KINGSTONE COMPANIES, INC. (KINS) FY 2024 MD&A

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

Overview

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

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largest writer of homeowners insurance in New York. KICO is also licensed in the states of New Jersey, Rhode Island, Massachusetts, Connecticut, Pennsylvania, New Hampshire, and Maine. For the years ended December 31, 2024 and 2023, respectively, 96.0% and 88.3% 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 other costs directly associated with being a public company.

Principal Revenue and Expense Items

Net premiums earned: Net premiums earned is the earned portion of our written premiums, less that portion of premium that is ceded to third party reinsurers under reinsurance agreements. The amount ceded under these reinsurance agreements is based on a contractual formula contained in the individual reinsurance agreement. Insurance premiums are earned on a pro rata basis over the term of the policy. At the end of each reporting period, premiums written that are not earned are classified as unearned premiums and are earned in subsequent periods over the remaining term of the policy. Our insurance policies have a term of one year. Accordingly, for a one-year policy written on July 1, 2023, we would earn half of the premiums in 2023 and the other half in 2024.

Ceding commission revenue: Commissions on reinsurance premiums ceded to quota share treaties are earned in a manner consistent with the recognition of the direct acquisition costs of the underlying insurance policies, generally on a pro-rata basis over the terms of the policies reinsured.

Net investment income and net gains (losses) on investments: We invest in cash and cash equivalents, short-term investments, fixed-maturity and equity securities, and other investments. Our net investment income includes interest and dividends earned on our invested assets, less investment expenses. Net realized gains and losses on our investments are reported separately from our net investment income. Net realized gains occur when our investment securities are sold for more than their costs or amortized costs, as applicable. Net realized losses occur when our investment securities are sold for less than their costs or amortized costs, as applicable, or are written down as a result of other-than-temporary impairment. We classify our fixed-maturity securities as either available-for-sale or held-to-maturity. Net unrealized gains (losses) on those securities classified as available-for-sale are reported separately within accumulated other comprehensive (loss) income on our balance sheet while our equity securities and other investments report changes in fair value through earnings. See Note 2 in the accompanying consolidated financial statements for a further discussion of our accounting policies following Item 16 of this Annual Report.

Other income: We recognize installment fee income and fees charged to reinstate a policy after it has been cancelled for non-payment.

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Loss and loss adjustment expenses incurred: Loss and LAE incurred represent our largest expense item, and for any given reporting period include estimates of future claim payments, changes in those estimates from prior reporting periods and costs associated with investigating, defending and servicing claims. These expenses fluctuate based on the amount and types of risks we insure. We record loss and LAE related to estimates of future claim payments based on case-by-case valuations, statistical analyses and actuarial procedures. We seek to establish all reserves at the most likely ultimate liability based on our historical claims experience. It is typical for certain claims to take several years to settle and we revise our estimates as we receive additional information on such claims. Our ability to estimate loss and LAE accurately at the time of pricing our insurance policies is a critical factor affecting our profitability.

Commission expenses and other underwriting expenses: Other underwriting expenses include policy acquisition costs and other expenses related to the underwriting of policies. Policy acquisition costs represent the costs of originating new insurance policies that vary with, and are primarily related to, the production of insurance policies (principally commissions, premium taxes and certain underwriting salaries). Policy acquisition costs are deferred and recognized as expense as the related premiums are earned. Other underwriting expenses represent general and administrative expenses of our insurance business and are comprised of other costs associated with our insurance activities such as regulatory fees, telecommunication and technology costs, occupancy costs, employment costs, and legal and auditing fees.

Other operating expenses: Other operating expenses include the corporate expenses of our holding company, Kingstone Companies, Inc. These expenses include executive employment costs, legal and auditing fees, and other costs directly associated with being a public company.

Stock-based compensation: Non-cash equity compensation includes the fair value of stock grants issued to our directors, officers and employees, and amortization of stock options issued to the same.

Depreciation and amortization: Depreciation and amortization includes the amortization of intangibles related to the acquisition of KICO, depreciation of the real estate used in KICO’s operations, as well as depreciation of capital expenditures for information technology projects, office equipment and furniture.

Interest expense: Interest expense represents amounts we incur on our outstanding indebtedness at the applicable interest rates. Interest expense also includes amortization of debt discount and issuance costs.

Income tax expense: We incur federal income tax expense on our consolidated statement of operations as well as state income tax expense for our non-insurance underwriting subsidiaries.

Product Lines

Our product lines include the following:

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

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

In May 2019, due to the poor performance of this line we placed a moratorium on new commercial lines and new commercial umbrella submissions while we further reviewed this business. In July 2019, due to the continuing poor performance of these lines, we made the decision to no longer underwrite commercial lines or commercial umbrella risks. In-force policies as of July 31, 2019 for these lines were non-renewed at the end of their annual terms. As of December 31, 2024 and 2023, there were no commercial liability policies in-force. As of December 31, 2024, these expired policies represent approximately 14.4% 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.

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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:

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 effective 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 cause our net underwriting expense ratios to vary significantly between periods as a result of their incidence of occurrence and magnitude and can have a 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. 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

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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, 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.

Net income (loss) from insurance underwriting business on a standalone basis: Net income (loss) from insurance underwriting business on a standalone basis is a non-GAAP measure, which is computed as GAAP net income (loss) without the effect of holding company operations on GAAP net income (loss). 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 (loss) to vary significantly between periods as a result of their magnitude and can have a significant impact on GAAP net income (loss). 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 (loss). Net income (loss) from insurance underwriting business on a standalone basis should not be considered a substitute for GAAP net income (loss) and does not reflect our GAAP net income (loss).

Critical Accounting Estimates

Our consolidated financial statements include the accounts of Kingstone Companies, Inc. and all majority-owned and controlled subsidiaries. The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related notes. In preparing these consolidated financial statements, our management has utilized information including our past history, industry standards, and the current economic environment, and other factors, in forming its estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. It is possible that the ultimate outcome as anticipated by our management in formulating its estimates in these financial statements may not materialize.

Application of the critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact comparability of our results of operations to those of similar companies.

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

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Loss and Loss Adjustment Expense Reserves

Property and casualty loss and loss adjustment expense (“LAE”) reserves are established to provide for the estimated cost of settling both reported (“case”) and incurred but not reported (“IBNR”) claims and claims adjusting expenses. The liability for these reserves is estimated on an undiscounted basis, using individual case-basis valuations and paid claims, pending claims, statistical analyses and various actuarial reserving methodologies. Due to the inherent uncertainty of the reserve process, actual loss costs could vary significantly compared to estimated loss costs. The below table provides detail of our reserves as of December 31, 2024 and 2023:

(Components may not sum due to rounding)

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

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

Reinsurance

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

Deferred Income Taxes

Our effective tax rate is based on GAAP income at statutory tax rates, adjusted for non-taxable and non-deductible items, and tax credits. Changes in estimates used in preparing the consolidated statements of operations and comprehensive income (loss) 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 consolidated statements of operations and comprehensive income (loss), or changes in the enacted tax rate, could result in significant variances between our carried deferred tax and tax recognized on the recovery or settlement of the asset or liability.

Investments

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

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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 new 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 were non-renewed over a two year period starting January 1, 2024. As of December 31, 2024, our non-Core policy count was down by 65% compared to December 31, 2023;

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 renewal policies for the last 12 months, reflecting both rate and replacement cost changes, increased by 17.4%;

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, 2023, we achieved our goal of 33%, with a net underwriting expense ratio of 32.9%. For the year ended December 31, 2024, we achieved our goal, with a net underwriting expense ratio of 31.3%, a reduction of 1.6 points compared to the year ended December 31, 2023.

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We believe that the above actions taken resulted in our return to profitability for the year ended December 31, 2024, 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 will need 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.

See the tables below for our Core and non-Core business for policies in force as of December 31, 2024 and 2023 and direct written premiums for the years ended December 31, 2024 and 2023. For the year ended December 31, 2024, our Core direct written premiums increased by 31.4% compared to the year ended December 31, 2023, while Core policies in force increased by 9.3% as of December 31, 2024 as compared to December 31, 2023. For the same periods, our non-Core policies in force decreased by 64.9% and non-Core direct written premiums decreased by 58.5%.

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

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Consolidated Results of Operations

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

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

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(1)For the year ended December 31, 2023 , our personal lines business was subject to a 30% quota share treaty, expiring on January 1, 2024, which included a runoff of an 5.5% portion through the remainder of 2023. Effective January 1, 2024, we entered into a 27% personal lines quota share treaty, which includes a runoff of a 3.0% portion through the end of 2024.

(2)For the years ended December 31, 2024 and 2023 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

Direct written premiums during the year ended December 31, 2024 (“Year Ended 2024”) were $241,980,000 compared to $200,175,000 during the year ended December 31, 2023 (“Year Ended 2023”). The increase of $41,805,000, or 20.9%, was primarily due to an increase in premiums from our personal lines business.

Direct written premiums from our personal lines business for Year Ended 2024 were $227,643,000, an increase of $42,217,000 or 22.8%, from $185,426,000 in Year Ended 2023. The 22.8% increase in premiums from our personal lines business was primarily due to the increase in premiums associated with our Core business of 31.4% offsetting a 58.5% 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. Beginning in the third quarter, 2024, the Change in Market Dynamics became a major factor to the increase in direct written premiums from our personal line business.

Direct written premiums from our livery physical damage business for Year Ended 2024 were $14,248,000, a decrease of $400,000, or 2.7%, from $14,648,000 in Year Ended 2023. The decrease in livery physical damage direct written premiums was due to an underwriting restriction in place to exclude certain electric vehicles until the approval of adequate rate for the risk was received, which happened in July 2024. The decrease was offset by an increase in the values of the autos insured.

Direct written premiums from our Core business were $232,227,000 in Year Ended 2024 compared to $176,692,000 in Year Ended 2023, an increase of $55,535,000, or 31.4%. 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 9.3% in Year Ended 2024 compared to Year Ended 2023. Direct written premiums from our non-Core business were $9,753,000 in Year Ended 2024, as compared to $23,482,000 in Year Ended 2023, a decrease of $13,729,000, or 58.5%. 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 64.9% in Year Ended 2024 compared to Year Ended 2023. 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.

Net Written Premiums and Net Premiums Earned

Net written premiums increased $45,573,000, or 41.9%, to $154,230,000 in Year Ended 2024 from $108,657,000 in Year Ended 2023. 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 Year Ended 2024 is primarily due to an increase in direct written premiums and a decrease in catastrophe premium rates.

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Quota share reinsurance treaties

Effective January 1, 2023, we entered into a 30% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”). Upon expiration of the 2023/2024 Treaty on January 1, 2024 we entered into a new 27% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2024 through January 1, 2025 ("2024/2025 Treaty"). Our personal lines business was subject to the 2024/2025 Treaty in the Year Ended 2024 and the 2023/2024 Treaty in the Year Ended 2023. Our premiums ceded under the quota share treaties decreased by $586,000 in comparison to premiums attributable to the increase in direct written premiums subject to the 2024/2025 Treaty compared to direct written premiums subject to the 2023/2024 Treaty. The decrease in ceded premiums related to the increase in direct written premiums was offset by the decrease in quota share ceding percentage rates.

Excess of loss reinsurance treaties

In Year Ended 2024, our ceded excess of loss reinsurance premiums decreased $705,000 compared to the ceded excess of loss premiums for Year Ended 2023. Effective January 1, 2023, we entered into an underlying excess of loss reinsurance treaty (the “Underlying XOL Treaty”) covering the period from January 1, 2023 through January 1, 2024. 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, 2024, the Underlying XOL Treaty was renewed covering the period from January 1, 2024 through January 1, 2025.

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 if reinsurance rates are stable or are 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. Our catastrophe premiums were $30,794,000 in Year Ended 2024, compared to $33,271,000 in Year Ended 2023, a decrease of $2,477,000, or 7.4%.

Net premiums earned

Net premiums earned increased $14,114,000 or 12.3% to $128,498,000 in Year Ended 2024 compared to $114,384,000 in Year Ended 2023. The increase was due to the three percentage point reduction in quota share rates discussed above, the run-off of a portion of the 2023/2024 Treaty, which increased the premiums ceded and reduced the net premiums earned in Year Ended 2023, the increase in premiums from the Change in Market Dynamics in Year Ended 2024, and a decrease in catastrophe premium rates, reflected in ceded catastrophe premiums earned, which increased the amount of growth in 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:

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

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Ceding commission revenue was $18,838,000 in Year Ended 2024 compared to $21,053,000 in Year Ended 2023. The decrease of $2,215,000 is explained below in the discussion of provisional ceding commissions earned and contingent ceding commissions earned.

Provisional Ceding Commissions Earned

In Year Ended 2024, we earned provisional ceding commissions of $18,829,000 from personal lines earned premiums ceded under the 2024/2025 Treaty, and in Year Ended 2023, we earned provisional ceding commissions of $20,397,000 from personal lines earned premiums ceded under the 2023/2024 Treaty. The decrease of $1,568,000 in provisional ceding commissions earned was due to the decrease in premiums ceded under these treaties during Year Ended 2024 compared to Year Ended 2023, offset by an increase in ceding commission rates under the 2024/2025 Treaty.

Contingent Ceding Commissions Earned

The structure of the 2024/2025 Treaty and the 2023/2024 Treaty calls for a fixed provisional ceding commission with no opportunity to earn additional contingent ceding commissions. Under our prior years’ quota share treaties, we received a contingent ceding commission based on a sliding scale in relation to the losses incurred under our quota share treaties. The lower the ceded loss ratio, the more contingent commission we received.

Net Investment Income

Net investment income was $6,824,000 in Year Ended 2024 compared to $6,009,000 in Year Ended 2023, an increase of $815,000, or 13.6%. The average yield on non-cash invested assets was 3.80% as of December 31, 2024 compared to 3.75% as of December 31, 2023

Cash and invested assets were $221,847,000 as of December 31, 2024 compared to $172,095,000 as of December 31, 2023, an increase of $49,752,000.

Net Gains on Investments

Net gains on investments were $415,000 in Year Ended 2024 compared to net gains of $2,135,000 in Year Ended 2023. Unrealized gains on our equity securities and other investments in Year Ended 2024 were $477,000, compared to unrealized gains of $2,153,000 in Year Ended 2023. Net realized losses on sales of investments were $62,000 in Year Ended 2024 compared to net realized losses of $19,000 in Year Ended 2023.

Other Income

Other income was $568,000 in Year Ended 2024 compared to $610,000 in Year Ended 2023, a decrease of $47,000, or 6.9%.

Net Loss and LAE

Net loss and LAE was $62,635,000 for Year Ended 2024 compared to $82,849,000 for Year Ended 2023. The net loss ratio was 48.7% in Year Ended 2024 compared to 72.4% in Year Ended 2023, a decrease of 23.7 percentage points.

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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(1):

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

The net loss ratio for Year Ended 2024 improved significantly compared to Year Ended 2023. For Year Ended 2024, the catastrophe impact, prior year development, and underlying loss ratio(1) (loss ratio excluding the impact of catastrophes and prior year development) were all lower than Year Ended 2023.

There were sixteen newly designated catastrophe events for Year Ended 2024, none of which was a major event for the Company’s covered areas. The estimated total net catastrophe impact for Year Ended 2024 was $2,454,000, which contributed 1.9 points to the loss ratio. By comparison, the catastrophe impact for Year Ended 2023 was 7.1 points. Losses from winter-related catastrophe claims were minimal for Year Ended 2024, whereas the previous year was impacted by a major winter event in February 2023.

The underlying loss ratio(1) was 48.2% for Year Ended 2024, a decrease of 17.1 points from the 65.3% underlying loss ratio recorded for Year Ended 2023. Overall personal lines non-catastrophe frequency for Year Ended 2024 was lower than Year Ended 2023, which is believed to be the result of better risk selection in the Company’s Select product rollout as well as the Company’s active efforts to manage less profitable segments. Overall personal lines non-catastrophe severity for Year Ended 2024 was also improved compared to Year Ended 2023, primarily driven by water claims and a reduced impact from large losses.

There was favorable prior year development of $1,780,000 for Year Ended 2024, which translates to a 1.4-point decrease to the net loss ratio. By comparison, the impact of favorable prior year development for Year Ended 2023 was a decrease of less than 0.1 points.

(1) Underlying loss ratio is a non-GAAP ratio, which is computed 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.

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

Commission Expense

Commission expense was $33,929,000 in Year Ended 2024 or 15.9% of direct earned premiums. Commission expense was $33,365,000 in Year Ended 2023 or 16.5% of direct earned premiums. The increase of $564,000 was primarily due to $2,788,000 of contingent commission in Year Ended 2024 based on the profitability of the business, and an increase in direct earned premiums of $10,854,000. The increase was offset by a reduction in commission rates on our legacy policies in accordance with our Kingstone 3.0 strategy as well as the lower commission rate paid on Select products as compared to legacy products.

Other Underwriting Expenses

Other underwriting expenses were $25,693,000, or 12.1% of direct earned premiums, in Year Ended 2024 compared to $25,910,000, or 12.8% of direct earned premiums, in Year Ended 2023. The decrease of $217,000, or 0.8%, was primarily due to a $365,000 gain on the commutations of prior years’ quota share reinsurance treaties from a group of reinsurers, decreases in base salaries and employment costs as described below, and a decrease in policy management system fees. The decreases were partially offset by the impact of high inflation.

Our largest single component of other underwriting expenses is salaries and employment costs, with costs of $13,143,000 in Year Ended 2024 compared to $11,335,000 in Year Ended 2023. The increase of $1,808,000, or 34.2%, is compared unfavorably to the 20.9% increase in direct written premiums. The increase in salaries and employment costs was due to $1,614,000 accrued under our employee bonus plans due to the profitable underwriting insurance operations in Year Ended 2024 compared to a loss in Year Ended 2023, and $446,000 accrued under our executive bonus plan pursuant to the employment agreement of our Chief Executive Officer. The increases related to bonuses were offset by a reduction in our staff in June and July of 2023 as we have been reducing our non-Core business. The decrease from the reduction in staff was partially offset in the periods following Year Ended 2023, as we began to strengthen our professional team by investing in the hiring of higher-level and higher compensated managers and staff needed to manage the business consistent with our Kingstone 2.0 and Kingstone 3.0 strategies. In addition, we are now hiring additional staff to handle the new business from the Change in Market Dynamics.

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Our net underwriting expense ratio in Year Ended 2024 was 31.3% compared to 32.9% in Year Ended 2023. 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 $3,635,000 for Year Ended 2024 compared to $2,456,000 for Year Ended 2023. The following table shows a breakdown of the significant components of other operating expenses for the periods indicated:

(Components may not sum to totals due to rounding)

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The increase in Year Ended 2024 of $1,179,000, or 48.0%, as compared to Year Ended 2023 was primarily due to an increase in equity compensation and loss on extinguishment of debt. The increase in equity compensation is due to accelerated vesting in September 2024 as a result of the retirement of our executive chairman, and an equity compensation accrual for our senior leadership team pursuant to our employee bonus plan. The executive bonus of $50,000 allocated to other operating expenses in Year Ended 2024 is accrued pursuant to the employment agreement of our Chief Executive Officer and is a result of the profitable operations before taxes in Year Ended 2024 compared to a loss in Year Ended 2023. The $297,000 loss on extinguishment of debt loss is due to writing off the balance of unamortized debt issue costs from the 2022 Notes at the time of the 2024 Exchange Agreement as disclosed in Note 9 to the consolidated financial statements.

Depreciation and Amortization

Depreciation and amortization was $2,449,000 in Year Ended 2024 compared to $2,973,000 in Year Ended 2023. The decrease of $524,000, or 17.6%, in depreciation and amortization was primarily due to the completion and deployment of our customized policy management software as planned for in Kingstone 2.0, which allowed us to consolidate multiple legacy systems into one efficient system and retire those older more costly and less reliable systems. Depreciation on older assets that were retired, which had a shorter useful life, is greater than the depreciation on newly acquired assets which have a longer useful life.

Interest Expense

Interest expense in Year Ended 2024 was $3,514,000 compared to $4,003,000 in Year Ended 2023, a decrease of $489,000 or 12.2%. In Year Ended 2024 and Year Ended 2023, as disclosed in Note 9 to the consolidated financial statements, we incurred interest expense in connection with the 2022 Notes and 2024 Notes. 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 principal balances of the 2022 Notes were exchanged for the 2024 Notes, which provided for interest at the rate of 13.75% per annum. We made optional prepayments of $3,000,000 on September 30, 2024, $2,000,000 on November 13, 2024, $4,000,000 on December 30, 2024, $3,500,000 on January 28, 2025, and $2,450,000 on February 24, 2025 (see Note 20 - Subsequent Events, Debt), and, accordingly, we have fully satisfied the entire principal balance under the 2024 Notes. In addition to interest on 2022 Notes and 2024 Notes, we also incur interest expense on the 2022 equipment financing.

Income Tax Expense (Benefit)

Income tax expense in Year Ended 2024 was $4,930,000, which resulted in an effective tax rate of 21.2%. Income tax (benefit) in Year Ended 2023 was $(1,197,000), which resulted in an effective tax rate of (16.3)%. Income before taxes was $23,288,000 in Year Ended 2024 compared to a loss before taxes of $(7,365,000) in Year Ended 2023. The difference in effective tax rate is due to the effect of permanent differences in Year Ended 2024 compared to Year Ended 2023.

Net Income (Loss)

Net income was $18,358,000 in Year Ended 2024 compared to net loss of $(6,168,000) in Year Ended 2023. The change from net loss to net income of $24,526,000 was due to the circumstances described above.

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Additional Financial Information

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

(1)“Other” includes, among other things, premiums and loss and loss adjustment expenses from our participation in a mandatory state joint underwriting association and loss and loss adjustment expenses from commercial auto.

(2)In July 2019, we decided that we will no longer underwrite Commercial Liability risks. See discussions above regarding the discontinuation of this line of business.

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(3)See discussions above with regard to “Net Loss and LAE”, as to catastrophe losses in the years ended December 31, 2024 and 2023.

Insurance Underwriting Business on a Standalone Basis(1)

Our insurance underwriting business reported on a standalone basis(1) for the years ended December 31, 2024 and 2023 follows:

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

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

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

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The key measures for our insurance underwriting business for the years ended December 31, 2024 and 2023 are as follows:

(1)For the years ended December 31, 2024 and 2023, includes the sum of net catastrophe losses and loss adjustment expenses of $2,454,159 and $8,154,869, respectively.

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(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

The following table presents a breakdown of the amortized cost, estimated fair value, and unrealized gains and losses of our investments in fixed-maturity securities classified as available-for-sale as of December 31, 2024 and 2023:

Available-for-Sale Securities

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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 9 – 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 December 31, 2024 and 2023, the amount of required collateral was approximately $5,308,000 and $6,999,000, respectively. As of December 31, 2024 and 2023, the estimated fair value of the eligible collateral was approximately $5,308,000 and $6,999,000, 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 9 – 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 December 31, 2024, the estimated fair value of the eligible investments was approximately $10,130,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2024 and 2023 there was no outstanding balance on the FHLBNY credit line.

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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 December 31, 2024 and 2023:

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 December 31, 2024 and 2023:

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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 December 31, 2024 and 2023:

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

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A summary of the amortized cost and estimated fair value of our investments in held-to-maturity securities by contractual maturity as of December 31, 2024 and 2023 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 December 31, 2024 and 2023 as rated by Standard and Poor’s (or, if unavailable from Standard and Poor’s, then Moody’s, Fitch, or Kroll):

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The table below details the average yield by type of fixed-maturity security as of December 31, 2024 and 2023:

The table below lists the weighted average maturity and effective duration in years on our fixed-maturity securities as of December 31, 2024 and 2023:

Fair Value Consideration

As disclosed in Note 4 to the consolidated financial statements, with respect to “Fair Value Measurements,” we define fair value as 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 December 31, 2024 and 2023, 59% and 65%, respectively, of the investment portfolio recorded at fair value was priced based upon quoted market prices.

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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 December 31, 2024 and 2023:

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. There were 140 securities at December 31, 2023 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.

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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 year ended December 31, 2024, KICO did not pay any dividends to us. Through June 30, 2024, KICO had a negative adjusted unassigned surplus. Based on that, KICO was not be able to pay any distributions to us without prior regulatory approval. In December 2023, KICO received regulatory approval to pay us a $2,300,000 distribution from paid in capital. KICO paid us the $2,300,000 distribution in the second quarter of 2024. In August 2024, KICO received regulatory approval to pay us a $5,000,000 distribution from paid in capital. KICO paid us the $5,000,000 distribution in the third quarter of 2024. As of December 31, 2024, KICO has eligible unassigned surplus of $12,017,831 and is able to pay dividends; however, KICO has an agreement with DFS 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 9 – Investments to our 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 September 30, 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 December 31, 2024, based on the net admitted assets as of September 30, 2024, was approximately $13,637,000. Available collateral as of December 31, 2024 was approximately $10,130,000. Advances are limited to 85% of the amount of available collateral. There were no borrowings under this facility during Year Ended 2024.

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. During the year ended December 31, 2024, we sold 1,437,287 shares of our Common Stock at a weighted average price of $9.79 per share and raised $13,610,807 in net proceeds under the ATM program. As of December 31, 2024, we had remaining capacity to sell up to an additional $2,325,087 of our Common Stock under the ATM program. On January 7, 2025, we filed a prospectus supplement with the SEC increasing the aggregate offering price under the ATM program to $25,000,000 from approximately $16,400,000.

On September 12, 2024, we issued the 2024 Notes in the aggregate principal amount of $14,950,000 pursuant to the 2024 Exchange Agreement. Interest was payable semi-annually in arrears on June 30 and December 30 of each year at the rate of 13.75% per annum. The maturity date of the 2024 Notes was June 30, 2026. As of December 31, 2024, the

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balance of the 2024 Notes was $5,950,000. On February 24, 2025, we paid the balance of the 2024 Notes in full reducing the outstanding balance to $0.

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

Our reconciliation of net income (loss) to net cash provided by (used in) by operations is generally influenced by the collection of premiums in advance of paid losses, the timing of reinsurance, issuing company settlements and loss payments.

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 $57,948,000 in the Year Ended 2024 as compared to $11,327,000 used in operating activities in Year Ended 2023. The $69,275,000 increase in cash flows provided by operating activities in Year Ended 2024 as compared to Year Ended 2023 was primarily the result of the change to net income from net loss (adjusted for non-cash items) of $69,275,000 and cash provided arising 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 $35,261,000 in Year Ended 2024 compared to $9,462,000 provided by investing activities in Year Ended 2023 resulting in a $44,723,000 increase in net cash used in investing activities. In Year Ended 2024, we had net cash used by our investment portfolio of $32,924,000, compared to $11,289,000 provided in Year Ended 2023.

Net cash used in financing activities was $2,994,000 in Year Ended 2024 compared to $1,116,000 used in Year Ended 2023. Net cash used in financing activities were primarily principal payments of $5,000,000 on our 2022 Notes, $9,000,000 on our 2024 Notes, and $1,154,000 on our equipment financing debt in connection with KICO’s sale-leaseback transaction. In addition, we paid $1,311,000 for withholding taxes on vested restricted stock awards. The principal payments on the 2024 Notes were made by using a portion of the $13,611,000 net proceeds from our ATM offering.

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Reinsurance

The following table provides summary information with respect to each reinsurer that accounted for more than 10% of our reinsurance recoverables on paid and unpaid losses and loss adjustment expenses as of December 31, 2024:

(1)Of $8,731,000 reinsurance recoverables included in Others at December 31, 2024, $393,000 was guaranteed by irrevocable letters of credit.

Effective December 31, 2021, we entered into a quota share reinsurance treaty for our personal lines business, which primarily consisted of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, we entered into a new 30% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”). Upon the expiration of the 2023/2024 Treaty on January 1, 2024, we entered into a new 27% quota share reinsurance treaty for our personal lines business, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”). 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, 2022, we entered into an underlying excess of loss reinsurance treaty (“Underlying XOL Treaty”) covering the period from January 1, 2022 through January 1, 2023. The Underlying XOL Treaty provided 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the Underlying XOL Treaty. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. Effective January 1, 2024, the Underlying XOL Treaty was renewed covering the period from January 1, 2024 through January 1, 2025. 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. For the period October 1, 2024 through April 30, 2025, we purchased catastrophe reinsurance which will provide coverage for winter storm losses to the extent of 71% of $4,500,000 in excess of $5,500,000. Effective January 1, 2025, the Underlying XOL Treaty was renewed covering the period from January 1, 2025 through June 30, 2025. 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.

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(2)Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.

(3)For the period July 1, 2022 through June 30, 2023, reinstatement premium protection for $12,500,000 of catastrophe coverage in excess of $10,0000,000. 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, 2022 through June 30, 2025, underlying excess of loss treaty provides 50% reinsurance coverage for losses of 400,000 in excess of 600,000. Excludes losses from named storms. Reduces retention to $500,000 from $700,000 under the 2023/2024 Treaty. 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 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, 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 and (underlying excess of loss reinsurance treaty through June 30, 2025). The 2025/2026 Treaty will expire on January 1, 2026.

(7)For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. 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 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.

Commercial Lines (1)

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

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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 Year Ended 2024 included continuing economic inflation, albeit tempered compared to 2023, 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. For Year Ended 2024, 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.

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 the underlying loss ratio and the net loss ratio excluding the effect of catastrophes 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 (loss) from insurance underwriting business on a standalone basis to GAAP net income (loss) for the periods presented:

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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, respectively, for the periods presented:

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. As such, we anticipate the sizeable increase in our direct earned premium to continue into 2025. See “Forward-Looking Statements” before Part I, Item 1.

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