Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of
$31.8 million, $1.38 per diluted share, for the first quarter of
2022 compared to $32.1 million, $1.39 per diluted share, for the
first quarter of 2021. Net operating earnings(1) were $37.7
million, $1.63 per diluted share, for the first quarter of 2022
compared to $25.5 million, $1.11 per diluted share, for the first
quarter of 2021.
Highlights for the quarter included:
- Net income decreased by 0.9% resulting from a decline in the
fair value of equity investments during the quarter compared to an
increase in the fair value of these investments during the same
period last year
- Net operating earnings(1) of $37.7 million increased by 47.6%
compared to the first quarter of 2021
- Gross written premiums increased by 45.4% to $245.5 million
compared to the first quarter of 2021
- Net investment income increased by 30.9% to $9.1 million
compared to the first quarter of 2021
- Underwriting income(2) was $37.5 million in the first quarter
of 2022, resulting in a combined ratio of 79.0%, compared to $24.6
million and a combined ratio of 80.0% in the first quarter of
2021
- Annualized operating return on equity(4) of 22.1% for the three
months ended March 31, 2022
“Our first quarter results reflect another period of strong
performance with premium growth of 45% and operating return on
equity of 22%. We achieved a combined ratio of 79% for the quarter
- a result of disciplined underwriting and technology-driven low
costs that allow us to quickly capitalize on current opportunities
in the marketplace. Looking ahead, we believe favorable market
conditions will prevail throughout 2022, and we will continue to
expand our market share and deliver strong returns over the long
term,” said President and Chief Executive Officer, Michael P.
Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $245.5 million for the first quarter
of 2022 compared to $168.9 million for the first quarter of 2021,
an increase of 45.4%. The increase in gross written premiums during
the first quarter of 2022 over the same period last year was driven
by higher submission activity from brokers and a continued
favorable pricing environment.
Underwriting income(2) was $37.5 million, resulting in a
combined ratio of 79.0%, for the first quarter of 2022, compared to
$24.6 million and a combined ratio of 80.0% for the first quarter
of 2021. The increase in underwriting income(2) quarter over
quarter was primarily due to strong premium growth and lower
relative expenses. Loss and expense ratios were 57.4% and 21.6%,
respectively, for the first quarter of 2022 compared to 57.1% and
22.9% for the first quarter of 2021. Results for the first quarter
of 2022 and 2021 included net favorable development of loss
reserves from prior accident years of $8.3 million, or 4.7 points,
and $7.1 million, or 5.7 points, respectively.
Summary of Operating Results
The Company’s operating results for the three months ended March
31, 2022 and 2021 are summarized as follows:
Three Months Ended March
31,
2022
2021
($ in thousands)
Gross written premiums
$
245,513
$
168,876
Ceded written premiums
(29,015
)
(24,578
)
Net written premiums
$
216,498
$
144,298
Net earned premiums
$
178,562
$
123,041
Losses and loss adjustment expenses
102,505
70,260
Underwriting, acquisition and insurance
expenses
38,545
28,136
Underwriting income(2)
$
37,512
$
24,645
Loss ratio
57.4
%
57.1
%
Expense ratio
21.6
%
22.9
%
Combined ratio
79.0
%
80.0
%
Annualized return on equity(3)
18.6
%
22.1
%
Annualized operating return on
equity(4)
22.1
%
17.6
%
(1)
Net operating earnings is a non-GAAP
financial measure. See discussion of "Non-GAAP Financial Measures"
below.
(2)
Underwriting income is a non-GAAP
financial measure. See discussion of "Non-GAAP Financial Measures"
below.
(3)
Annualized return on equity is net income
expressed on an annualized basis as a percentage of average
beginning and ending stockholders’ equity during the period.
(4)
Annualized operating return on equity is
net operating earnings expressed on an annualized basis as a
percentage of average beginning and ending stockholders’ equity
during the period.
The following table summarizes losses incurred for the current
accident year and the development of prior accident years for the
three months ended March 31, 2022 and 2021:
Three Months Ended
March 31, 2022
Three Months Ended
March 31, 2021
Losses and Loss Adjustment
Expenses
% of Earned Premiums
Losses and Loss Adjustment
Expenses
% of Earned Premiums
Loss ratio:
($ in thousands)
Current accident year
$
110,789
62.1
%
$
77,257
62.8
%
Current accident year - catastrophe
losses
62
—
%
76
—
%
Effect of prior accident year
development
(8,346
)
(4.7
)%
(7,073
)
(5.7
)%
Total
$
102,505
57.4
%
$
70,260
57.1
%
Investment Results
Net investment income was $9.1 million in the first quarter of
2022 compared to $6.9 million in the first quarter of 2021, an
increase of 30.9%. This increase was driven by growth in the
Company's investment portfolio generated largely from the
investment of positive cash flows since March 31, 2021. The
Company’s investment portfolio had an annualized gross investment
return(5) of 2.5% for the first quarter of 2022 compared to 2.6%
for the first quarter of 2021. Funds are generally invested
conservatively in high quality securities with an average credit
quality of "AA-" and the weighted average duration of the
fixed-maturity investment portfolio, including cash equivalents,
was 4.6 years and 4.3 years at March 31, 2022 and December 31,
2021, respectively. Cash and invested assets totaled $1.7 billion
at March 31, 2022 and December 31, 2021, as rising interest rates
exerted downward pressure on fixed-maturity valuations during the
first quarter of 2022. Net operating cash flows were $121.9 million
in the first quarter of 2022 compared to $91.3 million in the first
quarter of 2021, an increase of 33.5%.
(5)
Gross investment return is investment
income from fixed-maturity and equity securities, excluding cash
equivalents, before any deductions for fees and expenses, expressed
as a percentage of the average beginning and ending book values of
those investments during the period.
Other
The effective tax rates for the three months ended March 31,
2022 and 2021 were 18.2% and 18.7%, respectively. In both the first
quarters of 2022 and 2021, the effective tax rates were lower than
the federal statutory rate of 21% primarily due to the tax benefits
from stock-based compensation and tax-exempt investment income.
Stockholders' equity was $665.6 million at March 31, 2022
compared to $699.3 million at December 31, 2021. The decrease in
stockholders' equity was primarily due to a decline in the fair
value of the Company's fixed-maturity investments, resulting from a
higher interest rate environment. Annualized operating return on
equity(4) was 22.1% for the first quarter of 2022, an increase from
17.6% for the first quarter of 2021, which was attributable
primarily to growth in the business from favorable market
conditions and rate increases.
Non-GAAP Financial Measures
Net Operating Earnings
Net operating earnings is defined as net income excluding the
effects of the change in the fair value of equity securities, after
taxes, and net realized investment gains and losses, after taxes.
Management believes the exclusion of these items provides a more
useful comparison of the Company's underlying business performance
from period to period. Net operating earnings and percentages or
calculations using net operating earnings (e.g., diluted operating
earnings per share and annualized operating return on equity) are
non-GAAP financial measures. Net operating earnings should not be
viewed as a substitute for net income calculated in accordance with
GAAP, and other companies may define net operating earnings
differently.
For the three months ended March 31, 2022 and 2021, net income
and diluted earnings per share reconcile to net operating earnings
and diluted operating earnings per share as follows:
Three Months Ended March
31,
2022
2021
($ in thousands, except per
share data)
Net operating earnings:
Net income
$
31,791
$
32,079
Adjustments:
Change in the fair value of equity
securities, before taxes
7,751
(7,091
)
Income tax expense (1)
(1,628
)
1,489
Change in fair value of equity securities,
after taxes
6,123
(5,602
)
Net realized investment gains, before
taxes
(295
)
(1,198
)
Income tax expense (1)
62
252
Net realized investment gains, after
taxes
(233
)
(946
)
Net operating earnings
$
37,681
$
25,531
Diluted operating earnings per
share:
Diluted earnings per share
$
1.38
$
1.39
Change in the fair value of equity
securities, after taxes, per share
0.27
(0.24
)
Net realized investment gains, after
taxes, per share
(0.01
)
(0.04
)
Diluted operating earnings per
share(2)
$
1.63
$
1.11
Operating return on equity:
Average equity(3)
$
682,453
$
581,902
Annualized return on equity(4)
18.6
%
22.1
%
Annualized operating return on
equity(5)
22.1
%
17.6
%
(1)
Income taxes on adjustments to reconcile
net income to net operating earnings use a 21% effective tax
rate.
(2)
Diluted operating earnings per share may
not add due to rounding.
(3)
Computed by adding the total stockholders'
equity as of the date indicated to the prior year-end total and
dividing by two.
(4)
Annualized return on equity is net income
expressed on an annualized basis as a percentage of average
beginning and ending stockholders’ equity during the period.
(5)
Annualized operating return on equity is
net operating earnings expressed on an annualized basis as a
percentage of average beginning and ending stockholders’ equity
during the period.
Underwriting Income
Underwriting income is defined as net income excluding net
investment income, the change in the fair value of equity
securities, net realized investment gains and losses, other income,
other expenses and income tax expense. The Company uses
underwriting income as an internal performance measure in the
management of its operations because the Company believes it gives
management and users of the Company's financial information useful
insight into the Company's results of operations and underlying
business performance. Underwriting income should not be viewed as a
substitute for net income calculated in accordance with GAAP, and
other companies may define underwriting income differently.
For the three months ended March 31, 2022 and 2021, net income
reconciles to underwriting income as follows:
Three Months Ended March
31,
2022
2021
(in thousands)
Net income
$
31,791
$
32,079
Income tax expense
7,081
7,360
Income before income taxes
38,872
39,439
Other expenses (6)
396
448
Net investment income
(9,088
)
(6,942
)
Change in the fair value of equity
securities
7,751
(7,091
)
Net realized investment gains
(295
)
(1,198
)
Other income
(124
)
(11
)
Underwriting income
$
37,512
$
24,645
(6)
Other expenses are comprised of interest
expense on the Company's Credit Facility and corporate expenses not
allocated to the Company's insurance operations.
Conference Call
Kinsale Capital Group will hold a conference call to discuss
this press release on Friday, April 29, 2022 at 9:00 a.m. (Eastern
Time). Members of the public may access the conference call by
dialing (844) 239-5282, conference ID# 8992208, or via the Internet
by going to www.kinsalecapitalgroup.com and clicking on the
"Investor Relations" link. A replay of the call will be available
on the website until the close of business on May 27, 2022.
Forward-Looking Statements
This press release contains forward-looking statements as that
term is defined in the Private Securities Litigation Reform Act of
1995. In some cases, such forward-looking statements may be
identified by terms such as "anticipates," "estimates," "expects,"
"intends," "plans," "predicts," "projects," "believes," "seeks,"
"outlook," "future," "will," "would," "should," "could," "may,"
"can have," "prospects" or similar words. Forward-looking
statements involve risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statements. Although it is not possible to identify all of these
risks and factors, they include, among others, the following:
inadequate loss reserves to cover the Company's actual losses;
inherent uncertainty of models resulting in actual losses that are
materially different than the Company's estimates; adverse economic
factors; a decline in the Company's financial strength rating; loss
of one or more key executives; loss of a group of brokers that
generate significant portions of the Company's business; failure of
any of the loss limitations or exclusions the Company employs, or
change in other claims or coverage issues; adverse performance of
the Company's investment portfolio; adverse market conditions that
affect its excess and surplus lines insurance operations; and other
risks described in the Company's filings with the Securities and
Exchange Commission. These forward-looking statements speak only as
of the date of this release and the Company does not undertake any
obligation to update or revise any forward-looking information to
reflect changes in assumptions, the occurrence of unanticipated
events, or otherwise.
About Kinsale Capital Group, Inc.
Kinsale Capital Group, Inc. is a specialty insurance group
headquartered in Richmond, Virginia, focusing on the excess and
surplus lines market.
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income and Comprehensive Income
Three Months Ended March
31,
2022
2021
Revenues
(in thousands, except per
share data)
Gross written premiums
$
245,513
$
168,876
Ceded written premiums
(29,015
)
(24,578
)
Net written premiums
216,498
144,298
Change in unearned premiums
(37,936
)
(21,257
)
Net earned premiums
178,562
123,041
Net investment income
9,088
6,942
Change in the fair value of equity
securities
(7,751
)
7,091
Net realized investment gains
295
1,198
Other income
124
11
Total revenues
180,318
138,283
Expenses
Losses and loss adjustment expenses
102,505
70,260
Underwriting, acquisition and insurance
expenses
38,545
28,136
Other expenses
396
448
Total expenses
141,446
98,844
Income before income taxes
38,872
39,439
Total income tax expense
7,081
7,360
Net income
31,791
32,079
Other comprehensive (loss)
income
Change in net unrealized losses on
available-for-sale investments, net of taxes
(63,930
)
(19,622
)
Total comprehensive (loss)
income
$
(32,139
)
$
12,457
Earnings per share:
Basic
$
1.40
$
1.42
Diluted
$
1.38
$
1.39
Weighted-average shares
outstanding:
Basic
22,753
22,665
Diluted
23,093
23,069
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Condensed
Consolidated Balance Sheets
March 31, 2022
December 31, 2021
Assets
(in thousands)
Investments:
Fixed-maturity securities at fair
value
$
1,461,415
$
1,392,066
Equity securities at fair value
163,574
172,611
Short-term investments
825
—
Total investments
1,625,814
1,564,677
Cash and cash equivalents
104,158
121,040
Investment income due and accrued
8,225
7,658
Premiums receivable, net
86,397
71,004
Reinsurance recoverables, net
129,287
122,970
Ceded unearned premiums
35,628
33,679
Deferred policy acquisition costs, net of
ceding commissions
47,483
41,968
Intangible assets
3,538
3,538
Deferred income tax asset, net
22,314
2,109
Other assets
51,711
57,012
Total assets
$
2,114,555
$
2,025,655
Liabilities & Stockholders'
Equity
Liabilities:
Reserves for unpaid losses and loss
adjustment expenses
$
957,575
$
881,344
Unearned premiums
387,615
347,730
Payable to reinsurers
16,080
16,112
Accounts payable and accrued expenses
8,913
23,250
Credit facility
42,727
42,696
Other liabilities
36,075
15,188
Total liabilities
1,448,985
1,326,320
Stockholders' equity
665,570
699,335
Total liabilities and stockholders'
equity
$
2,114,555
$
2,025,655
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220428005681/en/
Kinsale Capital Group, Inc. Bryan Petrucelli Executive Vice
President, Chief Financial Officer and Treasurer 804-289-1272
ir@kinsalecapitalgroup.com
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