Edgar Filing: KINGSTONE COMPANIES, INC.

kins_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________to _________

Commission File Number 0-1665

KINGSTONE COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware		36-2476480
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

15 Joys Lane

Kington, NY 12401

(Address of principal executive offices)

(516) 374-7600

(Registrant’s telephone number, including area code)

1154 Broadway

Hewlett, NY 11557

(Former Address if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

As of May 15, 2013, there were 3,840,899 shares of the registrant’s common stock outstanding.

KINGSTONE COMPANIES, INC.

INDEX

		PAGE

PART I — FINANCIAL INFORMATION			2

Item 1 —	Financial Statements		2
	Condensed Consolidated Balance Sheets at March 31, 2013 (Unaudited) and December 31, 2012		2
	Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2013 (Unaudited) and 2012 (Unaudited)		3
	Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2013 (Unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 (Unaudited) and 2012 (Unaudited)		5-6
	Notes to Condensed Consolidated Financial Statements (Unaudited)		7
Item 2 —	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3 —	Quantitative and Qualitative Disclosures About Market Risk		41
Item 4—	Controls and Procedures		41

PART II — OTHER INFORMATION			43

Item 1 —	Legal Proceedings		43
Item 1A —	Risk Factors		43
Item 2 —	Unregistered Sales of Equity Securities and Use of Proceeds		43
Item 3 —	Defaults Upon Senior Securities		43
Item 4 —	Mine Safety Disclosures		43
Item 5 —	Other Information		43
Item 6 —	Exhibits		44

Signatures			45

EXHIBIT 3(a)
EXHIBIT 3(b)
EXHIBIT 31(a)
EXHIBIT 31(b)
EXHIBIT 32
1 EXHIBIT 101.INS XBRL Instance Document
1 EXHIBIT 101.SCH XBRL Taxonomy Extension Schema
1 EXHIBIT 101.CAL XBRL Taxonomy Extension Calculation Linkbase
1 EXHIBIT 101.DEF XBRL Taxonomy Extension Definition Linkbase
1 EXHIBIT 101.LAB XBRL Taxonomy Extension Label Linkbase
1 EXHIBIT 101.PRE XBRL Taxonomy Extension Presentation Linkbase

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally these statements relate to business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results. The words "may," "will," "expect," "believe," "anticipate," "project," "plan," "intend," "estimate," and "continue," and their opposites and similar expressions are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control, that may influence the accuracy of the statements and the projections upon which the statements are based. Factors which may affect our results include, but are not limited to, the risks and uncertainties discussed in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012 under “Factors That May Affect Future Results and Financial Condition”.

Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. Our actual results, performance and achievements could differ materially from those expressed or implied in these forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

KINGSTONE COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
	March 31,			December 31,
	2013			2012
	(unaudited)
Assets
Fixed-maturity securities, held to maturity, at amortized cost (fair value of $750,137
at March 31, 2013 and $779,026 at December 31, 2012)	$	606,289		$	606,281
Fixed-maturity securities, available for sale, at fair value (amortized cost of
$24,502,275 at March 31, 2013 and $24,847,097 at December 31, 2012)		25,842,570			26,181,938
Equity securities, available-for-sale, at fair value (cost of $6,455,800
at March 31, 2013 and $5,073,977 at December 31, 2012)		7,112,355			5,290,242
Total investments		33,561,214			32,078,461
Cash and cash equivalents		2,828,554			2,240,012
Premiums receivable, net of provision for uncollectible amounts		7,396,157			7,766,825
Reinsurance receivables, net of provision for uncollectible amounts		33,621,371			38,902,782
Notes receivable-sale of business		314,899			323,141
Deferred acquisition costs		5,552,777			5,569,878
Intangible assets, net		3,066,029			3,184,958
Property and equipment, net of accumulated depreciation		1,918,505			1,868,422
Other assets		552,858			1,563,919
Total assets	$	88,812,364		$	93,498,398

Liabilities
Loss and loss adjustment expenses	$	28,309,886		$	30,485,532
Unearned premiums		26,563,888			26,012,363
Advance premiums		767,482			610,872
Reinsurance balances payable		6,242,200			1,820,527
Advance payments from catastrophe reinsurers		-			7,358,391
Deferred ceding commission revenue		4,922,256			4,877,030
Notes payable (includes payable to related parties of $378,000
at March 31, 2013 and December 31, 2012)		747,000			1,197,000
Accounts payable, accrued expenses and other liabilities		2,823,224			3,067,586
Deferred income taxes		1,814,302			1,787,281
Total liabilities		72,190,238			77,216,582

Commitments and Contingencies

Stockholders' Equity
Preferred stock, $.01 par value; authorized 1,000,000 shares;
-0- shares issued and outstanding	$	-		$	-
Common stock, $.01 par value; authorized 10,000,000 shares; issued 4,730,357
shares at March 31, 2013 and December 31, 2012;
outstanding 3,840,899 shares at March 31, 2013 and December 31, 2012		47,304			47,304
Capital in excess of par		13,859,784			13,851,036
Accumulated other comprehensive income		1,317,920			1,023,729
Retained earnings		2,824,663			2,787,292
		18,049,671			17,709,361
Treasury stock, at cost, 889,458 shares at March 31, 2013 and December 31, 2012		(1,427,545	)		(1,427,545	)
Total stockholders' equity		16,622,126			16,281,816

Total liabilities and stockholders' equity	$	88,812,364		$	93,498,398

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three months ended March 31,	2013			2012

Revenues
Net premiums earned	$	4,623,215		$	3,972,535
Ceding commission revenue		2,293,711			2,903,656
Net investment income		283,287			267,517
Net realized gain on sale of investments		105,125			39,400
Other income		213,990			239,055
Total revenues		7,519,328			7,422,163

Expenses
Loss and loss adjustment expenses		2,469,641			2,278,514
Commission expense		2,115,820			1,671,607
Other underwriting expenses		2,213,345			1,857,746
Other operating expenses		243,310			286,887
Depreciation and amortization		152,986			146,549
Interest expense		21,215			20,785
Total expenses		7,216,317			6,262,088

Income from operations before taxes		303,011			1,160,075
Income tax expense		112,003			394,657
Net income		191,008			765,418

Other comprehensive income, net of tax
Gross unrealized investment holding gains
arising during period		445,743			447,165

Income tax expense related to items of other
comprehensive income		(151,553	)		(152,036	)
Comprehensive income	$	485,198		$	1,060,547

Earnings per common share:
Basic	$	0.05		$	0.20
Diluted	$	0.05		$	0.20

Weighted average common shares outstanding
Basic		3,840,899			3,771,109
Diluted		3,914,406			3,771,109

Dividends declared and paid per common share	$	0.04		$	0.03

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Consolidated Statement of Stockholders' Equity
Three months ended March 31, 2013 (unaudited)

											Accumulated
									Capital		Other
	Preferred Stock				Common Stock				in Excess		Comprehensive		Retained			Treasury Stock
	Shares		Amount		Shares		Amount		of Par		Income		Earnings			Shares		Amount			Total

Balance, January 1, 2013		-	$	-		4,730,357	$	47,304	$	13,851,036	$	1,023,729	$	2,787,292			889,458	$	(1,427,545	)	$	16,281,816
Stock-based compensation		-		-		-		-		8,748		-		-			-		-			8,748
Dividends		-		-		-		-		-		-		(153,637	)		-		-			(153,637	)
Net income		-		-		-		-		-		-		191,008			-		-			191,008
Change in unrealized gains on available for
sale securities, net of tax		-		-		-		-		-		294,191		-			-		-			294,191
Balance, March 31, 2013		-	$	-		4,730,357	$	47,304	$	13,859,784	$	1,317,920	$	2,824,663			889,458	$	(1,427,545	)	$	16,622,126

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31,	2013			2012

Cash flows provided by (used in) operating activities:
Net income	$	191,008		$	765,418
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized gain on sale of investments		(105,125	)		(39,400	)
Depreciation and amortization		152,986			146,549
Amortization of bond premium, net		45,074			32,938
Stock-based compensation		8,748			19,501
Excess tax benefit from exercise of stock options		-			(7,819	)
Deferred income tax expense		(124,532	)		(60,780	)
(Increase) decrease in assets:
Premiums receivable, net		370,668			(543,567	)
Receivables - reinsurance contracts		-			(857,323	)
Reinsurance receivables, net		5,281,411			(1,303,004	)
Deferred acquisition costs		17,101			(180,579	)
Other assets		1,011,071			(75,757	)
Increase (decrease) in liabilities:
Loss and loss adjustment expenses		(2,175,646	)		1,452,292
Unearned premiums		551,525			970,562
Advance premiums		156,610			32,645
Reinsurance balances payable		4,421,673			341,414
Advance payments from catastrophe reinsurers		(7,358,391	)		-
Deferred ceding commission revenue		45,226			166,818
Accounts payable, accrued expenses and other liabilities		(244,362	)		(1,054,435	)
Net cash flows provided by (used in) operating activities		2,245,045			(194,527	)

Cash flows (used in) provided by investing activities:
Purchase - fixed-maturity securities available for sale		(1,146,075	)		(105,544	)
Purchase - equity securities		(2,298,727	)		(658,388	)
Sale or maturity - fixed-maturity securities available for sale		1,522,781			1,032,800
Sale - equity securities		945,053			191,516
Collections of notes receivable and accrued interest - sale of businesses		8,242			7,066
Other investing activities		(84,140	)		(11,420	)
Net cash flows (used in) provided by investing activities		(1,052,866	)		456,030

Cash flows used in financing activities:
Proceeds from line of credit		100,000			50,000
Principal payments on line of credit		(550,000	)		(100,000	)
Proceeds from exercise of stock options		-			41,200
Excess tax benefit from exercise of stock options		-			7,819
Purchase of treasury stock		-			(8,200	)
Dividends paid		(153,637	)		(113,397	)
Net cash flows used in financing activities		(603,637	)		(122,578	)

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31,	2013		2012

Increase in cash and cash equivalents	$	588,542	$	138,925
Cash and cash equivalents, beginning of period		2,240,012		173,126
Cash and cash equivalents, end of period	$	2,828,554	$	312,051

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$	-	$	500,000
Cash paid for interest	$	39,087	$	120,037

See accompanying notes to condensed consolidated financial statements.

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KINGSTONE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation and Nature of Business

Kingstone Companies, Inc. (referred to herein as "Kingstone" or the “Company”), through its subsidiary Kingstone Insurance Company (“KICO”), underwrites property and casualty insurance to small businesses and individuals exclusively through independent agents and brokers. KICO is a licensed insurance company in the State of New York. In February 2011, KICO’s application for an insurance license to write insurance in the Commonwealth of Pennsylvania was approved; however, KICO has only nominally commenced writing business in Pennsylvania. Kingstone, through its subsidiary, Payments, Inc., a licensed premium finance company in the State of New York, receives fees for placing contracts with a third party licensed premium finance company.

The accompanying unaudited condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q and Article 8-03 of SEC Regulation S-X. The principles for condensed interim financial information do not require the inclusion of all the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2012 and notes thereto included in the Company’s Annual Report on Form 10-K filed on April 1, 2013. The accompanying condensed consolidated financial statements have not been audited by an independent registered public accounting firm in accordance with standards of the Public Company Accounting Oversight Board (United States) but, in the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the Company’s financial position and results of operations. The results of operations for the three months ended March 31, 2013 may not be indicative of the results that may be expected for the year ending December 31, 2013.

Note 2 – Accounting Policies and Basis of Presentation

Use of Estimates

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

Principles of Consolidation

The consolidated financial statements consist of Kingstone and its wholly-owned subsidiaries. Subsidiaries include KICO and its subsidiaries, CMIC Properties, Inc. and 15 Joys Lane, LLC, which together own the land and building from which KICO operates. All significant inter-company transactions have been eliminated in consolidation.

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Accounting Pronouncements

In February 2013, Financial Accounting Standards Board issued Accounting Standards Update ("ASU") No. 2013-02, Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income ("ASU 2013-02"). ASU 2013-02 supersedes and replaces the presentation requirements for the reclassifications out of accumulated other comprehensive income. None of the other requirements of previously issued ASUs related to comprehensive income are affected by ASU 2013-02. The Company adopted ASU 2013-02 on January 1, 2013 and the implementation of the standard did not have a material impact on the Company's results of operations, financial position or liquidity.

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

Note 3 - Investments

Available for Sale Securities

The amortized cost and fair value of investments in available for sale fixed-maturity securities and equities as of March 31, 2013 and December 31, 2012 are summarized as follows:

	March 31, 2013
												Net
	Cost or		Gross		Gross Unrealized Losses							Unrealized
	Amortized		Unrealized		Less than 12			More than 12		Fair		Gains/
Category	Cost		Gains		Months			Months		Value		(Losses)
	(unaudited)
Fixed-Maturity Securities:
Political subdivisions of States,
Territories and Possessions	$	5,489,845	$	268,889	$	(20,396	)	$	-	$	5,738,338	$	248,493

Corporate and other bonds
Industrial and miscellaneous		19,012,430		1,132,479		(40,677	)		-		20,104,232		1,091,802
Total fixed-maturity securities		24,502,275		1,401,368		(61,073	)		-		25,842,570		1,340,295

Equity Securities:
Preferred stocks		2,265,510		37,289		(6,174	)		-		2,296,625		31,115
Common stocks		4,190,290		636,664		(11,224	)		-		4,815,730		625,440
Total equity securities		6,455,800		673,953		(17,398	)		-		7,112,355		656,555

Total	$	30,958,075	$	2,075,321	$	(78,471	)	$	-	$	32,954,925	$	1,996,850

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	December 31, 2012
													Net
	Cost or		Gross		Gross Unrealized Losses								Unrealized
	Amortized		Unrealized		Less than 12			More than 12			Fair		Gains/
Category	Cost		Gains		Months			Months			Value		(Losses)

Fixed-Maturity Securities:
Political subdivisions of States,
Territories and Possessions	$	5,219,092	$	257,298	$	(1,574	)	$	-		$	5,474,816	$	255,724

Corporate and other bonds
Industrial and miscellaneous		19,628,005		1,123,392		(43,553	)		(722	)		20,707,122		1,079,117
Total fixed-maturity securities		24,847,097		1,380,690		(45,127	)		(722	)		26,181,938		1,334,841

Equity Securities:
Preferred stocks		1,475,965		19,512		(11,130	)		-			1,484,347		8,382
Common stocks		3,598,012		353,782		(145,899	)		-			3,805,895		207,883
Total equity securities		5,073,977		373,294		(157,029	)		-			5,290,242		216,265

Total	$	29,921,074	$	1,753,984	$	(202,156	)	$	(722	)	$	31,472,180	$	1,551,106

A summary of the amortized cost and fair value of the Company’s investments in available for sale fixed-maturity securities by contractual maturity as of March 31, 2013 and December 31, 2012 is shown below:

	March 31, 2013				December 31, 2012
	Amortized				Amortized
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value
	(unaudited)
Less than one year	$	551,998	$	558,103	$	546,952	$	560,162
One to five years		8,657,117		9,197,497		9,031,248		9,569,943
Five to ten years		11,751,646		12,480,298		12,605,798		13,306,033
More than 10 years		3,541,514		3,606,672		2,663,099		2,745,800
Total	$	24,502,275	$	25,842,570	$	24,847,097	$	26,181,938

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

Held to Maturity Securities

The amortized cost and fair value of investments in held to maturity fixed-maturity securities as of March 31, 2013 and December 31, 2012 are summarized as follows:

March 31, 2013

Net

Cost or

Gross

Gross Unrealized Losses

Unrealized

Amortized

Unrealized

Less than 12

More than 12

Fair

Gains/

Category

Cost

Gains

Months

Value

(Losses)

(unaudited)

U.S. Treasury securities

606,289

143,848

750,137

143,848

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December 31, 2012

Net

Cost or

Gross

Gross Unrealized Losses

Unrealized

Amortized

Unrealized

Less than 12

More than 12

Fair

Gains/

Category

Cost

Gains

Months

Value

(Losses)

U.S. Treasury securities

606,281

172,745

779,026

172,745

All held to maturity securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

Contractual maturities of all held to maturity securities are greater than ten years.

Investment Income

Major categories of the Company’s net investment income are summarized as follows:

	Three months ended
	March 31,
	2013		2012
	(unaudited)
Income:
Fixed-maturity securities	$	260,035	$	234,493
Equity securities		86,455		85,929
Cash and cash equivalents		29		1,406
Other		-		2
Total		346,519		321,830
Expenses:
Investment expenses		63,232		54,313
Net investment income	$	283,287	$	267,517

Proceeds from the sale and maturity of fixed-maturity securities were $1,522,781 and $1,032,800 for the three months ended March 31, 2013 and 2012, respectively.

Proceeds from the sale of equity securities were $945,053 and $191,516 for the three months ended March 31, 2013 and 2012, respectively.

The Company’s net realized gains and losses on investments are summarized as follows:

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	Three months ended
	March 31,
	2013			2012
	(unaudited)
Fixed-maturity securities:
Gross realized gains	$	76,976		$	40,146
Gross realized losses		-			-
		76,976			40,146

Equity securities:
Gross realized gains		71,785			7,069
Gross realized losses		(43,636	)		(7,815	)
		28,149			(746	)

Net realized gains	$	105,125		$	39,400

Impairment Review

The Company regularly reviews its fixed-maturity securities and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. In evaluating potential impairment, management considers, among other criteria: (i) the current fair value compared to amortized cost or cost, as appropriate; (ii) the length of time the security’s fair value has been below amortized cost or cost; (iii) specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments; (iv) management’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in value to cost; and (v) current economic conditions.

OTTI losses are recorded in the condensed consolidated statement of income and comprehensive income as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. There are 19 securities at March 31, 2013 that account for the gross unrealized loss. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of fixed maturity investments and equity securities for the three months ended March 31, 2013 and 2012. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to retain the investment for a period of time sufficient to allow for anticipated recovery of fair value to the Company’s cost basis.

The Company held securities with unrealized losses representing declines that were considered temporary at March 31, 2013 and December 31, 2012 as follows:

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	March 31, 2013
	Less than 12 months							12 months or more						Total
						No. of						No. of		Aggregate
	Fair		Unrealized			Positions		Fair		Unrealized		Positions		Fair		Unrealized
Category	Value		Losses			Held		Value		Losses		Held		Value		Losses
	(unaudited)
Fixed-Maturity Securities:
Political subdivisions of
States, Territories and
Possessions	$	795,799	$	(20,396	)		3	$	-	$	-		-	$	795,799	$	(20,396	)

Corporate and other
bonds industrial and
miscellaneous		1,998,132		(40,677	)		9		-		-		-		1,998,132		(40,677	)

Total fixed-maturity
securities	$	2,793,931	$	(61,073	)		12	$	-	$	-		-	$	2,793,931	$	(61,073	)

Equity Securities:
Preferred stocks	$	898,900	$	(6,174	)		4	$	-	$	-		-	$	898,900	$	(6,174	)
Common stocks		632,850		(11,224	)		3		-		-		-		632,850		(11,224	)

Total equity securities	$	1,531,750	$	(17,398	)		7	$	-	$	-		-	$	1,531,750	$	(17,398	)

Total	$	4,325,681	$	(78,471	)		19	$	-	$	-		-	$	4,325,681	$	(78,471	)

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	December 31, 2012
	Less than 12 months							12 months or more							Total
						No. of							No. of		Aggregate
	Fair		Unrealized			Positions		Fair		Unrealized			Positions		Fair		Unrealized
Category	Value		Losses			Held		Value		Losses			Held		Value		Losses

Fixed-Maturity Securities:
Political subdivisions of
States, Territories and
Possessions	$	202,798	$	(1,574	)		1	$	-	$	-			-	$	202,798	$	(1,574	)

Corporate and other
bonds industrial and
miscellaneous		4,025,551		(43,553	)		19		128,125		(722	)		1		4,153,676		(44,275	)

Total fixed-maturity
securities	$	4,228,349	$	(45,127	)		20	$	128,125	$	(722	)		1	$	4,356,474	$	(45,849	)

Equity Securities:
Preferred stocks	$	387,925	$	(11,130	)		3	$	-	$	-			-	$	387,925	$	(11,130	)
Common stocks		1,536,860		(145,899	)		9		-		-			-		1,536,860		(145,899	)

Total equity securities	$	1,924,785	$	(157,029	)		12	$	-	$	-			-	$	1,924,785	$	(157,029	)

Total	$	6,153,134	$	(202,156	)		32	$	128,125	$	(722	)		1	$	6,281,259	$	(202,878	)

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Note 4 - Fair Value Measurements

The Company follows GAAP guidance regarding fair value measurements. The valuation technique used to fair value the financial instruments is the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets.

This guidance establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded, including during period of market disruption, and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Included are those investments traded on an active exchange, such as the NASDAQ Global Select Market, U.S. Treasury securities and obligations of U.S. government agencies, together with corporate debt securities that are generally investment grade.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. Municipal and corporate bonds that are traded in less active markets are classified as Level 2. These securities are valued using market price quotations for recently executed transactions.

Level 3—Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Material assumptions and factors considered in pricing investment securities and other assets may include appraisals, projected cash flows, market clearing activity or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.

The availability of observable inputs varies and is affected by a wide variety of factors. When the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. The degree of judgment exercised by management in determining fair value is greatest for investments categorized as Level 3. For investments in this category, the Company considers prices and inputs that are current as of the measurement date. In periods of market dislocation, as characterized by current market conditions, the observability of prices and inputs may be reduced for many instruments. This condition could cause a security to be reclassified between levels.

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The Company’s investments are allocated among pricing input levels at March 31, 2013 and December 31, 2012 as follows:

	March 31, 2013
($ in thousands)	Level 1		Level 2		Level 3		Total
	(unaudited)
Fixed-maturity investments available for sale
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies	$	-	$	-	$	-	$	-

Political subdivisions of
States, Territories and
Possessions		-		5,738		-		5,738

Corporate and other
bonds industrial and
miscellaneous		10,574		9,531		-		20,105
Total fixed maturities		10,574		15,269		-		25,843
Equity investments		7,112		-		-		7,112
Total investments	$	17,686	$	15,269	$	-	$	32,955

	December 31, 2012
($ in thousands)	Level 1		Level 2		Level 3		Total

Fixed-maturity investments
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies	$	-	$	-	$	-	$	-

Political subdivisions of
States, Territories and
Possessions		-		5,475		-		5,475

Corporate and other
bonds industrial and
miscellaneous		11,600		9,107		-		20,707
Total fixed maturities		11,600		14,582		-		26,182
Equity investments		5,290		-		-		5,290
Total investments	$	16,890	$	14,582	$	-	$	31,472

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Note 5 - Fair Value of Financial Instruments

GAAP requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value. The Company uses the following methods and assumptions in estimating its fair value disclosures for financial instruments:

Equity and fixed income investments: Fair value disclosures for investments are included in “Note 3 - Investments.”

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

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

Notes receivable: The carrying amount of notes receivable related to the sale of businesses approximates fair value because of the recently negotiated interest rates based on term of the loan, risk and guaranty.

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

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

Notes payable (including related parties): The Company estimates that the carrying amount of notes payable approximates fair value because of the recently negotiated interest rates based on term of the loan, risk and guaranty.

The estimated fair values of the Company’s financial instruments are as follows:

	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(unaudited)
Fixed-maturity investments held to maturity	$	606,289	$	750,137	$	606,281	$	779,026
Cash and cash equivalents		2,828,554		2,828,554		2,240,012		2,240,012
Premiums receivable		7,396,157		7,396,157		7,766,825		7,766,825
Receivables - reinsurance contracts		-		-		-		-
Reinsurance receivables		38,574,184		38,574,184		38,902,782		38,902,782
Notes receivable-sale of business		314,899		314,899		323,141		323,141
Real estate, net of accumulated depreciation		1,729,527		1,763,500		1,696,924		1,720,000
Reinsurance balances payable		6,242,200		6,242,200		1,820,527		1,820,527
Advance payments from catastrophe reinsurers		-		-		7,358,391		7,358,391
Notes payable (including related parties)		747,000		747,000		1,197,000		1,197,000

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Note 6 - Notes Receivable-Sale of Businesses

Effective June 30, 2009, the Company sold all of the outstanding stock of the subsidiary that operated the three remaining Pennsylvania stores included in the former network of retail brokerage outlets (the “Pennsylvania Stock”). The purchase price for the Pennsylvania Stock was approximately $397,000 which is being paid for by the payment of a promissory note with interest at the rate of 8.63% per annum and is payable in equal monthly installments of $5,015.

Notes receivable arising from the sale of businesses as of March 31, 2013 and December 31, 2012 consists of:

	March 31,		December 31,
	2013		2012
	(unaudited)
Current maturities	$	36,797	$	36,122
Long-term		278,102		287,019
Total	$	314,899	$	323,141

Note 7 – Property and Casualty Insurance Activity

Earned Premiums

Premiums written, ceded and earned are as follows:

	Direct			Assumed		Ceded			Net

Three months ended March 31, 2013 (unaudited)
Premiums written	$	12,844,836		$	9,815	$	(7,883,665	)	$	4,970,986
Change in unearned premiums		(578,967	)		27,441		203,755			(347,771	)
Premiums earned	$	12,265,869		$	37,256	$	(7,679,910	)	$	4,623,215

Three months ended March 31, 2012 (unaudited)
Premiums written	$	11,235,725		$	1,400	$	(6,856,962	)	$	4,380,163
Change in unearned premiums		(972,141	)		1,579		562,934			(407,628	)
Premiums earned	$	10,263,584		$	2,979	$	(6,294,028	)	$	3,972,535

Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of March 31, 2013 (unaudited) and December 31, 2012 was approximately $767,000 and $611,000, respectively.

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Loss and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending balances for unpaid losses and loss adjustment expenses (“LAE”):

	Three months ended
	March 31,
	2013			2012
	(unaudited)
Balance at beginning of period	$	30,485,532		$	18,480,717
Less reinsurance recoverables		(18,419,694	)		(10,001,060	)
Net balance, beginning of period		12,065,838			8,479,657

Incurred related to:
Current year		2,469,783			2,286,000
Prior years		(142	)		(7,486	)
Total incurred		2,469,641			2,278,514

Paid related to:
Current year		588,655			455,147
Prior years		1,365,361			1,194,688
Total paid		1,954,016			1,649,835

Net balance at end of period		12,581,463			9,108,336
Add reinsurance recoverables		15,728,423			10,824,673
Balance at end of period	$	28,309,886		$	19,933,009

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $5,055,495 and $2,688,652 for the three months ended March 31, 2013 and 2012, respectively.

Prior year incurred loss and LAE development is based upon numerous estimates by line of business and accident year. The Company’s management continually monitors claims activity to assess the appropriateness of carried case and IBNR reserves, giving consideration to Company and industry trends.

Loss and loss adjustment expense reserves

The reserving process for loss adjustment expense reserves provides for the Company’s best estimate at a particular point in time of the ultimate unpaid cost of all losses and loss adjustment expenses incurred, including settlement and administration of losses, and is based on facts and circumstances then known and including losses that have been incurred but not yet been reported. The process includes using actuarial methodologies to assist in establishing these estimates, judgments relative to estimates of future claims severity and frequency, the length of time before losses will develop to their ultimate level and the possible changes in the law and other external factors that are often beyond the Company’s control. The loss ratio projection method is used to estimate loss reserves. The process produces carried reserves set by management based upon the actuaries’ best estimate and is the result of numerous best estimates made by line of business, accident year, and loss and loss adjustment expense. The amount of loss and loss adjustment expense reserves for reported claims is based primarily upon a case-by-case evaluation of coverage, liability, injury severity, and any other information considered pertinent to estimating the exposure presented by the claim. The amounts of loss and loss adjustment expense reserves for unreported claims are determined using historical information by line of insurance as adjusted to current conditions. Since this process produces loss reserves set by management based upon the actuaries’ best estimate, there is no explicit or implicit provision for uncertainty in the carried loss reserves.

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Due to the inherent uncertainty associated with the reserving process, the ultimate liability may differ, perhaps substantially, from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current year’s results. Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. Specifically, on at least a quarterly basis, the Company reviews, by line of business, existing reserves, new claims, changes to existing case reserves and paid losses with respect to the current and prior years.

Reinsurance

The Company’s reinsurance treaties for both its Personal Lines business, which primarily consists of homeowners’ policies, and Commercial Lines business, other than commercial auto, were renewed as of July 1, 2012. The treaties, which are annual, provide for the following material terms as of July 1, 2012:

Personal Lines

Personal Lines business, which includes homeowners, dwelling fire and canine legal liability insurance, is reinsured under a 75% quota share treaty which provides coverage with respect to losses of up to $1,000,000 per occurrence. An excess of loss contract provides 100% of coverage for the next $1,900,000 of losses for a total reinsurance coverage of $2,650,000 with respect to losses of up to $2,900,000 per occurrence. See “Catastrophe Reinsurance” below for a discussion of the Company’s reinsurance coverage with respect to its Personal Lines business in the event of a catastrophe.

Personal umbrella policies are reinsured under a 90% quota share treaty limiting the Company to a maximum of $100,000 per occurrence for the first $1,000,000 of coverage. The second $1,000,000 of coverage is 100% reinsured.

Commercial Lines

General liability commercial policies written by the Company, except for commercial auto policies, are reinsured under a 40% quota share treaty, which provides coverage with respect to losses of up to $500,000 per occurrence. Excess of loss contracts provide 100% of coverage for the next $2,400,000 of losses for a total reinsurance coverage of $2,600,000 with respect to losses of up to $2,900,000 per occurrence.

Commercial Auto

Commercial auto policies are covered by an excess of loss reinsurance contract which provides $1,750,000 of coverage in excess of $250,000.

Catastrophe Reinsurance

The Company has catastrophe reinsurance coverage with regard to losses of up to $73,000,000. The initial $3,000,000 of losses in a catastrophe are subject to a 75% quota share treaty, such that the Company retains $750,000 per catastrophe occurrence With respect to any additional catastrophe losses of up to $70,000,000, the Company is 100% reinsured under its catastrophe reinsurance program.

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The Company’s reinsurance program is structured to enable the Company to significantly grow its premium volume while maintaining regulatory capital and other financial ratios generally within or below the expected ranges used for regulatory oversight purposes. The reinsurance program also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. The Company’s participation in reinsurance arrangements does not relieve the Company from its obligations to policyholders.

The Company received advance payments from catastrophe reinsurers related to Superstorm Sandy. As of March 31, 2013 and December 31, 2012, the balance of advance payments from catastrophe reinsurers which will be applied against unpaid losses when paid was $-0- and $7,358,391, respectively, and are included in “Advance payments from catastrophe reinsurers” in the Condensed Consolidated Balance Sheets.

Ceding Commission Revenue

The Company earns ceding commission revenue under its quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions are earned, and (ii) a sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increases when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decreases when the estimated ultimate loss ratio increases.

As of March 31, 2013, the Company’s estimated ultimate loss ratios are attributable to contracts for the July 1, 2012/June 30, 2013 treaty year (“2012/2013 Treaty”). As of March 31, 2013, the Company’s estimated ultimate loss ratios attributable to the 2012/2013 Treaty are greater than the contractual ultimate loss ratios at which the provisional ceding commissions are earned. Accordingly, for the three months ended March 31, 2013, the Company has recorded negative contingent ceding commissions earned with respect to the 2012/2013 Treaty.

As of March 31, 2012, the Company’s estimated ultimate loss ratios are attributable to contracts for the July 1, 2011/June 30, 2012 treaty year (“2011/2012 Treaty”). As of March 31, 2012, the Company’s estimated ultimate loss ratios attributable to contracts for the 2011/2012 Treaty are lower than the contractual ultimate loss ratios at which the provisional ceding commissions are earned. Accordingly, for the three months ended March 31, 2012, the Company has recorded contingent ceding commissions earned with respect to the 2011/2012 Treaty.

Ceding commissions earned consists of the following:

	Three months ended
	March 31,
	2013			2012
	(unaudited)
Provisional ceding commissions earned	$	2,392,864		$	1,984,983
Contingent ceding commissions earned		(99,153	)		918,673
	$	2,293,711		$	2,903,656

Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled annually based on the loss ratio of each treaty year that ends on June 30. As discussed above, as of March 31, 2013, the Company has recorded negative contingent ceding commissions earned with respect to the 2012/2013 Treaty, which results in ceding commissions payable to reinsurers. Contingent ceding commissions payable to reinsurers as of March 31, 2013 and December 31, 2012 was $897,344 and $807,415, respectively, and is included in “Reinsurance balances payable” in the Condensed Consolidated Balance Sheets.

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Note 8 – Long-Term Debt

Long-term debt consists of:

	March 31, 2013						December 31, 2012
			Less						Less
	Total		Current		Long-Term		Total		Current		Long-Term
	Debt		Maturities		Debt		Debt		Maturities		Debt
	(unaudited)

Notes payable	$	747,000	$	-	$	747,000	$	747,000	$	-	$	747,000
Bank line of credit		-		-		-		450,000		450,000		-
	$	747,000	$	-	$	747,000	$	1,197,000	$	450,000	$	747,000

Notes Payable

From June 2009 through March 2010, the Company borrowed $1,450,000 (including $785,000 from related parties as disclosed below) and issued promissory notes in such aggregate principal amount (the “2009/2010 Notes”). The 2009/2010 Notes provided for interest at the rate of 12.625% per annum through the maturity date of July 10, 2011. During the quarter the ended June 30, 2011, the Company prepaid $703,000 (including $407,000 to related parties) of the principal amount of the 2009/2010 Notes. In June 2011, the remaining note holders agreed to extend the maturity date for a period of three years from July 10, 2011 to July 10, 2014, and, effective July 11, 2011, reduce the interest rate from 12.625% to 9.5% per annum. The remaining 2009/2010 Notes, as extended, can be prepaid without premium or penalty. The reduction in the interest rate and the extension of the maturity date did not significantly change the fair value of the 2009/2010 Notes.

Interest expense on the 2009/2010 Notes for each of the three months ended March 31, 2013 and 2012 was approximately $17,800.

Related party balances as of March 31, 2013 and December 31, 2012, under the 2009/2010 Notes are as follows:

Barry Goldstein IRA (Mr. Goldstein is Chairman of the Board, President
and Chief Executive Officer, and principal stockholder of the Company)	$	90,000
Jay Haft, a director of the Company		30,000
A member of the family of Michael Feinsod, a director of the Company		60,000
Mr. Yedid and members of his family		156,000
A member of the family of Floyd Tupper, a director of KICO		42,000
Total related party transactions	$	378,000

Interest expense on related party borrowings for each of the three months ended March 31, 2013 and 2012 was approximately $9,000.

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Bank Line of Credit

On December 27, 2011, Kingstone executed a Promissory Note pursuant to a line of credit (together, the “Trustco Agreement”) with Trustco Bank (“Lender”). Under the Trustco Agreement, Kingstone may receive advances from Lender not to exceed an unpaid principal balance of $500,000 (the “Credit Limit”). On January 25, 2013, the Credit Limit was increased to $600,000. Advances extended under the Trustco Agreement will bear interest at a floating rate based on the Lender’s prime rate.

Interest only payments are due monthly. The principal balance is payable on demand, and must be reduced to zero for a minimum of thirty consecutive days during each year of the term of the Trustco Agreement. Lender may set off any depository accounts maintained by Kingstone that are held by Lender. Payment of amounts due pursuant to the Trustco Agreement is secured by all of Kingstone’s cash and deposit accounts, receivables, inventory and fixed assets, and is guaranteed by Kingstone’s subsidiary, Payments, Inc.

The line of credit is being used for general corporate purposes.

The weighted average interest rate on the amount outstanding as of March 31, 2013 was 3.75%. There are no other fees in connection with this credit line.

Note 9 – Stockholders’ Equity

Dividend Declared

Dividends declared and paid on Common Stock were $153,637 and $113,397 for the three months ended March 31, 2013 and 2012, respectively. The Company’s Board of Directors approved a quarterly dividend on May 14, 2013 of $.04 per share payable in cash on June 14, 2013 to stockholders of record as of May 31, 2013.

Stock Options

Pursuant to the Company’s 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock, a maximum of 550,000 shares of Common Stock are permitted to be issued pursuant to options granted and restricted stock issued. Incentive stock options granted under the 2005 Plan expire no later than ten years from date of grant (except no later than five years for a grant to a 10% stockholder). The Board of Directors or the Stock Option Committee determines the expiration date with respect to non-statutory options, and the vesting provisions for restricted stock, granted under the 2005 Plan.

The results of operations for the three months ended March 31, 2013 and 2012 include share-based stock option compensation expense totaling approximately $9,000 and $20,000, respectively. Stock-based compensation expense related to stock options is net of estimated forfeitures of 21% for the three months ended March 31, 2013 and 2012. Such amounts have been included in the Condensed Consolidated Statements of Comprehensive Income within other operating expenses.

Stock option compensation expense in 2013 and 2012 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award. No stock options were granted during the three months ended March 31, 2013 and 2012.

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A summary of option activity under the Company’s 2005 Plan for the three months ended March 31, 2013 is as follows:

Stock Options	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2013		235,115	$	2.58		2.24	$	539,485

Granted		-	$	-		-	$	-
Exercised		-	$	-		-	$	-
Forfeited		-	$	-		-	$	-

Outstanding at March 31, 2013		235,115	$	2.58		2.00	$	734,631

Vested and Exercisable at March 31, 2013		212,615	$	2.48		1.91	$	683,931

The aggregate intrinsic value of options outstanding and options exercisable at March 31, 2013 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s Common Stock for the options that had exercise prices that were lower than the $5.70 closing price of the Company’s Common Stock on March 31, 2013.

Participants in the 2005 Plan may exercise their outstanding vested options, in whole or in part, by having the Company reduce the number of shares otherwise issuable by a number of shares having a fair market value equal to the exercise price of the option being exercised (“Net Exercise”). No options were exercised during the three months ended March 31, 2013.

As of March 31, 2013, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $18,000. Unamortized compensation cost as of March 31, 2013 is expected to be recognized over a remaining weighted-average vesting period of 1.94 years.

Note 10 – Income Taxes

Income taxes for the three months ended March 31, 2013 and 2012 were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. The Company files a consolidated U.S. federal income tax return that includes all wholly-owned subsidiaries. State tax returns are filed on a consolidated or separate basis depending on applicable laws. The Company records adjustments related to prior years’ taxes during the period when they are identified, generally when the tax returns are filed. The effect of these adjustments on the current and prior periods (during which the differences originated) is evaluated based upon quantitative and qualitative factors and are considered in relation to the financial statements taken as a whole for the respective periods. The Company has evaluated this year’s amounts in relation to the current and prior reporting periods and determined that a restatement of those prior reporting periods is not appropriate. The Company’s effective tax rate from continuing operations for the three months ended March 31, 2013 and 2012 was 37.0% and 34.0%, respectively.

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Deferred tax assets and liabilities are determined using the enacted tax rates applicable to the period the temporary differences are expected to be recovered. Accordingly, the current period income tax provision can be affected by the enactment of new tax rates. The net deferred income taxes on the balance sheet reflect temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and income tax purposes, tax effected at a various rates depending on whether the temporary differences are subject to federal taxes, state taxes, or both. Significant components of the Company’s deferred tax assets and liabilities are as follows:

	March 31,			December 31,
	2013			2012
	(unaudited)
Deferred tax asset:
Net operating loss carryovers (1)	$	266,800		$	264,648
Claims reserve discount		326,944			313,544
Unearned premium		845,712			811,413
Deferred ceding commission revenue		1,673,567			1,658,190
Other		5,818			10,921
Total deferred tax assets		3,118,841			3,058,716

Deferred tax liability:
Investment in KICO (2)		1,169,000			1,169,000
Deferred acquisition costs		1,887,944			1,893,759
Intangibles		1,042,450			1,082,886
Depreciation and amortization		154,821			152,576
Reinsurance recoverable		-			20,400
Net unrealized appreciation of securities - available for sale		678,928			527,376
Total deferred tax liabilities		4,933,143			4,845,997

Net deferred income tax liability	$	(1,814,302	)	$	(1,787,281	)

(1)	The deferred tax assets from net operating loss carryovers are as follows:

	March 31,			December 31,
Type of NOL	2013			2012			Expiration
State only (A)	$	394,795		$	380,810		December 31, 2033
Valuation allowance		(155,195	)		(146,762	)
State only, net of valuation allowance		239,600			234,048
Amount subject to Annual Limitation, federal only (B)		27,200			30,600		December 31, 2019
Total deferred tax asset from net operating loss carryovers	$	266,800		$	264,648

(A) Kingstone generates operating losses for state purposes and has prior year net operating loss carryovers available. The state net operating loss carryover as of March 31, 2013 and December 31, 2012 was approximately and $4,757,000 and $4,588,000, respectively. KICO, the Company’s insurance underwriting subsidiary, is not subject to state income taxes. KICO’s state tax obligations are paid through a gross premiums tax which is included in the Consolidated Statements of Comprehensive Income within other underwriting expenses. A valuation allowance has been recorded due to the uncertainty of generating enough state taxable income to utilize 100% of the available state net operating loss carryovers over their remaining lives which expire between 2027 and 2033.

(B) The Company has an NOL of $80,000 that is subject to Internal Revenue Code Section 382, which places a limitation on the utilization of the federal net operating loss to approximately $10,000 per year (“Annual Limitation”) as a result of a greater than 50% ownership change of the Company in 1999. The losses subject to the Annual Limitation will be available for future years, expiring through December 31, 2019.

(2)	Deferred tax liability - investment in KICO

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On July 1, 2009, the Company completed the acquisition of 100% of the issued and outstanding common stock of KICO (formerly known as Commercial Mutual Insurance Company (“CMIC”)) pursuant to the conversion of CMIC from an advance premium cooperative to a stock property and casualty insurance company. Pursuant to the plan of conversion, the Company acquired a 100% equity interest in KICO, in consideration for the exchange of $3,750,000 principal amount of surplus notes of CMIC. In addition, the Company forgave all accrued and unpaid interest on the surplus notes as of the date of conversion. As of the date of acquisition, unpaid accrued interest on the surplus notes along with the accretion of the discount on the original purchase of the surplus notes totaled $2,921,319 (together “Untaxed Interest”). As of the date of acquisition, the deferred tax liability on the Untaxed Interest was $1,169,000. Under GAAP guidance for business combinations, a temporary difference with an indefinite life exists when the parent has a lower carrying value of its subsidiary for income tax purposes. The Company is required to maintain its deferred tax liability of $1,169,000 related to this temporary difference until the stock of KICO is sold, or the assets of KICO are sold or KICO and the parent are merged.

In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. No valuation allowance against deferred tax assets has been established, except for NOL limitations, as the Company believes it is more likely than not the deferred tax assets will be realized based on the historical taxable income of KICO, or by offset to deferred tax liabilities.

The Company had no material unrecognized tax benefit and no adjustments to liabilities or operations were required. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the three months ended March 31, 2013 and 2012. If any had been recognized these would be reported in income tax expense.

Note 11 - Net Income Per Common Share

Basic net earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted earnings per share reflect, in periods in which they have a dilutive effect, the impact of common shares issuable upon exercise of stock options. The computation of diluted earnings per share excludes those options with an exercise price in excess of the average market price of the Company’s common shares during the periods presented.

The computation of diluted earnings per share excludes outstanding options in periods where the exercise of such options would be anti-dilutive. For the three months ended March 31, 2013 and 2012 there were 235,115 and 291,648 options, respectively, with an exercise price below the average market price of the Company’s Common Stock during the period.

The reconciliation of the weighted average number of shares of Common Stock used in the calculation of basic and diluted earnings per common share for the three months ended March 31, 2013 and 2012 follows:

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	Three months ended
	March 31,
	2013		2012

Weighted average number of shares outstanding		3,840,899		3,771,109
Effect of dilutive securities, common share equivalents		73,507		-

Weighted average number of shares outstanding,
used for computing diluted earnings per share		3,914,406		3,771,109

Note 12 - Commitments and Contingencies

Litigation

From time to time, the Company is involved in various legal proceedings in the ordinary course of business. For example, to the extent a claim asserted by a third party in a law suit against one of the Company’s insureds covered by a particular policy, the Company may have a duty to defend the insured party against the claim. These claims may relate to bodily injury, property damage or other compensable injuries as set forth in the policy. Such proceedings are considered in estimating the liability for loss and LAE expenses. The Company is not subject to any other pending legal proceedings that management believes are likely to have a material adverse effect on the financial statements.

State Insurance Regulation

In the aftermath of Superstorm Sandy, the New York State Department of Financial Services has adopted various regulations that affect insurance companies that operate in the state of New York. Included among the regulations are accelerated claims investigation and settlement requirements and mandatory participation in non-binding mediation proceedings funded by the insurer. Further, in February 2013, the state of New York announced that the Department of Financial Services has commenced an investigation into the claims practices of three insurance companies, including KICO, in connection with Superstorm Sandy claims. The Department of Financial Services stated that the three insurers had a much larger than average consumer complaint rate with regard to Superstorm Sandy claims and indicated that the three insurers were being investigated for (i) failure to send adjusters in a timely manner; (ii) failure to process claims in a timely manner; and (iii) inability of homeowners to contact insurance company representatives. KICO has received a letter from the Department of Financial Services seeking information and data with regard to the foregoing. KICO is cooperating with the Department of Financial Services in connection with its investigation and believes that such matter will not have a material adverse effect on the Company’s financial position or results of operations.

Note 13 – Subsequent Event

Dividends Declared and Paid

On May 14, 2013, the Company’s board of directors approved a dividend of $.04 per share, or $153,637, payable in cash on June 14, 2013 to stockholders of record as of May 31, 2013.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

We offer property and casualty insurance products to small businesses and individuals in New York State through our 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.

We derive 99% of our revenue from KICO, which includes revenues from earned premiums, ceding commissions from quota share reinsurance, net investment income generated from our portfolio, and net realized gains and losses on investment securities. All of our policies are for a one year period. 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 normally elapses between the receipt of insurance premiums and 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 expenses include the insurance underwriting expenses of KICO and other operating expenses. Insurance companies incur a significant amount of their total expenses from policyholder losses, which are commonly referred to as claims. In settling policyholder losses, various loss adjustment expenses (“LAE”) are incurred such as insurance adjusters’ fees and litigation expenses. In addition, insurance companies incur policy acquisition expenses. 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 the corporate expenses of our holding company, Kingstone Companies, Inc. These expenses include legal and auditing fees, occupancy costs related to our corporate office, executive employment costs, and other costs directly associated with being a public company.

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 loss adjustment expenses (“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 except for 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.

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 accounting principles generally accepted in the United States 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 financial statements, our management has utilized information available including our past history, industry standards and the current economic environment, among 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 inherent in these financial statements might not materialize. However, 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 companies in similar businesses.

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 and Basis of Presentation” for information related to updated accounting policies.

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Consolidated Results of Operations

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

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

	Three months ended March 31,
($ in thousands)	2013			2012			Change			Percent
Revenues
Direct written premiums	$	12,845		$	11,236		$	1,609			14.3	%
Net written premiums		4,971			4,380			591			13.5	%
Change in net unearned premiums		(348	)		(408	)		60			(14.7	) %
Net premiums earned		4,623			3,972			651			16.4	%
Ceding commission revenue (1)		2,294			2,904			(610	)		(21.0	) %
Net investment income		283			268			15			5.6	%
Net realized gain on investments		105			39			66			169.2	%
Other income		214			239			(25	)		(10.5	) %
Total revenues		7,519			7,422			97			1.3	%

Expenses
Loss and loss adjustment expenses
Direct and assumed loss and loss adjustment expenses		7,525			4,967			2,558			51.5	%
Less: ceded loss and loss adjustment expenses		(5,055	)		(2,689	)		(2,366	)		88.0	%
Net loss and loss adjustment expenses		2,470			2,278			192			8.4	%
Commission expense		2,116			1,672			444			26.6	%
Other underwriting expenses		2,213			1,858			355			19.1	%
Other operating expenses		243			287			(44	)		(15.3	) %
Depreciation and amortization		153			146			7			4.8	%
Interest expense		21			21			-			-	%
Total expenses		7,216			6,262			954			15.2	%

Income from operations before taxes		303			1,160			(857	)		(73.9	) %
Provision for income tax		112			395			(283	)		(71.6	) %
Net income	$	191		$	765		$	(574	)		(75.0	) %

Percent of total revenues:
Net premiums earned		61.5	%		53.5	%
Ceding commission revenue		30.5	%		39.1	%
Net investment income		3.8	%		3.6	%
Net realized gains on investments		1.4	%		0.5	%
Other income		2.8	%		3.2	%
		100.0	%		100.0	%

(1) For the three months ended March 31, 2013, includes a $916,000 reduction to our contingent ceding commission revenues as a result of Superstorm Sandy (which we define as a catastrophe) on October 29, 2012. For the three months ended March 31, 2012, includes a $267,000 reduction to our contingent ceding commission revenues as a result of Tropical Storm Irene (which we define as a catastrophe) between August 27, 2011 and August 29, 2011. See discussion below under “Ceding commission revenue”. We define a “catastrophe” as an event that involves multiple first party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time constituting the event. Catastrophes are caused by various natural events including high winds, excessive rain, winter storms, tornadoes, hailstorms, wildfires, tropical storms, and hurricanes.

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Direct written premiums during the three months ended March 31, 2013 (“2013”) were $12,845,000 compared to $11,236,000 during three months ended March 31, 2012 (“2012”). The increase of $1,609,000, or 14.3%, was primarily due to an increase in policies in-force during 2013 as compared to 2012. We wrote more policies as a result of an increase in demand for the products in the markets that we serve. Policies in-force increased by 19% as of March 31, 2013 compared to March 31, 2012. In addition to the increase of policies in-force, we are also writing more policies which have higher premiums. State regulations enacted to protect victims of Superstorm Sandy prohibited us from cancelling delinquent policies or non-renewing existing policies through various dates during the quarter ended March 31, 2013. Our increase in direct written premiums was offset as a result of such regulations.

Net written premiums increased $591,000, or 13.5%, to $4,971,000 in 2013 from $4,380,000 in 2012. The increase in net written premiums resulted from: (1) an increase in direct written premiums in 2013 compared to direct written premiums in 2012, and (2) effective July 1, 2012, a decrease in the quota share percentage in our commercial lines quota share treaty from 60% to 40%. A decrease in the quota share percentage results in us retaining a greater amount of direct written premiums. Net written premiums grew at a lower rate than direct written premiums (13.5% compared to 14.3%) due to increases in policies written in lines of business that are subject to quota share reinsurance treaties, primarily personal lines and commercial lines, in excess of the decrease in policies written in lines of business without quota share reinsurance treaties, primarily commercial auto lines.

Net premiums earned increased $651,000, or 16.4%, to $4,623,000 in 2013 from $3,972,000 in 2012. As premiums written earn ratably over a twelve month period, the increase was a result of higher net written premiums for the twelve months ended March 31, 2013 compared to the twelve months ended March 31, 2012.

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

	Three months ended March 31,
($ in thousands)	2013			2012			Change			Percent

Provisional ceding commissions earned	$	2,393		$	1,985		$	408			20.6	%

Contingent ceding commissions earned
Contingent ceding commissions earned excluding
the effect of catastrophes		817			1,186			(369	)		(31.1	) %
Effect of catastrophes on ceding commisions earned		(916	)		(267	)		(649	)		243.1	%
Contingent ceding commissions earned		(99	)		919			(1,018	)		(110.8	) %

Total ceding commission revenue	$	2,294		$	2,904		$	(610	)		(21.0	) %

Ceding commission revenue was $2,294,000 in 2013 compared to $2,904,000 in 2012. The decrease of $610,000 or 21.0%, was due to a decrease in contingent ceding commissions earned, offset by an increase provisional ceding commissions earned. The term of our personal lines reinsurance quota share treaty covers the period from July 1, 2012 to June 30, 2013 (“2012/2013 Treaty”). We received a provisional ceding commission based on ceded written premiums. Our ceded written premiums under our personal lines quota share reinsurance treaty in 2013 totaled $6,119,000, and provisional ceding commission was $2,156,000. The treaty provides for contingent ceding commissions based on a sliding scale where we receive between 31% - 52% of a portion of the ceded earned premiums, the lower the ceded loss ratio; the higher the percentage we receive. For the three months ended March 31, 2013, the computation to arrive at contingent ceding commission revenue includes direct catastrophe losses and loss adjustment expenses incurred from Superstorm Sandy on October 29, 2012. Such losses increased our ceded loss ratio in our 2012/2013 Treaty, which reduced our contingent ceding commission revenue by $916,000 as discussed above. The $408,000 increase in provisional ceding commissions earned is due to a net increase in the amount of premiums ceded. The $1,018,000 decrease in contingent ceding commissions earned is due to the effects of Superstorm Sandy on our ceded net loss ratio in the 2012/2013 Treaty, which reduced our contingent ceding commission revenue by $916,000 and an increase in losses incurred under our personal lines quota share reinsurance treaty from prior year claims.

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Net investment income was $283,000 in 2013 compared to $268,000 in 2012. The increase of $15,000, or 5.6%, was due to an increase in average invested assets in 2013 as compared to 2012. The increase in cash and invested assets resulted primarily from increased operating cash flows. The tax equivalent investment yield, excluding cash, was 5.16% and 5.26% at March 31, 2013 and 2012, respectively.

Net loss and loss adjustment expenses were $2,470,000 in 2013 compared to $2,278,000 in 2012. The net loss ratio was 53.4% in 2013 compared to 57.4% in 2012, a decrease of 4.0 percentage points. The decrease of 4.0 percentage points in our net loss ratio for 2013 as compared to 2012 is primarily due to a decrease in loss ratios in our lines of business for which we retain more of the earned premiums and losses.

Commission expense was $2,116,000 in 2013 or 17.3% of direct earned premiums. Commission expense was $1,672,000 in 2012 or 16.3% of direct earned premiums. The increase of $444,000 is due to the increase in direct written premiums in 2013 as compared to 2012.

Other underwriting expenses were $2,213,000 in 2013 compared to $1,858,000 in 2012. The $355,000, or 19.1%, increase in other underwriting expenses was primarily due to expenses directly related to the increase in direct written premiums and additional employment costs due to both the hiring of additional staff needed to service our growth in written premiums and increases in annual salaries. Other underwriting expenses as a percentage of direct written premiums was 17.2% in 2013 and 16.5% in 2012.

Other operating expenses, related to the corporate expenses of our holding company, were $243,000 in 2013 compared to $287,000 in 2012. The decrease in 2013 of $44,000, or 15.3%, was primarily due to decreases in employment costs.

Income tax expense in 2013 was $112,000, which resulted in an effective tax rate of 37%. Income tax expense in 2012 was $395,000, which resulted in an effective tax rate of 34.0%. Income before taxes was $303,000 in 2013 compared to $1,160,000 in 2012. The increase in the effective tax rate by 3.0% in 2013 is a result of permanent differences having a greater impact on the effective tax rate in 2013 due to a lesser amount of book income in 2013 compared to 2012.

Net income was $191,000 in 2013 compared to $765,000 in 2012. The decrease in net income of $574,000 was due to the circumstances described above that caused the decrease in contingent ceding commission revenues, and increases in other commission expense and underwriting expenses related to premium growth, offset by an increase in our net premiums earned and a decrease in our net loss ratio.

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Insurance Underwriting Business on a Standalone Basis

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

	Three months ended
	March 31,
	2013		2012
Revenues
Net premiums earned	$	4,623,215	$	3,972,535
Ceding commission revenue		2,293,711		2,903,656
Net investment income		283,287		267,517
Net realized gain on investments		105,125		39,400
Other income		116,681		115,050
Total revenues		7,422,019		7,298,158

Expenses
Loss and loss adjustment expenses		2,469,641		2,278,514
Commission expense		2,115,820		1,671,607
Other underwriting expenses		2,213,345		1,857,746
Depreciation and amortization		152,139		146,259
Total expenses		6,950,945		5,954,126

Income from operations		471,074		1,344,032
Income tax expense		156,003		416,837
Net income	$	315,071	$	927,195

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

	Direct			Assumed			Ceded			Net

Three months ended March 31, 2013 (unaudited)
Written premiums	$	12,844,836		$	9,815		$	(7,883,665	)	$	4,970,986
Unearned premiums		(578,967	)		27,441			203,755			(347,771	)
Earned premiums	$	12,265,869		$	37,256		$	(7,679,910	)	$	4,623,215

Loss and loss adjustment expenses	$	7,506,709		$	18,427		$	(5,055,495	)	$	2,469,641

Loss ratio		61.2	%		49.5	%		65.8	%		53.4	%

Three months ended March 31, 2012 (unaudited)
Written premiums	$	11,235,725		$	1,400		$	(6,856,962	)	$	4,380,163
Unearned premiums		(972,141	)		1,579			562,934			(407,628	)
Earned premiums	$	10,263,584		$	2,979		$	(6,294,028	)	$	3,972,535

Loss and loss adjustment expenses	$	4,956,069		$	11,097		$	(2,688,652	)	$	2,278,514

Loss ratio		48.3	%		372.5	%		42.7	%		57.4	%

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The key measures for our insurance underwriting business for the three months ended March 31, 2013 and 2012 are as follows:

	Three months ended
	March 31,
	2013			2012

Net premiums earned	$	4,623,215		$	3,972,535
Ceding commission revenue (1)		2,293,711			2,903,656
Other income		116,681			115,050

Loss and loss adjustment expenses		2,469,641			2,278,514

Acquistion costs and other underwriting expenses:
Commission expense		2,115,820			1,671,607
Other underwriting expenses		2,213,345			1,857,746
Total acquistion costs and other underwriting expenses		4,329,165			3,529,353

Underwriting income	$	234,801		$	1,183,374

Key Measures:
Net loss ratio		53.4	%		57.4	%

Net underwriting expense ratio excluding the effect of catastrophes		21.7	%		6.1	%
Effect of catastrophe loss on net underwriting expense ratio (1)		19.8	%		6.8	%
Net underwriting expense ratio		41.5	%		12.9	%

Net combined ratio excluding the effect of catastrophes		75.1	%		63.5	%
Effect of catastrophe loss on net combined ratio (1)		19.8	%		6.7	%
Net combined ratio		94.9	%		70.2	%

Reconciliation of net underwriting expense ratio:
Acquisition costs and other underwriting expenses	$	4,329,165		$	3,529,353
Less: Ceding commission revenue (1)		(2,293,711	)		(2,903,656	)
Less: Other income		(116,681	)		(115,050	)
	$	1,918,773		$	510,647

(1) The effect of catastrophes reduced contingent ceding commission revenue by $916,112 and $266,565 for the three months ended March 31, 2013 and 2012, respectively.

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Investments

Portfolio Summary

The following table presents a breakdown of the amortized cost, aggregate fair value and unrealized gains and losses by investment type as of March 31, 2013 and December 31, 2012:

Available for Sale Securities

	March 31, 2013

	Cost or		Gross		Gross Unrealized Losses					Aggregate		% of
	Amortized		Unrealized		Less than 12			More than 12		Fair		Fair
Category	Cost		Gains		Months			Months		Value		Value
	(unaudited)

Political subdivisions of States,
Territories and Possessions	$	5,489,845	$	268,889	$	(20,396	)	$	-	$	5,738,338		17.4	%

Corporate and other bonds
Industrial and miscellaneous		19,012,430		1,132,479		(40,677	)		-		20,104,232		61.0	%
Total fixed-maturity securities		24,502,275		1,401,368		(61,073	)		-		25,842,570		78.4	%
Equity Securities		6,455,800		673,953		(17,398	)		-		7,112,355		21.6	%
Total	$	30,958,075	$	2,075,321	$	(78,471	)	$	-	$	32,954,925		100.0	%

	December 31, 2012

	Cost or		Gross		Gross Unrealized Losses						Aggregate		% of
	Amortized		Unrealized		Less than 12			More than 12			Fair		Fair
Category	Cost		Gains		Months			Months			Value		Value

Political subdivisions of States,
Territories and Possessions	$	5,219,092	$	257,298	$	(1,574	)	$	-		$	5,474,816		17.4	%

Corporate and other bonds
Industrial and miscellaneous		19,628,005		1,123,392		(43,553	)		(722	)		20,707,122		65.8	%
Total fixed-maturity securities		24,847,097		1,380,690		(45,127	)		(722	)		26,181,938		83.2	%
Equity Securities		5,073,977		373,294		(157,029	)		-			5,290,242		16.8	%
Total	$	29,921,074	$	1,753,984	$	(202,156	)	$	(722	)	$	31,472,180		100.0	%

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Held to Maturity Securities

March 31, 2013

(unaudited)

Cost or

Gross

Gross Unrealized Losses

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Category

Cost

Gains

Months

Value

U.S. Treasury securities

606,289

143,848

750,137

100.0

December 31, 2012

Cost or

Gross

Gross Unrealized Losses

% of

Amortized

Unrealized

Less than 12

More than 12

Fair

Category

Cost

Gains

Months

Value

U.S. Treasury securities

606,281

172,745

779,026

100.0

All held to maturity securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

Contractual maturities of all held to maturity securities are greater than ten years.

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, 2013 and December 31, 2012 as rated by Standard and Poor’s (if unavailable from Standard and Poor's, then Moody's or Fitch):

	March 31, 2013					December 31, 2012
			Percentage of					Percentage of
	Fair Market		Fair Market			Fair Market		Fair Market
	Value		Value			Value		Value
	(unaudited)
Rating
U.S. Treasury securities	$	-		0.0	%	$	-		0.0	%
AAA		1,583,182		6.1	%		2,226,603		8.5	%
AA		4,411,801		17.1	%		4,088,304		15.6	%
A		7,034,188		27.2	%		6,963,380		26.6	%
BBB		12,813,399		49.6	%		12,903,651		49.3	%
Total	$	25,842,570		100.0	%	$	26,181,938		100.0	%

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The table below summarizes the average duration by type of fixed-maturity security as well as detailing the average yield as of March 31, 2013 and December 31, 2012:

	March 31, 2013					December 31, 2012
				Weighted					Weighted
				Average					Average
	Average			Duration in		Average			Duration in
Category	Yield %			Years		Yield %			Years
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies		3.46	%		27.2		3.33	%		27.8

Political subdivisions of States,
Territories and Possessions		4.13	%		6.2		4.06	%		6.1

Corporate and other bonds
Industrial and miscellaneous		4.71	%		7.8		4.74	%		7.3

Fair Value Consideration

As disclosed in Note 4 to the Condensed Consolidated Financial Statements, with respect to “Fair Value Measurements,” we define fair value under GAAP guidance as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an “exit price”). This GAAP guidance establishes a fair value hierarchy that 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 in GAAP 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, 2013 and December 31, 2012, 54% of the investment portfolio recorded at fair value was priced based upon quoted market prices.

As more fully described in Note 3 to our Condensed Consolidated Financial Statements, “Investments—Impairment Review,” we completed a detailed review of all our securities in a continuous loss position as of March 31, 2013 and December 31, 2012, and concluded that the unrealized losses in these asset classes are the result of a decrease in value due to technical spread widening and broader market sentiment, rather than fundamental collateral deterioration, and are temporary in nature.

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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 March 31, 2013 and December 31, 2012:

	March 31, 2013
	Less than 12 months							12 months or more						Total
						No. of						No. of		Aggregate
	Fair		Unrealized			Positions		Fair		Unrealized		Positions		Fair		Unrealized
Category	Value		Losses			Held		Value		Losses		Held		Value		Losses
	(unaudited)
Fixed-Maturity Securities:
Political subdivisions of
States, Territories and
Possessions	$	795,799	$	(20,396	)		3	$	-	$	-		-	$	795,799	$	(20,396	)

Corporate and other
bonds industrial and
miscellaneous		1,998,132		(40,677	)		9		-		-		-		1,998,132		(40,677	)

Total fixed-maturity
securities	$	2,793,931	$	(61,073	)		12	$	-	$	-		-	$	2,793,931	$	(61,073	)

Equity Securities:
Preferred stocks	$	898,900	$	(6,174	)		4	$	-	$	-		-	$	898,900	$	(6,174	)
Common stocks		632,850		(11,224	)		3		-		-		-		632,850		(11,224	)

Total equity securities	$	1,531,750	$	(17,398	)		7	$	-	$	-		-	$	1,531,750	$	(17,398	)

Total	$	4,325,681	$	(78,471	)		19	$	-	$	-		-	$	4,325,681	$	(78,471	)

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	December 31, 2012
	Less than 12 months							12 months or more							Total
						No. of							No. of		Aggregate
	Fair		Unrealized			Positions		Fair		Unrealized			Positions		Fair		Unrealized
Category	Value		Losses			Held		Value		Losses			Held		Value		Losses

Fixed-Maturity Securities:
Political subdivisions of
States, Territories and
Possessions	$	202,798	$	(1,574	)		1	$	-	$	-			-	$	202,798	$	(1,574	)

Corporate and other
bonds industrial and
miscellaneous		4,025,551		(43,553	)		19		128,125		(722	)		1		4,153,676		(44,275	)

Total fixed-maturity
securities	$	4,228,349	$	(45,127	)		20	$	128,125	$	(722	)		1	$	4,356,474	$	(45,849	)

Equity Securities:
Preferred stocks	$	387,925	$	(11,130	)		3	$	-	$	-			-	$	387,925	$	(11,130	)
Common stocks		1,536,860		(145,899	)		9		-		-			-		1,536,860		(145,899	)
Total equity securities	$	1,924,785	$	(157,029	)		12	$	-	$	-			-	$	1,924,785	$	(157,029	)

Total	$	6,153,134	$	(202,156	)		32	$	128,125	$	(722	)		1	$	6,281,259	$	(202,878	)

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There were 19 securities at March 31, 2013 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. There were 33 securities at December 31, 2012 that accounted for the gross unrealized loss, none of which were deemed by us to be other than temporarily impaired. Significant factors influencing our determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent 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.

On July 1, 2009, we completed the acquisition of 100% of the issued and outstanding common stock of KICO (formerly known as Commercial Mutual Insurance Company (“CMIC”)) pursuant to the conversion of CMIC from an advance premium cooperative to a stock property and casualty insurance company. Pursuant to the plan of conversion, we acquired a 100% equity interest in KICO. In connection with the plan of conversion of CMIC, we agreed with the Department of Financial Services (formerly known as the Insurance Department) (the “Department”) that, for a period of two years following the effective date of conversion of July 1, 2009, no dividend could be paid by KICO to us without the approval of the Department (“Dividend Restriction Period”). No such request was made by us to the Department within the Dividend Restriction Period. For the three months ended March 31, 2013, KICO paid dividends of $175,000 to us. We also agreed with the Department that certain intercompany transactions between KICO and us must be filed with the Department 30 days prior to implementation and not disapproved by the Department.

The primary sources of cash flow for our holding company operations are in connection with the fee income we receive from the premium finance loans and collection of principal and interest income from the notes received by us upon the sale of businesses that were included in our former discontinued operations. Effective July 1, 2011, as discussed above, we may also receive cash dividends from KICO, subject to statutory restrictions.

In December 2011, we entered into an agreement with a bank for a $500,000 line of credit to be used for general corporate needs. In January 2013, the line of credit was increased to $600,000. The principal balance is payable on demand, and must be reduced to zero for a minimum of 30 consecutive days during each year of the term of the credit line. The principal balance was reduced to zero in accordance with the terms of the credit line in 2013. The outstanding balance was $-0- as of March 31, 2013. If the aforementioned is insufficient to cover our holding company cash requirements, we will seek to obtain additional financing.

As of March 31, 2013, the outstanding principal balance of our notes payable was $747,000; such notes bear interest at the rate of 9.5% per annum and mature on July 10, 2014. We believe that our present cash flows as described above will be sufficient on a short-term basis and over the next 12 months to fund our company-wide working capital requirements.

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Our reconciliation of net income to cash provided by (used in) 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:

Three Months Ended March 31,	2013			2012

Cash flows provided by (used in):
Operating activities	$	2,245,045		$	(194,527	)
Investing activities		(1,052,866	)		456,030
Financing activities		(603,637	)		(122,578	)
Net increase in cash and cash equivalents		588,542			138,925
Cash and cash equivalents, beginning of period		2,240,012			173,126
Cash and cash equivalents, end of period	$	2,828,554		$	312,051

Net cash provided by operating activities was $2,245,000 in 2013 as compared to $195,000 used in 2012. The $2,440,000 increase in cash flows provided by operating activities in 2013 was primarily a result of the fluctuations in assets and liabilities relating to operating activities of KICO as affected by the growth in its operations which are described above, offset by a decrease in net income (adjusted for non-cash items) of $696,000.

Net cash used by investing activities was $1,053,000 in 2013 compared to $456,000 provided in 2012. The $1,509,000 increase in cash flows used by investing activities is a result of the increase in acquisitions of invested assets, offset by an increase in sales of invested assets.

Net cash used in financing activities was $604,000 in 2013 compared to $123,000 used in 2012. The $481,000 increase in cash flows used in financing activities is a result of net repayments of $450,000 on our credit line in 2013 compared to $50,000 of net repayments in 2012.

Superstorm Sandy

The primary location of KICO’s insureds is in the New York City area, which was struck by Superstorm Sandy on October 29, 2012. KICO purchases quota share and catastrophe reinsurance in order to reduce its net liability on insurance risks and to protect against catastrophes. KICO’s personal lines business, which includes homeowners insurance, is reinsured under a 75% quota share treaty and catastrophe insurance pursuant to which KICO’s net liability is limited to 25% of the initial $3,000,000 of direct losses incurred from a catastrophe occurrence, or $750,000. For catastrophe losses in excess of $3,000,000, KICO is 100% covered by catastrophe reinsurance with regard to the next $70,000,000 in losses. For the three months ended March 31, 2013, our net earned premiums were reduced by $139,000 for the cost of reinstatement premiums to catastrophe reinsurers to obtain coverage for future catastrophe events during the current reinsurance treaty period.

KICO receives ceding commissions from the reinsurers. The amount of the commissions includes contingent ceding commissions which are based upon the loss ratio experienced by the reinsurers during the treaty term (July 1 to June 30) from the ceded business over that period of time. Such contingent ceding commission revenue was reduced by $916,000 based upon the reinsurance losses incurred as a result of Superstorm Sandy during the July 1, 2012/June 30, 2013 treaty. In addition, it is expected that there will be a decline of approximately $1 million in the ceding commission revenue to be earned during the second quarter of 2013 (i.e., the final three months of the 2012-2013 treaty). Further, KICO was required to pay $139,000 of reinstatement premiums to catastrophe reinsurers to obtain coverage for future catastrophe events during the current reinsurance treaty period. An additional $139,000 of such reinstatement premiums will be expensed during the second quarter of 2013. Accordingly, the effects of the storm will be material to our second quarter of 2013 results of operations; however, we expect that such effects will not have a material adverse impact on our financial condition.

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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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Annual Report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2013.

Remediation of Material Weakness Reported in Annual Report

In our 2012 annual report, management concluded that our internal control over financial reporting was not effective as of December 31, 2012. In the period covered by this report, management implemented measures to remediate the material weakness in internal control over financial reporting. Specifically, management implemented controls and communicated to the financial reporting personnel the importance of correctly recording the changes to unearned premiums arising from our annual changes to our reinsurance quota share treaties and in order to ensure that the ceded unearned premium balances are properly reconciled during the financial reporting process. We added an item to our financial closing checklist pursuant to which a review is to be conducted to ensure that any changes to reinsurance contracts have been properly recorded to all accounts requiring adjustment.

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Changes in Internal Control over Financial Reporting

Except as described in “Remediation of Material Weakness Reported in Annual Report”, there was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

(a)

None

(b)

Not applicable

(c)

The following table sets forth certain information with respect to purchases of common stock made by us or any “affiliated purchaser” during the quarter ended March 31, 2013:

Period

Total Number of

Shares Purchased

Average Price

Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

Maximum Number of Shares that May Be Purchased Under the Plans or Programs

1/1/13-1/31/13

2/1/13-2/28/13

3/1/13-3/31/13

Total

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable

ITEM 5. OTHER INFORMATION.

None

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ITEM 6. EXHIBITS.

3(a)		Restated Certificate of Incorporation, as amended1

3(b)		By-laws, as amended2

31(a)		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31(b)		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of Chief Executive Officer and Chief Financial Officer Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		101.SCH XBRL Taxonomy Extension Schema.

101.CAL		101.CAL XBRL Taxonomy Extension Calculation Linkbase.

101.DEF		101.DEF XBRL Taxonomy Extension Definition Linkbase.

101.LAB		101.LAB XBRL Taxonomy Extension Label Linkbase.

101.PRE		101.PRE XBRL Taxonomy Extension Presentation Linkbase.

______________________________

1 Denotes document filed as an exhibit to our Quarterly Report on Form 10-Q for the period ended March 31, 2012 and incorporated herein by reference.

2 Denotes document filed as an exhibit to our Current Report on Form 8-K for an event dated November 5, 2009 and incorporated herein by reference.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KINGSTONE COMPANIES, INC.

Dated: May 15, 2013	By:	/s/ Barry B. Goldstein
		Barry B. Goldstein
		President


	By:	/s/ Victor Brodsky
		Victor Brodsky
		Chief Financial Officer