Acquisition / Disposition

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549   FORM 8-K/A AMENDMENT NO. 2 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report:   June 30, 2009 (Date of earliest event reported) KINGSTONE COMPANIES, INC. (formerly DCAP Group, Inc. ) (Exact Name of Registrant as Specified in Charter) Delaware   0-1665   36-2476480 (State or Other Jurisdiction of Incorporation)   (Commission File No.)   (IRS Employer Identification Number) 1158 Broadway, Hewlett, NY     11557 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (516) 374-7600 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: ____ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) ____ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) ____ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) ____ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))       Item 2.01. Completion of Acquisition or Disposition of Assets. As previously reported in a Current Report on Form 8-K for an event dated June 30, 2009 (the “Form 8-K”), Kingstone Companies, Inc. (formerly DCAP Group, Inc.) (the “Company" or “Kingstone”) completed the acquisition of Commercial Mutual Insurance Company (“CMIC”)  (renamed Kingstone Insurance Company) on July 1, 2009 pursuant to the conversion of CMIC from an advance premium cooperative to a stock property and casualty insurance company.  This Amendment No. 2 on Form 8-K/A amends and supplements the Form 8-K, as amended, to include financial statements of CMIC.  Pro forma financial information will be filed by further amendment. Item 9.01.  Financial Statements and Exhibits . (a)  Financial Statements of Business Acquired. The following financial statements required by Item 9.01(a) of Form 8-K are included: (i)   Report of Independent Certified Public Accounting Firm (ii)   Consolidated Balance Sheets of CMIC as of December 31, 2008, December 31, 2007 and June 30, 2009 (unaudited) (iii)   Consolidated Statements of Income of CMIC for the years ended December 31, 2008 and 2007 and the six months ended June 30, 2009 (unaudited) and 2008 (unaudited) (iv)  Consolidated Statements of Cash Flows of CMIC for the years ended December 31, 2008 and 2007 and the six months ended June 30, 2009 (unaudited) and 2008 (unaudited) (v)  Consolidated Statement of Policyholders’ Surplus for the years ended December 31, 2008 and 2007 and the six months ended June 30, 2009 (unaudited) (vi)  Notes to Consolidated Financial Statements of CMIC (b) Pro Forma Financial Information. The following unaudited condensed consolidated pro forma financial information required by Item 9.01(b) of Form 8-K will be filed by amendment:  (i) Selected Pro Forma Consolidated Financial Information*  (ii) Unaudited Condensed Consolidated Pro Forma Balance Sheets of the Company as of December 31, 2008 and June 30, 2009*   ___________ * To be filed by amendment.        (iii) Unaudited Condensed Consolidated Pro Forma Statements of Operations of the Company for the year ended December 31, 2008 and the six months ended June 30, 2009*      (iv) Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements* ___________ * To be filed by amendment.       Index to Consolidated Financial Statements             Page Report of  Independent Certified Public Accounting Firm 1 Consolidated Balance Sheets as of December 31, 2008 and 2007, and June 30, 2009 (unaudited) 2 Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) and 2008 (unaudited) 3 Consolidated Statements of Changes in Policyholders’ Surplus for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) 4 Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) and 2008 (unaudited) 5 Notes to Consolidated Financial Statements 6           Report of Independent Certified Public Accounting Firm To the Board of Directors Commercial Mutual Insurance Company   We have audited the accompanying consolidated balance sheets of Commercial Mutual Insurance Company and subsidiaries (“the Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income and comprehensive income, changes in policyholders’ surplus and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and changes in policyholders’ surplus and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/  Amper, Politziner & Mattia, LLP   Edison, New Jersey November 11, 2009         Commercial Mutual Insurance Company and Subsidiaries Consolidated Balance Sheets        December 31 ,     June 30,       2008     2007     2009                   (unaudited)     Asset s                    Short term investments   $ 1,213,460     $ 963,271     $ 811,738    Fixed-maturity securities, available for sale, at fair value                          (amortized cost of $7,677,046, $4,807,848 and $9,091,704)     7,597,123       4,716,407       9,266,253    Equity securities, available-for-sale,                          at fair value (cost of $1,097,193, $660,602 and $1,880,291)     903,717       739,979       1,823,045    Total investments     9,714,300       6,419,657       11,901,036    Cash and cash equivalents     5,248,159       4,481,698       1,327,057    Investment income receivable     59,120       44,748       70,216    Premiums receivable, net of of provision for uncollectible amounts     4,143,669       3,861,149       4,418,094    Receivables - reinsurance contracts     355,370       1,140,884       1,137,832    Reinsurance receivables, net of of provision for uncollectible amounts     17,722,546       15,259,804       20,049,199    Deferred acquisition costs     2,498,700       2,359,939       2,665,802    Deferred income taxes     899,266       603,673       475,782    Property and equipment, net of accumulated depreciation     1,414,871       1,255,265       1,369,570    Equities in pools and associations     194,912       188,232       191,136    Other assets     230,857       328,464       340,855    Total asset s   $ 42,481,770     $ 35,943,513     $ 43,946,579                              Liabilitie s                          Loss and loss adjustment expenses   $ 15,587,000     $ 11,669,999     $ 16,191,784    Unearned premiums     13,047,510       12,148,484       13,879,374    Reinsurance balances payable     786,131       1,029,600       2,005,590    Deferred ceding commission revenue     3,270,164       3,120,077       2,700,376    Accounts payable, accrued liabilities and other liabilities     938,718       749,829       1,157,829    Income taxes payable     717,819       282,329       -    Other liabilities     267,974       200,536       4,994    Mortgage payable     542,443       597,642       -    Surplus notes     5,935,704       5,747,031       5,996,461    Total liabilitie s     41,093,463       35,545,527       41,936,408                              Minority interest     -       129,600       -                              Policyholders' Surplus                          Special contingent surplus     839,816       783,219       868,898    Accumulated other comprehensive income     (148,214 )     24,267       109,649    Unassigned surplus     696,705       (539,100 )     1,031,624    Total policyholders' surplus     1,388,307       268,386       2,010,171                              Total liabilities and policyholders' surplus   $ 42,481,770     $ 35,943,513     $ 43,946,579   See accompanying notes to consolidated financial statements.   2     Commercial Mutual Insurance Company and Subsidiaries Consolidated Statements of Income and Comprehensive Income       Year ended December 31,     Six months ended June 30,       2008     2007     2009     2008                   (unaudited)    Revenue s                          Net premiums earned   $ 9,523,753     $ 7,713,781     $ 4,489,207     $ 4,667,623    Ceding commission revenue     5,835,593       4,745,620       4,157,347       2,685,296    Net investment income     354,913       435,589       163,644       200,083    Net realized (losses) on investments     (182,901 )     -       (124,126 )     -    Other income     555,413       477,640       189,350       332,048    Total revenues     16,086,771       13,372,630       8,875,422       7,885,050                                      Expense s                                  Loss and loss adjustment expenses     5,653,491       4,528,350       2,874,857       2,723,815    Commission expense     4,004,367       3,700,468       2,124,272       1,974,068    Other operating expenses     3,940,295       3,627,538       2,351,519       1,965,147    Depreciation     174,015       151,755       117,510       85,373    Interest expense     219,178       342,095       71,587       118,815    Total expenses     13,991,346       12,350,206       7,539,745       6,867,218                                      Income before income taxes     2,095,425       1,022,424       1,335,677       1,017,832    Income tax expense     803,023       309,247       437,607       373,317    Net incom e     1,292,402       713,177       898,070       644,515                                      Gross unrealized investment holding (losses) gains                                  arising during period     (261,335 )     (23,594 )     390,702       (130,669 )  Less: reclassification adjustment for losses (gains)                                  included in net income     -       -       -       -    Income tax benefit (expense) related to items of                                  other comprehensive income     88,854       8,022       (132,839 )     44,427    Comprehensive incom e   $ 1,119,921     $ 697,605     $ 1,155,933     $ 558,273     See accompanying notes to consolidated financial statements. 3        Commercial Mutual Insurance Company and Subsidiaries Consolidated Statements of Changes in Policyholders’ Surplus              Accumulated                    Special     Other           Total        Contingent     Comprehensive     Unassigned     Policyholders'       Surplus     Income     Surplus     Surplus    Balance at December 31, 200 6   $ 728,102     $ 39,839     $ (1,197,160 )   $ (429,219 )  Net income     -       -       713,177       713,177    Adjustment to special contingent surplus     55,117       -       (55,117 )     -    Net unrealized gains (losses) on securities                                  available for sale, net of income tax     -       (15,572 )     -       (15,572 )  Balance at December 31, 200 7   $ 783,219     $ 24,267     $ (539,100 )   $ 268,386    Net income     -       -       1,292,402       1,292,402    Adjustment to special contingent surplus     56,597       -       (56,597 )     -    Net unrealized gains (losses) on securities                                  available for sale, net of income tax     -       (172,481 )     -       (172,481 )  Balance at December 31, 200 8   $ 839,816     $ (148,214 )   $ 696,705     $ 1,388,307    Net income     -       -       898,070       898,070    Adjustment to special contingent surplus     29,082       -       (29,082 )     -    Net unrealized gains (losses) on securities                                  available for sale, net of income tax     -       257,863       -       257,863    Policyholder distribution upun demutualization     -       -       (534,069 )     (534,069 )  Balance at June 30, 2009 (unaudited )   $ 868,898     $ 109,649     $ 1,031,624     $ 2,010,171     See accompanying notes to consolidated financial statements.   4     Commercial Mutual Insurance Company and Subsidiaries Consolidated Statements of Cash Flows       Year ended December 31,     Six months ended June 30,        2008     2007     2009     2008                   (unaudited)  Cash flows provided by (used in) operating activities :                          Net income   $ 1,292,402     $ 713,177     $ 898,070     $ 644,515    Adjustments to reconcile net income to net cash provided                                  by (used in) operations:                                  Loss (gain) on sale of investments     182,901       -       (101,068 )     -    Other-than-temporary-impairment loss on investments     -       -       225,192       -    Depreciation     174,015       151,755       117,510       85,373    Amortization of bond premium or discount     9,216       -       16,975       7,746    Accrued interest on surplus notes     188,672       300,000       60,757       107,813    Deferred income taxes     (206,740 )     30,919       290,645       (178,025 )  (Increase) decrease in assets:                                  Short term investments     (250,189 )     (220,331 )     401,722       753,311    Premiums receivable, net     (282,520 )     (13,718 )     (274,425 )     (278,103 )  Receivables - reinsurance contracts     785,514       408,638       (782,462 )     (739,801 )  Reinsurance recoverable, net     (2,462,743 )     (1,001,254 )     (2,326,653 )     833,606    Deferred acquisition costs     (138,762 )     (131,833 )     (167,103 )     (28,712 )  Other assets     (34,027 )     99,890       (117,558 )     (190,488 )  Increase (decrease) in liabilities:                                  Loss and loss adjustment expenses     3,917,001       1,006,204       604,784       111,683    Unearned premiums     899,026       886,210       831,864       533,238    Reinsurance balances payable     (243,469 )     179,739       1,219,459       732,637    Deferred ceding commission revenue     150,087       573,239       (569,788 )     639,078    Accounts payable, accrued liabilities and other liabilities     256,329       325,572       (43,870 )     (36,204 )  Income taxes payable     435,490       284,435       (717,819 )     190,012    Net cash flows provided by (used in) operation s     4,672,203       3,592,642       (433,766 )     3,187,679                                      Cash flows used in investing activities :                                  Purchase of fixed assets     (161,527 )     (58,280 )     (72,209 )     (112,764 )  Purchase—fixed-maturity securities     (6,039,787 )     (1,702,869 )     (3,179,756 )     (2,097,933 )  Purchase—equity securities     (562,967 )     (97,897 )     (1,023,798 )     -    Sale or maturity—fixed-maturity securities     3,120,431       597,000       1,615,448       1,672,000    Sale—equity securities     95,001       -       249,491       -    Policyholder distribution upun demutualization     -       -       (534,069 )     -    Other investing activities     (301,694 )     5,768       -       (301,694 )  Net cash flows used in investing activitie s     (3,850,543 )     (1,256,278 )     (2,944,893 )     (840,391 )                                    Cash flowsused in financing activities :                                  Payment of accrued interest on surplus notes     -       (125,000 )     -       -    Principal payment on mortgage payable     (55,199 )     (52,829 )     (542,443 )     (27,767 )  Net cash flows used in financing activitie s     (55,199 )     (177,829 )     (542,443 )     (27,767 )                                    Increase (decrease) in cash and cash equivalents     766,461       2,158,535       (3,921,102 )     2,319,521    Cash and cash equivalents, beginning of year     4,481,698       2,323,163       5,248,159       4,481,698    Cash and cash equivalents, end of yea r   $ 5,248,159     $ 4,481,698     $ 1,327,057     $ 6,801,219                                      Supplemental disclosures of cash flow information :                                  Cash paid for income taxes   $ 615,170     $ 36,863     $ 906,184     $ 374,169    Cash paid for interest   $ 30,506     $ 42,095     $ 10,830     $ 11,002   See accompanying notes to consolidated financial statements. 5     Commercial Mutual Insurance Company and Subsidiaries Notes to Consolidated Financial Statements       Note 1— Nature of Business   Commercial Mutual Insurance Company (the “Company” or “CMIC”) offers property and casualty insurance products to small businesses and individuals in New York State. In March 2007, the Company’s Board of Directors approved a resolution to convert (demutualize) CMIC from an advance premium cooperative insurance company to a domestic stock property and casualty insurance company pursuant to Section 7307 of the New York Insurance Law. The charter, by-laws and plan of conversion were submitted to the New York State Insurance Department (“Insurance Department”) and approved on April 15, 2009. On June 8, 2009 the eligible policyholders of CMIC voted in favor of the conversion by the required 2/3 majority. On June 30, 2009, the Insurance Department gave final approval of the demutualization to become effective July 1, 2009. The plan of conversion called for each eligible policyholder to receive a distribution from policyholders’ surplus based upon their equitable share in CMIC in the form of cash aggregating $534,069. Upon the execution of the conversion, CMIC’s name was changed to Kingstone Insurance Company (“KICO”). As of June 30, 2009, Kingstone Companies, Inc. (“Kingstone”), formerly DCAP Group, Inc., held two surplus notes issued by CMIC in the aggregate principal amount of $3,750,000. Previously accrued and unpaid interest on the notes as of June 30, 2009 was approximately $2,246,000.  The surplus notes were past due and provided for interest at the prime rate or 8.5% per annum, whichever is less. Payments of principal and interest on the surplus notes could only be made out of the surplus of CMIC and required the approval of the Insurance Department. Pursuant to the plan of conversion, Kingstone acquired a 100% equity interest in KICO on July 1, 2009, in consideration for the exchange of the $3,750,000 principal amount of surplus notes of CMIC. In addition, Kingstone forgave all accrued and unpaid interest of approximately $2,246,000 on the surplus notes as of the date of conversion.      Note 2— Summary of Significant Accounting Policies   Basis of Presentation   The consolidated financial statements include the accounts of CMIC and its subsidiaries, CMIC Properties, Inc. (“CMIC Properties”) and 15 Joys Lane, LLC (“15 Joys Lane”), which owns the land and building that CMIC operates from. Through December 31, 2007, CMIC Properties owned a 70% membership interest in 15 Joys Lane. As a result of the majority ownership, 15 Joys Lane is consolidated with CMIC Properties and the minority interests are recorded separately. On March 31, 2008, CMIC Properties exercised its option to purchase the remaining 30% membership interest of 15 Joys Lane for $301,694. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant inter-company transactions have been eliminated in consolidation.   6     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. 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.   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 recoverable represents management’s best estimate of paid and unpaid loss and LAE recoverable from reinsurers. Ceded losses recoverable are estimated using techniques and assumptions consistent with those used in estimating the liability for loss and LAE. Management believes that reinsurance recoverables 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 recoverable from the reinsurers will also change. Accordingly, the ultimate recoverable 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 income and comprehensive income are net of reinsurance recoveries. 7     The Company accounts for reinsurance in accordance with Statement of Financial Accounting Standards No. 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts” (“SFAS No. 113”). 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 at December 31, 2008 and 2007, and June 30, 2009 (unaudited) was $74,039, $100,000 and $74,039, respectively. The Company did not expense any uncollectible reinsurance for the years ended December 31, 2008 and 2007, and the six months ended June 30, 2009 (unaudited) and 2008 (unaudited). 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 the Company’s Insurance Subsidiaries’ 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, 2009 at which time the insured limit is scheduled to revert back to $100,000. Management monitors balances in excess of insured limits and believes they do not represent a significant credit risk to the Company.   Investments   The Company accounts for its investments in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS 115”), 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 SFAS 115, the Company has classified its fixed-maturity and 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 and equity securities are reported at their estimated fair values based on quoted market prices or a recognized pricing service, with unrealized gains and losses, net of tax effects, reported as a separate component of comprehensive income in policyholder’s surplus. Realized gains and losses are determined on the specific identification method. 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. 8     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 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. For the six months ended June 30, 2009 (unaudited) the Company recorded an impairment write-down of $225,192. For the years ended December 31, 2008 and 2007 and the six months ended 2008 (unaudited) the Company did not record impairment write-downs. Fair Value   The fair value hierarchy in SFAS 157 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. Premiums Receivable   Premiums receivable are presented net of an allowance for doubtful accounts of approximately $41,000,  $49,000 and $58,000 at December 31, 2008 and 2007, and June 30, 2009 (unaudited) 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 $42,679 and $98,811 were written off for the years ended December 31 2008 and 2007, respectively. Uncollectible premiums receivable balances of $39,443 and $31,996 were written off for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited) respectively.   Deferred Acquisition Costs and Deferred Ceding Commission Revenue   Acquisition costs represent the costs of writing business that vary with, and are primarily related to, the 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. 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, furniture and other equipment is three years, and building and building improvements is 39 years. 9     The fair value of the Company’s real estate assets was based on an appraisal dated August 31, 2009. The fair value of the real estate assets are 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 will file a consolidated tax return with Kingstone for periods after June 30, 2009.   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 through the investment committee 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 investments. At December 31, 2008 and 2007, and June 30, 2009 (unaudited) the outstanding premiums receivable balance is generally diversified due to the number of entities composing the Company’s customer base, which is largely concentrated in the New York City area. To reduce credit risk, the Company obtains customer credit reports before it underwrites a policy. 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.   10       Gross premiums earned from lines of business that subject the Company to concentration risk are as follows:     Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Personal Lines     61.3 %     58.8 %     65.3 %     58.8 %  Commercial Automobile     26.5 %     27.4 %     26.1 %     27.7 %  For Hire Physical Damage Only     9.4 %     12.7 %     4.9 %     11.1 %  Total premiums earned subject to concentration     97.2 %     98.9 %     96.3 %     97.6 %  Premiums earned not subject to concentration     2.8 %     1.1 %     3.7 %     2.4 %  Total premiums earned     100.0 %     100.0 %     100.0 %     100.0 %   Use of Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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. Actual results could differ from those estimates.   Recently Issued Accounting Pronouncements   In December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements-an amendment of ARB No. 51 ” (“SFAS No. 160”). This standard establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance will become effective as of the beginning of the Company’s fiscal year beginning after December 15, 2008. The Company prospectively adopted SFAS no. 160 on January 1, 2009, which did not have a material effect on the Company’s consolidated financial condition and results of operations.   In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS No. 141(R)”). This standard significantly changed the accounting for business combinations. Under FAS No. 141(R), an acquiring entity is required to recognize assets acquired and all liabilities assumed, at acquisition date fair value, with limited exceptions. In addition, transaction costs are no longer included in the measurement of the business acquired, but are expensed as they are incurred. FAS 141(R) applies to all business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company prospectively adopted the provisions of FAS 141(R) on January 1, 2009. In April 2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS 142. This FSP is intended to improve the consistency between the useful life of an intangible asset and the period of expected cash flows used to measure the fair value of the asset. FSP FAS 142-3 requires an entity to disclose information related to the extent the expected future cash flows associated with the asset are affected by the entity’s intent and/or ability to renew or extend the arrangement. The provisions of FSP FAS 142-3 are to be applied prospectively to intangible assets acquired after January 1, 2009, although the disclosure provisions are required for all intangible assets recognized as of or subsequent to January 1, 2009. The Company adopted the provisions of FSP FAS 142-3 on January 1, 2009, which did not have a material effect on the Company’s consolidated financial condition and results of operations. 11     In April, 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). This FSP provides additional guidance to help an entity in determining whether a market for an asset is not active and when a price for a transaction is not distressed. The model includes the following two steps: •   Determine whether there are factors present that indicate that the market for the asset is not active at the measurement date; and •   Evaluate the quoted price (i.e., a recent transaction or broker price quotation) to determine whether the quoted price is not associated with a distressed transaction. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of FSP FAS 157-4 on January 1, 2009. The adoption did not have a material effect on the Company’s consolidated financial condition and results of operations. In April 2009, the FASB issued FSP FAS 115-2, FAS 124-2, and EITF 99-20-b, “Recognition and Presentation of Other-Than-Temporary Impairments” (“FSP FAS 115-2”). FSP FAS 115-2 includes changes to the guidance for other-than-temporary impairments (“OTTI”) for fixed maturities. FSP FAS 155-2 required the Company to analyze impaired fixed maturity securities and determine whether the Company intends to sell or it is more likely than not that the Company will be required to sell the impaired securities. For those securities the Company is more likely than not able to retain, the Company must separate the OTTI into (a) the amount representing the credit loss, which is recorded in earnings, and (b) the amount related to all other factors, which is recorded in accumulated other comprehensive net loss. Previously, an entity was required to assess whether it has the intent and ability to hold a security to recovery in determining whether an impairment of that security is other-than-temporary. In addition, FSP FAS 115-2 requires entities to initially apply the provisions of the final standard to previously other-than-temporarily impaired instruments existing as of the effective date by making a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The cumulative-effect adjustment reclassifies the noncredit portion of a previously other-than-temporarily impaired instrument held as of the effective date to accumulated other comprehensive net loss from retained earnings. FSP FAS 115-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of FSP FAS 115-2, on April 1, 2009. The adoption did not have a material effect on the Company’s consolidated financial condition and results of operations. In April, 2009, the FASB issued FSP FAS 107-1/APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1”) This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” , to require disclosures about fair value of financial instruments in interim financial statements as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting” , to require those disclosures in all interim financial statements. The FSP is for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted the provisions of FSP FAS 107-1 and APB 28-1 on April 1, 2009. The adoption did not have a material effect on the Company’s consolidated financial condition and results of operations, including disclosures. 12     In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 requires entities to disclose the date through which they have evaluated subsequent events and whether the date corresponds with the release of their financial statements. Effective for interim and annual periods ending after June 15, 2009, the Company implemented SFAS 165 as of April 1, 2009.  with no material impact on Company’s consolidated financial condition and results of operations. The Company has evaluated subsequent events through November 11, 2009, the date our financial statements were issued.   In June 2009, the FASB issued Statement No. 166, “ Accounting for Transfers of Financial Assets,” (“SFAS No. 166”) , an amendment to FASB Statement No. 140. SFAS No. 166 will require more information about transfers of financial assets, including securitization transactions, and where entities have continuing exposure to the risks related to transferred financial assets. It eliminates the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures. SFAS No. 166 enhances information reported to users of financial statements by providing greater transparency about transfers of financial assets and an entity’s continuing involvement in transferred financial assets. SFAS No. 166 will be effective for annual reporting periods beginning on or after January 1, 2010. Early application is not permitted. The Company is currently analyzing the impact this will have on its financial statements. In June 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R)”, (“SFAS No. 167”). SFAS No. 167 is a revision to FASB Interpretation No. 46 (Revised December 2003), “ Consolidation of Variable Interest Entities ”, and changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a reporting entity is required to consolidate another entity is based on, among other things, the other entity’s purpose and design and the reporting entity’s ability to direct the activities of the other entity that most significantly impact the other entity’s economic performance. SFAS No. 167 will require a reporting entity to provide additional disclosures about its involvement with variable interest entities and any significant changes in risk exposure due to that involvement. A reporting entity will be required to disclose how its involvement with a variable interest entity affects the reporting entity’s financial statements. SFAS No. 167 will be effective for annual reporting periods beginning on or after January 1, 2010. Early application is not permitted. The Company is currently analyzing the impact this will have on its financial statements. In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS 168”). SFAS 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This will have an impact on the Company’s financial statement disclosures since all future references to authoritative accounting literature will be referenced in accordance with SFAS 168. 13         Note 3— Investments   The amortized cost and fair value of investments in fixed-maturity securities and equities are summarized as follows:     December 31, 2008     December 31, 2007        Cost or     Aggregate     Unrealized     Cost or     Aggregate     Unrealized       Amortized     Fair     Gains/     Amortized     Fair     Gains/    Categor y   Cos t     Value     (Losses )     Cos t     Value     (Losses )                                          Fixed-Maturity Securities:                                      U.S. Treasury securities and                                      obligations of U.S. government                                      corporations and agencies   $ 1,304,194     $ 1,364,845     $ 60,651     $ 2,772,094     $ 2,808,813     $ 36,719                                                      Political subdivisions of States,                                                  Territories and Possessions     2,388,938       2,382,158       (6,780 )     -       -       -                                                      Corporate and other bonds                                                  Industrial and miscellaneous     3,983,914       3,850,120       (133,794 )     2,035,754       1,907,594       (128,160 )  Total fixed-maturity securities     7,677,046       7,597,123       (79,923 )     4,807,848       4,716,407       (91,441 )                                                    Equity Securities:                                                  Preferred stocks     373,556       253,200       (120,356 )     251,042       189,900       (61,142 )  Common stocks     723,637       650,517       (73,120 )     409,560       550,079       140,519    Total equity securities     1,097,193       903,717       (193,476 )     660,602       739,979       79,377                                                      Total   $ 8,774,239     $ 8,500,840     $ (273,399 )   $ 5,468,450     $ 5,456,386     $ (12,064 )                                                                                                         June 30, 2009                                Cost or     Aggregate     Unrealized                               Amortized     Fair     Gains/                            Categor y   Cos t     Value     (Losses )                                       (unaudited)                                    Fixed-Maturity Securities:                                                  U.S. Treasury securities and                                                  obligations of U.S. government                                                  corporations and agencies   $ 3,005,833     $ 3,072,384     $ 66,551                                                                              Political subdivisions of States,                                                  Territories and Possessions     3,144,221       3,197,177       52,956                                                                              Corporate and other bonds                                                  Industrial and miscellaneous     2,941,650       2,996,692       55,042                            Total fixed-maturity securities     9,091,704       9,266,253       174,549                                                                              Equity Securities:                                                  Preferred stocks     251,042       170,000       (81,042 )                          Common stocks     1,629,249       1,653,045       23,796                            Total equity securities     1,880,291       1,823,045       (57,246 )                                                                            Total   $ 10,971,995     $ 11,089,298     $ 117,303                           14     A summary of the amortized cost and fair value of the Company’s investments in fixed-maturity securities by contractual maturity is shown below:     December 31, 2008     June 30, 2009       Amortized           Amortized          Remaining Time to Maturit y   Cost     Fair Value     Cost     Fair Value                   (unaudited)    Less than one year   $ 850,816     $ 1,030,307     $ 1,452,743     $ 1,469,389    One to five years     5,404,782       4,999,981       3,986,598       4,120,219    Five to ten years     1,421,448       1,566,835       3,145,512       3,149,050    More than 10 years     -       -       506,851       527,595    Total   $ 7,677,046     $ 7,597,123     $ 9,091,704     $ 9,266,253   The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties. Major categories of the Company’s net investment income are summarized as follows:       Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Income                          Fixed-maturity securities   $ 231,360     $ 191,433     $ 159,142     $ 111,082    Equity securities     37,028       29,799       35,023       15,553    Cash and cash equivalents     132,522       212,968       33,661       78,948    Other     12,065       11,252       362       866    Total     412,975       445,452       228,188       206,448    Expenses                                  Investment expenses     58,062       9,863       64,544       6,365    Net investment income   $ 354,913     $ 435,589     $ 163,644     $ 200,083   Proceeds from the sale and maturity of fixed-maturity securities were $3,120,431 and $597,000 for the years ended December 31, 2008 and 2007, respectively. Proceeds from the sale and maturity of fixed-maturity securities were $1,615,448 and $1,672,000 for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited), respectively. Proceeds from the sale of equity securities were $95,001 and $-0- for the years ended December 31, 2008 and 2007, respectively. Proceeds from the sale of equity securities were $249,491 and $-0- for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited), respectively. 15       The Company’s gross realized gains and losses on investments are summarized as follows:     Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Fixed-maturity securities                          Gross realized gains   $ 37,188     $ -     $ 92,515     $ -    Gross realized losses     (188,758 )     -       -       -         (151,570 )     -       92,515       -                                      Equity securities                                  Gross realized gains     17,017       -       8,551       -    Gross realized losses     (48,348 )     -       -       -         (31,331 )     -       8,551       -                                     Other-than-temporary impairment losses                            Fixed-maturity securities     -       -       (225,192 )     -    Equity securities     -       -       -       -         -       -       (225,192 )     -    Net realized gains (losses)   $ (182,901 )   $ -     $ (124,126 )   $ -                                     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 statement of 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. The Company determined there was no OTTI for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) and 2008 (unaudited). Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each securities’ 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 following table shows the number and amount of fixed-maturity securities and equity securities that the Company determined were OTTI for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) and 2008 (unaudited). This resulted in recording impairment write-downs as part of net realized gains (losses) on investments indicated, and reduced the unrealized loss in other comprehensive loss. 16           Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008       No.     Amount     No.     Amount     No.     Amount     No.     Amount                               (unaudited)    Corporate and other bonds     -     $ -       -     $ -       1     $ (225,192 )     -     $ -    Equity securities     -       -       -       -       -       -       -       -    Total     -     $ -       -     $ -       1     $ (225,192 )     -     $ -     The Company held securities with unrealized losses representing declines that were considered temporary at December 31, 2008 and 2007, and June 30, 2009 (unaudited) as follows:       December 31, 2008       Less than 12 months     12 months or more     Total        Fair     Unrealized     Fair     Unrealized     Fair     Unrealized    Categor y   Value     Losses     Value     Losses     Value     Losses                                          Fixed-Maturity Securities:                                      U.S. Treasury securities and                                      obligations of U.S. government                                      corporations and agencies   $ -     $ -     $ -     $ -     $ -     $ -                                                      Political subdivisions of States,                                                  Territories and Possessions     2,278,766       (22,604 )     -       -       2,278,766       (22,604 )                                                    Corporate and other bonds     -       -       -       -       -       -    Industrial and miscellaneous     -       -       1,025,582       (283,349 )     1,025,582       (283,349 )  Total fixed-maturity securities   $ 2,278,766     $ (22,604 )   $ 1,025,582     $ (283,349 )   $ 3,304,348     $ (305,953 )                                                    Equity Securities:                                                  Preferred stocks   $ 113,100     $ (9,456 )   $ 140,100     $ (110,900 )   $ 253,200     $ (120,356 )  Common stocks     341,501       (94,151 )     63,060       (34,837 )     404,561     $ (128,988 )  Total equity securities   $ 454,601     $ (103,607 )   $ 203,160     $ (145,737 )   $ 657,761     $ (249,344 )                                                       December 31, 2007       Less than 12 months     12 months or more     Total        Fair     Unrealized     Fair     Unrealized     Fair     Unrealized    Categor y   Value     Losses     Value     Losses     Value     Losses                                                      Fixed-Maturity Securities:                                                  U.S. Treasury securities and                                                  obligations of U.S. government                                                  corporations and agencies   $ -     $ -     $ -     $ -     $ -     $ -                                                      Political subdivisions of States,                                                  Territories and Possessions     -       -       -       -       -       -                                                      Corporate and other bonds     -       -       -       -       -       -    Industrial and miscellaneous     347,154       (3,056 )     830,906       (129,234 )     1,178,059       (132,290 )  Total fixed-maturity securities   $ 347,154     $ (3,056 )   $ 830,906     $ (129,234 )   $ 1,178,059     $ (132,290 )                                                    Equity Securities:                                                  Preferred stocks   $ 189,900     $ (61,100 )   $ -     $ -     $ 189,900     $ (61,100 )  Common stocks     87,300       (10,597 )     -       -       87,300       (10,597 )  Total equity securities   $ 277,200     $ (71,697 )   $ -     $ -     $ 277,200     $ (71,697 )   17           June 30, 2009 (unaudited)       Less than 12 months     12 months or more     Total        Fair     Unrealized     Fair     Unrealized     Fair     Unrealized    Categor y   Value     Losses     Value     Losses     Value     Losses                                          Fixed-Maturity Securities:                                      U.S. Treasury securities and                                      obligations of U.S. government                                      corporations and agencies   $ -     $ -     $ -     $ -     $ -     $ -                                                      Political subdivisions of States,                                                  Territories and Possessions     339,484       (7,874 )     263,098       (2,048 )     602,582       (9,921 )                                                    Corporate and other bonds                                                  Industrial and miscellaneous     148,770       (1,230 )     883,300       (26,846 )     1,032,070       (28,076 )  Total fixed-maturity securities   $ 488,254     $ (9,104 )   $ 1,146,398     $ (28,894 )   $ 1,634,652     $ (37,997 )                                                    Equity Securities:                                                  Preferred stocks   $ -     $ -     $ 170,000     $ (81,000 )   $ 170,000     $ (81,000 )  Common stocks     271,908       (70,217 )     101,220       (45,649 )     373,128       (115,866 ) Total equity securities   $ 271,908     $ (70,217 )   $ 271,220     $ (126,649 )   $ 543,128     $ (196,866 )       Note 4— Fair Value Measurements   On January 1, 2008, the Company adopted SFAS No. 157 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.   SFAS No. 157 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 municipal bonds, 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. Included in this valuation methodology is the real estate assets owned by the Company that are utilized in its operations.   18     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 as follows:       December 31, 2008     June 30, 2009    ($ in thousands )   Level 1     Level 2     Level 3     Total     Level 1     Level 2     Level 3     Total                               (unaudited)   Fixed-maturity investments                                              U.S. Treasury securities                                                  and obligations of U.S.                                                  government corporations                                                  and agencies   $ 1,365     $ -     $ -     $ 1,365     $ 3,072     $ -     $ -     $ 3,072                                                                      Political subdivisions of                                                                  States, Territories and                                                                  Possessions     2,382       -       -       2,382       3,197       -       -       3,197                                                                      Corporate and                                                                  other bonds     3,850       -       -       3,850       2,997       -       -       2,997                                                                      Total fixed maturities     7,597       -       -       7,597       9,266       -       -       9,266    Equity investments     904       -       -       904       1,823       -       -       1,823    Short term investments     1,213       -               1,213       812                       812    Total investments     9,714       -       -       9,714       11,901       -       -       11,901                                                                      Cash and                                                                  cash equivalents     5,248       -       -       5,248       1,327       -       -       1,327    Total   $ 14,962     $ -     $ -     $ 14,962     $ 13,228     $ -     $ -     $ 13,228         Note 5— Reinsurance   Personal Lines business is reinsured under a 75% quota share treaty which provides coverage up to $700,000 per occurrence.  For treaty year ended June 30, 2009, an excess of loss contract provides $1.1 million in coverage excess of the $700,000 for a total coverage of $1.8 million per occurrence.  The Company’s retention is 25% of the quota share amount of $700,000 or $175,000.  The company purchased $24.0 million of property catastrophe reinsurance and retains the first $500,000 of any catastrophic loss. For treaty year ended June 30, 2010, an excess of loss contract provides $1.2 million in coverage excess of the $700,000 for a total coverage of $1.9 million per occurrence.  The Company’s retention is 25% of the quota share amount of $700,000 or $175,000.  The company purchased $29.0 million of property catastrophe reinsurance and retains the first $500,000 of any catastrophic loss. 19     Commercial Auto quota share treaty, expiring December 31, 2009,  provides for coverage of 50% of the first $300,000 per occurrence.  An excess of loss contract provides coverage of $1.7 million in excess of the $300,000 quota share coverage for a total coverage of $2 million per occurrence.  The maximum Company retention is 50% of the quota share amount of $300,000 or $150,000 per occurrence. Commercial Lines business other than auto written by the Company is reinsured under an 85% quota share treaty, expiring December 31, 2009.  Personal Umbrella business written is reinsured under a 90% quota share limiting the Company to a maximum of $100,000 per risk.  Through quota share, excess of loss and catastrophe reinsurance agreements, the Company limits its exposure to a maximum loss on any one risk as follows:       Maximum     Loss  Line of business   Exposure  Casualty and property (personal lines)          July 1, 2006 - June 30, 2009   $ 175,000  July 1, 2005 - June 30, 2006   $ 140,000  July 1, 2003 - June 30, 2005   $ 75,000  July 1, 2002 - June 30, 2003   $ 100,000  January 1, 2002 - June 30, 2002   $ 100,000        Basic auto physical damage      January 1, 2006 - December 31, 2007   100% of covered loss  October 1, 2003 - December 31, 2005   40% of covered loss        Private passenger auto      July 1, 2007 - December 31, 2008   25% of covered loss        Casualty and property (commercial lines)      October 1, 2002 - December 31, 2003   $ 100,000  July 1, 1999 - October 1, 2002   $ 25,000        Commercial auto liability      January 1, 2007 - December 31, 2008   $ 150,000  January 1, 2005 - December 31, 2006   $ 150,000  January 1, 2004 - December 31, 2004   $ 120,000  January 1, 2002 - December 31, 2003   $ 100,000        Commercial auto physical damage      January 1, 2007 - December 31, 2007   50% of covered loss  January 1, 2004 - December 31, 2006       40% of covered loss  January 1, 2002 - December 31, 2003   100% of covered loss   The Company’s reinsurance program is structured to enable it to reflect significant reductions in premiums written and earned and also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. This structure has enabled 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 Company’s participation in reinsurance arrangements does not relieve the Company’s from its obligations to policyholders. 20     Approximate reinsurance recoverables by reinsurer are as follows:       Unpaid     Paid          ($ in thousands)   Losses     Losses     Total   December 31, 2008                    Motors Insurance Corporation   $ 4,449     $ 89     $ 4,538    SCOR Reinsurance Company     1,189       14       1,203    Odyssey America Reinsurance Company     624       18       642    Others     3,347       49       3,396    Total   $ 9,609     $ 170     $ 9,779                             December 31, 2007                          Motors Insurance Corporation   $ 2,528     $ 203     $ 2,731    Allied World Assurance Company     1,182       139       1,321    Folksamerica Reinsurance Company     958       41       999    Arch Reinsurance Company     723       63       786    Odyssey America Reinsurance Company     579       78       657    Others     769       122       891    Total   $ 6,739     $ 646     $ 7,385                             June 30, 2009 (unaudited)                          Motors Insurance Corporation   $ 4,362     $ 751     $ 5,113    SCOR Reinsurance Company     1,169       184       1,354    Allied World Assurance Company     1,126       133       1,259    Folksamerica Reinsurance Company     819       0       819    Arch Reinsurance Company     499       13       512    Others     2,005       186       2,191    Total   $ 9,980     $ 1,268     $ 11,248   To reduce the Company’s credit exposure to reinsurance, the net ceded recoverable balances due from Scor Reinsurance Company and Motors Insurance Corporation (related to all quota share and excess of loss reinsurance agreements effective January 1, 2006 and subsequent) were secured pursuant to collateralized trust agreements.  Assets held in these two trusts are not included in the Company’s invested assets and investment income earned on these assets is credited to the two reinsurers respectively.  Net reinsurance recoverables from Scor Re and Motors in total that were secured by these agreements were $10,673,000 and $7,261,000 at December 31, 2008 and 2007, respectively. Net recoverables were $6,985,000 at June 30, 2009 (unaudited).  These trust agreements do not cover any recoverables from reinsurance agreements effective prior to January 1, 2006.   Reinsurance recoverable from Allied World Assurance Company are guaranteed by an irrevocable bank letter of credit.   Ceding Commissions   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 increase when the estimated ultimate loss ratio decreases and, conversely, the commission rate and ceding commissions earned decrease when the estimated ultimate loss ratio increases.   As of December 31, 2008 and June 30, 2009 (unaudited) 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 commissions. 21     Ceding commissions for the years ended December 31, 2009 and 2008, six months ended June 30, 2009 (unaudited) and June 30, 2008 (unaudited) consist of the following:       Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Ceded commission on reinsurance treaties   $ 4,420,994     $ 3,792,961     $ 3,934,849     $ 1,339,475    Contingent commission ceded     1,414,599       952,659       222,498       1,345,821       $ 5,835,593     $ 4,745,620     $ 4,157,347     $ 2,685,296         Note 6— 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 business as follows:     Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)   Net deferred acquisition costs net of ceding                      commission revenue, January 1   $ (760,139 )   $ (318,733 )   $ (771,464 )   $ (760,139 )                                    Cost incurred and deferred during years:                                  Commissions and brokerage     4,143,904       3,870,405       2,232,371       2,057,051    Other underwriting and acquisition costs     728,776       780,464       450,377       309,840    Ceding commission revenue     (6,182,984 )     (5,318,858 )     (3,328,081 )     (3,212,682 )  Net deferred acquisition costs net of ceding                                  commission revenue deferred during year     (1,310,304 )     (667,989 )     (645,333 )     (845,792 )  Amortization     1,298,979       226,584       1,382,223       235,426         (11,325 )     (441,405 )     736,890       (610,366 )                                   Net deferred acquisition costs net of ceding                                 commission revenue, end of period   $ (771,464 )   $ (760,139 )   $ (34,574 )   $ (1,370,505 )   Ending balances for deferred acquisition costs and deferred ceding commission revenue is as follows:     December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Deferred acquisition costs     2,498,700       2,359,938       2,665,802       2,388,651    Deferred ceding commission revenue     (3,270,164 )     (3,120,077 )     (2,700,376 )     (3,759,155 )  Balance at end of period   $ (771,464 )   $ (760,139 )   $ (34,574 )   $ (1,370,505 ) 22            Note 7— Property and Equipment   The components of property and equipment are summarized as follows:              Accumulated             Cos t     Depreciatio n     Ne t   December 31, 2008                    Building   $ 1,313,078     $ (215,037 )   $ 1,098,041    Land     132,097       -       132,097    Furniture     4,094       (1,027 )     3,067    Leasehold improvements     -       -       -    Computer equipment and software     244,550       (100,405 )     144,145    Automobile     50,028       (12,507 )     37,521    Total   $ 1,743,847     $ (328,976 )   $ 1,414,871                              December 31, 2007                          Building   $ 1,167,387     $ (139,610 )   $ 1,027,777    Land     110,000       -       110,000    Furniture     451       (76 )     375    Leasehold improvements     -       -       -    Computer equipment and software     162,708       (45,595 )     117,113    Total   $ 1,440,546     $ (185,281 )   $ 1,255,265                              June 30, 2009 (unaudited)                          Building   $ 1,313,078     $ (224,098 )   $ 1,088,980    Land     132,097       -       132,097    Furniture     6,183       (1,825 )     4,358    Leasehold improvements     -       -       -    Computer equipment and software     252,033       (137,081 )     114,952    Automobile     50,028       (20,845 )     29,183    Total   $ 1,753,419     $ (383,849 )   $ 1,369,570      Depreciation expense for the years ended December 31, 2008 and 2007 was $174,015 and $151,755, respectively. Depreciation expense for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited) was $117,510 and $85,373, respectively. 23         Note 8— Property and Casualty Insurance Activity   Premiums written, ceded and earned are as follows:       Direct     Assumed     Ceded     Net   December 31, 2008                          Premiums written   $ 24,735,109     $ 2,969     $ (14,383,729 )   $ 10,354,349    Change in unearned premiums     (899,579 )     5,568       63,415       (830,596 )  Premiums earned   $ 23,835,530     $ 8,537     $ (14,320,314 )   $ 9,523,753                                      December 31, 2007                                  Premiums written   $ 23,263,973     $ 23,031     $ (14,945,456 )   $ 8,341,548    Change in unearned premiums     (885,808 )     -       258,041       (627,767 )  Premiums earned   $ 22,378,165     $ 23,031     $ (14,687,415 )   $ 7,713,781                                      June 30, 2009 (unaudited)                                  Premiums written   $ 13,382,539     $ 2,904     $ (8,922,250 )   $ 4,463,193    Change in unearned premiums     (834,203 )     2,339       857,878       26,014    Premiums earned   $ 12,548,336     $ 5,243     $ (8,064,372 )   $ 4,489,207                                     June 30, 2008 (unaudited)                                  Premiums written   $ 12,151,405     $ (3,728 )   $ (6,543,093 )   $ 5,604,584    Change in unearned premiums     (538,927 )     5,689       (403,723 )     (936,961 )  Premiums earned   $ 11,612,478     $ 1,961     $ (6,946,816 )   $ 4,667,623     The components of the liability for loss and LAE expenses (“LAE”) and related reinsurance receivables are as follows:      Gross     Reinsurance       Liability     Receivables   December 31, 2008              Case-basis reserves   $ 10,696,354     $ 6,997,035    Loss adjustment expenses     2,154,000       1,069,000    IBNR reserves     2,736,646       1,617,965    Recoverable on paid losses     -       95,339    Total loss and loss adjustment expenses   $ 15,587,000       9,779,339    Unearned premiums             7,943,207    Total reinsurance receivables           $ 17,722,546                     December 31, 2007                  Case-basis reserves   $ 7,246,547     $ 4,493,045    Loss adjustment expenses     1,786,000       886,000    IBNR reserves     2,637,452       1,457,955    Recoverable on paid losses     -       548,024    Total loss and loss adjustment expenses   $ 11,669,999       7,385,024    Unearned premiums             7,874,780    Total reinsurance receivables           $ 15,259,804                     June 30, 2009 (unaudited)                  Case-basis reserves   $ 11,285,314     $ 7,351,732    Loss adjustment expenses     2,169,930       1,085,000    IBNR reserves     2,736,540       1,617,965    Recoverable on paid losses     -       1,193,417    Total loss and loss adjustment expenses   $ 16,191,784       11,248,114    Unearned premiums             8,801,085    Total reinsurance receivables           $ 20,049,199   24      The following table provides a reconciliation of the beginning and ending balances for unpaid losses and LAE for the years ended December 31, 2008 and 2007, and six months ended June 30, 2009 (unaudited) and 2008 (unaudited):                   Six months       Year ended     ended       December 31,     June 30,       2008     2007     2009                   (unaudited)    Balance at January 1   $ 11,669,999     $ 10,862,596     $ 15,587,000    Less reinsurance recoverables     (6,837,000 )     (6,489,260 )     (9,684,000 )        4,832,999       4,373,336       5,903,000    Incurred related to:                          Current year     5,022,377       4,068,740       2,747,008    Prior years     631,114       459,610       127,849    Total incurred     5,653,491       4,528,350       2,874,857                              Paid related to:                          Current year     2,734,113       2,071,089       1,536,856    Prior years     1,849,377       1,997,598       1,103,914    Total paid     4,583,490       4,068,687       2,640,770                               Net balance at end of period     5,903,000       4,832,999       6,137,087    Add reinsurance recoverables     9,684,000       6,837,000       10,054,697    Balance at end of period   $ 15,587,000     $ 11,669,999     $ 16,191,784       Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $6,541,964 and $6,589,737 for the years ended December 31, 2008 and 2007, respectively. Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $4,648,158 and $2,455,132 for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited), 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.   25     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.   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 2005 and prior is limited although there remains the possibility of adverse development on reported claims. This is reflected by the loss development as of December 31, 2008 showing developed redundancies since 2005. However, there are no assurances that future loss development and trends will be consistent with its past loss development history, and so adverse loss reserves development remains a risk factor to the Company’s business. The Company was previously a one-third participant in a pool arrangement. Effective November 1, 1997, the Company’s withdrew 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 $74,000 as of December 31, 2008 and June 30, 2009 (unaudited). 26         Note 9— Mortgage Payable   The office building that the Company owns and occupies in Kingston, New York was subject to a mortgage held by Provident Bank. The outstanding principal balance at December 31, 2008 was $542,443. In May 2009, The Company prepaid the entire principal balance in the amount of $524,268. Payments were bi-monthly at $3,650 each, including interest at 6.75%.     Note 10— Surplus Notes  Surplus Notes On April 1, 1998 Eagle Insurance Company (“Eagle”), obtained a controlling interest of the Company by investing $3 million in the Company in the form of a Section 1307 surplus note. On March 12, 1999, Eagle purchased another surplus note in the amount of $750,000. Interest accrued on the surplus notes at a rate of the lesser of 8.5% per annum or prime. Payments of principal and interest on the surplus notes may be made only with the prior approval of the New York State Insurance Department (“Insurance Department”). On January 31, 2006 the surplus notes with a principal amount of $3,750,000 were sold by Eagle to DCAP Group, Inc., currently known as Kingstone Companies, Inc (“Kingstone”). In March 2007, the Company’s Board of Directors approved a resolution to convert (demutualize) CMIC from an advance premium cooperative insurance company to a domestic stock property and casualty insurance company pursuant to Section 7307 of the New York Insurance Law. The charter, by-laws and plan of conversion were submitted to the Insurance Department and approved on April 15, 2009. On June 8, 2009 the eligible policyholders of CMIC voted in favor of the conversion by the required 2/3 majority. On June 30, 2009, the Insurance Department gave final approval of the demutualization to become effective July 1, 2009. Upon the effectiveness of the conversion, CMIC’s name was changed to Kingstone Insurance Company (“KICO”). Pursuant to the plan of conversion, Kingstone acquired a 100% equity interest in KICO in consideration of the exchange of the $3,750,000 principal amount of surplus notes of CMIC. In addition, Kingstone forgave all accrued and unpaid interest of $2,246,000 on the surplus notes as of the date of conversion. The balance of surplus notes and accrued interest as of December 31, 2008 and 2007, and June 30, 2009 (unaudited) are as follows:       December 31,     December 31,     June 30,       2008     2007     2009                   (unaudited)    Surplus notes   $ 3,750,000     $ 3,750,000     $ 3,750,000    Accrued interest     2,185,704       1,997,031       2,246,461    Total   $ 5,935,704     $ 5,747,031     $ 5,996,461   27          Note 11— Policyholders’ Surplus   Special Contingent Surplus Special Contingent Surplus of $839,816, $783,219, and $868,989 has been recorded as of December 31, 2008, December 31, 2007, and June 30, 2009 (unaudited), respectively in compliance with Section 4109 of the New York State Insurance Law. This section of the law relates only to domestic mutual property/casualty insurance companies licensed to write specific kinds of insurance as defined in the law. The calculation of the Special Contingent Surplus has been made according to the law and is increased quarterly at a rate of 1.5% for additional net liability premiums received. In addition, the law specifies that impairment exists in the surplus of a mutual company if the value of its admitted assets is less than the sum of its liabilities and the carried Special Contingent Surplus as calculated on a Statutory basis No such impairment existed as of December 31, 2008, December 31,  2007 or June 30, 2009 (unaudited).   Unassigned Surplus The plan of conversion called for each eligible policyholder to receive a distribution in the form of cash aggregating $534,069 based upon their equitable share in CMIC.  The equitable share of each eligible policyholder was determined by the ratio which the net premiums (gross premiums less return premiums and dividends paid) such eligible policyholder had properly and timely paid to CMIC on insurance policies in effect during the three years immediately preceding March 1, 2007 (“Credited Premiums”) bears to the total Credited Premiums received by CMIC from all eligible policyholders. The cash distribution of $534,069 was recorded at June 30, 2009 as a reduction to policyholders’ surplus. In connection with the plan of conversion of CMIC, Kingstone has agreed with the Insurance 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 Insurance Department. Kingstone has also agreed with the Insurance Department that during the same two year period, any intercompany transaction between itself and KICO must be filed with the Insurance Department 30 days prior to implementation.     Note 12— Income Taxes   The Company files a consolidated Federal income tax return. The provision for Federal, state and local income taxes consists of the following components:       Year ended     Six months ended       December 31,     June 30,       2008     2007     2009     2008                   (unaudited)    Current Federal income tax expense   $ 1,000,033     $ 351,110     $ 145,482     $ 677,538    Current state income tax expense     9,729       11,572       1,480       3,729    Deferred Federal and State income tax expense     (206,739 )     (53,435 )     290,645       (307,950 )  Provision for income taxes   $ 803,023     $ 309,247     $ 437,607     $ 373,317     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 35% rate. Significant components of the Company’s deferred tax assets and liabilities are as follows:     28           December 31,     December 31,     June 30,       2008     2007     2009                   (unaudited)    Deferred tax asset:                    Claims reserve discount   $ 126,617     $ 104,278     $ 131,702    Unearned premium     347,412       290,916       346,018    Receivables-reinsurance contacts     67,084       -       -    Loss and loss adjustment expenses     218,443       113,791       218,442    Deferred ceding commission revenue     1,111,856       1,060,826       918,128    Net unrealized depreciation of securities     65,782       4,102       -    Investment impairments     -       -       76,565    Capital loss carryforwards     69,249       13,087       34,886    Other     -       -       17,951    Total deferred tax assets     2,006,442       1,586,999       1,743,692                              Deferred tax liability:                          Deferred acquisition costs     849,558       802,379       906,373    Depreciation and amortization     60,770       9,979       34,909    Reinsurance recoverable     192,903       102,319       192,903    Receivables-reinsurance contacts     -       -       21,139    Net unrealized appreciation of securities     -       -       112,586    Other     3,946       68,649       -    Total deferred tax liabilities     1,107,177       983,326       1,267,910                              Net deferred income tax (liability)/asset   $ 899,266     $ 603,673     $ 475,782     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 as the Company believes it is more likely than not the deferred tax assets will be realized.   The Company has not adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). As of December 31, 2008, Effective January 1, 2009 the Company adopted FIN 48 and had no material unrecognized tax benefit and no adjustments to liabilities or operations were required.        Note 13— Employee Benefit Plans   The Company maintains a salary reduction plan under Section 401(k) of the Internal Revenue Code (“401(k) Plan”) for its qualified employees. The Company matches 100% of each participant’s contribution up to 4% of the participant’s eligible contribution. The Company incurred approximately $53,769 and $61,557 of expense for the years ended December 31, 2008 and 2007, respectively, related to the 401(k) Plan. The Company incurred approximately $35,299and $41,892 of expense for the six months ended June 30, 2009 (unaudited) and 2008 (unaudited), respectively, related to the 401(k) Plan.     Note 14— 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. 29     Employment Agreements President and Chief Executive Officer The Company’s President and Chief Executive Officer, John D. Reieresen, is employed pursuant to an employment agreement effective as of November 13, 2006 and amended as of January 25, 2008 (together, the “Reiersen Agreement”). The Reiersen Agreement, which expires on December 31, 2011, may be terminated by the Company at any time with or without cause upon written notice. In the event of termination by the Company, Mr. Reiersen will be entitled to receive six months severance and accrued vacation up to a maximum of 50 days. Pursuant to the Reiersen Agreement, Mr. Reiersen is 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.  Mr. Reiersen’s title as President and Chief Executive Officer is subject to approval by the Board at the Company’s next annual meeting to be held in February 2010. Mr. Reiersen also receives a $2,000 annual fee for his position as a director of the Company. Chief Investment Officer The Company’s Chief Investment Officer, Barry B. Goldstein, is employed pursuant to an employment agreement effective as of July 1, 2008 (the “Goldstein Employment Agreement”), that expires on December 31, 2011. The Goldstein Agreement may be terminated by the Company at any time with or without cause upon written notice. In the event of termination by the Company, Mr. Goldstein will be entitled to receive a lump sum payment equal to six months salary. Mr. Goldstein is entitled to receive an annual salary at the rate of $150,000 per annum, with increases of 5% each of July 1, 2009; July 1, 2010; and July 1, 2011. Mr. Goldstein also receives a $6,500 annual fee for his position as the Company’s Chairman of the Board. Mr Goldstein is also President, Chief Executive Officer and Chairman of Kingstone Companies, Inc. (See Note 10).          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 they are domiciled in (“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.   30         •   Investments in fixed-maturity securities are valued at 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 the Company 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. In connection with the plan of conversion of CMIC, Kingstone has agreed with the Insurance 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 Insurance Department. Kingstone has also agreed with the Insurance Department that during the same two year period, any intercompany transaction between itself and KICO must be filed with the Insurance Department 30 days prior to implementation. For the years ended December 31, 2008 and 2007, the Company had statutory basis net income of $1,477,897 and $1,471,262, respectively. For the six months ended June 30, 2009 (unaudited) and 2008 (unaudited), the Company had statutory basis net income of $463,407 and $1,034,550, respectively. At December 31, 2008 and 2007, and June 30, 2008 (unaudited) the Company had reported statutory basis surplus as regards policyholders of $7,765,936, $6,215,787 and $7,884,310, respectively, as filed with the Insurance Department.     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, 2008 and 2007 and June 30, 2009 (unaudited). 31         Note 17— Fair Value of Financial Instruments   Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” 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 2—Investments.” Cash and short-term investments: The carrying values of cash and cash equivalents, and short-term investments approximate their fair values because of the short maturity of these investments. Premiums receivable, reinsurance recoverable:   The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair values. Real Estate Assets: The fair value of the land and building included in property and equipment, which is used in the Company’s operations is greater than the carrying value. The fair value was based on an appraisal dated August 31, 2009.   Reinsurance balances payable:   The carrying value reported in the balance sheet for these financial instruments approximates fair value. The estimated fair values of our financial instruments are as follows:       December 31, 2008     December 31, 2007     June 30, 2009       Carrying Value     Fair Value     Carrying Value     Fair Value     Carrying Value     Fair Value                               (unaudited)    Cash and short-term investments   $ 5,248,159     $ 5,248,159     $ 4,481,698     $ 4,481,698     $ 1,327,057     $ 1,327,057    Premiums receivable     4,143,669       4,143,669       3,861,149       3,861,149       4,418,094       4,418,094    Receivables - reinsurance contracts     355,370       355,370       1,140,884       1,140,884       1,137,832       1,137,832    Reinsurance receivables     17,722,546       17,722,546       15,259,804       15,259,804       20,049,199       20,049,199    Real estate, net of                                                  accumulated depreciation     1,230,138       1,510,000       1,137,777       1,510,000       1,221,077       1,510,000    Reinsurance balances payable     849,861       849,861       1,029,600       1,029,600       2,005,590       2,005,590    Mortgage payable     542,443       542,443       597,642       597,642       -       -    Surplus notes     5,935,704       5,935,704       5,747,031       5,747,031       5,996,461       5,996,461         Note 18— Subsequent Events See Policyholders’ Surplus (Note 11) and Surplus Notes (Note 10) for the de-mutualization of CMIC, name change, and conversion of surplus notes, all of which were effective as of July 1, 2009. 32      SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.       KINGSTONE COMPANIES, INC.           November 13, 2009 By: /s/ Barry B. Goldstein        Barry B. Goldstein         President