Kingstone Companies, Inc.: Form 10-Q for the period ended Mar 31, 2025

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 2024 was the 12th 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 three months ended March 31, 2025 and 2024 respectively, 98.3% and 94.4% 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, 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.

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.

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 equity compensation, and other costs directly associated with being a public company.

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 these lines 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 March 31, 2025 and December 31, 2024, there were no commercial liability policies in-force. As of March 31, 2025, these expired policies represented approximately 11.8% of loss and LAE reserves net of reinsurance recoverables. See discussion below under “Additional Financial Information”.

Livery physical damage: We write for-hire vehicle physical damage only policies for livery and car service vehicles and taxicabs. These policies insure only the physical damage portion of insurance for such vehicles, with no liability coverage included.

Other: We write canine legal liability policies and have a small participation in mandatory state joint underwriting associations.

Key GAAP and Non-GAAP Measures

We utilize the following key GAAP and non-GAAP measures in analyzing the results of our insurance underwriting business. See "Non-GAAP Financial Measures" for a reconciliation of the below non-GAAP measures to the most directly comparable GAAP measure:

Direct written premiums, net premiums written: Direct written premiums represent the total premiums charged on policies issued by an insurance company during the respective fiscal period. Net written premiums are direct written premiums less premiums ceded to reinsurers. Net premiums earned, the GAAP measure most comparable to direct written premiums and net written premiums, are net written premiums that are pro-rata earned during the fiscal period presented. All of the our policies are written for a twelve-month period. Management uses direct written premiums and net written premiums, along with other measures, to gauge our performance and evaluate results. Direct written premiums and net written premiums are provided as supplemental information, not as a substitute for net premiums earned, and do not reflect the Company’s net premiums earned.

Core and Non-Core direct written premiums: Core and Non-Core direct written premiums are not based on GAAP. Net premiums earned is the most directly comparable GAAP measure to direct written premiums. The aggregate of Core and Non-Core direct written premiums written is represented by direct written premiums.

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.

Underlying loss ratio: The underlying loss ratio is a non-GAAP ratio, which is computed as the GAAP net loss ratio excluding the effect of prior year loss reserve development and catastrophes losses. Management believes that this ratio is useful to investors, and it is used by management to reveal the trends in our business that may be obscured by prior year loss reserve development and catastrophe losses. Catastrophe losses cause our loss ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the net loss ratio. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance. The most directly comparable GAAP measure is the net loss ratio. The underlying loss ratio should not be considered a substitute for the net loss ratio and does not reflect our net loss ratio.

Net loss ratio excluding the effect of catastrophes: The net loss ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between the GAAP net loss ratio and the effect of catastrophes on the net loss ratio. Management believes that this ratio is useful to investors, and it is used by management to reveal the trends in our business that may be obscured by catastrophe losses. Catastrophe losses cause our net loss ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the net loss ratio. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance. The most directly comparable GAAP measure is the net loss ratio. The net loss ratio excluding the effect of catastrophes should not be considered a substitute for the net loss ratio and does not reflect our net loss ratio.

Net loss ratio excluding commercial lines business: The net loss ratio excluding commercial lines business is a non-GAAP ratio, which is computed as the difference between the GAAP net loss ratio and the effect of commercial lines on the net loss ratio. Management believes that this ratio is useful to investors, and it is used by management to reveal the trends in our business that may be obscured by losses from commercial lines business. Our commercial lines business has been in run-off since July 2019. Commercial lines losses cause our net loss ratios to vary between periods as a result of changes to their loss reserves during the run-off period and have an impact on the net loss ratio. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance. The most directly comparable GAAP measure is the net loss ratio. The net loss ratio excluding commercial lines business should not be considered a substitute for the net loss ratio and does not reflect our net loss ratio.

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 underwriting expense ratio excluding the effect of catastrophes: The net underwriting expense ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between the GAAP net underwriting expense ratio and the effect of catastrophes on the net underwriting expense ratio. Management believes that this ratio is useful to investors, and it is used by management to reveal the trends in our business that may be obscured by catastrophe losses. Catastrophe losses may cause our net underwriting expense ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude and may, but currently do not, have any significant impact on the underwriting expense ratio. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance if there should be a catastrophe effect on the net underwriting expense ratio. The most directly comparable GAAP measure is the net underwriting expense ratio. The net underwriting expense ratio excluding the effect of catastrophes should not be considered a substitute for the net underwriting expense ratio and does not reflect our net underwriting expense ratio.

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.

Net combined ratio excluding the effect of catastrophes: The net combined ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between the GAAP combined ratio and the effect of catastrophes on the net combined ratio. Management believes that this ratio is useful to investors, and it is used by management to reveal the trends in our business that may be obscured by catastrophe losses. Catastrophe losses cause our net combined ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a significant impact on the net combined ratio. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance. The most directly comparable GAAP measure is the net combined ratio. The net combined ratio excluding the effect of catastrophes should not be considered a substitute for the net combined ratio and does not reflect our net combined ratio.

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, gain on sale of real estate, depreciation and amortization, and interest expense (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.

Net income from insurance underwriting business on a standalone basis: Net income from insurance underwriting business on a standalone basis is a non-GAAP measure, which is computed as GAAP net income without the effect of holding company operations on GAAP net income. Management believes that this measure is useful to investors, and it is used by management to reveal the trends in our insurance underwriting business that may be obscured by holding company operations. Holding company operations cause our GAAP net income to vary significantly between periods as a result of their magnitude and can have a significant impact on GAAP net income. Management believes that this measure is useful for investors to evaluate this component separately when reviewing our underwriting performance. The most directly comparable GAAP measure is GAAP net income. Net income from insurance underwriting business on a standalone basis should not be considered a substitute for GAAP net income and does not reflect our GAAP net income.

Critical Accounting Estimates

Our condensed 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 condensed consolidated financial statements and related notes. In preparing these condensed 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 condensed 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.

See below a description of these critical accounting estimates. Also see Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2024.

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 March 31, 2025 and December 31, 2024:

($ in thousands)

(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 also accounts for loss development on claims that have been reported. 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 condensed consolidated statements of income and comprehensive income could result in significant changes to our deferred tax asset or liability.

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 condensed consolidated statements of income and comprehensive income, 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 in stocks classified as AFS are generally carried at fair value with an unrealized gain/loss recorded in net income. Investments in bonds classified as AFS are generally carried at fair value with an unrealized gain/loss recorded in accumulated other comprehensive income. Actual results could vary significantly from the fair values recognized in the condensed consolidated statements of income and comprehensive income.

Kingstone 2.0 (completed), Kingstone 3.0 (underway), and Change in Market Dynamics (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 the growth rate of our probable maximum loss (“PML”) in order to mitigate the impact of the then 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 strategy entail:

1. Aggressively reduced the non-Core book of business, which has had a disproportionately negative impact on underwriting results, by stopping new business, culling the agent base, reducing commissions, or other means, subject to regulatory constraints, and have aggressively reduced policy count. Our request to withdraw from the state of New Jersey was acknowledged in October 2023 and all remaining policies are being non-renewed over a two year period starting January 1, 2024. As of March 31, 2025, our non-Core policy count was down by 67.6% compared to March 31, 2024;

2. Adjusted 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 ensured all policyholders were 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. All policies are renewed at the most current replacement cost. Overall average written premium for our Core personal lines renewal policies for the last 12 months, reflecting both rate and replacement cost changes, increased by 18.8%;

3. Tightly managed 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; 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, 2024, we achieved our goal of 33%, with a net underwriting expense ratio of 31.3%. For the three months ended March 31, 2025, the net underwriting expense ratio remained at 31.3% as compared to the three months ended March 31, 2024.

We believe that the above actions taken resulted in our return to profitability for the last six consecutive quarters, will continue to have the intended effect, and will continue through the year ended December 31, 2025 and beyond.

On August 2, 2024, two large competitors announced a plan to wind down their personal lines operations in New York State and to non-renew or mid-term cancel their entire book of business before year end 2024. The policyholders of such competitors needed to find alternative coverage. Beginning in the quarter ended September 30, 2024, we began seeing a sizable increase in our policies in force and direct written premiums from these non-renewed and cancelled policies. We refer to this new business as a Change in Market Dynamics.

On April 14, 2025, KICO entered into an agreement to offer a replacement policy to selected homeowners policyholders in Downstate New York as one of our competitors pivots focus away from admitted personal lines business (the"Withdrawal Plan"). The Withdrawal Plan, which includes this transaction, has been approved by the New York Department of Financial Services. This transaction encompasses approximately $70 million in written premium. The Withdrawal Plan will enable KICO to work with new distribution partners to further increase our footprint in Downstate New York by offering an alternative policy to selected homeowners policyholders with effective dates starting in late third quarter of 2025. This transaction will be handled in a similar manner to the Change in Market Dynamics, except that we will be streamlining the process by providing a quote for eligible policyholders to our producers.

See the tables below for our Core and non-Core business for policies in force as of March 31, 2025 and 2024 and direct written premiums for three months ended March 31, 2025 and 2024. For the three months ended March 31, 2025, our Core direct written premiums increased by 22.7% compared to the three months ended March 31, 2024, while Core policies in force increased by 10.4% as of March 31, 2025 as compared to March 31, 2024. For the same periods, our non-Core direct written premiums decreased by 63.5% and policies in force decreased by 67.6%.

(000’s except percentages)

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

1Direct written premiums, Core written premiums, and Non-Core written premiums are non-GAAP measures defined above under "Key GAAP and Non-GAAP Measures". See "Non-GAAP Financial Measures" below for the reconciliation of direct written premiums, Core written premiums, and Non-Core written premiums to the GAAP measure of net premiums earned.

Consolidated Results of Operations

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

The following table summarizes the changes in the results of our operations (in thousands) for the periods indicated:

($ in thousands)

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

(1) Direct written premiums and net premiums written are non-GAAP measures, defined above under "Key GAAP and Non-GAAP Measures", and reconciled in the table herein to the GAAP measure of net premiums earned.

(2) For the three months ended March 31, 2024, our personal lines business was subject to a 27% quota share treaty, expiring on January 1, 2025, which included a runoff of a 3.0% portion through the remainder of 2024. Effective January 1, 2025, we entered into a 16% personal lines quota share treaty, under a cutoff.

(3) The three months ended March 31, 2025 and 2024 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.

Direct Written Premiums(1)

Direct written premiums during the three months ended March 31, 2025 (“Three Months 2025”) were $58,175,000 compared to $49,325,000 during the three months ended March 31, 2024 (“Three Months 2024”). The increase of $8,850,000, or 17.9%, was primarily due to an increase in premiums from our personal lines business.

Direct written premiums from our personal lines business for Three Months 2025 were $54,313,000, an increase of $8,573,000, or 18.7%, from $45,740,000 in Three Months 2024. The 18.7% increase in premiums from our personal lines business was primarily due to the increase in premiums associated with our Core business of 22.7% offsetting a 63.5% decrease in our non-Core business. The increase in our Core business premiums and the decrease in our non-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 Three Months 2025 were $3,847,000, an increase of $285,000, or 8.0%, from $3,562,000 in Three Months 2024. The increase in livery physical damage direct written premiums was due to the reversal of an underwriting restriction in place in Three Months 2024 to exclude certain electric vehicles until the approval of adequate rate for the risk was received, which happened in July 2024. The increase was also due to an increase in the values of the autos insured.

Direct written premiums from our Core business were $57,175,000 in Three Months 2025 compared to $46,587,000 in Three Months 2024, an increase of $10,588,000, or 22.7%. The increase in direct written premiums from our Core business was due to rate increases and an increase in policies in force. Policies in force from our Core business increased by 10.4% in Three Months 2025 compared to Three Months 2024. Direct written premiums from our non-Core business were $1,000,000 in Three Months 2025, as compared to $2,738,000 in Three Months 2024, a decrease of $1,738,000, or 63.5%. 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 67.6% as of March 31, 2025 compared to March 31, 2024. 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.

(1) Direct written premiums is a non-GAAP measure, defined above under "Key GAAP and Non-GAAP Measures", and reconciled in the table above to the GAAP measure of net premiums earned.

Net Written Premiums(1) and Net Premiums Earned

Net written premiums increased $22,914,000, or 60.1%, to $61,009,000 in Three Months 2025 from $38,095,000 in Three Months 2024. 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 increase in Three Months 2025 is primarily due to the additional premiums from the Change in Market Dynamics and changes to our personal lines quota share reinsurance treaty. See quota share reinsurance treaties discussion below.

Quota share reinsurance treaties

Effective January 1, 2024, we entered into a 27% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”). Upon expiration of the 2024/2025 Treaty on January 1, 2025, we entered into a new 16% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2025 through January 1, 2026 (“2025/2026 Treaty”). Our personal lines business was subject to the 2025/2026 Treaty in Three Months 2025, and the 2024/2025 Treaty in Three Months 2024. In Three Months 2025, our premiums ceded under quota share treaties decreased by $14,024,000 in comparison to premiums ceded under quota share treaties in Three Months 2024 (see table above). The decrease in Three Months 2025 was attributable to the decrease in quota share ceding percentage rates, offset by an increase in direct written premiums subject to the 2025/2026 Treaty compared to direct written premiums subject to the 2024/2025 Treaty. The inception of the 2025/2026 Treaty was recorded as a cutoff, resulting in the return of $11,471,000 from reinsurers to us of previously ceded written premiums that were unearned as of January 1, 2025.

Excess of loss reinsurance treaties

In Three Months 2025, our ceded excess of loss reinsurance premiums decreased $40,000 compared to the ceded excess of loss premiums for Three Months 2024. Effective January 1, 2024, we entered into an underlying excess of loss reinsurance treaty (the “Underlying XOL Treaty”) covering the period from January 1, 2024 through January 1, 2025. The Underlying XOL Treaty provided 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms were excluded from the Underlying XOL Treaty. Effective January 1, 2025, the Underlying XOL Treaty was renewed covering the period from January 1, 2025 through June 30, 2026.

Catastrophe reinsurance treaties

Most of the premiums written under our personal lines policies are also subject to our catastrophe reinsurance treaties. An increase in our personal lines business historically gave rise to more property exposure, which increased our exposure to catastrophe risk; therefore, our premiums ceded under catastrophe treaties would increase. An increase in our personal lines business historically resulted in an increase in premiums ceded under our catastrophe treaties if reinsurance rates were stable or were increasing. Under Kingstone 2.0 and 3.0 we had a decrease in policies in force, and better catastrophe management, resulting in a decrease in catastrophe exposure, and a decrease in catastrophe premiums. On July 1, 2024 and 2023, we recorded our catastrophe premiums written for the entire treaty period covering July 1 through June 30, resulting in the entire annual premium written being recorded in the third quarter of 2024 and 2023. As a result of recording the entire annual catastrophe premiums at the inception of the treaties, there were no catastrophe premiums in Three Months 2025 or Three Months 2024.

Net premiums earned

Net premiums earned increased $14,703,000, or 51.0%, to $43,523,000 in Three Months 2025 from $28,820,000 in Three Months 2024. The increase was due to the 11 percentage point reduction in quota share rates discussed above, the increase in premiums from the Change in Market Dynamics which began in the third quarter of 2024, and a decrease in catastrophe premium rates, reflected in ceded catastrophe premiums earned, which increased the amount of growth in net premiums earned.

(1) Net written premiums is a non-GAAP measure, defined above under "Key GAAP and Non-GAAP Measures", and reconciled in the table above to the GAAP measure of net premiums earned.

Ceding Commission Revenue

The following table summarizes the changes in the components of ceding commission revenue (in thousands) for the periods indicated:

($ in thousands)

Ceding commission revenue was $2,959,000 in Three Months 2025 compared to $4,567,000 in Three Months 2024. The decrease of $1,608,000 is explained below in the discussion of provisional ceding commissions earned and contingent ceding commissions earned.

Provisional Ceding Commissions Earned

In Three Months 2025, we earned provisional ceding commissions of $3,252,000 from personal lines earned premiums ceded under the 2025/2026 Treaty, and in Three Months 2024, we earned provisional ceding commissions of $4,555,000 from personal lines earned premiums ceded under the 2024/2025 Treaty. The decrease of $1,303,000 in provisional ceding commissions earned was due to the decrease in premiums ceded under these treaties during Three Months 2025 compared to Three Months 2024, offset by an increase in ceding commission rates under the 2025/2026 Treaty.

Contingent Ceding Commissions Earned

Under our 2025/2026 Treaty and prior years’ quota share treaties before July 1, 2022, we received a contingent ceding commission based on a Sliding Scale of commission rates and ultimate treaty year loss ratio on the policies reinsured under this agreement based upon which contingent ceding commissions are earned. The Sliding Scale includes minimum and maximum commission rates in relation to specified ultimate loss ratio. The commission rate and contingent ceding commissions earned increase when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decrease when the estimated ultimate loss ratio increases. The lower the ceded loss ratio, the more contingent commission we received.

The structure of the 2024/2025 Treaty called for a fixed provisional ceding commission with no opportunity to earn additional contingent ceding commissions.

Net Investment Income

Net investment income was $2,049,000 in Three Months 2025 compared to $1,503,000 in Three Months 2024, an increase of $546,000, or 36.3%. The average yield on non-cash invested assets was 3.70% as of March 31, 2025 compared to 3.80% as of March 31, 2024.

Cash and invested assets were $263,359,000 as of March 31, 2025 compared to $189,109,000 as of March 31, 2024, an increase of $74,250,000.

Net (Losses) Gains on Investments

Net (losses) on investments were $(138,000) in Three Months 2025 compared to net gains on investments of $726,000 in Three Months 2024. Unrealized (losses) on our equity securities and other investments in Three Months 2025 were $(2,000), compared to unrealized (losses) of $(92,000) in Three Months 2024. Net realized (losses) on sales of investments were $(136,000) in Three Months 2025 compared to net realized gains of $818,000 in Three Months 2024.

Gain on Sale of Real Estate

Gain on sale of real estate was $1,966,000 in Three Months 2025 compared to $— in Three Months 2024. On March 19, 2025 one of our subsidiaries closed on the sale of our headquarters building in Kingston, New York, along with an adjacent mixed-use property (collectively, the “Property”). The purchase price for the Property was $3,600,000. We are now renting a smaller facility in Kingston, New York.

Other income was $140,000 in Three Months 2025 compared to $149,000 in Three Months 2024, a decrease of $9,000, or 6.0%.

Net Loss and LAE

Net loss and LAE was $27,175,000 for Three Months 2025 compared to $17,860,000 for Three Months 2024. The net loss ratio was 62.4% in Three Months 2025 compared to 62.0% in Three Months 2024, an increase of 0.4 percentage points.

The following graph summarizes the changes in the components of net loss ratio for the periods indicated, along with the comparable components excluding commercial lines business:

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

The loss ratio for Three Months 2025 was in line with Three Months 2024. The underlying loss ratio(1) (loss ratio excluding the impact of catastrophe and prior year development) for Three Months 2025 was higher than Three Months 2024 mainly due to a larger impact from large losses, while the catastrophe impact was lower and the impact of prior year development was about the same.

The underlying loss ratio(1) was 62.1% for Three Months 2025, an increase of 3.3 points from the 58.8% underlying loss ratio recorded for Three Months 2024. Overall personal lines non-catastrophe frequency for Three Months 2025 was lower than for the same period in 2024, which is believed to be the result of our new select product as well as our active efforts to manage less profitable segments. However, overall personal lines non-catastrophe severity for Three Months 2025 was higher than for Three Months 2024, primarily driven by a greater impact from large fire losses.

There were three newly designated catastrophe events for Three Months 2025. The estimated total net catastrophe impact for the calendar quarter was $750,000, which contributed 1.7 points to the loss ratio. By comparison, the catastrophe impact for Three Months 2024 was 5.2 points.

There was favorable prior year development of $599,000 for Three Months 2025, which translates to a 1.4 point decrease to the loss ratio. By comparison, the impact of prior year development for Three Months 2024 was a decrease of 2.0 points.

(1) Underlying loss ratio is a non-GAAP ratio, which is computed as the GAAP net loss ratio excluding the effect of prior year loss reserve development and catastrophe losses.Net loss ratio excluding commercial lines business is a non-GAAP ratio, which is computed as the difference between the GAAP net loss ratio and the effect of commercial lines business. See "Non-GAAP Financial Measures" for the reconciliation of underlying loss ratio and net loss ratio excluding commercial lines business to the GAAP measure of net loss ratio.

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

Commission Expense

Commission expense was $9,313,000 in Three Months 2025 or 15.4% of direct earned premiums. Commission expense was $7,852,000 in Three Months 2024 or 15.7% of direct earned premiums. The increase of $1,461,000 was primarily due to an increase in direct earned premiums of $10,649,000.

Other Underwriting Expenses

Other underwriting expenses were $7,405,000, or 12.2% of direct earned premiums, in Three Months 2025 compared to $5,881,000, or 11.8% of direct earned premiums, in Three Months 2024. The increase of $1,524,000, or 25.9%, was primarily due to increases in salaries and employment costs as described below, an increase in underwriting fees due to growth and an increase in premium taxes due to the increase in direct earned premiums.

Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $3,351,000 in Three Months 2025 compared to $2,601,000 in Three Months 2024. The increase of $750,000, or 28.8%, is unfavorable when compared to the 17.9% increase in direct written premiums; however, it is favorable when compared to the 51.0% increase in net premium earned. The increase in salaries and employment costs was due to hiring additional staff to handle the new business from the Change in Market Dynamics, the strengthening of 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, and annual employee salaries increases effective January 1, 2025.

Our net underwriting expense ratio in Three Months 2025 was 31.3%, remaining constant with the 31.3% in Three Months 2024. The following table shows the individual components of our net underwriting expense ratio for the periods indicated:

(Components may not sum to totals due to rounding)

Other Operating Expenses

Other operating expenses, related to the expenses of our holding company and Cosi, were $1,036,000 for Three Months 2025 compared to $778,000 for Three Months 2024. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:

($ in thousands)

(Components may not sum to totals due to rounding)

The increase in Three Months 2025 of $258,000, or 33.2%, as compared to Three Months 2024 was primarily due to an increase in loss on extinguishment of debt, and equity compensation, partially offset by a decrease in employment costs. The $175,000 loss on extinguishment of debt loss is due to writing off the balance of unamortized debt issue costs upon the prepayment of the 2024 Notes in Three Months 2025 as disclosed in Note 7 to the condensed consolidated financial statements. The increase in equity compensation is due to additional restricted stock awards granted to our senior leadership team as of December 31, 2024 pursuant to our employee bonus plan. The decrease in employment costs was due to fluctuations in deferred compensation liability in Three Months 2024 related to changes in the underlying invested portfolio. The deferred compensation plan was terminated in Three Months 2024.

Depreciation and Amortization

Depreciation and amortization was $624,000 in Three Months 2025 compared to $597,000 in Three Months 2024. The increase of $27,000, or 4.5%, in depreciation and amortization was primarily due to the difference between additional depreciation on software acquired compared to software being fully depreciated.

Interest Expense

Interest expense in Three Months 2025 was $227,000 compared to $994,000 in Three Months 2024, a decrease of $(767,000) or (77.2)%. In Three Months 2025 and Three Months 2024, as disclosed in Note 7 to the condensed consolidated financial statements, we incurred interest expense in connection with the 2024 Notes and 2022 Notes, respectively. The 2022 Notes provided for interest at the rate of 12% per annum. In September 2024, in accordance with the 2024 Exchange Agreement, we paid $5,000,000 of principal on the 2022 Notes, reducing the principal balance to $14,950,000 from $19,950,000. Under the 2024 Exchange Agreement, the balance of the 2022 Notes were exchanged for the 2024 Notes, which provided for interest at the rate of 13.75% per annum. Beginning in the third quarter of 2024 through Three Months 2025, we paid optional principal amounts, reducing the balance of the 2024 Notes, and completely satisfying the obligation on February 24, 2025. In addition, we also incurred interest expense on the 2022 equipment financing.

Income Tax Expense

Income tax expense in Three Months 2025 was $836,000, which resulted in an effective tax rate of 17.7%. Income tax in Three Months 2024 was $378,000, which resulted in an effective tax rate of 20.9%. The difference in effective tax rate is due to the effect of permanent differences in Three Months 2025 compared to Three Months 2024.

Net Income

Net income was $3,883,000 in Three Months 2025 compared to $1,427,000 in Three Months 2024. The increase in net income of $2,456,000 was due to the circumstances described above.

Additional Financial Information

We operate our business as one segment, property and casualty insurance. Within this segment, we offer an array of property and casualty policies to our producers. The following table summarizes gross and net written premiums, net premiums earned, and net loss and loss adjustment expenses by major product type, which were determined based primarily on similar economic characteristics and risks of loss.

(1) Direct written premiums and net written premiums are a non-GAAP measures, defined above under "Key GAAP and Non-GAAP Measures". See "Non-GAAP Financial Measures" below for the reconciliation of direct written premiums, and net written premiums to the GAAP measure of net premiums earned.

(2) “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.

(3) 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.

(4) See discussion above with regard to “Net Loss and LAE”, as to catastrophe losses in the three months ended March 31, 2025 and 2024.

Insurance Underwriting Business on a Standalone Basis(1)

Our insurance underwriting business reported on a standalone basis(1) for the periods indicated is as follows:

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(1) Net income from insurance underwriting business on a standalone basis is a non-GAAP measure, which is computed as GAAP net income without the effect of holding company operations on GAAP net income. See "Non-GAAP Financial Measures" for the reconciliation of net income from insurance underwriting business on a standalone basis to the GAAP measure of net income.

An analysis of our direct, assumed and ceded earned premiums, loss and loss adjustment expenses, and loss ratios is shown below:

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

The key measures for our insurance underwriting business for the periods indicated are as follows:

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(1) For the three months ended March 31, 2025 and 2024, includes the sum of net catastrophe losses and loss adjustment expenses of $750,197 and $1,485,648, respectively.

(2) Net loss ratio excluding the effect of catastrophes is a non-GAAP ratio, which is computed as the difference between the GAAP net loss ratio and the effect of catastrophes on the net loss ratio. See "Non-GAAP Financial Measures" for the reconciliation of net loss ratio excluding the effect of catastrophes to the GAAP measure of net loss ratio. Net underwriting expense ratio excluding the effect of catastrophes is also a non-GAAP ratio, which is computed as the difference between the GAAP net underwriting expense ratio and the effect of catastrophes on the net underwriting expense ratio. See "Non-GAAP Financial Measures" for the reconciliation of net underwriting expense ratio excluding the effect of catastrophes to the GAAP measure of net underwriting expense ratio. Net combined ratio excluding the effect of catastrophes is also a non-GAAP ratio, which is computed as the difference between the GAAP net combined ratio and the effect of catastrophes on the net combined ratio. See "Non-GAAP Financial Measures" for the reconciliation of net combined ratio excluding the effect of catastrophes to the GAAP measure of net combined ratio.

Investments

Portfolio Summary

Fixed-Maturity Securities

The following table presents a breakdown of the amortized cost, estimated fair value, and gross unrealized gains and losses of our investments in fixed-maturity securities classified as available-for-sale for which an allowance for credit loss has not been recorded, as of March 31, 2025 and December 31, 2024:

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(1) In October 2022, KICO placed certain U.S. Treasury securities to fulfill the required collateral for a sale leaseback transaction in a designated custodian account (see Note 7 – Debt - “Equipment Financing”). As of December 31, 2024. KICO had sold its U.S. Treasury securities and replaced a portion of its other fixed-maturity securities in the designated custodian account. As of March 31, 2025 and December 31, 2024, the amount of required collateral was approximately $4,885,000 and $5,308,000, respectively. As of March 31, 2025 and December 31, 2024, the estimated fair value of the eligible collateral was approximately $4,885,000 and $5,308,000, respectively.

(2) KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7 – Debt – “Federal Home Loan Bank”). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of March 31, 2025, the estimated fair value of the eligible investments was approximately $10,102,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2025 and December 31, 2024 there was no outstanding balance on the FHLBNY credit line.

Equity Securities

The following table presents a breakdown of the cost and estimated fair value of, and gross gains and losses on, investments in equity securities as of March 31, 2025 and December 31, 2024:

Other Investments

The following table presents a breakdown of the cost and estimated fair value of, and gross gains on our other investments as of March 31, 2025 and December 31, 2024:

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Held-to-Maturity Securities

The following table presents a breakdown of the amortized cost and estimated fair value of, and gross unrealized gains and losses on, investments in held-to-maturity securities as of March 31, 2025 and December 31, 2024:

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Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum fund requirements.

A summary of the amortized cost and fair value of our investments in held-to-maturity securities by contractual maturity as of March 31, 2025 and December 31, 2024 is shown below:

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Credit Rating of Fixed-Maturity Securities

The table below summarizes the credit quality of our available-for-sale fixed-maturity securities as of March 31, 2025 and December 31, 2024 as rated by Standard & Poor’s (or, if unavailable from Standard & Poor’s, then Moody’s, Fitch, or Kroll):

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The table below summarizes the average yield by type of fixed-maturity security as of March 31, 2025 and December 31, 2024:

The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of March 31, 2025 and December 31, 2024:

Fair Value Consideration

Fair value is the price that would be received to sell an asset or paid to transfer a liability in a transaction involving identical or comparable assets or liabilities between market participants (an “exit price”). The fair value hierarchy distinguishes between inputs based on market data from independent sources (“observable inputs”) and a reporting entity’s internal assumptions based upon the best information available when external market data is limited or unavailable (“unobservable inputs”). The fair value hierarchy prioritizes fair value measurements into three levels based on the nature of the inputs. Quoted prices in active markets for identical assets have the highest priority (“Level 1”), followed by observable inputs other than quoted prices including prices for similar but not identical assets or liabilities (“Level 2”), and unobservable inputs, including the reporting entity’s estimates of the assumption that market participants would use, having the lowest priority (“Level 3”). As of March 31, 2025 and December 31, 2024, 68% and 65%, respectively, of the investment portfolio recorded at fair value was priced based upon quoted market prices.

The table below summarizes the gross unrealized losses of our fixed-maturity securities available-for-sale and equity securities by length of time the security has continuously been in an unrealized loss position as of March 31, 2025 and December 31, 2024:

There were 179 securities at March 31, 2025 that accounted for the gross unrealized loss of our fixed-maturity securities available-for-sale, none of which were deemed to be credit losses by us. There were 204 securities at

December 31, 2024 that accounted for the gross unrealized loss of our fixed-maturity securities available-for-sale, none of which were deemed to be credit losses by us. Significant factors influencing our determination that unrealized losses were temporary included credit quality considerations, the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and interest rate environment factors, management’s intent not to sell these securities and it being not more likely than not that we will be required to sell these investments before anticipated recovery of fair value to our cost basis.

Liquidity and Capital Resources

Cash Flows

The primary sources of cash flow are from our insurance underwriting subsidiary, KICO, and include direct premiums written, ceding commissions from our quota share reinsurers, loss recovery payments from our reinsurers, investment income and proceeds from the sale or maturity of investments. Funds are used by KICO for ceded premium payments to reinsurers, which are paid on a net basis after subtracting losses paid on reinsured claims and reinsurance commissions. KICO also uses funds for loss payments and loss adjustment expenses on our net business, commissions to producers, salaries and other underwriting expenses as well as to purchase investments and fixed assets.

The primary source of cash flow for our holding company are dividends and distributions received from KICO, which are subject to statutory restrictions. For the three months ended March 31, 2025, KICO did not pay any dividends to us. As of March 31, 2025, KICO had eligible unassigned surplus of $12,523,637 and was able to pay dividends; however, KICO has an agreement with the New York State Department of Financial Services pursuant to which KICO may only pay dividends to us for purposes of paying operating expenses and debt obligations.

KICO is a member of the FHLBNY, which provides additional access to liquidity. Members have access to a variety of flexible, low-cost funding through FHLBNY’s credit products, enabling members to customize advances. Advances are to be fully collateralized; eligible collateral to pledge to FHLBNY includes residential and commercial mortgage-backed securities, along with U.S. Treasury and agency securities. See Note 3 – Investments to our condensed consolidated financial statements for eligible collateral held in a designated custodian account available for future advances. Advances are limited to 5% of KICO’s net admitted assets as of the end of the previous quarter, which is December 31, 2024. 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. As a result of the withdrawal of A.M. Best ratings, KICO is currently only able to borrow on an overnight basis. The maximum allowable advance as of March 31, 2025, based on the net admitted assets as of December 31, 2024, was approximately $14,861,000. Available collateral as of March 31, 2025 was approximately $10,102,000. Advances are limited to 85% of the amount of available collateral. There were no borrowings under this facility during Three Months 2025.

On April 5, 2024, we filed a shelf registration (the “Shelf Registration”) statement on Form S-3 with the SEC under the Securities Act of 1933, as amended, with regard to the registration of $50,000,000 of our equity and debt securities (the “Shelf Registration Statement”). The Shelf Registration Statement was declared effective by the SEC on April 22, 2024. Any offering made pursuant to the Shelf Registration Statement may only be made by means of a prospectus, including a prospectus supplement, forming a part of the effective Shelf Registration Statement, relating to the offering.

In May 2024, we entered into a Sales Agreement with Janney Montgomery Scott LLC (the “Sales Agent”) under which we initially had the ability to issue and sell shares of our Common Stock, from time to time, through the Sales Agent, pursuant to the Shelf Registration Statement, up to an aggregate offering price of approximately $16,400,000 in what is commonly referred to as an “at-the-market” (“ATM”) program. On January 7, 2025, we filed a prospectus supplement providing for a going forward aggregate offering price for the ATM program of $25,000,000. During the three months ended March 31, 2025, we sold 612,999 shares of our Common Stock at a weighted average price of $16.00 per share and raised $9,545,692 in net proceeds under the ATM program. As of March 31, 2025, we had remaining capacity to sell up to an additional $15,945,937 of our Common Stock under the ATM program.

On September 12, 2024, we issued the 2024 Notes in the aggregate principal amount of $14,950,000 pursuant to the 2024 Exchange Agreement. Beginning in the third quarter of 2024 through Three Months 2025, we paid optional principal amounts, reducing the balance of the 2024 Notes, and completely satisfying the obligation on February 24, 2025.

If the aforementioned sources of cash flow currently available are insufficient to cover our holding company cash requirements, we will seek to obtain additional financing.

Cash flow and liquidity are categorized into three sources: (1) operating activities; (2) investing activities; and (3) financing activities, which are shown in the following table:

Net cash provided by operating activities was $17,857,000 in Three Months 2025 as compared to $6,098,000 provided by operating activities in Three Months 2024. The $11,759,000 increase in cash flows provided by operating activities in Three Months 2025 as compared to Three Months 2024 was primarily the result of an increase in net income (adjusted for non-cash items) of $992,000 and cash provided from net fluctuations in operating assets and liabilities. The net fluctuations in assets and liabilities are related to operating activities of KICO as affected by growth or declines in its operations, payments on claims and other changes, which are described above.

Net cash used in investing activities was $11,844,000 in Three Months 2025 compared to $11,587,000 used in investing activities in Three Months 2024 resulting in a $257,000 increase in net cash used in investing activities. In Three Months 2025, we had net cash used by our investment portfolio of $14,581,000, compared to $11,046,000 used in Three Months 2024. In Three Months 2025 one of our subsidiaries received gross proceeds of $3,600,000 from the sale of real estate that was used as our headquarters building.

Net cash provided by financing activities was $2,808,000 in Three Months 2025 compared to $289,000 used in Three Months 2024. During Three Months 2025, we received net proceeds of $9,545,000 from our ATM offering. This amount was offset primarily by principal payments of $5,950,000 on our 2024 Notes, $299,000 on our equipment financing debt in connection with KICO’s sale-leaseback transaction and $531,000 for withholding taxes paid on vested restricted stock awards and the exercise of stock options. The principal payments on the 2024 Notes were made by using a portion of the net proceeds from our ATM offering. Net cash used in financing activities in Three Months 2024 was primarily principal payments on our equipment financing debt.

Reinsurance

On January 1, 2024, we entered into a 27% quota share reinsurance treaty for our personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”). Upon the expiration of the 2024/2025 Treaty on January 1, 2025, we entered into a new 16% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2025 through January 1, 2026 (“2025/2026 Treaty”).

Our excess of loss and catastrophe reinsurance treaties expired on June 30, 2024 and we entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2024 (as discussed below). Effective January 1, 2024, we renewed an underlying excess of loss treaty ("Underlying XOL Treaty") covering the period from January 1, 2024 through January 1, 2025. The treaty provided 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, 2025, the Underlying XOL Treaty was renewed covering the period from January 1, 2025 through June 30, 2025. For the period October 1, 2024 through April 30, 2025, we purchased catastrophe reinsurance which provides coverage for winter storm losses to the extent of 71% of $4,500,000 in excess of $5,500,000. Effective July 1, 2024, we purchased $275,000,000 of catastrophe reinsurance in excess of $5,000,000, compared to $315,000,000 of catastrophe reinsurance in excess of $10,000,000 in the expiring treaty. Our ability to reduce the top limit of our catastrophe reinsurance was due to our tightened underwriting as discussed above and curtailing new business growth through June 30, 2024, which reduced our probable maximum loss. Material terms for our reinsurance treaties in effect for the treaty years shown below are as follows:

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(1) For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2025.

(2) Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts, except for one occurrence on the first layer of $5,000,000 in excess of $5,000,000. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.

(3) For the period July 1, 2023 through June 30, 2024, reinstatement premium protection for $50,000,000 of catastrophe coverage in excess of $10,000,000.

(4) For the period July 1, 2024 through June 30, 2025 (expiration date of the catastrophe reinsurance treaty), reinstatement premium protection for $50,000,000 of catastrophe coverage in excess of $10,000,000.

(5) For the period January 1, 2024 through June 30, 2025, Underlying XOL Treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Excludes losses from named storms. Reduces retention to $530,000 from $730,000 under the 2024/2025 Treaty. Retention increases to $640,000 from $530,000 under the 2025/2026 Treaty.

(6) Excess of loss coverage and facultative facility, Underlying XOL Treaty, and catastrophe reinsurance treaties will expire on June 30, 2025, with none of these coverages to be in effect during the period from July 1, 2025 through January 1, 2026. If and when these treaties are renewed on July 1, 2025, the excess of loss and facultative facility, Underlying XOL Treaty, and the catastrophe reinsurance treaty, will be as provided for therein. Reinsurance coverage in effect from July 1, 2025 through January 1, 2026 is currently only covered under the 2025/2026 Treaty. The 2025/2026 Treaty will expire on January 1, 2026.

(7) For the 2024/2025 Treaty, 22% of the 27% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2025/2026 Treaty, 6% of the 16% total of losses ceded under this treaty are excluded from a named catastrophe event.

(8) Plus losses in excess of catastrophe coverage

(9) For the period October 1, 2024 through April 30, 2025, additional catastrophe reinsurance treaty will provide coverage for winter storm losses to the extent of 71% of $4,500,000 in excess of $5,500,000. Retention for winter storms under this treaty is $4,800,000 under the 2024/2025 Treaty and $5,200,000 under the 2025/2026 Treaty.

(1) Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss.

Inflation

Premiums are established before we know the amount of losses and loss adjustment expenses or the extent to which inflation may affect such amounts. We attempt to anticipate the potential impact of inflation in establishing our reserves, especially as it relates to medical and hospital rates where historical inflation rates have exceeded the general level of inflation. Inflation in excess of the levels we have assumed could cause loss and loss adjustment expenses to be higher than we anticipated, which would require us to increase reserves and reduce earnings.

Fluctuations in rates of inflation also influence interest rates, which in turn impact the market value of our investment portfolio and yields on new investments. Operating expenses, including salaries and benefits, generally are impacted by inflation.

The Three Months 2025 included continuing economic inflation, albeit tempered compared to previous years, which resulted in a sustained increase in interest rates, a widening of credit spreads, lower public equity valuations, and significant financial market volatility. The higher interest rates and widening of credit spreads reduced the value of our fixed income securities, and in Three Months 2025, we experienced a significant recovery of these losses. For Three Months 2025, the continuing economic inflation impacted our loss and loss adjustment expenses as well; should these trends continue in the near-term, it would in all likelihood negatively impact our results of operations.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Outlook

Our net premiums earned may be impacted by a number of factors. Net premiums earned are a function of net written premium volume. Net written premiums comprise both renewal business and new business and are recognized as earned premium over the term of the underlying policies. Net written premiums from both renewal and new business are impacted by competitive market conditions as well as general economic conditions. We have made underwriting changes to emphasize profitability over growth and have culled out the type of risks that do not generate an acceptable level of return.

On August 2, 2024, two large competitors announced a plan to wind down their personal lines operations in New York State and to non-renew or mid-term cancel their entire book of business by December 31, 2024. Our producers placed a sizable number of these policies with KICO.

On April 14, 2025, KICO entered into an agreement to offer a replacement policy to selected Homeowners policyholders in Downstate New York as one of our competitors pivots focus away from admitted personal lines business (the "Withdrawal Plan"). The Withdrawal Plan, which includes this transaction, was approved by the New York Department of Financial Services. This transaction encompasses approximately $70 million in written premium.The Withdrawal Plan will enable KICO to work with new distribution partners to further increase our footprint in Downstate New York by offering an alternative policy to selected Homeowners policyholders with effective dates starting in the third quarter of 2025.

See “Forward-Looking Statements” before Part I, Item 1.

Non-GAAP Financial Measures

Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures presented in accordance with GAAP.

The following table reconciles Core written premiums, Non-Core written premiums, direct written premiums, and net written premiums to net premiums earned for the periods presented:

The following table reconciles the underlying loss ratio, the net loss ratio excluding the effect of catastrophes and the catastrophe loss ratio to the net loss ratio for the periods presented:

The following table reconciles the net loss ratio excluding commercial lines business to the net loss ratio for the periods presented:

The following table reconciles net income from insurance underwriting business on a standalone basis to GAAP net income for the periods presented:

The following table reconciles the net loss ratio excluding the effect of catastrophes, net underwriting expense ratio excluding the effect of catastrophes, and net combined ratio excluding the effect of catastrophes to GAAP net loss ratio, GAAP net underwriting expense ratio, and GAAP net combined ratio for the periods presented:

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures. Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of March 31, 2025.

We previously disclosed that on November 12, 2024, we issued a press release announcing our financial results for the period ended September 30, 2024 (the “Press Release”). In the Press Release, we indicated that our book value per share – diluted and book value per share – diluted excluding accumulated other comprehensive income (“AOCI”) as of September 30, 2024 were $4.58 and $5.28, respectively. On November 15, 2024, we determined that such figures were calculated based upon an incorrect number of shares of common stock outstanding on a fully diluted basis as of September 30, 2024. Based upon the correct number of shares of common stock outstanding on a fully diluted basis, the book value per share – diluted and book value per share – diluted excluding AOCI as of September 30, 2024 were $4.32 and $4.97, respectively.

We continually review our disclosure controls and procedures and make changes, as necessary, to ensure the quality of our financial reporting. In particular, we have recently implemented a new financial reporting system which we believe has remediated the disclosure control deficiency. It will require time to demonstrate the effectiveness of the remediation, and as such we concluded that the disclosure controls and procedures were not effective as of March 31, 2025.

Changes in Internal Control over Financial Reporting

Except as noted above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitation on Effectiveness of Controls

Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.

For a discussion of the Company’s potential risks and uncertainties, see Part I, Item 1A— “Risk Factors” and Part II, Item 7— “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the "2024 Annual Report") filed with the SEC, and Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company's periodic filings with the SEC. There have been no material changes to the risk factors disclosed in Part I, Item 1A of the Company’s 2024 Annual Report.