,000 in Year Ended 2023 compared to net (losses) of $(9,392,000) in Year Ended 2022. Unrealized gains on our equity securities and other investments in Year Ended 2023 were $2,153,000, compared to unrealized (losses) of $(9,252,000) in Year Ended 2022. Net realized (losses) on sales of investments were $(19,000) in Year Ended 2023 compared to net realized (losses) of $(140,000) in Year Ended 2022.

Other Income

Other income was $610,000 in Year Ended 2023 compared to $910,000 in Year Ended 2022, a decrease of $300,000, or 33.0%.

Net Loss and LAE

Net loss and LAE was $82,849,000 for Year Ended 2023 compared to $88,390,000 for Year Ended 2022. The net loss ratio was 72.4% in Year Ended 2023 compared to 77.3% in Year Ended 2022, a decrease of 4.9 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:

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(Percent components may not sum to totals due to rounding)

For Year Ended 2023, the 4.9 point reduction in the loss ratio compared to Year Ended 2022 was mainly due to a lower underlying loss ratio (loss ratio excluding the impact of catastrophe and prior year development) and reduced impact from prior year development.

The estimated net catastrophe losses were $8,155,000 for Year Ended 2023, which contributed 7.1 points to the loss ratio. There were two winter storm events including a major freezing event at the beginning of February, ten wind and thunderstorm events, and one tropical storm classified as catastrophe for Year Ended 2023. By comparison, catastrophe events had a loss ratio impact of 6.7 points for Year Ended 2022.

The underlying loss ratio was 65.3% for Year Ended 2023, a decrease of 2.9 points from the 68.2% underlying loss ratio recorded for Year Ended 2022. The loss experience in Year Ended 2023 was improved due to lower frequency but was offset by increasing severity resulting from inflation and an elevated number of large losses.

Prior year development was stable for Year Ended 2023. There was an overall favorable development of $7,000, which had minimal impact on the loss ratio.

See table below under “Additional Financial Information” summarizing net loss ratios by line of business.

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Commission Expense

Commission expense was $33,365,000 in Year Ended 2023 or 16.5% of direct earned premiums. Commission expense was $34,582,000 in Year Ended 2022 or 18.1% of direct earned premiums. The decrease of $1,217,000 was primarily due to a reduction of commission rates on our legacy policies in accordance with our Kingstone 3.0 strategy as well as the lower commission rate paid on Select products as compared to legacy products, but offset in part by an increase in direct earned premiums of $10,524,000 to $202,046,000.

Other Underwriting Expenses

Other underwriting expenses were $25,910,000, or 12.8% of direct earned premiums, in Year Ended 2023 compared to $26,697,000, or 13.9% of direct earned premiums, in Year Ended 2022. The decrease of $787,000, or 2.9%, was primarily due to decreases in professional fees, credit card fees and policy management system fees as result of the completion of our policy management system conversion, allowing us to eliminate multiple legacy systems. The decreases were partially offset by a net increase in salaries and employment costs as described below, an increase in insurance department fees, and the impact from high inflation.

Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $11,335,000 in Year Ended 2023 compared to $10,799,000 in Year Ended 2022. The increase of $536,000, or 5.0%, is compared unfavorably to the 0.5% decrease in direct written premiums. In the periods following Year Ended 2022, we continued to strengthen our professional team by investing in the hiring of higher-level and higher compensated managers and staff needed to manage the business consistent with our Kingstone 2.0 and Kingstone 3.0 strategies. The increase in salaries was partially offset by a reduction in our staff in June and July 2023 as we have been reducing our non-Core business.

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Our net underwriting expense ratio in Year Ended 2023 was 32.9% compared to 36.0% in Year Ended 2022. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

	Years ended December 31,						Percentage
	2023			2022			Point Change
Other underwriting expenses
Employment costs		9.9	%		9.4	%		0.5
Underwriting fees (inspections/surveys)		1.6			1.7			(0.1	)
IT expenses		2.9			3.9			(1.0	)
Professional fees		1.1			1.3			(0.2	)
Other expenses		7.1			7.0			0.1
Total other underwriting expenses		22.6			23.3			(0.7	)

Commission expense		29.2			30.2			(1.0	)

Ceding commission revenue
Provisional		(17.8	)		(16.7	)		(1.1	)
Contingent		(0.6	)		(0.2	)		(0.4	)
Total ceding commission revenue		(18.4	)		(16.9	)		(1.5	)

Other income		(0.5	)		(0.7	)		0.2

Net underwriting expense ratio		32.9	%		36.0	%		(3.1	)

(Components may not sum to totals due to rounding)

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Other Operating Expenses

Other operating expenses, related to the expenses of our holding company and Cosi, were $2,456,000 for Year Ended 2023 compared to $3,113,000 for Year Ended 2022. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:

	Years ended
	December 31,
($ in thousands)	2023		2022			Change			Percent

Other operating expenses
Employement costs	$	376	$	(24	)	$	400		na		%
Equity compensation		833		1,393			(560	)		(40.2	)
Professional		276		765			(489	)		(63.9	)
Directors fees		275		327			(52	)		(15.9	)
Insurance		194		154			40			26.0
Other expenses		502		498			4			0.8
Total other operating expenses	$	2,456	$	3,113		$	(657	)		(21.1	)%

(Components may not sum to totals due to rounding)

The decrease in Year Ended 2023 of $657,000, or 21.1%, as compared to Year Ended 2022 was primarily due to a decrease in equity compensation and professional fees, partially offset by an increase in employment costs. The increase in employment costs was due to the hiring of our new Chief Financial Officer in Year Ended 2023 and fluctuations in deferred compensation liability related to changes in the underlying invested portfolio. The decrease in professional fees is due to $354,000 incurred in Year Ended 2022 related to a then contemplated transaction that would have resulted in a third party acquiring all of the outstanding equity of our company.

Depreciation and Amortization

Depreciation and amortization was $2,973,000 in Year Ended 2023 compared to $3,300,000 in Year Ended 2022. The decrease of $327,000, or 9.9%, in depreciation and amortization was primarily due to the completion and deployment of our customized policy management software as planned for in Kingstone 2.0, now allowing us to consolidate multiple legacy systems into one efficient system and retire those older more costly and less reliable systems. Depreciation on older assets that were retired, which had a shorter useful life, is greater than the depreciation on newly acquired assets which have a longer useful life.

Interest Expense

Interest expense in Year Ended 2023 was $4,003,000 compared to $2,019,000 in Year Ended 2022, an increase of $1,984,000 or 98.3%. In Year Ended 2023, as disclosed in Note 9 to the consolidated financial statements, we incurred increased interest expense in connection with the 2022 Notes, which provide for interest at the rate of 12% per annum, and the 2022 equipment financing. In Year 2022, we incurred interest expense in connection with the 2017 Notes, our $30.0 million issuance of long-term debt in December 2017, which provided for interest at the rate of 5.5% per annum, and the equipment financing incurred in the fourth quarter of 2022.

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Income Tax Benefit

Income tax benefit in Year Ended 2023 was $1,197,000, which resulted in an effective tax benefit rate of 16.3%. Income tax benefit in Year Ended 2022 was $5,418,000, which resulted in an effective tax rate of 19.4%. Loss before taxes was $7,365,000 in Year Ended 2023 compared to $27,942,000 in Year Ended 2022. The difference in effective tax rate is due to the effect of permanent differences in Year Ended 2023 compared to Year Ended 2022.

Net Loss

Net loss was $6,168,000 in Year Ended 2023 compared to $22,525,000 in Year Ended 2022. The significant decrease in net loss of $16,356,000, or 72.6%, was primarily attributable to net gains on investments of $2,135,000 in Year Ended 2023 versus net losses on investments of $9,392,000 in Year Ended 2022 and a decrease in loss and loss adjustment expenses of $5,541,000.

Additional Financial Information

We operate our business as one segment, property and casualty insurance. Within this segment, we offer an 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.

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	Years Ended
	December 31,
	2023			2022
Gross premiums written:
Personal lines	$	185,425,960		$	188,104,883
Livery physical damage		14,648,333			12,992,905
Other(1)		100,209			157,049
Total gross premiums written	$	200,174,502		$	201,254,837

Net premiums written:
Personal lines	$	78,895,126		$	93,907,121
Livery physical damage		14,648,333			12,992,905
Other(1)		67,058			113,503
Total net premiums written	$	93,610,517		$	107,013,529

Net premiums earned:
Personal lines	$	100,391,726		$	103,019,573
Livery physical damage		13,905,368			11,226,975
Other(1)		87,169			137,983
Total net premiums earned	$	114,384,263		$	114,384,531

Net loss and loss adjustment expenses(3):
Personal lines	$	72,580,057		$	76,906,768
Livery physical damage		5,388,954			5,056,461
Other(1)		146,286			18,083
Unallocated loss adjustment expenses		3,128,614			3,701,131
Total without commercial lines		81,243,911			85,682,443
Commercial lines (in run-off effective July 2019)(2)		1,605,299			2,707,599
Total net loss and loss adjustment expenses	$	82,849,210		$	88,390,042

Net loss ratio(3):
Personal lines		72.3	%		74.7	%
Livery physical damage		38.8	%		45.0	%
Other(1)		167.8	%		13.1	%
Total without commercial lines		71.0	%		74.9	%
Commercial lines (in run-off effective July 2019)(2)	na			na
Total		72.4	%		77.3	%

(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 Loss and LAE”, as to catastrophe losses in the years ended December 31, 2023 and 2022.

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Insurance Underwriting Business on a Standalone Basis

Our insurance underwriting business reported on a standalone basis for the years ended December 31, 2023 and 2022 follows:

	Years ended
	December 31,
	2023			2022

Revenues
Net premiums earned	$	114,384,263		$	114,384,531
Ceding commission revenue		21,053,494			19,319,391
Net investment income		6,008,682			4,936,778
Net gains (losses) on investments		1,978,373			(9,231,170	)
Other income		600,993			815,952
Total revenues		144,025,805			130,225,482

Expenses
Loss and loss adjustment expenses		82,849,210			88,390,042
Commission expense		33,364,629			34,581,617
Other underwriting expenses		25,909,962			26,697,006
Depreciation and amortization		2,973,440			3,252,134
Interest expense		434,155			83,732
Total expenses		145,531,396			153,004,531

Loss from operations		(1,505,591	)		(22,779,049	)
Income tax benefit		(17,681	)		(4,588,283	)
Net loss	$	(1,487,910	)	$	(18,190,766	)

Key Measures: