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, 2016
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   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)
 
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
 
Smaller reporting company þ
        (Do not check if a smaller reporting company)    

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, 2016 there were 7,912,375 shares of the registrant’s common stock outstanding.
 


 
 
 
 
 
KINGSTONE COMPANIES, INC.
INDEX
       
PAGE
         
PART I — FINANCIAL INFORMATION
 
4
         
   
4
         
     
4
         
     
5
         
     
6
         
     
7
         
     
8
         
   
34
         
   
57
         
   
57
         
PART II — OTHER INFORMATION
 
58
         
   
58
         
   
58
         
   
58
         
   
58
         
   
58
         
   
58
         
   
59
         
  60
     
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    
 
 
2

 
 
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, 2015 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.
 
 
 
 
3

 
 
PART I.  FINANCIAL INFORMATION
 
Item 1.   Financial Statements.
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
   
 
   
March 31,
   
December 31,
 
   
2016
   
2015
 
   
(unaudited)
       
 Assets
           
             
Fixed-maturity securities, held-to-maturity, at amortized cost (fair value of $5,366,630 at March 31, 2016 and $5,241,095 at December 31, 2015)
  $ 5,140,522     $ 5,138,872  
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $71,617,357 at March 31, 2016 and $62,221,129 at December 31, 2015)
    73,230,016       62,502,064  
Equity securities, available-for-sale, at fair value (cost of $9,501,112 at  March 31, 2016 and $8,751,537 at December 31, 2015)
    10,025,750       9,204,270  
Total investments
    88,396,288       76,845,206  
Cash and cash equivalents
    5,579,224       13,551,372  
Premiums receivable, net
    10,522,191       10,621,655  
Reinsurance receivables, net
    35,830,346       31,270,235  
Deferred policy acquisition costs
    10,977,276       10,835,306  
Intangible assets, net
    1,638,887       1,757,816  
Property and equipment, net
    3,169,531       3,152,266  
Other assets
    1,511,848       1,095,894  
Total assets
  $ 157,625,591     $ 149,129,750  
                 
Liabilities
               
Loss and loss adjustment expense reserves
  $ 46,030,765     $ 39,876,500  
Unearned premiums
    49,013,099       48,890,241  
Advance premiums
    1,731,862       1,199,376  
Reinsurance balances payable
    3,225,893       1,688,922  
Deferred ceding commission revenue
    6,416,209       6,435,068  
Accounts payable, accrued expenses and other liabilities
    2,960,922       4,826,603  
Income taxes payable
    917,127       263,622  
Deferred income taxes
    1,106,310       672,190  
Total liabilities
    111,402,187       103,852,522  
                 
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 8,289,606 shares at March 31, 2016 and December 31, 2015; outstanding 7,317,137 shares at March 31, 2016 and 7,328,637 shares at December 31, 2015
    82,896       82,896  
Capital in excess of par
    33,019,316       32,987,082  
Accumulated other comprehensive income
    1,410,614       484,220  
Retained earnings
    13,688,654       13,605,225  
      48,201,480       47,159,423  
Treasury stock, at cost, 972,469 shares at March 31, 2016 and 960,969 shares at December 31, 2015
    (1,978,076 )     (1,882,195 )
Total stockholders' equity
    46,223,404       45,277,228  
                 
Total liabilities and stockholders' equity
  $ 157,625,591     $ 149,129,750  
 
See accompanying notes to condensed consolidated financial statements.
 
 
4

 
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
       
 
Three months ended March 31,
 
2016
   
2015
 
             
 Revenues
           
 Net premiums earned
  $ 14,531,675     $ 10,385,799  
 Ceding commission revenue
    2,770,337       3,089,404  
 Net investment income
    813,057       574,656  
 Net realized gains (losses) on sales of investments
    80,436       (67,494 )
 Other income
    249,347       631,191  
 Total revenues
    18,444,852       14,613,556  
                 
 Expenses
               
 Loss and loss adjustment expenses
    9,483,855       7,063,217  
 Commission expense
    4,270,066       3,412,327  
 Other underwriting expenses
    3,346,441       2,999,155  
 Other operating expenses
    329,239       328,498  
 Depreciation and amortization
    283,828       235,662  
 Total expenses
    17,713,429       14,038,859  
                 
 Income from operations before taxes
    731,423       574,697  
 Income tax expense
    190,391       192,198  
 Net income
    541,032       382,499  
                 
 Other comprehensive income, net of tax
               
 Gross change in unrealized gains on available-for-sale-securities
    1,484,064       705,574  
                 
 Reclassification adjustment for (gains) losses included in net income
    (80,436 )     67,494  
 Net change in unrealized gains
    1,403,628       773,068  
 Income tax expense related to items of other comprehensive income
    (477,234 )     (262,843 )
 Other comprehensive income, net of tax
    926,394       510,225  
                 
 Comprehensive income
  $ 1,467,426     $ 892,724  
                 
Earnings per common share:
               
Basic
  $ 0.07     $ 0.05  
Diluted
  $ 0.07     $ 0.05  
                 
Weighted average common shares outstanding
               
Basic
    7,322,385       7,318,271  
Diluted
    7,360,564       7,344,563  
                 
Dividends declared and paid per common share
  $ 0.0625     $ 0.0500  
 
See accompanying notes to condensed consolidated financial statements.
 
 
5

 
 
 KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
 
Three months ended March 31, 2016
 
                                 
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, 2016
    -     $ -       8,289,606     $ 82,896     $ 32,987,082     $ 484,220     $ 13,605,225       960,969     $ (1,882,195 )   $ 45,277,228  
Stock-based compensation
    -       -       -       -       32,234       -       -       -       -       32,234  
Acquisition of treasury stock
    -       -       -       -       -       -       -       11,500       (95,881 )     (95,881 )
Dividends
    -       -       -       -       -       -       (457,603 )     -       -       (457,603 )
Net income
    -       -       -       -       -       -       541,032       -       -       541,032  
Change in unrealized gains on available-
                                                                               
for-sale securities, net of tax
    -       -       -       -       -       926,394       -       -       -       926,394  
Balance, March 31, 2016
    -     $ -       8,289,606     $ 82,896     $ 33,019,316     $ 1,410,614     $ 13,688,654       972,469     $ (1,978,076     $ 46,223,404  
 
See accompanying notes to condensed consolidated financial statements.
 
 
6

 
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31,
 
   
2016
   
2015
 
             
 Cash flows provided by operating activities:
           
 Net income
  $ 541,032     $ 382,499  
 Adjustments to reconcile net income to net cash flows provided by operating activities:
               
 Net realized (gains) losses on sale of investments
    (80,436 )     67,494  
 Depreciation and amortization
    283,828       235,662  
 Amortization of bond premium, net
    92,646       80,220  
 Stock-based compensation
    32,234       38,892  
 Excess tax benefit from exercise of stock options
    -       (221,136 )
 Deferred income tax expense
    (43,114 )     (9,856 )
 (Increase) decrease in operating assets:
               
 Premiums receivable, net
    99,464       (481,267 )
 Receivables - reinsurance contracts
    -       (134,656 )
 Reinsurance receivables, net
    (4,560,111 )     (976,328 )
 Deferred policy acquisition costs
    (141,970 )     (49,985 )
 Other assets
    (666,404 )     177,501  
 Increase (decrease) in operating liabilities:
               
 Loss and loss adjustment expense reserves
    6,154,265       2,238,581  
 Unearned premiums
    122,858       468,420  
 Advance premiums
    532,486       407,514  
 Reinsurance balances payable
    1,536,971       (77,807 )
 Deferred ceding commission revenue
    (18,859 )     (53,978 )
 Accounts payable, accrued expenses and other liabilities
    (1,212,176 )     (1,257,693 )
 Net cash flows provided by operating activities
    2,672,714       834,077  
                 
 Cash flows used in investing activities:
               
 Purchase - fixed-maturity securities available-for-sale
    (15,890,742 )     (3,349,181 )
 Purchase - equity securities available-for-sale
    (1,831,513 )     (1,145,558 )
 Sale or maturity - fixed-maturity securities available-for-sale
    6,401,092       716,892  
 Sale - equity securities available-for-sale
    1,161,501       -  
 Acquisition of fixed assets
    (182,164 )     (165,829 )
 Other investing activities
    250,448       3,170  
 Net cash flows used in investing activities
    (10,091,378 )     (3,940,506 )
                 
 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
    (95,881 )     (128,763 )
 Dividends paid
    (457,603 )     (365,505 )
 Net cash flows used in financing activities
    (553,484 )     (516,794 )
                 
 Decrease in cash and cash equivalents
  $ (7,972,148 )   $ (3,623,223 )
 Cash and cash equivalents, beginning of period
    13,551,372       9,906,878  
 Cash and cash equivalents, end of period
  $ 5,579,224     $ 6,283,655  
                 
 Supplemental disclosures of cash flow information:
               
 Cash paid for income taxes
  $ 30,000     $ 300,500  
                 
 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.
 
 
7

 
 
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 States of New York, New Jersey, Connecticut, Pennsylvania, Rhode Island and Texas; however, KICO writes substantially all of its business in New York.  Through 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 11 – 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, 2015 and notes thereto included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2016. 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, 2016 may not be indicative of the results that may be expected for the year ending December 31, 2016.
 
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.
 
 
8

 
 
Principles of Consolidation

The consolidated financial statements consist of Kingstone and its wholly owned subsidiaries; (1) KICO and its wholly owned subsidiaries, CMIC Properties, Inc. (“Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which together own the land and building from which KICO operates, and (2) Payments Inc. All significant inter-company transactions have been eliminated in consolidation.
 
Accounting Pronouncements
 
In May 2014, the Financial Accounting Standards Board (“FASB) issued Accounting Standards Update (“ASU”) 2014-09 – Revenue from Contracts with Customers (Topic 606). 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.  ASU No. 2014-09, as amended by ASU No. 2015-14, ASU No. 2016-08 and ASU No. 2016-10, is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period.  Early adoption is permitted for annual 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 consolidated financial statements.
 
In May 2015, FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures About Short-Duration Contracts. The updated accounting guidance requires expanded disclosures for insurance entities that issue short-duration contracts. The expanded disclosures are designed to provide additional insight into an insurance entity’s ability to underwrite and anticipate costs associated with insurance claims.  The disclosures include information about incurred and paid claims development by accident year, on a net basis after reinsurance, for the number of years claims incurred typically remain outstanding, not to exceed ten years.  Each period presented in the disclosure about claims development that precedes the current reporting period is considered required supplementary information. The expanded disclosures also include information about significant changes in methodologies and assumptions, a reconciliation of incurred and paid claims development to the carrying amount of the liability for unpaid claims and claim adjustment expenses, the total amount of incurred but not reported liabilities plus expected development, claims frequency information including the methodology used to determine claim frequency and any changes to that methodology, and claim duration.  The guidance is effective for annual periods beginning after December 15, 2015, and interim periods beginning after December 15, 2016, and is to be applied retrospectively.  The new guidance affects disclosures only and will have no impact on the Company’s results of operations or financial position.
 
In January of 2016, the FASB issued ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.”  The updated accounting guidance requires changes to the reporting model for financial instruments.  The primary change for the Company is expected to be the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.  The updated guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Company is currently evaluating the effect the updated guidance will have on its consolidated financial statements.
  
 
9

 
 
In February 2016, FASB issued ASU No. 2016-02 – Leases (Topic 842). Under this ASU, lessees will recognize a right-of-use asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of fewer than 12 months. The liability is to be measured as the present value of the future minimum lease payments taking into account renewal options if applicable plus initial incremental direct costs such as commissions. The minimum payments are discounted using the rate implicit in the lease or, if not known, the lessee’s incremental borrowing rate. The lessee’s income statement treatment for leases will vary depending on the nature of what is being leased. A financing type lease is present when, among other matters, the asset is being leased for a substantial portion of its economic life or has an end-of-term title transfer or a bargain purchase option as in today’s practice. The payment of the liability set up for such leases will be apportioned between interest and principal; the right-of use asset will be generally amortized on a straight-line basis. If the lease does not qualify as a financing type lease, it will be accounted for on the income statement as rent on a straight-line basis. The guidance will be effective for the Company for reporting periods beginning after December 15, 2018. The Company will apply the guidance using a modified retrospective approach. Early application is permitted. The Company is evaluating whether the adoption of ASU 2016-02 will have a significant impact on its consolidated results of operations, financial position or cash flows.
 
 
In January 2016, the FASB issued ASU No. 2016-09 – Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments. These amendments to current accounting guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled rather than through additional paid in capital in the equity section of the balance sheet. The amendments also permit an employer to repurchase an employee’s shares at the maximum statutory tax rate in the employee’s applicable jurisdiction for tax withholding purposes without triggering liability accounting. Finally, the amendments permit entities to make a one-time accounting policy election to account for forfeitures as they occur. Specific adoption methods depend on the issue being adopted and range from prospective to retrospective adoption. Early adoption is permitted, however all amendments must be adopted in the same period. The Company is evaluating whether the adoption of ASU 2016-09 will have a significant impact on its consolidated results of operations, financial position or cash flows.

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.

 
 
10

 
 
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, 2016 and December 31, 2015 are summarized as follows:

   
March 31, 2016
 
                                 
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
  $ 10,211,142     $ 490,669     $ (2,510 )   $ (5,060 )   $ 10,694,241     $ 483,099  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
  $ 45,367,395       1,247,820       (210,199 )     (59,298 )     46,345,718       978,323  
                                                 
 Residential mortgage backed
                                               
 securities
  $ 16,038,820       188,141       (36,904 )     -       16,190,057       151,237  
 Total fixed-maturity securities
  $ 71,617,357       1,926,630       (249,613 )     (64,358 )     73,230,016       1,612,659  
                                                 
 Equity Securities:
                                               
 Preferred stocks
  $ 3,187,826       77,621       -       (30,072 )     3,235,375       47,549  
 Common stocks
  $ 6,313,286       542,527       (65,438 )     -       6,790,375       477,089  
 Total equity securities
  $ 9,501,112       620,148       (65,438 )     (30,072 )     10,025,750       524,638  
                                                 
 Total
  $ 81,118,469     $ 2,546,778     $ (315,051 )   $ (94,430 )   $ 83,255,766     $ 2,137,297  
 

 
11

 
 
   
December 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
  $ 12,139,793     $ 431,194     $ (15,889 )   $ -     $ 12,555,098     $ 415,305  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    45,078,044       490,444       (512,427 )     (99,593 )     44,956,468       (121,576 )
                                                 
Residential mortgage backed
                                             
 securities
    5,003,292       48,375       (61,169 )     -       4,990,498       (12,794 )
 Total fixed-maturity securities
    62,221,129       970,013       (589,485 )     (99,593 )     62,502,064       280,935  
                                                 
Equity Securities:
                                             
 Preferred stocks
    2,874,173       70,799       -       (29,322 )     2,915,650       41,477  
 Common stocks
    5,877,364       514,977       (103,721 )     -       6,288,620       411,256  
 Total equity securities
    8,751,537       585,776       (103,721 )     (29,322 )     9,204,270       452,733  
                                                 
 Total
  $ 70,972,666     $ 1,555,789     $ (693,206 )   $ (128,915 )   $ 71,706,334     $ 733,668  
 
 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, 2016 and December 31, 2015 is shown below:
 
   
March 31, 2016
   
December 31, 2015
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ 1,960,172     $ 1,989,139     $ 827,246     $ 837,918  
 One to five years
    21,829,957       22,476,966       17,146,349       17,393,571  
 Five to ten years
    30,423,009       31,171,743       37,877,726       37,884,450  
 More than 10 years
    1,365,399       1,402,111       1,366,516       1,395,627  
 Residential mortgage backed securities
    16,038,820       16,190,057       5,003,292       4,990,498  
 Total
  $ 71,617,357     $ 73,230,016     $ 62,221,129     $ 62,502,064  
 
The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.
 
 
12

 
 
Held-to-Maturity Securities

The amortized cost and fair value of investments in held-to-maturity fixed-maturity securities as of March 31, 2016 and December 31, 2015 are summarized as follows:
 
   
March 31, 2016
 
                                 
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
  $ 606,398     $ 147,641     $ -     $ -     $ 754,039     $ 147,641  
                                                 
Political subdivisions of States,
                                             
 Territories and Possessions
    1,418,827       88,948       -       (66,215 )     1,441,560       22,733  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    3,115,297       152,036       (225 )     (96,077 )     3,171,031       55,734  
                                                 
 Total
  $ 5,140,522     $ 388,625     $ (225 )   $ (162,292 )   $ 5,366,630     $ 226,108  
 
   
December 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
  $ 606,389     $ 147,650     $ -     $ -     $ 754,039     $ 147,650  
                                                 
Political subdivisions of States,
                                             
 Territories and Possessions
    1,417,679       70,284       -       (54,189 )     1,433,774       16,095  
                                                 
 Corporate and other bonds
                                               
 Industrial and miscellaneous
    3,114,804       82,265       (17,980 )     (125,807 )     3,053,282       (61,522 )
                                                 
 Total
  $ 5,138,872     $ 300,199     $ (17,980 )   $ (179,996 )   $ 5,241,095     $ 102,223  
 
Held-to-maturity U.S. Treasury securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.
 
 
13

 
 
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, 2016 and December 31, 2015 is shown below:
 
   
March 31, 2016
   
December 31, 2015
 
   
Amortized
         
Amortized
       
 Remaining Time to Maturity
 
Cost
   
Fair Value
   
Cost
   
Fair Value
 
                         
 Less than one year
  $ -     $ -     $ -     $ -  
 One to five years
    500,000       506,790       500,000       496,245  
 Five to ten years
    4,034,124       4,105,801       4,032,483       3,990,811  
 More than 10 years
    606,398       754,039       606,389       754,039  
 Total
  $ 5,140,522     $ 5,366,630     $ 5,138,872     $ 5,241,095  
 
Investment Income

Major categories of the Company’s net investment income are summarized as follows:
 
   
Three months ended
 
   
March 31,
 
   
2016
   
2015
 
 Income:
           
 Fixed-maturity securities
  $ 664,476     $ 510,955  
 Equity securities
    175,951       122,569  
 Cash and cash equivalents
    6,446       94  
 Total
    846,873       633,618  
 Expenses:
               
 Investment expenses
    33,816       58,962  
 Net investment income
  $ 813,057     $ 574,656  
 
Proceeds from the sale and maturity of fixed-maturity securities were $6,401,092 and $716,892 for the three months ended March 31, 2016 and 2015, respectively.

Proceeds from the sale of equity securities were $1,161,501 and $-0- for the three months ended March 31, 2016 and 2015, respectively.
 
 
14

 
 
The Company’s net realized gains (losses) on investments are summarized as follows:
 
   
Three months ended
 
   
March 31,
 
   
2016
   
2015
 
             
 Fixed-maturity securities:
           
 Gross realized gains
  $ 106,417     $ -  
 Gross realized losses
    (105,543 )     (67,494 )
      874       (67,494 )
                 
 Equity securities:
               
 Gross realized gains
    82,688       -  
 Gross realized losses
    (3,126 )     -  
      79,562       -  
                 
 Net realized gains (losses)
  $ 80,436     $ (67,494 )
 
Impairment Review
  
Impairment of investment securities results in a charge to operations when a market decline 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, 2016 and December 31, 2015, there were 32 and 57 securities, respectively, 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 investments and equity securities for the three months ended March 31, 2016 and 2015. 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.
 
 
15

 
 
The Company held securities with unrealized losses representing declines that were considered temporary at March 31, 2016 and December 31, 2015 as follows:
 
   
March 31, 2016
 
   
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
  $ 334,827     $ (2,510 )     1     $ 339,627     $ (5,060 )     1     $ 674,454     $ (7,570 )
                                                                 
Corporate and other bonds industrial and miscellaneous
    5,269,173       (210,199 )     13       687,228       (59,298 )     2       5,956,401       (269,497 )
                                                                 
Residential mortgage backed securities
    1,614,256       (36,904 )     10       -       -       -       1,614,256       (36,904 )
                                                                 
Total fixed-maturity securities
  $ 7,218,256     $ (249,613 )     24     $ 1,026,855     $ (64,358 )     3     $ 8,245,111     $ (313,971 )
                                                                 
Equity Securities:
                                                               
Preferred stocks
  $ -     $ -       -     $ 701,250     $ (30,072 )     1     $ 701,250     $ (30,072 )
Common stocks
    1,502,700       (65,438 )     4       -       -       -       1,502,700       (65,438 )
                                                                 
Total equity securities
  $ 1,502,700     $ (65,438 )     4     $ 701,250     $ (30,072 )     1     $ 2,203,950     $ (95,510 )
                                                                 
Total
  $ 8,720,956     $ (315,051 )     28     $ 1,728,105     $ (94,430 )     4     $ 10,449,061     $ (409,481 )
 
 
 
16

 
 
   
December 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
  $ 1,432,005     $ (15,889 )     4     $ -     $ -       -     $ 1,432,005     $ (15,889 )
                                                                 
Corporate and other bonds industrial and miscellaneous
    18,424,609       (512,427 )     32       636,093       (99,593 )     2       19,060,702       (612,020 )
                                                                 
Residential mortgage backed securities
    2,413,980       (61,169 )     12       -       -       -       2,413,980       (61,169 )
                                                                 
Total fixed-maturity securities
  $ 22,270,594     $ (589,485 )     48     $ 636,093     $ (99,593 )     2     $ 22,906,687     $ (689,078 )
                                                                 
Equity Securities:                                                                
Preferred stocks
  $ -     $ -       -     $ 702,000     $ (29,322 )     1     $ 702,000     $ (29,322 )
Common stocks
    2,538,900       (103,721 )     6       -       -       -       2,538,900       (103,721 )
                                                                 
Total equity securities
  $ 2,538,900     $ (103,721 )     6     $ 702,000     $ (29,322 )     1     $ 3,240,900     $ (133,043 )
                                                                 
Total
  $ 24,809,494     $ (693,206 )     54     $ 1,338,093     $ (128,915 )     3     $ 26,147,587     $ (822,121 )
 
 
17

 
 
Note 4 - Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation technique used by the Company to fair value its financial instruments is the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets.
 
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.
 
 
18

 
 
The Company’s investments are allocated among pricing input levels at March 31, 2016 and December 31, 2015 as follows:
 
   
March 31, 2016
 
 ($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed-maturity securities available-for-sale                        
Political subdivisions of States, Territories and Possessions
  $ -     $ 10,694,241     $ -     $ 10,694,241  
                                 
Corporate and other bonds industrial and miscellaneous
    39,440,630       6,905,088       -       46,345,718  
                                 
 Residential mortgage backed securities
    -       16,190,057       -       16,190,057  
 Total fixed maturities
    39,440,630       33,789,386       -       73,230,016  
 Equity securities
    10,025,750       -       -       10,025,750  
 Total investments
  $ 49,466,380     $ 33,789,386     $ -     $ 83,255,766  
 
   
December 31, 2015
 
 ($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
Total
 
                         
Fixed-maturity securities available-for-sale                        
Political subdivisions of States, Territories and Possessions
  $ -     $ 12,555,098     $ -     $ 12,555,098  
                                 
Corporate and other bonds industrial and miscellaneous
    37,964,006       6,992,462       -       44,956,468  
                                 
 Residential mortgage backed securities
    -       4,990,498       -       4,990,498  
 Total fixed maturities
    37,964,006       24,538,058       -       62,502,064  
 Equity securities
    9,204,270       -       -       9,204,270  
 Total investments
  $ 47,168,276     $ 24,538,058     $ -     $ 71,706,334  
 
Note 5 - Fair Value of Financial Instruments

The Company uses the following methods and assumptions in estimating its fair value disclosures for financial instruments:
 
Equity securities and fixed income securities available-for-sale:  Fair value disclosures for these investments are included in “Note 3 - Investments.”

Cash and cash equivalents: The carrying values of cash and cash equivalents approximate their fair values because of the short-term nature of these instruments.

Premiums receivable and reinsurance receivables:  The carrying values reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to the short-term nature of the assets.
 
 
19

 
 
Real estate: The fair value of the land and building included in property and equipment, which is used in the Company’s operations, approximates the carrying value. The fair value was based on an appraisal dated September 8, 2015 prepared using the sales comparison approach and income approach, and accordingly the real estate is a Level 3 asset under the fair value hierarchy.

Reinsurance balances payable:  The carrying value reported in the condensed consolidated balance sheets for these financial instruments approximates fair value.

The estimated fair values of the Company’s financial instruments as of March 31, 2016 and December 31, 2015 are as follows:

   
March 31, 2016
   
December 31, 2015
 
   
Carrying Value
   
Fair Value
   
Carrying Value
   
Fair Value