We offer property and casualty insurance products to individuals through our
wholly owned subsidiary, Kingstone Insurance Company ("KICO"). KICO's insureds
are located primarily in downstate New York, consisting of New York City, Long
Island and Westchester County, although we are actively writing business in New
Jersey, Rhode Island, Connecticut and Massachusetts. We are licensed in the
States of New York, New Jersey, Rhode Island, Connecticut, Massachusetts,
Pennsylvania, Maine, and New Hampshire. For the three and six months ended June
30, 2020, respectively, 79.5% and 81.0% of KICO's direct written premiums came
from the New York policies.



 In addition, through our subsidiary, Cosi Agency, Inc. ("Cosi"), a multi-state
licensed general agency, we access alternative distribution channels. Through
Cosi, we have the opportunity to partner with name-brand carriers and access
nationwide insurance agencies. See "Distribution Channels" below for a
discussion of our distribution channels. Cosi receives commission revenue from
KICO for the policies it places with others and pays commissions to these
agencies. Cosi retains the profit between the commission revenue received and
the commission expense paid.  Cosi revenue is included in other income and Cosi
related expenses are included in other operating expenses. Cosi operations are
not included in our stand-alone insurance underwriting business and,
accordingly, its revenue and expenses are not included in the calculation of our
combined ratio as described below.



We derive substantially all of our revenue from KICO, which includes revenues
from earned premiums, ceding commissions from quota share reinsurance, net
investment income generated from its portfolio, and net realized gains and
losses on investment securities.  All of KICO's insurance policies are written
for a one-year term. Earned premiums represent premiums received from insureds,
which are recognized as revenue over the period of time that insurance coverage
is provided (i.e., ratably over the one-year life of the policy). A significant
period of time can elapse from the receipt of insurance premiums to the payment
of insurance claims. During this time, KICO invests the premiums, earns
investment income and generates net realized and unrealized investment gains and
losses on investments. Our holding company earns investment income from its cash
holdings and may also generate net realized and unrealized investment gains and
losses on future investments.



Our expenses include the insurance underwriting expenses of KICO and other
operating expenses. Insurance companies incur a significant amount of their
total expenses from losses incurred by policyholders, which are referred to as
claims. In settling these claims, various loss adjustment expenses ("LAE") are
incurred such as insurance adjusters' fees and legal expenses. In addition,
insurance companies incur policy acquisition costs. Policy acquisition costs
include commissions paid to producers, premium taxes, and other expenses related
to the underwriting process, including employees' compensation and benefits.




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Other operating expenses include our corporate expenses as a holding company and
operating expenses of Cosi. These corporate expenses include legal and auditing
fees, executive employment costs, and other costs directly associated with being
a public company. Cosi operating expenses primarily include commissions paid to
brokers, employment costs, and consulting costs.



Product Lines

Our product lines include the following:

Personal lines: Our largest line of business is personal lines, consisting of homeowners, dwelling fire, cooperative/condominium, renters, and personal umbrella policies.





 Commercial liability: Through July 2019, we offered businessowners policies,
which consist primarily of small business retail, service, and office risks,
with limited property exposures. We also wrote artisan's liability policies for
small independent contractors with smaller sized workforces.  In addition, we
wrote special multi-peril policies for larger and more specialized
businessowners risks, including those with limited residential exposures.
Further, we offered commercial umbrella policies written above our supporting
commercial lines policies.



In May 2019, due to the poor performance of this line we placed a moratorium on
new commercial lines and new commercial umbrella submissions while we further
reviewed this business. In July 2019, due to the continuing poor performance of
these lines, we made the decision to no longer underwrite commercial lines or
commercial umbrella risks. In force policies for these lines are being
non-renewed at the end of their current annual terms. For the three months and
six months ended June 30, 2020, these policies represent approximately 3.0% and
4.6%, respectively of net premiums earned and as of June 30, 2020, 41.7% of loss
and LAE reserves net of reinsurance recoverables. See discussion below under
"Additional Financial Information".



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

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

Key Measures

We utilize the following key measures in analyzing the results of our insurance underwriting business:

Net loss ratio: The net loss ratio is a measure of the underwriting profitability of an insurance company's business. Expressed as a percentage, this is the ratio of net losses and LAE incurred to net premiums earned.





Net underwriting expense ratio: The net underwriting expense ratio is a measure
of an insurance company's operational efficiency in administering its business.
Expressed as a percentage, this is the ratio of the sum of acquisition costs
(the most significant being commissions paid to our producers) and other
underwriting expenses less ceding commission revenue less other income to net
premiums earned.



Net combined ratio: The net combined ratio is a measure of an insurance
company's overall underwriting profit. This is the sum of the net loss and net
underwriting expense ratios. If the net combined ratio is at or above 100
percent, an insurance company cannot be profitable without investment income,
and may not be profitable if investment income is insufficient.




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Underwriting income: Underwriting income is net pre-tax income attributable to
our insurance underwriting business before investment activity. It excludes net
investment income, net realized gains from investments, and depreciation and
amortization (net premiums earned less expenses included in combined ratio).
Underwriting income is a measure of an insurance company's overall operating
profitability before items such as investment income, depreciation and
amortization, interest expense and income taxes.



Distribution Channels




During 2019, we initiated an alternative distribution program through Cosi
("Alternative Distribution"). The goal of this program is to enhance our
personal lines distribution channel to include nationally recognized name-brand
carriers along with nationwide call center and digital insurance agencies. While
still in early stages of development, the impact of this initiative can be
measured by the amount of new premiums written compared to total premiums
written, which includes renewals from our independent agency network. The table
below shows premiums written by distribution channel for our homeowners and
dwelling fire components of personal lines.



                  Three months ended           Three months ended           Six months ended           Six months ended
($ in
thousands)          June 30, 2020                June 30, 2019               June 30, 2020              June 30, 2019
Direct
Written
Pemiums          Amount        Percent        Amount        Percent       Amount       Percent       Amount       Percent

Core


Independent    $    31,282         75.5 %   $    30,746         80.9 %   $  58,427         77.1 %   $  57,281         84.2 %
Expansion
Independent
(1)                  8,100         19.5 %         6,272         16.5 %      13,342         17.6 %       9,492         14.0 %
Alternative
Distribution
through Cosi         2,078          5.0 %           964          2.5 %     

 4,057          5.4 %       1,243          1.8 %
Total          $    41,460        100.0 %   $    37,982        100.0 %   $  75,826        100.0 %   $  68,016        100.0 %




                            (1) Outside of New York



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




For the three months ended June 30, 2020 and 2019, Alternative Distribution made
up 5.0% and 2.5% of direct written premiums for our homeowners and dwelling fire
components of personal lines. As discussed above, on July 10, 2020, KICO's A.M.
Best Financial Strength Rating was downgraded from A- (Excellent) to B++
(Good),. We believe this action will result in a material decrease in the
business from Cosi, a multi-state licensed general agent that had partnered with
name-brand carriers which require an A.M. Best rating of A- (Excellent) from its
partners.

Critical Accounting Policies and 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, the current economic environment, and other factors, in forming its
estimates and judgments for 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 the comparability of our
results of operations to those of similar companies.




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We believe that the most critical accounting policies relate to the reporting of
reserves for loss and LAE, including losses that have occurred but have not been
reported prior to the reporting date, amounts recoverable from third party
reinsurers, deferred ceding commission revenue, deferred policy acquisition
costs, deferred income taxes, the impairment of investment securities,
intangible assets and the valuation of stock-based compensation. See Note 2 to
the condensed consolidated financial statements - "Accounting Policies" for
information related to updated accounting policies.

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