kins_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
(Mark one)
     
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
     
o
 
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
(State or other jurisdiction of
incorporation or organization)
 
36-2476480
(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)
 

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ No o

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 o
 
Accelerated filero
 
Non-accelerated filer o
(Do not check if a smaller reporting company)
 
Smaller reporting company þ

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

As of May 12, 2015, there were 7,341,664 shares of the registrant’s common stock outstanding.
 



 
 
 
 
 
KINGSTONE COMPANIES, INC.
INDEX
           
     
PAGE
           
PART I — FINANCIAL INFORMATION
   
2
 
Item 1 —
Financial Statements
   
2
 
 
Condensed Consolidated Balance Sheets at March 31, 2015 (Unaudited) and December 31, 2014
   
2
 
 
Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2015 (Unaudited) and 2014 (Unaudited)
   
3
 
 
Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2015 (Unaudited)
   
4
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 (Unaudited) and 2014 (Unaudited)
   
5
 
 
Notes to Condensed Consolidated Financial Statements  (Unaudited)
   
6
 
Item 2 —
 Management’s Discussion and Analysis of Financial Condition and Results of Operations
   
30
 
Item 3 —
 Quantitative and Qualitative Disclosures About Market Risk
   
53
 
Item 4 —
 Controls and Procedures
   
53
 
           
PART II — OTHER INFORMATION
   
54
 
Item 1 —
Legal Proceedings
   
54
 
Item 1A —
Risk Factors
   
54
 
Item 2 —
Unregistered Sales of Equity Securities and Use of Proceeds
   
54
 
Item 3 —
Defaults Upon Senior Securities
   
54
 
Item 4 —
Mine Safety Disclosures
   
54
 
Item 5 —
Other Information
   
54
 
Item 6 —
Exhibits
   
54
 
Signatures
    55  
EXHIBIT 3(a)
EXHIBIT 3(b)
EXHIBIT 31(a)
EXHIBIT 31(b)
EXHIBIT 32
EXHIBIT 101.INS XBRL Instance Document
EXHIBIT 101.SCH XBRL Taxonomy Extension Schema
EXHIBIT 101.CAL XBRL Taxonomy Extension Calculation Linkbase
EXHIBIT 101.DEF XBRL Taxonomy Extension Definition Linkbase
EXHIBIT 101.LAB XBRL Taxonomy Extension Label Linkbase
EXHIBIT 101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
 
 

 

Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements as that term is defined in the federal securities laws.  The events described in forward-looking statements contained in this Quarterly Report may not occur.  Generally, these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings 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 that may influence the accuracy of the statements and the projections upon which the statements are based.  Factors which may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2014 under “Factors That May Affect Future Results and Financial Condition.”
 
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.
 
 
1

 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.                       Financial Statements.
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
 
   
March 31,
   
December 31,
 
   
2015
   
2014
 
   
(unaudited)
 
 
 
Assets
           
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of
 
 $5,465,196 at March 31, 2015 and $5,395,054 at December 31, 2014)
  $ 5,132,238     $ 5,128,735  
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of
 
 $52,564,513 at March 31, 2015 and $50,083,441 at December 31, 2014)
    54,301,176       51,120,859  
Equity securities, available-for-sale, at fair value (cost of $8,766,866
         
 at  March 31, 2015 and $7,621,309 at December 31, 2014)
    9,237,109       8,017,729  
 Total investments
    68,670,523       64,267,323  
 Cash and cash equivalents
    6,283,655       9,906,878  
 Premiums receivable, net of provision for uncollectible amounts
    9,428,166       8,946,899  
 Receivables - reinsurance contracts
    1,436,205       1,301,549  
 Reinsurance receivables, net of provision for uncollectible amounts
    36,551,604       35,575,276  
 Deferred policy acquisition costs
    9,035,966       8,985,981  
 Intangible assets, net
    2,114,601       2,233,530  
 Property and equipment, net of accumulated depreciation
    2,497,138       2,448,042  
 Other assets
    1,371,410       1,330,944  
Total assets
  $ 137,389,268     $ 134,996,422  
                 
Liabilities
               
 Loss and loss adjustment expense reserves
  $ 42,151,264     $ 39,912,683  
 Unearned premiums
    40,926,461       40,458,041  
 Advance premiums
    1,414,096       1,006,582  
 Reinsurance balances payable
    2,018,556       2,096,363  
 Deferred ceding commission revenue
    5,902,562       5,956,540  
 Accounts payable, accrued expenses and other liabilities
    2,670,444       3,928,137  
 Deferred income taxes
    1,390,167       1,137,180  
Total liabilities
    96,473,550       94,495,526  
                 
Commitments and Contingencies
               
                 
Stockholders' Equity
               
 Preferred stock, $.01 par value; authorized 2,500,000 shares
    -       -  
Common stock, $.01 par value; authorized 20,000,000 shares; issued 8,286,452 shares
 
at March 31, 2015 and 8,235,095 shares at December 31, 2014; outstanding
 
 7,343,775 shares at March 31, 2015 and 7,308,757 shares at December 31, 2014
    82,865       82,351  
 Capital in excess of par
    32,889,235       32,873,383  
 Accumulated other comprehensive income
    1,456,557       946,332  
 Retained earnings
    8,219,997       8,203,003  
      42,648,654       42,105,069  
Treasury stock, at cost, 942,677 shares at March 31, 2015 and 926,338 shares
 
 at December 31, 2014
    (1,732,936 )     (1,604,173 )
Total stockholders' equity
    40,915,718       40,500,896  
                 
Total liabilities and stockholders' equity
  $ 137,389,268     $ 134,996,422  

See accompanying notes to condensed consolidated financial statements.
 
 
2

 
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
             
Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
 
Three months ended March 31,
 
2015
   
2014
 
             
 Revenues
           
 Net premiums earned
  $ 10,385,799     $ 5,926,311  
 Ceding commission revenue
    3,089,404       3,381,283  
 Net investment income
    574,656       378,788  
 Net realized (losses) gains on sales of investments
    (67,494 )     188,348  
 Other income
    631,191       227,557  
 Total revenues
    14,613,556       10,102,287  
                 
 Expenses
               
 Loss and loss adjustment expenses
    7,063,217       4,324,954  
 Commission expense
    3,412,327       2,582,508  
 Other underwriting expenses
    2,999,155       2,281,749  
 Other operating expenses
    328,498       250,035  
 Depreciation and amortization
    235,662       183,120  
 Total expenses
    14,038,859       9,622,366  
                 
 Income from operations before taxes
    574,697       479,921  
 Income tax expense
    192,198       152,788  
 Net income
    382,499       327,133  
                 
 Other comprehensive income, net of tax
               
 Gross change in unrealized gains
               
 on available-for-sale-securities
    705,574       868,744  
                 
Reclassification adjustment for losses (gains)
         
 included in net income
    67,494       (188,348 )
 Net change in unrealized gains
    773,068       680,396  
 Income tax expense related to items
               
 of other comprehensive income
    (262,843 )     (231,335 )
 Other comprehensive income, net of tax
    510,225       449,061  
                 
 Comprehensive income
  $ 892,724     $ 776,194  
                 
Earnings per common share:
               
Basic
  $ 0.05     $ 0.05  
Diluted
  $ 0.05     $ 0.04  
                 
Weighted average common shares outstanding
         
Basic
    7,318,271       7,266,573  
Diluted
    7,344,563       7,372,149  
                 
Dividends declared and paid per common share
  $ 0.05     $ 0.04  

See accompanying notes to condensed consolidated financial statements.
 
 
3

 
 
 
  KINGSTONE COMPANIES, INC. AND SUBSIDIARIES  
Condensed Consolidated Statement of Stockholders' Equity
 
Three months ended March 31, 2015 (unaudited)
 
                                                             
                                 
Accumulated
   
 
                   
                           
Capital
   
Other
                         
   
Preferred Stock
   
Common Stock
   
in Excess
   
Comprehensive
   
Retained
   
Treasury Stock
       
   
Shares
   
Amount
   
Shares
   
Amount
   
of Par
   
Income
   
Earnings
   
Shares
   
Amount
   
Total
 
Balance, January 1, 2015
    -     $ -       8,235,095     $ 82,351     $ 32,873,383     $ 946,332     $ 8,203,003       926,338     $ (1,604,173 )   $ 40,500,896  
Stock-based compensation
    -       -       -       -       38,892       -       -       -       -       38,892  
Shares deducted from exercise of stock
                                                                 
options for payment of withholding taxes
    -       -       (30,755 )     (308 )     (243,354 )     -       -       -       -       (243,662 )
Excess tax benefit from exercise
                                                                         
of stock options
    -       -       -       -       221,136       -       -       -       -       221,136  
Exercise of stock options
    -       -       82,112       822       (822 )     -       -       -       -       -  
Acquisition of treasury stock
    -       -       -       -       -       -       -       16,339       (128,763 )     (128,763 )
Dividends
    -       -       -       -       -       -       (365,505 )     -       -       (365,505 )
Net income
    -       -       -       -       -       -       382,499       -       -       382,499  
Change in unrealized gains on available-
                                                                 
for-sale securities, net of tax
    -       -       -       -       -       510,225       -       -       -       510,225  
Balance, March 31, 2015
    -     $ -       8,286,452     $ 82,865     $ 32,889,235     $ 1,456,557     $ 8,219,997       942,677     $ (1,732,936 )   $ 40,915,718  

See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
 
KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
             
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Three months ended March 31,
 
2015
   
2014
 
             
 Cash flows provided by operating activities:
           
 Net income
  $ 382,499     $ 327,133  
Adjustments to reconcile net income to net cash flows provided by operating activities:
 
 Net realized losses (gains) on sale of investments
    67,494       (188,348 )
 Depreciation and amortization
    235,662       183,120  
 Amortization of bond premium, net
    80,220       82,997  
 Stock-based compensation
    38,892       13,391  
 Excess tax benefit from exercise of stock options
    (221,136 )     -  
 Deferred income tax expense
    (9,856 )     (56,141 )
 (Increase) decrease in operating assets:
               
 Premiums receivable, net
    (481,267 )     (512,538 )
 Receivables - reinsurance contracts
    (134,656 )     116,422  
 Reinsurance receivables, net
    (976,328 )     (5,970,503 )
 Deferred policy acquisition costs
    (49,985 )     (333,038 )
 Other assets
    177,501       46,785  
 Increase (decrease) in operating liabilities:
               
 Loss and loss adjustment expense reserves
    2,238,581       5,540,025  
 Unearned premiums
    468,420       1,130,874  
 Advance premiums
    407,514       389,772  
 Reinsurance balances payable
    (77,807 )     415,493  
 Deferred ceding commission revenue
    (53,978 )     133,476  
 Accounts payable, accrued expenses and other liabilities
    (1,257,693 )     (914,292 )
 Net cash flows provided by operating activities
    834,077       404,628  
                 
 Cash flows used in investing activities:
               
 Purchase - fixed-maturity securities held-to-maturity
    -       (1,566,354 )
 Purchase - fixed-maturity securities available-for-sale
    (3,349,181 )     (10,396,843 )
 Purchase - equity securities available-for-sale
    (1,145,558 )     (2,662,152 )
 Sale or maturity - fixed-maturity securities available-for-sale
    716,892       2,176,834  
 Sale - equity securities available-for-sale
    -       1,287,326  
 Other investing activities
    (162,659 )     (312,215 )
 Net cash flows used in investing activities
    (3,940,506 )     (11,473,404 )
                 
 Cash flows used in financing activities:
               
 Withholding taxes paid on net exercise of stock options
    (243,662 )     -  
 Excess tax benefit from exercise of stock options
    221,136       -  
 Purchase of treasury stock
    (128,763 )     -  
 Dividends paid
    (365,505 )     (290,664 )
 Net cash flows used in financing activities
    (516,794 )     (290,664 )
                 
 Decrease in cash and cash equivalents
  $ (3,623,223 )   $ (11,359,440 )
 Cash and cash equivalents, beginning of period
    9,906,878       19,922,506  
 Cash and cash equivalents, end of period
  $ 6,283,655     $ 8,563,066  
                 
 Supplemental disclosures of cash flow information:
               
 Cash paid for income taxes
  $ 300,500     $ 400  
                 
Supplemental schedule of non-cash investing and financing activities:
         
 Value of shares deducted from exercise of stock options for payment of withholding taxes
  $ 243,662     $ -  

See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 - Nature of Business and Basis of Presentation
 
Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its wholly owned subsidiary Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance to small businesses and individuals exclusively through independent agents and brokers. KICO is a licensed insurance company in the State of New York and the Commonwealth of Pennsylvania; however, KICO writes substantially all of its business in New York.  Though March 31, 2015, Kingstone, through its wholly owned subsidiary, Payments, Inc., a licensed premium finance company in the State of New York, received fees for placing contracts with a third party licensed premium finance company (see Note 12 – Premium Finance Placement Fees).
 
The accompanying unaudited condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8-03 of SEC Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2014 and notes thereto included in the Company’s Annual Report on Form 10-K filed on March 25, 2015. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2015 may not be indicative of the results that may be expected for the year ending December 31, 2015.
 
Note 2 – Accounting Policies
 
Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions, which include the reserves for losses and loss adjustment expenses, are subject to considerable estimation error due to the inherent uncertainty in projecting ultimate claim amounts that will be reported and settled over a period of several years. In addition, estimates and assumptions associated with receivables under reinsurance contracts related to contingent ceding commission revenue require considerable judgment by management. On an on-going basis, management reevaluates its assumptions and the methods of calculating its estimates. Actual results may differ significantly from the estimates and assumptions used in preparing the consolidated financial statements.
 
 
6

 

Principles of Consolidation

The consolidated financial statements consist of Kingstone and its wholly owned subsidiaries. Subsidiaries include: (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates, and (2) Payments Inc. All significant inter-company transactions have been eliminated in consolidation.
 
Accounting Pronouncements
 
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This ASU revised guidance to only allow disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The Company adopted this guidance on January 1, 2015 and it did not have any effect on the Company’s consolidated results of operations, financial position or cash flows.

In May 2014, FASB issued guidance to change the recognition of revenue from contracts with customers. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance will be effective for the Company for reporting periods beginning after December 15, 2016. The Company will apply the guidance using a modified retrospective approach. The Company does not expect these amendments to have a material effect on its financial statements.

The Company has determined that all other recently issued accounting pronouncements will not have a material impact on its consolidated financial position, results of operations and cash flows, or do not apply to its operations.
 
 
7

 

Note 3 - Investments 

Available-for-Sale Securities

The amortized cost and fair value of investments in available-for-sale fixed-maturity securities and equity securities as of March 31, 2015 and December 31, 2014 are summarized as follows:
 
   
March 31, 2015
 
                                 
Net
 
  
 
Cost or
 
Gross
   
Gross Unrealized Losses
   
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
Fixed-Maturity Securities:
                         
Political subdivisions of States,
                         
Territories and Possessions
  $ 13,823,312     $ 511,766     $ (4,373 )   $ (5,216 )   $ 14,325,489     $ 502,177  
                                                 
Corporate and other bonds
                                               
 Industrial and miscellaneous
    35,933,004       1,262,502       (56,447 )     (6,664 )     37,132,395       1,199,391  
                                                 
Residential mortgage backed
                                 
securities
    2,808,197       36,707       (1,612 )     -       2,843,292       35,095  
Total fixed-maturity securities
    52,564,513       1,810,975       (62,432 )     (11,880 )     54,301,176       1,736,663  
                                                 
Equity Securities:
                                         
Preferred stocks
    3,410,290       57,567       (72 )     (16,931 )     3,450,854       40,564  
Common stocks
    5,356,576       437,021       (7,342 )     -       5,786,255       429,679  
Total equity securities
    8,766,866       494,588       (7,414 )     (16,931 )     9,237,109       470,243  
                                                 
Total
  $ 61,331,379     $ 2,305,563     $ (69,846 )   $ (28,811 )   $ 63,538,285     $ 2,206,906  
 
   
December 31, 2014
                                 
Net
 
  
 
Cost or
 
Gross
   
Gross Unrealized Losses
   
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
Fixed-Maturity Securities:
                         
Political subdivisions of States,
                         
Territories and Possessions
  $ 13,862,141     $ 412,490     $ (23,813 )   $ (6,379 )   $ 14,244,439     $ 382,298  
                                                 
Corporate and other bonds
                                               
Industrial and miscellaneous
    36,221,300       803,440       (118,092 )     (30,228 )     36,876,420       655,120  
Total fixed-maturity securities
    50,083,441       1,215,930       (141,905 )     (36,607 )     51,120,859       1,037,418  
                                                 
Equity Securities:
                                         
Preferred stocks
    3,172,632       19,180       (2,647 )     (62,886 )     3,126,280       (46,352 )
Common stocks
    4,448,677       444,950       -       (2,177 )     4,891,449       442,772  
Total equity securities
    7,621,309       464,130       (2,647 )     (65,063 )     8,017,729       396,420  
                                                 
Total
  $ 57,704,750     $ 1,680,060     $ (144,552 )   $ (101,670 )   $ 59,138,588     $ 1,433,838  
 
 
8

 
 
A summary of the amortized cost and fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2015 and December 31, 2014 is shown below:
 
   
March 31, 2015
   
December 31, 2014
 
   
Amortized
       
Amortized
     
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ 357,260     $ 361,005     $ 482,833     $ 487,507  
 One to five years
    14,056,049       14,579,816       11,640,381       11,943,127  
 Five to ten years
    30,450,200       31,434,892       32,283,921       32,865,231  
 More than 10 years
    4,892,807       5,082,171       5,676,306       5,824,994  
 Residential mortgage backed securities
    2,808,197       2,843,292       -       -  
 Total
  $ 52,564,513     $ 54,301,176     $ 50,083,441     $ 51,120,859  

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

Held-to-Maturity Securities

The amortized cost and fair value of investments in held-to-maturity fixed-maturity securities as of March 31, 2015 and December 31, 2014 are summarized as follows:
 
   
March 31, 2015
                                 
Net
 
  
 
Cost or
 
Gross
   
Gross Unrealized Losses
   
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
 Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
                                     
 U.S. Treasury securities
  $ 606,362     $ 205,656     $ -     $ -     $ 812,018     $ 205,656  
                                                 
Political subdivisions of States,
                                 
 Territories and Possessions
    1,414,362       61,683       -       (26,250 )     1,449,795       35,433  
                                                 
Corporate and other bonds
                                 
 Industrial and miscellaneous
    3,111,514       142,142       (50,273 )     -       3,203,383       91,869  
                                                 
 Total
  $ 5,132,238     $ 409,481     $ (50,273 )   $ (26,250 )   $ 5,465,196     $ 332,958  
 
 
9

 
 
   
December 31, 2014
 
                                 
Net
 
  
 
Cost or
 
Gross
   
Gross Unrealized Losses
   
Unrealized
 
   
Amortized
 
Unrealized
   
Less than 12
   
More than 12
   
Fair
   
Gains/
 
Category
 
Cost
   
Gains
   
Months
   
Months
   
Value
   
(Losses)
 
                                     
                                     
U.S. Treasury securities
  $ 606,353     $ 183,200     $ -     $ -     $ 789,553     $ 183,200  
                                                 
Political subdivisions of States,
                                 
Territories and Possessions
    1,413,303       49,981       -       (12,247 )     1,451,037       37,734  
                                                 
Corporate and other bonds
                                 
Industrial and miscellaneous
    3,109,079       98,306       (52,921 )     -       3,154,464       45,385  
                                                 
Total
  $ 5,128,735     $ 331,487     $ (52,921 )   $ (12,247 )   $ 5,395,054     $ 266,319  
 
Held-to-maturity U.S. Treasury securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

A summary of the amortized cost and fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of March 31, 2015 and December 31, 2014 is shown below:
 
   
March 31, 2015
   
December 31, 2014
 
   
Amortized
 
 
   
Amortized
     
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ -     $ -     $ -     $ -  
 One to five years
    500,000       505,380       -       -  
 Five to ten years
    3,530,867       3,624,128       3,522,927       3,563,401  
 More than 10 years
    1,101,371       1,335,688       1,605,808       1,831,653  
 Total
  $ 5,132,238     $ 5,465,196     $ 5,128,735     $ 5,395,054  

Investment Income

Major categories of the Company’s net investment income are summarized as follows:
 
   
Three months ended
 
   
March 31,
 
   
2015
   
2014
 
             
 Income:
 
 
   
 
 
 Fixed-maturity securities
  $ 510,955     $ 342,918  
 Equity securities
    122,569       114,513  
 Cash and cash equivalents
    94       20,619  
 Total
    633,618       478,050  
 Expenses:
               
 Investment expenses
    58,962       99,262  
 Net investment income
  $ 574,656     $ 378,788  

Proceeds from the sale and maturity of fixed-maturity securities were $716,892 and $2,176,834 for the three months ended March 31, 2015 and 2014, respectively.
 
 
10

 
 
Proceeds from the sale of equity securities were $-0- and $1,287,326 for the three months ended March 31, 2015 and 2014, respectively.

The Company’s net realized (losses) gains on investments are summarized as follows:
 
   
Three months ended
 
   
March 31,
 
   
2015
   
2014
 
             
Fixed-maturity securities:
       
 Gross realized gains
  $ -     $ 89,256  
 Gross realized losses
    (67,494 )     (26,399 )
      (67,494 )     62,857  
                 
 Equity securities:
               
 Gross realized gains
    -       136,059  
 Gross realized losses
    -       (10,568 )
      -       125,491  
                 
 Net realized (losses) gains
  $ (67,494 )   $ 188,348  
 
Impairment Review
 
Impairment of investment securities results in a charge to operations when a market decline to below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. In evaluating potential impairment, GAAP specifies (i) if the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss.  When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.  For held-to-maturity debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security on the basis of timing of future estimated cash flows of the security.

OTTI losses are recorded in the condensed consolidated statements of income and comprehensive income as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. At March 31, 2015, there were 24 securities that accounted for the gross unrealized loss. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of fixed-maturity securities and equity securities for the three months ended March 31, 2015 and 2014. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery of fair value to the Company’s cost basis.
 
 
11

 
 
The Company held securities with unrealized losses representing declines that were considered temporary at March 31, 2015 and December 31, 2014 as follows:
 
   
March 31, 2015
   
Less than 12 months
   
12 months or more
   
Total
 
  
             
           No. of
         
No. of
   
      Aggregate
 
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
 
Category
 
Value
   
Losses
   
Held
   
Value
   
Losses
   
Held
   
Value
   
Losses
 
                                                 
Fixed-Maturity Securities:
                                     
Political subdivisions of
                                           
States, Territories and
                                           
Possessions
  $ 548,802     $ (4,373 )     2     $ 116,919     $ (5,216 )     1     $ 665,721     $ (9,589 )
                                                                 
Corporate and other
                                                         
bonds industrial and
                                                         
 miscellaneous
    2,555,063       (56,447 )     7       483,170       (6,664 )     1       3,038,233       (63,111 )
                                                                 
Residential mortgage
                                                         
backed securities
    362,660       (1,612 )     2       -       -               362,660       (1,612 )
                                                                 
Total fixed-maturity
                                                         
securities
  $ 3,466,525     $ (62,432 )     11     $ 600,089     $ (11,880 )     2     $ 4,066,614     $ (74,312 )
                                                                 
Equity Securities:
                                                         
Preferred stocks
  $ 731,250     $ (72 )     1     $ 940,600     $ (16,931 )     4     $ 1,671,850     $ (17,003 )
Common stocks
    887,495       (7,342 )     6       -       -       -       887,495       (7,342 )
                                                                 
Total equity securities
  $ 1,618,745     $ (7,414 )     7     $ 940,600     $ (16,931 )     4     $ 2,559,345     $ (24,345 )
                                                                 
Total
  $ 5,085,270     $ (69,846 )     18     $ 1,540,689     $ (28,811 )     6     $ 6,625,959     $ (98,657 )
 
 
12

 
 
   
December 31, 2014
   
Less than 12 months
   
12 months or more
 
Total
 
  
             
           No. of
         
No. of
   
       Aggregate
 
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
   
Positions
   
Fair
   
Unrealized
 
Category
 
Value
   
Losses
   
Held
   
Value
   
Losses
   
Held
   
Value
   
Losses
 
                                                 
Fixed-Maturity Securities:
                                     
Political subdivisions of
                                           
States, Territories and
                                           
Possessions
  $ 3,013,648     $ (23,813 )     9     $ 126,658     $ (6,379 )     1     $ 3,140,306     $ (30,192 )
                                                                 
Corporate and other
                                                         
bonds industrial and
                                                         
miscellaneous
    6,325,579       (118,092 )     15       714,640       (30,228 )     2       7,040,219       (148,320 )
                                                                 
Total fixed-maturity
                                                         
securities
  $ 9,339,227     $ (141,905 )     24     $ 841,298     $ (36,607 )     3     $ 10,180,525     $ (178,512 )
                                                                 
Equity Securities:
                                                         
Preferred stocks
  $ 656,325     $ (2,647 )     1     $ 1,448,376     $ (62,886 )     6     $ 2,104,701     $ (65,533 )
Common stocks
    -       -       -       267,000       (2,177 )     1       267,000       (2,177 )
                                                                 
Total equity securities
  $ 656,325     $ (2,647 )     1     $ 1,715,376     $ (65,063 )     7     $ 2,371,701     $ (67,710 )
                                                                 
Total
  $ 9,995,552     $ (144,552 )     25     $ 2,556,674     $ (101,670 )     10     $ 12,552,226     $ (246,222 )
 
 
13

 
 
Note 4 - Fair Value Measurements

The Company follows GAAP guidance regarding fair value measurements. The valuation technique used to fair value the financial instruments is the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets.
 
This guidance establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded, including during period of market disruption, and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:
 
Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Included are those investments traded on an active exchange, such as the NASDAQ Global Select Market, U.S. Treasury securities and obligations of U.S. government agencies, together with corporate debt securities that are generally investment grade.
 
Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.  Municipal and corporate bonds, and residential mortgage backed securities that are traded in less active markets are classified as Level 2.  These securities are valued using market price quotations for recently executed transactions.

Level 3—Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Material assumptions and factors considered in pricing investment securities and other assets may include appraisals, projected cash flows, market clearing activity or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.
 
The availability of observable inputs varies and is affected by a wide variety of factors. When the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. The degree of judgment exercised by management in determining fair value is greatest for investments categorized as Level 3. For investments in this category, the Company considers prices and inputs that are current as of the measurement date. In periods of market dislocation, as characterized by current market conditions, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause a security to be reclassified between levels.
 
 
14

 
 
The Company’s investments are allocated among pricing input levels at March 31, 2015 and December 31, 2014 as follows:
 
   
March 31, 2015
 
 ($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed-maturity securities available for sale
             
 Political subdivisions of
                       
 States, Territories and
                       
 Possessions
  $ -     $ 14,325,489     $ -     $ 14,325,489  
                                 
 Corporate and other
                               
 bonds industrial and
                               
 miscellaneous
    29,444,211       7,688,184       -       37,132,395  
                                 
 Residential mortgage backed securities
    -       2,843,292       -       2,843,292  
 Total fixed maturities
    29,444,211       24,856,965       -       54,301,176  
 Equity securities
    9,237,109       -       -       9,237,109  
 Total investments
  $ 38,681,320     $ 24,856,965     $ -     $ 63,538,285  
 
   
December 31, 2014
 
 ($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed-maturity investments available for sale
                   
 Political subdivisions of