KNSL Kinsale Capital Group Inc

Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of $72.8 million, $3.12 per diluted share, for the second quarter of 2023 compared to $27.1 million, $1.17 per diluted share, for the second quarter of 2022. Net income was $128.6 million, $5.52 per diluted share, for the first half of 2023 compared to $58.9 million, $2.55 per diluted share, for the first half of 2022.

Net operating earnings(1) were $67.2 million, $2.88 per diluted share, for the second quarter of 2023 compared to $44.4 million, $1.92 per diluted share, for the second quarter of 2022. Net operating earnings(1) were $123.9 million, $5.32 per diluted share, for the first half of 2023 compared to $82.1 million, $3.56 per diluted share, for the first half of 2022.

Highlights for the quarter included:

• Net income increased by 168.7% compared to the second quarter of 2022
• Net operating earnings(1) of $67.2 million increased by 51.2% compared to the second quarter of 2022
• Gross written premiums increased by 58.2% to $438.2 million compared to the second quarter of 2022
• Net investment income increased by 128.2% to $24.2 million compared to the second quarter of 2022
• Underwriting income(2) was $61.5 million in the second quarter of 2023, resulting in a combined ratio of 76.7%
• Annualized operating return on equity(7) was 30.6% for the six months ended June 30, 2023

“Our second quarter performance reflects the continued focus on disciplined underwriting, technology-enabled expense management and operational excellence which allows us to capitalize on favorable market conditions. The combination of gross written premium growth of 58.2%, a combined ratio of 76.7% and annualized operating return on equity of 30.6% demonstrates our ability to take market share and generate attractive returns over the long term,” said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $438.2 million for the second quarter of 2023 compared to $277.0 million for the second quarter of 2022, an increase of 58.2%. Gross written premiums were $795.8 million for the first half of 2023 compared to $522.5 million for the first half of 2022, an increase of 52.3%. The increase in gross written premiums during the second quarter and first half of 2023 over the same periods last year reflected strong submission flow from brokers and a favorable pricing environment.

Underwriting income(2) was $61.5 million, resulting in a combined ratio of 76.7%, for the second quarter of 2023, compared to $44.1 million and a combined ratio of 77.4% for the same period last year. The increase in underwriting income(2) quarter over quarter was due to a combination of premium growth, favorable loss experience and lower net commissions. Loss(3) and expense(4) ratios were 55.7% and 21.0%, respectively, for the second quarter of 2023 compared to 54.9% and 22.5% for the second quarter of 2022. Results for the second quarters of 2023 and 2022 included net favorable development of loss reserves from prior accident years of $10.4 million, or 3.9 points, and $9.5 million, or 4.9 points, respectively.

Underwriting income(2) was $113.1 million, resulting in a combined ratio of 77.7%, for the first half of 2023, compared to $81.7 million and a combined ratio of 78.4% for the first half of 2022. The increase in underwriting income(2) was due to a combination of premium growth, favorable loss experience, lower net commissions and scale. Loss(3) and expense(4) ratios were 56.4% and 21.3%, respectively, for the first half of 2023 compared to 55.4% and 23.0% for the first half of 2022. Results for the first half of 2023 and 2022 included net favorable development of loss reserves from prior accident years of $19.5 million, or 3.8 points, and $17.9 million, or 4.7 points, respectively.

Summary of Operating Results

The Company’s operating results for the three and six months ended June 30, 2023 and 2022 are summarized as follows:

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2023

 

2022

 

2023

 

2022

 

($ in thousands)

Gross written premiums

$

438,222

 

 

$

277,001

 

 

$

795,810

 

 

$

522,514

 

Ceded written premiums

 

(73,181

)

 

 

(34,658

)

 

 

(131,739

)

 

 

(63,673

)

Net written premiums

$

365,041

 

 

$

242,343

 

 

$

664,071

 

 

$

458,841

 

 

 

 

 

 

 

 

 

Net earned premiums

$

257,046

 

 

$

190,158

 

 

$

494,204

 

 

$

368,720

 

Fee income

 

6,986

 

 

 

4,919

 

 

 

13,187

 

 

 

9,264

 

Losses and loss adjustment expenses

 

147,042

 

 

 

107,040

 

 

 

286,076

 

 

 

209,545

 

Underwriting, acquisition and insurance expenses

 

55,473

 

 

 

43,891

 

 

 

108,219

 

 

 

86,781

 

Underwriting income(2)

$

61,517

 

 

$

44,146

 

 

$

113,096

 

 

$

81,658

 

 

 

 

 

 

 

 

 

Loss ratio(3)

 

55.7

%

 

 

54.9

%

 

 

56.4

%

 

 

55.4

%

Expense ratio(4)

 

21.0

%

 

 

22.5

%

 

 

21.3

%

 

 

23.0

%

Combined ratio(5)

 

76.7

%

 

 

77.4

%

 

 

77.7

%

 

 

78.4

%

 

 

 

 

 

 

 

 

Annualized return on equity(6)

 

34.5

%

 

 

16.7

%

 

 

31.8

%

 

 

17.7

%

Annualized operating return on equity(7)

 

31.8

%

 

 

27.3

%

 

 

30.6

%

 

 

24.6

%

(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)

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to the sum of net earned premiums and fee income. Prior periods have been revised to conform to the current period's presentation.

(4)

Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to the sum of net earned premiums and fee income. Prior periods have been revised to conform to the current period's presentation.

(5)

The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding. Prior periods have been revised to conform to the current period's presentation.

(6)

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.

(7)

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 tables summarize losses incurred for the current accident year and the development of prior accident years for the three and six months ended June 30, 2023 and 2022:

 

Three Months Ended

June 30, 2023

 

Three Months Ended

June 30, 2022

 

Losses and Loss Adjustment Expenses

 

% of Sum of Earned Premiums and Fee Income

 

Losses and Loss Adjustment Expenses

 

% of Sum of Earned Premiums and Fee Income

Loss ratio:

($ in thousands)

Current accident year

$

156,008

 

 

59.1

%

 

$

116,531

 

 

59.8

%

Current accident year - catastrophe losses

 

1,451

 

 

0.5

%

 

 

21

 

 

—

%

Effect of prior accident year development

 

(10,417

)

 

(3.9

)%

 

 

(9,512

)

 

(4.9

)%

Total

$

147,042

 

 

55.7

%

 

$

107,040

 

 

54.9

%

 

Six Months Ended

June 30, 2023

 

Six Months Ended

June 30, 2022

 

Losses and Loss Adjustment Expenses

 

% of Sum of Earned Premiums and Fee Income

 

Losses and Loss Adjustment Expenses

 

% of Sum of Earned Premiums and Fee Income

Loss ratio:

($ in thousands)

Current accident year

$

302,511

 

 

59.6

%

 

$

227,320

 

 

60.1

%

Current accident year - catastrophe losses

 

3,025

 

 

0.6

%

 

 

83

 

 

—

%

Effect of prior accident year development

 

(19,460

)

 

(3.8

)%

 

 

(17,858

)

 

(4.7

)%

Total

$

286,076

 

 

56.4

%

 

$

209,545

 

 

55.4

%

Investment Results

Net investment income was $24.2 million in the second quarter of 2023 compared to $10.6 million in the second quarter of 2022, an increase of 128.2%. Net investment income was $44.9 million in the first half of 2023 compared to $19.7 million in the first half of 2022, an increase of 128.0%. These increases were driven by growth in the Company's investment portfolio generated largely from the investment of strong operating cash flows and higher interest rates relative to the prior year periods. Net operating cash flows were $423.6 million in the first half of 2023 compared to $278.7 million in the first half of 2022, an increase of 52.0%. The Company’s investment portfolio had an annualized gross investment return(8) of 3.8% for the first half of 2023 compared to 2.6% for the same period last year. 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 3.1 years and 3.5 years at June 30, 2023 and December 31, 2022, respectively. Cash and invested assets totaled $2.6 billion at June 30, 2023 and $2.2 billion at December 31, 2022.

(8)

Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), before any deductions for fees and expenses, expressed as a percentage of average beginning and ending book values of those investments during the period.

Other

The effective tax rates for the six months ended June 30, 2023 and 2022 were 18.9% and 17.4%, respectively. In the first half of 2023 and 2022, 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 $871.8 million at June 30, 2023 compared to $745.4 million at December 31, 2022. Book value per share was $37.64 at June 30, 2023 compared to $32.28 at December 31, 2022. Annualized operating return on equity(7) was 30.6% for the first half of 2023, an increase from 24.6% for the first half of 2022, which was primarily due to continued profitable growth from favorable E&S market conditions and rate increases.

In the periods ending June 30, 2023, the Company reclassified policy fees to fee income. Historically, these fees were presented as a reduction to underwriting, acquisition and insurance expenses. The Company modified the definition of the loss and expense ratios to include fee income in the denominator of each ratio. The Company has reclassified prior periods' results to conform to the current period's presentation.

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, net realized investment gains and losses, after taxes, and change in allowance for credit losses on investments, after taxes. Management believes the exclusion of these items provides a 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 and six months ended June 30, 2023 and 2022, net income and diluted earnings per share reconcile to net operating earnings and diluted operating earnings per share as follows:

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

($ in thousands, except per share data)

Net operating earnings:

 

 

 

 

 

 

 

 

Net income

 

$

72,791

 

 

$

27,090

 

 

$

128,591

 

 

$

58,881

 

Adjustments:

 

 

 

 

 

 

 

 

Change in the fair value of equity securities, before taxes

 

 

(5,811

)

 

 

23,353

 

 

 

(9,329

)

 

 

31,104

 

Income tax expense (benefit) (1)

 

 

1,220

 

 

 

(4,904

)

 

 

1,959

 

 

 

(6,532

)

Change in fair value of equity securities, after taxes

 

 

(4,591

)

 

 

18,449

 

 

 

(7,370

)

 

 

24,572

 

 

 

 

 

 

 

 

 

 

Net realized investment losses (gains), before taxes

 

 

(1,291

)

 

 

(1,413

)

 

 

3,361

 

 

 

(1,708

)

Income tax (benefit) expense (1)

 

 

271

 

 

 

297

 

 

 

(706

)

 

 

359

 

Net realized investment losses (gains), after taxes

 

 

(1,020

)

 

 

(1,116

)

 

 

2,655

 

 

 

(1,349

)

 

 

 

 

 

 

 

 

 

Change in allowance for credit losses on investments, before taxes

 

 

(25

)

 

 

—

 

 

 

56

 

 

 

—

 

Income tax (benefit) expense (1)

 

 

5

 

 

 

—

 

 

 

(12

)

 

 

—

 

Change in allowance for credit losses on investments, after taxes

 

 

(20

)

 

 

—

 

 

 

44

 

 

 

—

 

Net operating earnings

 

$

67,160

 

 

$

44,423

 

 

$

123,920

 

 

$

82,104

 

 

 

 

 

 

 

 

 

 

Diluted operating earnings per share:

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

3.12

 

 

$

1.17

 

 

$

5.52

 

 

$

2.55

 

Change in the fair value of equity securities, after taxes, per share

 

 

(0.20

)

 

 

0.80

 

 

 

(0.32

)

 

 

1.06

 

Net realized investment losses (gains), after taxes, per share

 

 

(0.04

)

 

 

(0.05

)

 

 

0.11

 

 

 

(0.06

)

Diluted operating earnings per share(2)

 

$

2.88

 

 

$

1.92

 

 

$

5.32

 

 

$

3.56

 

 

 

 

 

 

 

 

 

 

Operating return on equity:

 

 

 

 

 

 

 

 

Average equity(3)

 

$

843,773

 

 

$

649,818

 

 

$

808,632

 

 

$

666,701

 

Annualized return on equity(4)

 

 

34.5

%

 

 

16.7

%

 

 

31.8

%

 

 

17.7

%

Annualized operating return on equity(5)

 

 

31.8

%

 

 

27.3

%

 

 

30.6

%

 

 

24.6

%

(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 quarter-end or year-end total, as applicable, 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, change in allowance for credit losses on investments, interest expense, other expenses, other income 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 and six months ended June 30, 2023 and 2022, net income reconciles to underwriting income as follows:

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

 

 

(in thousands)

Net income

 

$

72,791

 

 

$

27,090

 

 

$

128,591

 

 

$

58,881

 

Income tax expense

 

 

17,319

 

 

 

5,352

 

 

 

29,912

 

 

 

12,433

 

Income before income taxes

 

 

90,110

 

 

 

32,442

 

 

 

158,503

 

 

 

71,314

 

Net investment income

 

 

(24,172

)

 

 

(10,594

)

 

 

(44,867

)

 

 

(19,682

)

Change in the fair value of equity securities

 

 

(5,811

)

 

 

23,353

 

 

 

(9,329

)

 

 

31,104

 

Net realized investment losses (gains)

 

 

(1,291

)

 

 

(1,413

)

 

 

3,361

 

 

 

(1,708

)

Change in allowance for credit losses on investments

 

 

(25

)

 

 

—

 

 

 

56

 

 

 

—

 

Interest expense

 

 

2,724

 

 

 

337

 

 

 

5,294

 

 

 

590

 

Other expenses (6)

 

 

417

 

 

 

166

 

 

 

819

 

 

 

309

 

Other income

 

 

(435

)

 

 

(145

)

 

 

(741

)

 

 

(269

)

Underwriting income

 

$

61,517

 

 

$

44,146

 

 

$

113,096

 

 

$

81,658

 

(6)

Other expenses are comprised of 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, July 28, 2023 at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (888) 660-6493, conference ID# 3573726, 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 August 25, 2023.

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 June 30,

 

Six Months Ended June 30,

 

 

 

2023

 

 

 

2022

 

 

 

2023

 

 

 

2022

 

Revenues

 

(in thousands, except per share data)

Gross written premiums

 

$

438,222

 

 

$

277,001

 

 

$

795,810

 

 

$

522,514

 

Ceded written premiums

 

 

(73,181

)

 

 

(34,658

)

 

 

(131,739

)

 

 

(63,673

)

Net written premiums

 

 

365,041

 

 

 

242,343

 

 

 

664,071

 

 

 

458,841

 

Change in unearned premiums

 

 

(107,995

)

 

 

(52,185

)

 

 

(169,867

)

 

 

(90,121

)

Net earned premiums

 

 

257,046

 

 

 

190,158

 

 

 

494,204

 

 

 

368,720

 

Fee income

 

 

6,986

 

 

 

4,919

 

 

 

13,187

 

 

 

9,264

 

Net investment income

 

 

24,172

 

 

 

10,594

 

 

 

44,867

 

 

 

19,682

 

Change in the fair value of equity securities

 

 

5,811

 

 

 

(23,353

)

 

 

9,329

 

 

 

(31,104

)

Net realized investment (losses) gains

 

 

1,291

 

 

 

1,413

 

 

 

(3,361

)

 

 

1,708

 

Change in allowance for credit losses on investments

 

 

25

 

 

 

—

 

 

 

(56

)

 

 

—

 

Other income

 

 

435

 

 

 

145

 

 

 

741

 

 

 

269

 

Total revenues

 

 

295,766

 

 

 

183,876

 

 

 

558,911

 

 

 

368,539

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

147,042

 

 

 

107,040

 

 

 

286,076

 

 

 

209,545

 

Underwriting, acquisition and insurance expenses

 

 

55,473

 

 

 

43,891

 

 

 

108,219

 

 

 

86,781

 

Interest expense

 

 

2,724

 

 

 

337

 

 

 

5,294

 

 

 

590

 

Other expenses

 

 

417

 

 

 

166

 

 

 

819

 

 

 

309

 

Total expenses

 

 

205,656

 

 

 

151,434

 

 

 

400,408

 

 

 

297,225

 

Income before income taxes

 

 

90,110

 

 

 

32,442

 

 

 

158,503

 

 

 

71,314

 

Total income tax expense

 

 

17,319

 

 

 

5,352

 

 

 

29,912

 

 

 

12,433

 

Net income

 

 

72,791

 

 

 

27,090

 

 

 

128,591

 

 

 

58,881

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

Change in net unrealized gains (losses) on available-for-sale investments, net of taxes

 

 

(14,107

)

 

 

(54,882

)

 

 

3,402

 

 

 

(118,812

)

Total comprehensive income (loss)

 

$

58,684

 

 

$

(27,792

)

 

$

131,993

 

 

$

(59,931

)

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

3.16

 

 

$

1.19

 

 

$

5.59

 

 

$

2.59

 

Diluted

 

$

3.12

 

 

$

1.17

 

 

$

5.52

 

 

$

2.55

 

 

 

 

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

23,040

 

 

 

22,781

 

 

 

23,024

 

 

 

22,767

 

Diluted

 

 

23,301

 

 

 

23,103

 

 

 

23,293

 

 

 

23,095

 

   

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 

 

June 30, 2023

 

December 31, 2022

Assets

 

(in thousands)

Investments:

 

 

 

 

Fixed-maturity securities at fair value

 

$

2,183,686

 

$

1,760,100

Equity securities at fair value

 

 

196,848

 

 

152,471

Assets held for sale

 

 

57,526

 

 

—

Real estate investments, net

 

 

19,482

 

 

76,387

Short-term investments

 

 

28,778

 

 

41,337

Total investments

 

 

2,486,320

 

 

2,030,295

 

 

 

 

 

Cash and cash equivalents

 

 

125,057

 

 

156,274

Investment income due and accrued

 

 

17,696

 

 

14,451

Premiums receivable, net

 

 

147,092

 

 

105,754

Reinsurance recoverables, net

 

 

229,903

 

 

220,454

Ceded unearned premiums

 

 

48,645

 

 

42,935

Deferred policy acquisition costs, net of ceding commissions

 

 

85,326

 

 

61,594

Intangible assets

 

 

3,538

 

 

3,538

Deferred income tax asset, net

 

 

58,047

 

 

56,983

Other assets

 

 

68,578

 

 

54,844

Total assets

 

$

3,270,202

 

$

2,747,122

 

 

 

 

 

Liabilities & Stockholders' Equity

 

 

 

 

Liabilities:

 

 

 

 

Reserves for unpaid losses and loss adjustment expenses

 

$

1,455,734

 

$

1,238,402

Unearned premiums

 

 

675,254

 

 

499,677

Payable to reinsurers

 

 

42,143

 

 

32,024

Accounts payable and accrued expenses

 

 

22,457

 

 

31,361

Debt

 

 

195,876

 

 

195,747

Other liabilities

 

 

6,923

 

 

4,462

Total liabilities

 

 

2,398,387

 

 

2,001,673

 

 

 

 

 

Stockholders' equity

 

 

871,815

 

 

745,449

Total liabilities and stockholders' equity

 

$

3,270,202

 

$

2,747,122

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230727390693/en/

Kinsale Capital Group, Inc. Bryan Petrucelli Executive Vice President, Chief Financial Officer and Treasurer 804-289-1272 ir@kinsalecapitalgroup.com