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Note 2. Accounting Policies and Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

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

Revenue Recognition

Net Premiums Earned

Insurance policies issued by the Company are short-duration contracts. Accordingly, premium revenue, net of premiums ceded to reinsurers, is recognized as earned in proportion to the amount of insurance protection provided, on a pro-rata basis over the terms of the underlying policies. Unearned premiums represent premium applicable to

the unexpired portions of in-force insurance contracts at the end of each year.

Ceding Commission Revenue

Commissions on reinsurance premiums ceded are earned in a manner consistent with the recognition of the costs of the reinsurance, generally on a pro-rata basis over the terms of the policies reinsured. Unearned amounts are recorded as deferred ceding commission revenue. Certain reinsurance agreements contain provisions whereby the ceding commission rates vary based on the loss experience under the agreements. The Company records ceding commission revenue based on its current estimate of subject losses. The Company records adjustments to the ceding commission revenue in the period that changes in the estimated losses are determined.

Premium Finance Placement Fees

Premium finance placement fees are earned in the period when contracts are placed with a third party premium finance company. Premium finance placement fees are included in “Other income” in the consolidated statements of operations and comprehensive income.

Liability for Loss and Loss Adjustment Expenses (“LAE”)

The liability for loss and LAE represents management’s best estimate of the ultimate cost of all reported and unreported losses that are unpaid as of the balance sheet date. The liability for loss and LAE is estimated on an undiscounted basis, using individual case-basis valuations, statistical analyses and various actuarial procedures. The projection of future claim payment and reporting is based on an analysis of the Company’s historical experience, supplemented by analyses of industry loss data. Management believes that the reserves for loss and LAE are adequate to cover the ultimate cost of losses and claims to date; however, because of the uncertainty from various sources, including changes in reporting patterns, claims settlement patterns, judicial decisions, legislation, and economic conditions, actual loss experience may not conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. As adjustments to these estimates become necessary, such adjustments are reflected in expense for the period in which the estimates are changed. Because of the nature of the business historically written, the Company’s management believes that the Company has limited exposure to environmental claim liabilities. The Company recognizes recoveries from salvage and subrogation when received.

Reinsurance

In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers.

Reinsurance receivables represents management’s best estimate of paid and unpaid loss and LAE recoverable from reinsurers, and ceded losses receivable and unearned ceded premiums under reinsurance agreements. Ceded losses receivable are estimated using techniques and assumptions consistent with those used in estimating the liability for loss and LAE. Management believes that reinsurance receivables as recorded represent its best estimate of such amounts; however, as changes in the estimated ultimate liability for loss and LAE are determined, the estimated ultimate amount receivable from the reinsurers will also change. Accordingly, the ultimate receivable could be significantly in excess of or less than the amount indicated in the consolidated financial statements. As adjustments to these estimates become necessary, such adjustments are reflected in current operations. Loss and LAE incurred as presented in the consolidated statement of operations and comprehensive income are net of reinsurance recoveries.

The Company accounts for reinsurance in accordance with GAAP guidance for accounting and reporting for reinsurance of short-duration contracts. Management has evaluated its reinsurance arrangements and determined that significant insurance risk is transferred to the reinsurers. Reinsurance agreements have been determined to be short-duration prospective contracts and, accordingly, the costs of the reinsurance are recognized over the life of the contract in a manner consistent with the earning of premiums on the underlying policies subject to the reinsurance contract.

In preparing financial statements, management estimates uncollectible amounts receivable from reinsurers based on an assessment of factors including the creditworthiness of the reinsurers and the adequacy of collateral obtained, where applicable. The allowance for uncollectible reinsurance as of December 31, 2011 and 2010 was approximately $103,000. The Company expensed approximately $-0- and $91,000 of uncollectible reinsurance for the years ended December 31, 2011 and 2010. Significant uncertainties are inherent in the assessment of the creditworthiness of reinsurers and estimates of any uncollectible amounts due from reinsurers. Any change in the ability of the Company’s reinsurers to meet their contractual obligations could have a detrimental impact on the consolidated financial statements and KICO’s ability to meet their regulatory capital and surplus requirements.

Cash and Cash Equivalents

Cash and cash equivalents are presented at cost, which approximates fair value. The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents.

The Company maintains its cash balances at several financial institutions. The Federal Deposit Insurance Corporation (“FDIC”) secures accounts up to $250,000 at these institutions through December 31, 2013 at which time the insured limit is scheduled to revert back to $100,000. In March 2010, the Company was notified by the FDIC that a bank in which the Company had deposits totaling approximately $497,000 had failed and were written off in 2009 (see Note 3). In August 2011, the Company received a partial recovery of approximately $133,000 from the FDIC, which has been recorded as realized gain on cash and short term investments.

Investments

The Company accounts for its investments in accordance with GAAP guidance for investments in debt and equity securities, which requires that fixed-maturity and equity securities that have readily determined fair values be segregated into categories based upon the Company’s intention for those securities.

In accordance with this guidance, the Company has classified its fixed-maturity securities as either held to maturity or available-for-sale and its equity securities as available-for-sale. The Company may sell its available-for-sale securities in response to changes in interest rates, risk/reward characteristics, liquidity needs or other factors. Fixed maturity securities that the Company has the specific intent and ability to hold until maturity are classified as such and carried at amortized cost.

Available-for-sale securities are reported at their estimated fair values based on quoted market prices from a recognized pricing service, with unrealized gains and losses, net of tax effects, reported as a separate component of comprehensive income in stockholders’ equity. Realized gains and losses are determined on the specific identification method and recognized in the statement of operations and comprehensive income.

Investment income is accrued to the date of the financial statements and includes amortization of premium and accretion of discount on fixed maturities. Interest is recognized when earned, while dividends are recognized when declared.

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity 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, the following: the current fair value compared to amortized cost or cost, as appropriate; the length of time the security’s fair value has been below amortized cost or cost; management’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value to cost or amortized cost; specific credit issues related to the issuer; and current economic conditions. Other-than-temporary impairment (“OTTI”) losses result in a permanent reduction of the cost basis of the underlying investment. As of December 31, 2011 and 2010, none of the Company’s investments were deemed to be OTTI.

Fair Value

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 or liabilities 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 assumptions that market participants would use, having the lowest priority (“Level 3”).

For investments in active markets, the Company uses quoted market prices to determine fair value. In circumstances where quoted market prices are unavailable, the Company utilizes fair value estimates based upon other observable inputs including matrix pricing, benchmark interest rates, market comparables and other relevant inputs. The Company’s process to validate the market prices obtained from the outside pricing sources include, but are not limited to, periodic evaluation of model pricing methodologies and analytical reviews of certain prices.

Premiums Receivable

Premiums receivable are presented net of an allowance for doubtful accounts of approximately $92,000 and $64,000 as of December 31, 2011 and 2010, respectively. The allowance for uncollectible amounts is based on an analysis of amounts receivable giving consideration to historical loss experience and current economic conditions and reflects an amount that, in management’s judgment, is adequate. Uncollectible premiums receivable balances of approximately $57,000 and $66,000 were written off for the years ended December 31, 2011 and 2010, respectively.

Deferred Acquisition Costs

The Company retrospectively adopted new accounting guidance for deferred acquisition costs effective January 1, 2011 as described in more detail under “Accounting guidance adopted in 2011” below. Acquisition costs represent the costs of writing business that vary with, and are primarily related to, the successful production of insurance business (principally commissions, premium taxes and certain underwriting salaries). Policy acquisition costs are deferred and recognized as expense as related premiums are earned.

Intangible Assets

The Company has recorded acquired identifiable intangible assets. In accounting for such assets, the Company follows GAAP guidance for intangible assets. The cost of a group of assets acquired in a transaction is allocated to the individual assets including identifiable intangible assets based on their relative fair values. Identifiable intangible assets with a finite useful life are amortized over the period that the asset is expected to contribute directly or indirectly to the future cash flows of the Company. Intangible assets with an indefinite life are not amortized and are subject to annual impairment testing. All identifiable intangible assets are tested for recoverability whenever events or changes in circumstances indicate that a carrying amount may not be recoverable. Based on the results of our annual impairment testing, no impairment losses from intangible assets were recognized for the years ended December 31, 2011 and 2010.

Property and Equipment

Building and building improvements, furniture, leasehold improvements, computer equipment, and software are reported at cost less accumulated depreciation and amortization. Depreciation and amortization is provided using the straight-line method over the estimated useful lives of the assets. The Company estimates the useful life for computer equipment, computer software, automobile, furniture and other equipment is three years, and building and building improvements is 39 years.

The fair value of the Company’s real estate assets was based on an appraisal dated August 31, 2009. The Company believes that recent improvements made to the building would mitigate any negative market changes since the date of the appraisal. The fair value of the real estate assets is estimated to be in excess of the carrying value.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company files a consolidated tax return with its subsidiaries. The Company follows the relevant provisions of GAAP concerning uncertainties in income taxes and through December 31, 2011, the Company had no material unrecognized tax benefits and no adjustments to liabilities or operations were required.

Assessments

Insurance related assessments are accrued in the period in which they have been incurred. A typical obligating event would be the issuance of an insurance policy or the occurrence of a claim. The Company is subject to a variety of assessments.

Concentration and Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk are primarily cash and cash equivalents, investments and accounts receivable. Investments are diversified through many industries and geographic regions based upon the Investment Committee’s guidelines, which employs different investment strategies. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash and cash equivalents and investments. At December 31, 2011, the outstanding premiums receivable balance is generally diversified due to the number of insureds comprising the Company’s customer base, which is largely concentrated in the area of New York City and adjacent Long Island. To reduce credit risk, the Company often makes use of credit scores. The Company also has receivables from its reinsurers. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company periodically evaluates the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Management’s policy is to review all outstanding receivables at period end as well as the bad debt write-offs experienced in the past and establish an allowance for doubtful accounts, if deemed necessary.

Direct premiums earned from lines of business that subject the Company to concentration risk for the years ended December 31, 2011 and 2010 are as follows:

	Years ended December 31,
	2011			2010
Personal Lines		65.9	%		65.3	%
Commercial Automobile		15.6	%		20.8	%
Commercial Lines		14.2	%		9.1	%
Total premiums earned subject to concentration		95.7	%		95.2	%
Premiums earned not subject to concentration		4.3	%		4.8	%
Total premiums earned		100.0	%		100.0	%

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.

Net earnings per share

Basic net earnings per common share is computed by dividing income available to common stockholders 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 with an exercise price in excess of the average market price of the Company’s common shares during the periods presented.

Advertising Costs

Advertising costs are charged to operations when the advertising first takes place. Included in other underwriting expenses in the accompanying consolidated statements of operations and comprehensive income are advertising costs approximating $32,000 and $41,000 for the years ended December 31, 2011 and 2010, respectively.

Stock-based Compensation

The Company records compensation expense associated with stock options and other equity-based compensation in accordance with guidance established by GAAP. Stock option compensation expense in 2011 and 2010 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 less an estimate for anticipated forfeitures.

Comprehensive Income

Comprehensive income refers to revenue, expenses, gains and losses that under GAAP are included in comprehensive income but are excluded from net income as these amounts are recorded directly as an adjustment to stockholders' equity primarily unrealized gains/losses from marketable securities.

Recent Accounting Pronouncements

Accounting guidance adopted in 2011

In October 2010, the Financial Accounting Standards Board (“FASB”) issued new guidance concerning the accounting for costs associated with acquiring or renewing insurance contracts. This guidance generally follows the model of that for loan origination costs. Under the new guidance, only direct incremental costs associated with successful insurance contract acquisitions or renewals are deferrable. The Company adopted this guidance retrospectively effective January 1, 2011. The adoption of this guidance did not have a material impact on the Company’s results of operations, financial position or liquidity.

Guidance issued by the FASB in July 2010 clarified whether a modification or restructuring of a loan or receivable is considered to be troubled debt restructuring. This guidance requires additional disclosure on the income statement impact of any such troubled debt restructurings. This guidance is effective for interim and annual periods beginning after June 15, 2011. The Company adopted this guidance with no impact on its financial statements as of December 31, 2011.

Accounting guidance not yet effective

In April 2011, the FASB issued ASU No. 2011-03, “Reconsideration of Effective Control for Repurchase Agreements” (“ASU 2011-03”). ASU 2011-03 provides amendments to Accounting Standards Codification (“ASC”) No. 860 “Transfers and Servicing”, which remove from the assessment of effective control (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. The amendments in this update are effective prospectively for transactions or modifications of existing transactions that occur on or after the beginning of the first interim or annual reporting period beginning on or after December 15, 2011, with early adoption not permitted. The impact of adoption is not expected to be material to the Company’s results of operations and financial position.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS” (“ASU 2011-04”). ASU 2011-04 provides amendments to ASC No. 820 “Fair Value Measurement”, which results in a consistent definition of fair value and common requirements for measurement of and disclosure of fair value between U.S. GAAP and IFRS. Some of the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements, while others change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this update are effective prospectively during interim and annual periods beginning after December 15, 2011, with early adoption not permitted. The impact of adoption is not expected to be material to the Company’s results of operations and financial position.

In June 2011 (and as amended in December 2011), the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 provides amendments to ASC No. 220 “Comprehensive Income”, which require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective retrospectively for fiscal years and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company has not elected to early adopt ASU 2011-05. The Company is currently assessing how it will present comprehensive income under the new guidance.

In September 2011, the FASB issued amended guidance on testing goodwill for impairment. This guidance is providing the option to first assess qualitative factors, such as macroeconomic conditions and industry and market considerations, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If indicated by the qualitative assessment, then it is necessary to perform the two−step goodwill impairment test. If the option is not elected, the guidance requiring the two−step goodwill impairment test is unchanged. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The impact of adoption is not expected to be material to the Company’s results of operations and financial position.

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.

Reclassification

To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation.

Investments

12 Months Ended

Dec. 31, 2011

Note 3. Investments

The amortized cost and fair value of investments in available for sale fixed-maturity securities and equities as of December 31, 2011 and 2010 are summarized as follows:

	December 31, 2011
													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:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies	$	499,832	$	50,356	$	—		$	—		$	550,188	$	50,356

Political subdivisions of States,
Territories and Possessions		5,868,743		301,559		—			—			6,170,302		301,559

Corporate and other bonds
Industrial and miscellaneous		15,846,616		338,284		(228,792	)		(107,666	)		15,848,442		1,826
Total fixed-maturity securities		22,215,191		690,199		(228,792	)		(107,666	)		22,568,932		353,741

Equity Securities:
Preferred stocks		1,428,435		36,762		(76,969	)		(4,893	)		1,383,335		(45,100	)
Common stocks		2,429,306		274,538		(21,969	)		—			2,681,875		252,569
Total equity securities		3,857,741		311,300		(98,938	)		(4,893	)		4,065,210		207,469

Total	$	26,072,932	$	1,001,499	$	(327,730	)	$	(112,559	)	$	26,634,142	$	561,210

	December 31, 2010

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

Fixed-Maturity Securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies	$	1,000,572	$	42,085	$	—		$	—		$	1,042,657	$	42,085

Political subdivisions of States,
Territories and Possessions		7,278,663		79,791		(86,234	)		(12,995	)		7,259,225		(19,438	)

Corporate and other bonds
Industrial and miscellaneous		7,997,817		176,999		(137,597	)		—			8,037,219		39,402
Total fixed-maturity securities		16,277,052		298,875		(223,831	)		(12,995	)		16,339,101		62,049

Equity Securities:
Preferred stocks		824,569		29,934		(6,333	)		—			848,170		23,601
Common stocks		2,000,446		188,783		(54,364	)		—			2,134,865		134,419
Total equity securities		2,825,015		218,717		(60,697	)		—			2,983,035		158,020

Total	$	19,102,067	$	517,592	$	(284,528	)	$	(12,995	)	$	19,322,136	$	220,069

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 December 31, 2011 and 2010 is shown below:

	December 31, 2011				December 31, 2010
	Amortized				Amortized
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value

Less than one year	$	1,063,493	$	1,079,924	$	263,098	$	253,385
One to five years		6,899,892		7,045,774		6,868,952		6,997,694
Five to ten years		12,547,046		12,680,441		7,132,079		7,118,405
More than 10 years		1,704,760		1,762,793		2,012,923		1,969,617
Total	$	22,215,191	$	22,568,932	$	16,277,052	$	16,339,101

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 December 31, 2011 and 2010 are summarized as follows:

December 31, 2011

Cost or

Gross

Gross Unrealized Losses

Net

Amortized

Unrealized

Less than 12

More than 12

Fair

Unrealized Gains/

Category

Cost

Gains

Months

Value

(Losses)

U.S. Treasury securities

605,424

974

—

606,398

974

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:

	Years ended
	December 31,
	2011		2010
Income:
Fixed-maturity securities	$	748,046	$	548,876
Equity securities		168,813		150,331
Cash and cash equivalents		5,248		5,368
Other		11,974		13,789
Total		934,081		718,364
Expenses:
Investment expenses		179,451		101,245
Net investment income	$	754,630	$	617,119

Proceeds from the sale and maturity of fixed-maturity securities were $3,532,245 and $3,575,293 for the years ended December 31, 2011 and 2010, respectively.

Proceeds from the sale of equity securities were $2,771,631 and $2,099,897 for the years ended December 31, 2011 and 2010, respectively.

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

	Year ended
	December 31,
	2011			2010
Fixed-maturity securities
Gross realized gains	$	190,855		$	179,161
Gross realized losses		(1,983	)		(40,320	)
		188,872			138,841

Equity securities
Gross realized gains		292,687			243,299
Gross realized losses		(90,876	)		(32,725	)
		201,811			210,574


Cash and short term investments (1)		133,211			—

Net realized gains	$	523,894		$	349,415

(1) Realized gain on cash and short term investments is a partial recovery from the FDIC of an amount previously written off in 2009 due to the failure of Waterfield Bank.

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 operations 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 64 securities at December 31, 2011 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 years ended December 31, 2011 and 2010. 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 December 31, 2011 and 2010 as follows:

	December 31, 2011
	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:
Corporate and other
bonds industrial and
miscellaneous	$	4,849,378	$	(228,792	)		26	$	1,483,425	$	(107,666	)		7	$	6,332,803	$	(336,458	)

Total fixed-maturity
securities	$	4,849,378	$	(228,792	)		26	$	1,483,425	$	(107,666	)		7	$	6,332,803	$	(336,458	)

Equity Securities:
Preferred stocks	$	368,350	$	(76,969	)		12	$	189,364	$	(4,893	)		5	$	557,714	$	(81,862	)
Common stocks		397,268		(21,969	)		14		—		—			—		397,268		(21,969	)

Total equity securities	$	765,618	$	(98,938	)		26	$	189,364	$	(4,893	)		5	$	954,982	$	(103,831	)

Total	$	5,614,996	$	(327,730	)		52	$	1,672,789	$	(112,559	)		12	$	7,287,785	$	(440,289	)

	December 31, 2010
	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	$	2,870,728	$	(86,234	)		11	$	1,119,244	$	(12,995	)		4	$	3,989,972	$	(99,229	)

Corporate and other
bonds industrial and
miscellaneous		4,113,912		(137,597	)		20		—		—			—		4,113,912		(137,597	)

Total fixed-maturity
securities	$	6,984,640	$	(223,831	)		31	$	1,119,244	$	(12,995	)		4	$	8,103,884	$	(236,826	)

Equity Securities:
Preferred stocks	$	363,670	$	(6,333	)		9	$	—	$	—			—	$	363,670	$	(6,333	)
Common stocks		690,634		(54,364	)		16		—		—			—		690,634		(54,364	)
Total equity securities	$	1,054,304	$	(60,697	)		25	$	—	$	—			—	$	1,054,304	$	(60,697	)

Total	$	8,038,944	$	(284,528	)		56	$	1,119,244	$	(12,995	)		4	$	9,158,188	$	(297,523	)

Fair Value Measurements

12 Months Ended

Dec. 31, 2011

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.

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.

The Company’s investments are allocated among pricing input levels at December 31, 2011 and 2010 as follows:

	December 31, 2011
($ in thousands)	Level 1		Level 2		Level 3		Total

Fixed-maturity investments available for sale
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies	$	550	$	—	$	—	$	550

Political subdivisions of
States, Territories and
Possessions		—		6,171		—		6,171

Corporate and other
bonds industrial and
miscellaneous		8,465		7,168		215		15,848
Total fixed maturities		9,015		13,339		215		22,569
Equity investments		4,065		—		—		4,065
Total investments	$	13,080	$	13,339	$	215	$	26,634

	December 31, 2010
($ 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	$	1,043	$	—	$	—	$	1,043

Political subdivisions of
States, Territories and
Possessions		—		7,259		—		7,259

Corporate and other
bonds industrial and
miscellaneous		4,227		3,573		237		8,037
Total fixed maturities		5,270		10,832		237		16,339
Equity investments		2,983		—		—		2,983
Total investments	$	8,253	$	10,832	$	237	$	19,322

A reconciliation of the beginning and ending balances of assets measured at fair value using Level 3 inputs is as follows:

	Years ended
	December 31,
	2011			2010

Beginning balance, January 1	$	237		$	—
Total unrealized (losses)
included in other comprehensive income		(22	)		—
Net transfers into Level 3		—			237
Ending balance, December 31	$	215		$	237

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Section 50
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-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 9: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 10: http://www.xbrl.org/2003/role/presentationRef
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-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 11: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 14: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

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.

Reinsurance balances payable: The carrying value reported in the 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:

	December 31, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value

Fixed-maturity investments held to maturity	$	606,234	$	777,953	$	605,424	$	606,398
Cash and cash equivalents		505,906		505,906		326,620		326,620
Premiums receivable		5,779,085		5,779,085		5,001,886		5,001,886
Receivables - reinsurance contracts		1,734,535		1,734,535		1,174,729		1,174,729
Reinsurance receivables		23,880,814		23,880,814		20,720,194		20,720,194
Notes receivable-sale of business		393,511		393,511		705,019		705,019
Real estate, net of
accumulated depreciation		1,477,639		1,510,000		1,451,735		1,510,000
Reinsurance balances payable		2,761,828		2,761,828		1,106,897		1,106,897
Notes payable (including related parties)		1,047,000		1,047,000		1,460,997		1,460,997

Intangibles

12 Months Ended

Dec. 31, 2011

Note 6. Intangibles

Intangible assets consist of finite and indefinite life assets. Finite life intangible assets include customer and producer relationships and assembled workforce. Insurance company license is considered indefinite life intangible assets subject to annual impairment testing. The weighted average amortization period of identified intangible assets of finite useful life is 6.9 years as of December 31, 2011.

The components of intangible assets and their useful lives, accumulated amortization, and net carrying value as of December 31, 2011 and 2010 are summarized as follows:

		December 31, 2011						December 31, 2010
	Useful		Gross				Net		Gross				Net
	Life		Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	(in yrs)		Value		Amortization		Amount		Value		Amortization		Amount
Insurance license	—	$	500,000	$	—	$	500,000	$	500,000	$	—	$	500,000
Customer relationships	10		3,400,000		850,000		2,550,000		3,400,000		510,000		2,890,000
Assembled workforce	7		950,000		339,328		610,672		950,000		203,614		746,386
Total		$	4,850,000	$	1,189,328	$	3,660,672	$	4,850,000	$	713,614	$	4,136,386

The Company recorded amortization expense, related to intangibles, of $475,714 for each of the years ended December 31, 2011 and 2010. The estimated aggregate amortization expense for the remaining life of finite life intangibles is as follows:

2012	$	475,714
2013		475,714
2014		475,714
2015		475,714
2016		407,816
Thereafter		850,000
	$	3,160,672

Reinsurance

12 Months Ended

Dec. 31, 2011

Note 7. 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, 2011. The treaties, which are renewed annually, provide for the following material terms:

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 up to $700,000 per occurrence. An excess of loss contract provides $1,500,000 of coverage in excess of the $700,000 included under the 75% quota share treaty for a total coverage up to $2,200,000 per occurrence. 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 60% quota share treaty, which provides coverage up to $700,000 per occurrence. An excess of loss contract provides $1,500,000 of coverage in excess of the $700,000 included under the 60% quota share treaty for a total coverage up to $2,200,000 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

A total of $54,000,000 of catastrophe reinsurance coverage has been obtained, whereby the Company retains $500,000 per occurrence.

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.

Approximate reinsurance recoverables on unpaid and paid losses by reinsurer are as follows:

	Unpaid		Paid
($ in thousands)	Losses		Losses		Total		Security
December 31, 2011
Maiden Reinsurace Company	$	3,534	$	514	$	4,048	$	8,156	(1)
SCOR Reinsurance Company		2,046		272		2,318		-
Motors Insurance Corporation		1,730		228		1,958		1,923	(1)
Sirius American Insurance Company (formerly
White Mountain Re))		993		67		1,060		-
Others		1,657		536		2,193		360	(2)
Total	$	9,960	$	1,617	$	11,577	$	10,439

December 31, 2010
Maiden Reinsurace Company	$	3,521	$	149	$	3,670	$	4,884	(1)
SCOR Reinsurance Company		2,027		76		2,103		-
Motors Insurance Corporation		1,943		129		2,072		2,100	(1)
Sirius American Insurance Company (formerly
White Mountain Re))		1,284		-		1,284		-
Others		1,656		209		1,865		26	(2)
Total	$	10,431	$	563	$	10,994	$	7,010

Assets held in the two trusts referred to in footnote (1) above are not included in the Company’s invested assets and investment income earned on these assets is credited to the two reinsurers respectively. In addition to reinsurance recoverables on unpaid and paid losses, reinsurance receivables as of December 31, 2011 and 2010 include unearned ceded premiums of $12,304,499 and $9,726,027, respectively.

Ceding Commission Revenue

The Company earns ceding commissions under its quota share reinsurance agreements based on a sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and ceding commissions earned increases when the estimated ultimate loss ratio decreases and, conversely, the commission rate and ceding commissions earned decreases when the estimated ultimate loss ratio increases.

As of December 31, 2011 and 2010, the Company’s estimated ultimate loss ratios attributable to these contracts are lower than the contractual ultimate loss ratios at which the minimum amount of ceding commissions can be earned. Accordingly, the Company has recorded ceding commissions earned that are greater than the minimum provisional commissions.

Ceding commission revenue consists of the following:

	Years ended
	December 31,
	2011		2010

Provisional ceding commissions earned	$	6,916,027	$	6,319,699
Contingent ceding commissions earned		3,708,687		2,263,447
	$	10,624,714	$	8,583,146

Ceding commissions due from reinsurers as of December 31, 2011 and 2010 were $1,734,535 and $1,174,729, respectively, and are in included in “Receivables – reinsurance contracts” in the Consolidated Balance Sheets.

The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 113
-Paragraph 27
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 7
-Section 03
-Paragraph 13

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 92-5
-Paragraph 19
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Article 7
-Section 03
-Paragraph 6

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
-Topic 944
-SubTopic 20
-Section 50
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
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Reference 9: http://www.xbrl.org/2003/role/presentationRef
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Reference 10: http://www.xbrl.org/2003/role/presentationRef
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Reference 12: http://www.xbrl.org/2003/role/presentationRef
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Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 113
-Paragraph 120
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Notes Receivable-Sale of Businesses

12 Months Ended

Dec. 31, 2011

Note 8. Notes Receivable-Sale of Businesses

Retail Business

New York Stores: On April 17, 2009, the Company’s wholly-owned subsidiaries that owned and operated 16 Retail Business locations in New York State sold substantially all of their assets, including their book of business (the “New York Assets”). The purchase price for the New York Assets was approximately $2,337,000, of which approximately $1,786,000 was paid at closing. Promissory notes in the aggregate original principal amount of approximately $551,000 (the “New York Notes”) were also delivered at the closing. On April 1, 2011 the purchaser of the New York Assets paid in advance the balance of the New York Notes in the amount of $138,762.

Pennsylvania Stores: Effective June 30, 2009, the Company sold all of the outstanding stock of the subsidiary that operated the three remaining Pennsylvania stores (the “Pennsylvania Stock”). The purchase price for the Pennsylvania Stock was approximately $397,000 which was paid by delivery of two promissory notes (the “Pennsylvania Notes”), one in the approximate principal amount of $238,000 and payable with interest at the rate of 9.375% per annum in 120 equal monthly installments, and the other in the approximate principal amount of $159,000 and payable with interest at the rate of 6% per annum in 60 monthly installments commencing August 10, 2011 (with interest only being payable prior to such date). Effective August 10, 2011, the Pennsylvania Notes were restructured into one note with a principal balance of $361,625. The restructured note provides for interest at the rate of 8.63% per annum and is payable in 102 equal monthly installments of $5,015. There was no gain or loss recorded on the restructuring of the Pennsylvania Notes.

Franchise Business

Effective May 1, 2009, the Company sold all of the outstanding stock of the subsidiaries that operated the DCAP franchise business (collectively, the “Franchise Stock”). The purchase price for the Franchise Stock was $200,000 which was paid by delivery of a promissory note in such principal amount (the “Franchise Note”). As of May 1, 2011, the terms of the Franchise Note called for installments of $50,000 on May 15, 2009, $50,000 on May 1, 2010, both of which were paid, and $100,000 plus accrued interest on May 1, 2011 and provided for interest at the rate of 5.25% per annum. On May 1, 2011, the Franchise Note was amended. Under the amended Franchise Note, the payment due on May 1, 2011 was reduced to a principal payment only of $75,000. The remaining balance of $25,000 plus accrued interest of $12,797 is due on May 1, 2012. A principal of the buyer is the son-in-law of Morton L. Certilman, one of the Company’s principal shareholders at the time.

Notes receivable arising from the sale of businesses as of December 31, 2011 and 2010 consists of:

	December 31, 2011						December 31, 2010
	Total		Current				Total		Current
	Note		Maturities		Long-Term		Note		Maturities		Long-Term
Sale of NY stores	$	-	$	-	$	-	$	211,536	$	211,536	$	-
Sale of Pennsylvania stores		351,861		31,028		320,833		375,211		28,730		346,481
Sale of Franchise business		37,797		37,797		-		100,000		100,000		-
		389,658		68,825		320,833		686,747		340,266		346,481
Accrued interest		3,853		3,853		-		18,272		18,272		-
Total	$	393,511	$	72,678	$	320,833	$	705,019	$	358,538	$	346,481

Deferred Acquisition Costs and Deferred Ceding

12 Months Ended

Dec. 31, 2011

Note 9. Deferred Acquisition Costs and Deferred Ceding Commission Revenue

Acquisition costs incurred and policy-related ceding commission revenue are deferred, and amortized to income on property and casualty insurance business as follows:

	Year ended
	December 31,
	2011			2010

Net deferred acquisition costs net of ceding
commission revenue, beginning of year	$	399,488		$	(380,261	)

Cost incurred and deferred:
Commissions and brokerage		6,863,504			5,558,031
Other underwriting and acquisition costs		2,316,928			1,809,372
Ceding commission revenue		(7,678,913	)		(6,240,967	)
Net deferred acquisition costs		1,501,519			1,126,436
Amortization		(1,347,634	)		(346,687	)
		153,885			779,749

Net deferred acquisition costs net of ceding
commission revenue, end of year	$	553,374		$	399,488

Ending balances for deferred acquisition costs and deferred ceding commission revenue as of December 31, 2011 and 2010 follows:

	December 31,
	2011			2010

Deferred acquisition costs	$	4,535,773		$	3,619,001
Deferred ceding commission revenue		(3,982,399	)		(3,219,513	)
Balance at end of period	$	553,374		$	399,488

Property and Equipment

12 Months Ended

Dec. 31, 2011

Note 10. Property and Equipment

The components of property and equipment are summarized as follows:

			Accumulated
	Cost		Depreciation			Net

December 31, 2011
Building	$	1,457,543	$	(112,001	)	$	1,345,542
Land		132,097		-			132,097
Furniture		132,323		(52,034	)		80,289
Computer equipment and software		212,224		(184,050	)		28,174
Automobile		81,394		(21,155	)		60,239
Total	$	2,015,581	$	(369,240	)	$	1,646,341

December 31, 2010
Building	$	1,379,631	$	(59,993	)	$	1,319,638
Land		132,097		-			132,097
Furniture		55,124		(39,817	)		15,307
Computer equipment and software		199,443		(141,552	)		57,891
Automobile		60,096		-			60,096
Total	$	1,826,391	$	(241,362	)	$	1,585,029

Depreciation expense for the years ended December 31, 2011 and 2010 was $126,990 and $139,563, respectively

Property and Casualty Insurance Activity

12 Months Ended

Dec. 31, 2011

Note 11. Property and Casualty Insurance Activity

Premiums written, ceded and earned are as follows:

	Direct			Assumed			Ceded			Net

Year ended December 31, 2011
Premiums written	$	40,734,767		$	10,990		$	(24,449,655	)	$	16,296,102
Change in unearned premiums		(4,005,312	)		(516	)		2,578,472			(1,427,356	)
Premiums earned	$	36,729,455		$	10,474		$	(21,871,183	)	$	14,868,746

Year ended December 31, 2010
Premiums written	$	33,249,331		$	10,699		$	(19,525,208	)	$	13,734,822
Change in unearned premiums		(3,189,250	)		105			589,958			(2,599,187	)
Premiums earned	$	30,060,081		$	10,804		$	(18,935,250	)	$	11,135,635

Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of December 31, 2011 and 2010 was approximately $545,000 and $411,000, respectively.

The components of the liability for loss and LAE expenses and related reinsurance receivables as of December 31, 2011 and 2010 are as follows:

	Gross		Reinsurance
	Liability		Receivables
December 31, 2011
Case-basis reserves	$	11,467,967	$	6,148,765
Loss adjustment expenses		2,117,242		1,017,983
IBNR reserves		4,895,508		2,793,586
Recoverable on unpaid losses				9,960,334
Recoverable on paid losses		-		1,615,981
Total loss and loss adjustment expenses	$	18,480,717		11,576,315
Unearned premiums				12,304,499
Total reinsurance receivables			$	23,880,814

December 31, 2010
Case-basis reserves	$	11,772,329	$	6,910,340
Loss adjustment expenses		1,958,700		1,058,325
IBNR reserves		3,980,878		2,462,750
Recoverable on unpaid losses				10,431,415
Recoverable on paid losses		-		562,752
Total loss and loss adjustment expenses	$	17,711,907		10,994,167
Unearned premiums				9,726,027
Total reinsurance receivables			$	20,720,194

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

	Years ended
	December 31,
	2011			2010

Balance at beginning of period	$	17,711,907		$	16,513,318
Less reinsurance recoverables		(10,431,415	)		(10,512,203	)
Net balance, beginning of period		7,280,492			6,001,115

Incurred related to:
Current year		8,297,998			6,095,528
Prior years		273,060			330,057
Total incurred		8,571,058			6,425,585

Paid related to:
Current year		4,108,010			2,855,074
Prior years		3,223,157			2,291,134
Total paid		7,331,167			5,146,208

Net balance at end of period		8,520,383			7,280,492
Add reinsurance recoverables		9,960,334			10,431,415
Balance at end of period	$	18,480,717		$	17,711,907

Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $7,073,026 and $7,187,536 for the years ended December 31, 2011 and 2010, 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.

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.

The table below shows the method used by product line and accident year to select the estimated year-ending loss reserves:

		Accident Year
Product Line	Most Recent	1st Prior	All Other

Fire	Loss Ratio	Loss Development	Loss Development
Homeowners	Loss Ratio	Loss Development	Loss Development
Multi-Family	Loss Ratio	Loss Development	Loss Development
Commercial multiple-peril property	Loss Ratio	Loss Development	Loss Development
Commercial multiple-peril liability	Loss Ratio	Loss Development	Loss Development
Other Liability	Loss Ratio	Loss Development	Loss Development
Commercial Auto Liability	Loss Ratio	Loss Development	Loss Development
Auto Physical Damage	Loss Ratio	Loss Development	Loss Development
Personal Auto Liability	Loss Ratio	Loss Development	Loss Development

Two key assumptions that materially impact the estimate of loss reserves are the loss ratio estimate for the current accident year and the loss development factor selections for all accident years. The loss ratio estimate for the current accident year is selected after reviewing historical accident year loss ratios adjusted for rate changes, trend, and mix of business.

The Company is not aware of any claims trends that have emerged or that would cause future adverse development that have not already been considered in existing case reserves and in its current loss development factors.

In New York State, lawsuits for negligence, subject to certain limitations, must be commenced within three years from the date of the accident or are otherwise barred. Accordingly, the Company’s exposure to IBNR for accident years 2008 and prior is limited although there remains the possibility of adverse development on reported claims.

The Company was previously a one-third participant in a pool arrangement. Effective November 1, 1997, the Company withdrew from its participation in the pool arrangement. Accordingly, the Company will only be participating in losses and allocated loss adjustment expenses that occurred prior to that date. A reserve was established due to the potential that the pool will be unable to collect reinsurance on certain lead paint cases. The balance of the reserve was $103,000 as of December 31, 2011 and 2010.

Long-Term Debt

12 Months Ended

Dec. 31, 2011

Note 12. Long-Term Debt

Long-term debt and capital lease obligations consist of:

	December 31, 2011						December 31, 2010
			Less						Less
	Total		Current		Long-Term		Total		Current			Long-Term
	Debt		Maturities		Debt		Debt		Maturities			Debt
Notes payable	$	747,000	$	-	$	747,000	$	1,450,000	$	1,450,000	$	-
Line of credit		300,000		300,000		-		-		-		-
Capital lease obligation		-		-		-		10,997		10,997		-
	$	1,047,000	$	300,000	$	747,000	$	1,460,997	$	1,460,997	$	-

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 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 years ended December 31 2011 and 2010 was approximately $120,000 and $179,000, respectively.

Related party balances as of December 31, 2011 and principal prepayments for the year ended December 31, 2011 under the 2009/2010 Notes are as follows:

	Balance		Less		Balance
	December 31,		Principal		December 31,
	2010		Prepayments		2011

Barry Goldstein IRA (Mr. Goldstein is Chairman of the Board, President and
Chief Executive Officer, and principal stockholder of the Company)	$	150,000	$	60,000	$	90,000
Kidstone LLC, a limited liability company owned by Mr. Goldstein, along with
Steven Shapiro (a director of KICO), and a family member of Sam Yedid
(a director of KICO)		120,000		120,000		-
Jay Haft, a director of the Company		50,000		20,000		30,000
A member of the family of Michael Feinsod, a director of the Company		100,000		40,000		60,000
Mr. Yedid and members of his family		295,000		139,000		156,000
A member of the family of Floyd Tupper, a director of KICO		70,000		28,000		42,000
Total related party transactions	$	785,000	$	407,000	$	378,000

Interest expense on related party borrowings for the years ended December 31, 2011 and 2010 was approximately $64,000 and $98,000, respectively.

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. 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.

There were no closing costs or fees paid in connection with the Trustco Agreement. Kingstone received an initial advance of $300,000 on December 27, 2011. The line of credit is being used for general corporate purposes.

The weighted average interest rate on the amount outstanding as of December 31, 2011 was 3.75%. There are no other fees in connection with this credit line.

Exchange and Issuance of Common Stock

12 Months Ended

Dec. 31, 2011

Note 13. Exchange and Issuance of Common Stock

Effective June 30, 2010, all 1,299 shares of Series E Preferred Stock outstanding were exchanged for 787,409 shares of Common Stock (the “Exchange”). The conversion price of $2.00 per share of Common Stock, pursuant to the terms of the Preferred Stock, was decreased to $1.65 per share, which approximates the fair value of the Company’s Common Stock issued in the Exchange.

The Exchange was treated as an extinguishment of debt. Since the fair value of the Common Stock issued in the aggregate approximated the Preferred Stock’s carrying value, no gain or loss was reported on this transaction. Among the holders of the Series E Preferred Stock, related parties were as follows: (i) AIA Partners, LLC (“AIA”) which exchanged 780 shares of Series E Preferred Stock for 472,727 shares of Common Stock, (ii) a retirement trust for the benefit of Jack Seibald, a director and principal stockholder of the Company, which exchanged approximately 288 shares of Series E Preferred Stock for 174,824 shares of Common Stock and (iii) Kidstone LLC (“Kidstone”) which exchanged approximately 115 shares of Series E Preferred Stock for 69,929 shares of Common Stock.

Steven Shapiro, a director of KICO, members of the family of Barry B. Goldstein, the Company’s Chairman of the Board, President and Chief Executive Officer, and a principal stockholder of the Company, and members of the family of Sam Yedid, a director of KICO, are members of AIA. AIA directed that the shares issuable to it upon the exchange be issued to its members, including 55,593 shares to Mr. Shapiro, 176,139 shares to members of Mr. Goldstein’s family, and 47,099 shares to members of the family of Mr. Yedid. In addition, Mr. Shapiro, Mr. Goldstein, and a family member of Mr. Yedid are the members of Kidstone. Kidstone directed that the shares issuable to it upon the exchange be issued to its members. Mr. Shapiro, Mr. Goldstein, and the family member of Mr. Yedid received 23,310, 23,309 and 23,310 shares, respectively, of the shares issued.

In accordance with GAAP guidance for accounting for certain financial instruments with characteristics of both liabilities and equity, the Company recorded previously issued Preferred Stock as a liability. For the years ended December 31, 2011and 2010, the preferred dividends have been classified as interest expense of $-0- and $74,706 (including $65,274 to related parties), respectively

Stockholders' Equity

12 Months Ended

Dec. 31, 2011

Note 14. Stockholders' Equity

Dividend Declared

Dividends declared and paid on Common Stock was $230,303 and $-0- for the years ended December 31, 2011 and 2010, respectively. The Company’s Board of Directors approved a quarterly dividend on February 6, 2012 of $.03 per share payable in cash on March 15, 2012 to stockholders of record as of February 29, 2012.

Preferred Stock

During 2001, the Company amended its Certificate of Incorporation to provide for the authority to issue 1,000,000 shares of Preferred Stock, with a par value of $.01 per share. The Board of Directors has the authority to issue shares of Preferred Stock from time to time in a series and to fix, before the issuance of each series, the number of shares in each series and the designation, liquidation preferences, conversion privileges, rights and limitations of each series. There was no preferred stock issued as of December 31, 2011 and 2010.

Other Equity Compensation

For the year ended December 31, 2011 there was no other equity compensation. For the year ended December 31, 2010, other equity compensation consists of: (a) 50,000 shares of the Company’s Common Stock granted to the Chief Executive Officer pursuant to an amended employment agreement dated March 24, 2010, and (b) 12,466 shares granted to directors during the second and third quarters of 2010. The fair value of stock grants is as follows:

	Year ended				Year ended
	December 31, 2011				December 31, 2010
Grant	Shares		Fair Value		Shares		Fair Value
Chief Executive Officer		-	$	-		50,000	$	93,325
Directors		-		-		12,466		31,129
		-	$	-		62,466	$	124,454

The fair value of stock grants has been included in the Consolidated Statement of Operations and Comprehensive Income within other operating expenses.

Stock Options

In December 2005, the Company’s shareholders ratified the adoption of the 2005 Equity Participation Plan (the “2005 Plan”), which provides for the issuance of incentive stock options, non-statutory stock options and restricted stock. Under the 2005 Plan, a maximum of 300,000 shares of Common Stock were permitted to be issued pursuant to options granted and restricted stock issued. In March 2010, the Board of Directors of the Company increased the number of shares of Common Stock authorized to be issued pursuant to the 2005 Plan to 550,000, subject to stockholder approval. In June 2010, the stockholders approved the increase to 550,000 shares. 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 will determine 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 years ended December 31, 2011 and 2010 include share-based stock option compensation expense totaling approximately $106,000 and $224,000, respectively. Share-based compensation expense related to stock options is net of estimated forfeitures of 21% and 23% for the years ended December 31, 2011 and 2010, respectively. Such amounts have been included in the Consolidated Statements of Operations and Comprehensive Income within other operating expenses.

Stock option compensation expense in 2011 and 2010 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. The weighted average estimated fair value of stock options granted during the year ended December 31, 2010 was $2.04 per share. No stock options were granted during year ended December 31, 2011. The fair value of options at the grant date was estimated using the Black-Scholes option-pricing method. The following weighted average assumptions were used for grants during the year ended December 31, 2010:

Dividend Yield		0.00	%
Volatility		101.25	%
Risk-Free Interest Rate		2.62	%
Expected Life	5 years

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our stock options.

A summary of option activity under the Company’s 1998 Stock Option Plan (terminated in November, 2008) and the 2005 Plan as of December 31, 2011, and changes during the year then ended, 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, 2011		393,865	$	2.32		3.28	$	463,465

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

Outstanding at December 31, 2011		393,865	$	2.32		2.28	$	498,913

Vested and Exercisable at December 31, 2011		269,432	$	2.26		1.91	$	358,931

The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2011 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 $3.59 closing price of the Company’s Common Stock on December 31, 2011. No stock options were exercised in the years December 31, 2011 and 2010.

A summary of the status of the Company’s non-vested options as of December 31, 2011 and the changes during the year ended December 31, 2011, is as follows:

	Options			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2010		189,149		$	1.71
Granted		-		$	-
Vested		(64,716	)	$	1.96

Nonvested at December 31, 2011		124,433		$	2.14

As of December 31, 2011 and 2010, the fair value of unamortized compensation cost related to unvested stock option awards was approximately $55,000 and $157,000, respectively. Unamortized compensation cost as of December 31, 2011 is expected to be recognized over a remaining weighted-average vesting period of 1.06 years. The total fair value of shares vested during the years ended December 31, 2011 and 2010 was approximately $127,000 and $158,000, respectively.

As of December 31, 2011, there were 153,635 shares reserved under the 2005 Plan.

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Principles Board Opinion (APB)
-Number 12
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 04
-Article 3

Reference 3: http://www.xbrl.org/2003/role/presentationRef
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-Name Regulation S-X (SX)
-Number 210
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-Section 08
-Paragraph d

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 43
-Chapter 1
-Section B
-Paragraph 7, 11A
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 129
-Paragraph 2, 3, 4, 5, 6, 7, 8
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Article 4

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 02
-Paragraph 29, 30, 31
-Article 5

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section E

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-Name Staff Accounting Bulletin (SAB)
-Number Topic 4
-Section C

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-Name Accounting Standards Codification
-Topic 505
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.3-04)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187085-122770

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-Name Accounting Standards Codification
-Topic 505
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-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21463-112644

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-Name Accounting Standards Codification
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-SubTopic 10
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-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644

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-URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21484-112644

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-Name Accounting Standards Codification
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-Name Accounting Standards Codification
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-Name Accounting Standards Codification
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-Subparagraph (SX 210.4-08.(d),(e))
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-Name Accounting Standards Codification
-Glossary Preferred Stock
-URI http://asc.fasb.org/extlink&oid=6521494

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-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.29-31)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

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-Name Accounting Standards Codification
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-Subparagraph (SAB TOPIC 4.C)
-URI http://asc.fasb.org/extlink&oid=6959260&loc=d3e187143-122770

Statutory Financial Information and Accounting Policies

12 Months Ended

Dec. 31, 2011

Note 15. Statutory Financial Information and Accounting Policies

For regulatory purposes, the Company’s Insurance Subsidiaries prepare their statutory basis financial statements in accordance with practices prescribed or permitted by the state in which they are domiciled (“statutory basis” or “SAP”). The more significant SAP variances from GAAP are as follows:

•	Policy acquisition costs are charged to operations in the year such costs are incurred, rather than being deferred and amortized as premiums are earned over the terms of the policies.

•	Ceding commission revenues are earned when ceded premiums are written except for ceding commission revenues in excess of anticipated acquisition costs, which are deferred and amortized as ceded premiums are earned. GAAP requires that all ceding commission revenues be earned as the underlying ceded premiums are earned over the term of the reinsurance agreements.

•	Certain assets including certain receivables, a portion of the net deferred tax asset, prepaid expenses and furniture and equipment are not admitted.

•	Investments in fixed-maturity securities are valued at National Association of Insurance Commissioners (“NAIC”) value for statutory financial purposes, which is primarily amortized cost. GAAP requires certain investments in fixed-maturity securities classified as available for sale, to be reported at fair value.

•	Certain amounts related to ceded reinsurance are reported on a net basis within the statutory basis financial statements. GAAP requires these amounts to be shown gross.
•	For SAP purposes, changes in deferred income taxes relating to temporary differences between net income for financial reporting purposes and taxable income are recognized as a separate component of gains and losses in surplus rather than included in income tax expense or benefit as required under GAAP.

State insurance laws restrict the ability of KICO to declare dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Generally, dividends may only be paid out of unassigned surplus, and the amount of an insurer’s unassigned surplus following payment of any dividends must be reasonable in relation to the insurer’s outstanding liabilities and adequate to meet its financial needs. On July 1, 2009, Kingstone 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, Kingstone acquired a 100% equity interest in KICO. In connection with the plan of conversion of CMIC, Kingstone has 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 may be paid by KICO without the approval of the Department (“Dividend Restriction Period”). As of June 30, 2011, no such request had been made by Kingstone to the Department. For the year ended December 31, 2011, KICO paid dividends of $350,000 after the expiration of the Dividend Restriction Period. On February 23, 2012, KICO’s board of directors approved a cash dividend of $175,000 to Kingstone, which was paid on February 24, 2012. Kingstone has also agreed with the Department that any intercompany transaction between itself and KICO must be filed with the Department 30 days prior to implementation and not disapproved by the Department.

For the years ended December 31, 2011 and 2010, KICO had statutory basis net income of $3,025,536 and $1,402,543, respectively. At December 31, 2011 and 2010, KICO had reported statutory basis surplus as regards policyholders of $13,602,701 and $10,707,011, respectively, as filed with the Department.

Risk Based Capital

12 Months Ended

Dec. 31, 2011

Note 16. Risk Based Capital

State insurance departments impose risk-based capital (“RBC”) requirements on insurance enterprises. The RBC Model serves as a benchmark for the regulation of insurance companies by state insurance regulators. RBC provides for targeted surplus levels based on formulas, which specify various weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk, and are set forth in the RBC requirements. Such formulas focus on four general types of risk: (a) the risk with respect to the company’s assets (asset or default risk); (b) the risk of default on amounts due from reinsurers, policyholders, or other creditors (credit risk); (c) the risk of underestimating liabilities from business already written or inadequately pricing business to be written in the coming year (underwriting risk); and, (d) the risk associated with items such as excessive premium growth, contingent liabilities, and other items not reflected on the balance sheet (off-balance sheet risk). The amount determined under such formulas is called the authorized control level RBC (“ACLC”).

The RBC guidelines define specific capital levels based on a company’s ACLC that are determined by the ratio of the company’s total adjusted capital (“TAC”) to its ACLC. TAC is equal to statutory capital, plus or minus certain other specified adjustments. The Company is in compliance with RBC requirements as of December 31, 2011 and 2010.

Income Taxes

12 Months Ended

Dec. 31, 2011

Note 17. Income Taxes

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 provision for income taxes from continuing operations is comprised of the following:

Years ended December 31,	2011			2010

Current Federal income tax expense	$	1,394,090		$	-
Current state income tax expense		19,529			42,640
Deferred Federal and State income tax expense		(325,106	)		724,794
Provision for income taxes	$	1,088,513		$	767,434

At December 31, 2011, the Company had the following net operating loss carryforwards for tax purposes:

Type of NOL	Amount		Expiration
State only, net of valuation allowance	$	2,322,744	December 31, 2026
Amount subject to Annual Limitation, Federal only (A)	$	110,000	December 31, 2019

(A) NOL 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.

A reconciliation of the federal statutory rate to our effective tax rate from continuing operations is as follows:

Years ended December 31,	2011					2010

Computed expected tax expense	$	1,221,156		34.00	%	$	628,789		34.00	%
State taxes, net of Federal benefit		1,270		-			25,785		1.39
Permanent differences
Dividends received deduction		(39,613	)	(1.10	)		(32,425	)	(1.75	)
Non-taxable investment income		(84,930	)	(2.36	)		(73,906	)	(4.00	)
Stock-based compensation expense		35,999		1.00			76,298		4.13
Interest expense - mandatorily redeemable preferred stock		-		-			25,400		1.37
Other permanent differences		(21,548	)	2.43			21,949		0.26
Prior year tax matters		(50,886	)	(1.42	)		46,080		2.49
Other		27,065		(2.24	)		49,464		3.61
Total tax	$	1,088,513		30.31	%	$	767,434		41.50	%

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.

	December 31,			December 31,
	2011			2010

Deferred tax asset:
Net operating loss carryovers	$	276,312		$	253,564
Claims reserve discount		220,354			188,074
Unearned premium		647,596			551,966
Loss and loss adjustment expenses		-			39,100
Reinsurance recoverable		-			13,600
Deferred ceding commission revenue		1,354,016			1,094,634
Accrued expenses		-			56,800
Other		4,583			-
Total deferred tax assets		2,502,861			2,197,738

Deferred tax liability:
Investment in KICO		1,169,000			1,169,000
Deferred acquisition costs		1,542,163			1,230,460
Intangibles		1,244,628			1,406,371
Depreciation and amortization		133,411			204,287
Reinsurance recoverable		20,400			-
Net unrealized appreciation of securities - available for sale		172,155			109,497
Investment income		10,543			42,348
Other		-			34,332
Total deferred tax liabilities		4,292,300			4,196,295

Net deferred income tax liability	$	(1,789,439	)	$	(1,998,557	)

The table below reconciles the changes in net deferred income tax liability to the deferred income tax provision from continuing operations for the year ended December 31, 2011:

Change in net deferred income tax liabilities	$	(209,118	)
Deferred tax expense allocated to other comprehensive income		(115,988	)
Deferred income tax provision	$	(325,106	)

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.

Under GAAP guidance for the “Accounting for Uncertainty in Income Taxes”, the Company had no material unrecognized tax benefit and no adjustments to liabilities or operations were required. Additionally, Accounting for Uncertainty in Income Taxes, provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for years ended December 31, 2011 and 2010. If any had been recognized these would be reported in income tax expense.

IRS Tax Audit

In July 2011, the Company received a notice that its Federal income tax return for the year ended December 31, 2009 has been selected for examination by the Internal Revenue Service. The audit commenced in September 2011. The final results of this audit are unknown, although management is confident in the tax assertions made in the tax return.

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Regulation S-X (SX)
-Number 210
-Section 08
-Paragraph h
-Article 4

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 136, 172
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 109
-Paragraph 43, 44, 45, 46, 47, 48, 49
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 15
-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08.(h))
-URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690

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-URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319

Employee Benefit Plans	12 Months Ended
Employee Benefit Plans	Dec. 31, 2011
Notes to Financial Statements
Note 18. Employee Benefit Plans	The Company’s insurance subsidiary, KICO, maintains a salary reduction plan under Section 401(k) of the Internal Revenue Code (“401(k) Plan”) for its qualified employees. KICO matches 100% of each participant’s contribution up to 4% of the participant’s eligible contribution. The Company, at its discretion, may allocate an amount for additional contributions (“Additional Contributions”) to the 401(k) Plan. The Company incurred approximately $352,000 and $279,000 of expense for the years ended December 31, 2011 and 2010, respectively, related to the 401(k) Plan. For the years ended December 31, 2011 and 2010, Additional Contributions consisted of approximately $251,000 and $188,000, respectively.

Commitments and Contingencies

12 Months Ended

Dec. 31, 2011

Note 19. 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.

Employment Agreements

Chief Executive Officer (Kingstone)

The Company’s President, Chairman of the Board and Chief Executive Officer, Barry B. Goldstein, is employed pursuant to an employment agreement, dated October 16, 2007, as amended (the “Goldstein Employment Agreement”), that expires on December 31, 2014. Pursuant to the Goldstein Employment Agreement, effective January 1, 2010, Mr. Goldstein is entitled to receive an annual base salary of $375,000 (“Base Salary”) and annual bonuses based on the Company’s net income (which bonus, commencing for 2010, may not be less than $10,000 per annum). Mr. Goldstein’s annual base salary had been $350,000 from January 1, 2004 through December 31, 2009. On August 25, 2008, the Company and Mr. Goldstein entered into an amendment (the “2008 Amendment”) to the Goldstein Employment Agreement. The 2008 Amendment entitles Mr. Goldstein to devote certain time to KICO to fulfill his duties and responsibilities as Chairman of the Board, Chief Investment Officer, and effective January 1, 2012, President and Chief Executive Officer of KICO. Such permitted activity is subject to a reduction in Base Salary under the Goldstein Employment Agreement on a dollar-for-dollar basis to the extent of the salary payable by KICO to Mr. Goldstein pursuant to his KICO employment contract, which, effective July 1, 2011 and 2010, is $275,000 and $165,375 per year, respectively. Pursuant to an amendment entered into with Mr. Goldstein on March 24, 2010 (the “2010 Amendment”), in addition to the increase in his Base Salary to $375,000 and minimum $10,000 annual bonus, as noted above, the expiration date of the agreement was extended from June 30, 2010 to December 31, 2014, the Company issued to Mr. Goldstein 50,000 shares of Common Stock and granted to him a five year option for the purchase of 188,865 shares of Common Stock at an exercise price of $2.50 per share, exercisable to the extent of 25% on the date of grant and each of the initial three anniversary dates of the grant. In connection with the stock option grant, the Company increased the number of shares authorized to be issued pursuant to its 2005 Equity Participation Plan from 300,000 to 550,000, subject to shareholder approval, which was obtained in June 2010. The option grant to Mr. Goldstein was also subject to such shareholder approval to the extent that additional authorized shares under the plan are required to satisfy his option. Pursuant to the 2010 Amendment, the Company also agreed that, under certain circumstances following a change of control of Kingstone Companies, Inc. and the termination of his employment, all of Mr. Goldstein’s outstanding options would become exercisable.

Chief Executive Officer (KICO)

John D. Reiersen, KICO’s President and Chief Executive Officer through December 31, 2011, is employed pursuant to an employment agreement effective as of November 13, 2006 and amended as of January 25, 2008 and February 28, 2011 (together, the “Reiersen Agreement”). The Reiersen Agreement as amended expires on December 31, 2014, may be terminated by KICO at any time with or without cause upon written notice. In the event of termination by KICO, Mr. Reiersen will be entitled to receive severance in an amount equal to the lesser of $50,000 or the remaining salary payable to him through the term of his agreement. Pursuant to the February 28, 2011 amendment, effective January 1, 2012, Mr. Reiersen shall serve as Executive Vice President of KICO, shall report to the President and CEO of KICO, and shall provide advice and assistance to the President and CEO of KICO, as well as other officers and management personnel of KICO, with regard to the management and operation of KICO. Pursuant to the Reiersen Agreement, Mr. Reiersen was entitled to receive an annual base salary of $256,500 (with increases of 5% on each of January 1, 2010 and 2011), plus additional customary benefits. Pursuant to the February 28, 2011 amendment, effective January 1, 2012, it is anticipated that Mr. Reiersen will provide approximately 500 hours of services per year on behalf of KICO and his minimum annual salary will be $100,000. Mr. Reiersen also receives a $2,000 annual fee for his position as a director of KICO.

Approval Required for Transactions with Subsidiary

In connection with the plan of conversion of CMIC, the Company has agreed with the Department of Financial Services that any intercompany transaction between itself and KICO must be filed with the Department 30 days prior to implementation.

Leases

The Company leases its executive office under a non-cancelable operating lease expiring on August 31, 2012. The lease is not renewable. The landlord may terminate the lease with three months advance notice. The remaining minimum rentals under this lease commitment is $13,336.

Tax Audits

As of December 31, 2011, the Company’s Federal tax return for the year ended December 31, 2009 is under examination by the Internal Revenue Service. Tax years 2008 and 2010 are open for audit.

The entire disclosure for commitments and contingencies.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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-Publisher FASB
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-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

Net Income Per Common Share

12 Months Ended

Dec. 31, 2011

Note 20. 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 vested 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.

For the year ended December 31, 2011 there were 269,432 vested options with an exercise price below the average market price of the Company’s Common Stock during the period. For the year ended December 31, 2010 there were 204,716 vested options with an exercise price below the average market price of the Company’s Common Stock during the period. For 2010, the inclusion of net common shares assumed to issued upon the exercise of such options in the computation of diluted earnings per share would have been anti-dilutive for the period, and as a result, the weighted average number of common shares used in the calculation of basic and diluted earnings per common share is the same, and has not been adjusted for the effects of such options.

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 years ended December 31, 2011 and 2010 follows:

	Year ended
	December 31,
	2011		2010

Weighted average number of shares outstanding		3,837,190		3,429,828
Effect of dilutive securities, common share equivalents		83,594		-

Weighted average number of shares outstanding,
used for computing diluted earnings per share		3,920,784		3,429,828

Discontinued Operations

12 Months Ended

Dec. 31, 2011

Note 21. Discontinued Operations

On April 17, 2009, the Company’s wholly-owned subsidiaries that owned and operated its former network of retail brokerage outlets in New York State sold substantially all of their assets, including the book of business (the “New York Assets”). As additional consideration, the Company was entitled to receive through September 30, 2010 an additional amount equal to 60% of the net commissions derived from the book of business of six New York retail locations that were closed in 2008. Income from discontinued operations for the years ended December 31, 2011 and 2010 includes approximately $-0- and $40,000, respectively, of income from additional consideration from the sale of the New York Assets.

Disclosure of accounting policy for any discontinued operations. The results of operations of a component of an entity that either has been disposed of or is classified as held for sale is reported in discontinued operations if both: (a) the operations and cash flows of the component have been (or will be) eliminated from the ongoing operations of the entity as a result of the disposal transaction and (b) the entity will not have any significant continuing involvement in the operations of the component after the disposal transaction. If the entity elects to allocate interest expense to a discontinued operation, it may disclose its accounting policy for this election and describe its method of allocation.

+ References + Details

Subsequent Events

12 Months Ended

Dec. 31, 2011