KNSL Kinsale Capital Group Inc

Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of $98.9 million, $4.24 per diluted share, for the first quarter of 2024 compared to $55.8 million, $2.40 per diluted share, for the first quarter of 2023. Net operating earnings(1) were $81.6 million, $3.50 per diluted share, for the first quarter of 2024 compared to $56.8 million, $2.44 per diluted share, for the first quarter of 2023.

Highlights for the quarter included:

• Diluted earnings per share increased by 76.7% to $4.24 compared to the first quarter of 2023
• Diluted operating earnings(1) per share increased by 43.4% to $3.50 compared to the first quarter of 2023
• Gross written premiums increased by 25.5% to $448.6 million compared to the first quarter of 2023
• Net investment income increased by 59.1% to $32.9 million compared to the first quarter of 2023
• Underwriting income(2) was $65.1 million in the first quarter of 2024, resulting in a combined ratio(5) of 79.5%
• Annualized operating return on equity(7) was 28.9% for the three months ended March 31, 2024

“Our business continues to generate best-in-class returns as we benefit from underwriting and technological competitive advantages and favorable E&S market conditions. We remain confident in our ability to deliver long-term value for stockholders as we execute our strategy to generate consistent and attractive underwriting profits while managing our capital prudently,” said Chairman and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $448.6 million for the first quarter of 2024 compared to $357.6 million for the first quarter of 2023, an increase of 25.5%. The increase in gross written premiums during the first quarter of 2024 over the same period last year reflected strong submission flow from brokers and a favorable pricing environment.

Underwriting income(2) was $65.1 million, resulting in a combined ratio(5) of 79.5%, for the first quarter of 2024 compared to $51.6 million and a combined ratio(5) of 78.8% for the first quarter of 2023. The increase in underwriting income(2) was primarily due to a combination of premium growth and lower net commissions. Loss(3) and expense(4) ratios were 58.8% and 20.7%, respectively, for the first quarter of 2024 compared to 57.1% and 21.7% for the first quarter of 2023. Results for the first quarter of 2024 and 2023 included net favorable development of loss reserves from prior accident years of $8.4 million, or 2.7 points, and $9.0 million, or 3.7 points, respectively.

Summary of Operating Results

The Company’s operating results for the three months ended March 31, 2024 and 2023 are summarized as follows:

 

Three Months Ended March 31,

 

 

2024

 

 

 

2023

 

 

($ in thousands)

Gross written premiums

$

448,644

 

 

$

357,588

 

Ceded written premiums

 

(97,590

)

 

 

(58,558

)

Net written premiums

$

351,054

 

 

$

299,030

 

 

 

 

 

Net earned premiums

$

309,518

 

 

$

237,158

 

Fee income

 

8,092

 

 

 

6,201

 

Losses and loss adjustment expenses

 

186,786

 

 

 

139,034

 

Underwriting, acquisition and insurance expenses

 

65,753

 

 

 

52,746

 

Underwriting income(2)

$

65,071

 

 

$

51,579

 

 

 

 

 

Loss ratio(3)

 

58.8

%

 

 

57.1

%

Expense ratio(4)

 

20.7

%

 

 

21.7

%

Combined ratio(5)

 

79.5

%

 

 

78.8

%

 

 

 

 

Annualized return on equity(6)

 

35.1

%

 

 

28.6

%

Annualized operating return on equity(7)

 

28.9

%

 

 

29.1

%

(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 months ended March 31, 2024 and 2023:

 

Three Months Ended

March 31, 2024

 

Three Months Ended

March 31, 2023

 

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

$

194,654

 

 

61.3

%

 

$

146,503

 

 

60.2

%

Current accident year - catastrophe losses

 

578

 

 

0.2

%

 

 

1,574

 

 

0.6

%

Effect of prior accident year development

 

(8,446

)

 

(2.7

)%

 

 

(9,043

)

 

(3.7

)%

Total

$

186,786

 

 

58.8

%

 

$

139,034

 

 

57.1

%

Investment Results

Net investment income was $32.9 million in the first quarter of 2024 compared to $20.7 million in the first quarter of 2023, an increase of 59.1%. 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 period. Net operating cash flows were $210.4 million in the first quarter of 2024 compared to $197.6 million in the first quarter of 2023, an increase of 6.5%. The Company’s investment portfolio had an annualized gross investment return(8) of 4.3% for the first quarter of 2024 compared to 3.7% 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 2.8 years at March 31, 2024 and December 31, 2023. Cash and invested assets totaled $3.3 billion at March 31, 2024 and $3.1 billion at December 31, 2023.

(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 three months ended March 31, 2024 and 2023 were 14.6% and 18.4%, respectively. In the first quarter of 2024 and 2023, the effective tax rates were lower than the federal statutory rate of 21% primarily due to the tax benefits from stock options exercised, stock-based compensation and tax-exempt investment income.

Stockholders' equity was $1.2 billion at March 31, 2024 compared to $1.1 billion at December 31, 2023. Book value per share was $50.31 at March 31, 2024 compared to $46.88 at December 31, 2023. Annualized operating return on equity(7) was 28.9% for the first quarter of 2024, a decrease from 29.1% for the first quarter of 2023. The decrease was due primarily to higher average stockholders' equity as a result of profitable growth offset in part by higher net operating earnings.

Beginning in the second quarter of 2023, the Company reclassified policy fees to fee income and modified the definition of the loss and expense ratios to include fee income in the denominator of each ratio. Historically, these fees were presented as a reduction to underwriting, acquisition and insurance expenses. 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 months ended March 31, 2024 and 2023, 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,

 

 

 

2024

 

 

 

2023

 

 

 

($ in thousands, except per share data)

Net operating earnings:

 

 

 

 

Net income

 

$

98,941

 

 

$

55,800

 

Adjustments:

 

 

 

 

Change in the fair value of equity securities, before taxes

 

 

(18,053

)

 

 

(3,518

)

Income tax expense (1)

 

 

3,791

 

 

 

739

 

Change in fair value of equity securities, after taxes

 

 

(14,262

)

 

 

(2,779

)

 

 

 

 

 

Net realized investment (gains) losses, before taxes

 

 

(3,866

)

 

 

4,652

 

Income tax expense (benefit) (1)

 

 

812

 

 

 

(977

)

Net realized investment (gains) losses, after taxes

 

 

(3,054

)

 

 

3,675

 

 

 

 

 

 

Change in allowance for credit losses on investments, before taxes

 

 

(10

)

 

 

81

 

Income tax expense (benefit) (1)

 

 

2

 

 

 

(17

)

Change in allowance for credit losses on investments, after taxes

 

 

(8

)

 

 

64

 

Net operating earnings

 

$

81,617

 

 

$

56,760

 

 

 

 

 

 

Diluted operating earnings per share:

 

 

 

 

Diluted earnings per share

 

$

4.24

 

 

$

2.40

 

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

 

 

(0.61

)

 

 

(0.12

)

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

 

 

(0.13

)

 

 

0.16

 

Diluted operating earnings per share(2)

 

$

3.50

 

 

$

2.44

 

 

 

 

 

 

Operating return on equity:

 

 

 

 

Average equity(3)

 

$

1,128,901

 

 

$

780,590

 

Annualized return on equity(4)

 

 

35.1

%

 

 

28.6

%

Annualized operating return on equity(5)

 

 

28.9

%

 

 

29.1

%

(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)

Average equity is 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 months ended March 31, 2024 and 2023, net income reconciles to underwriting income as follows:

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

 

2023

 

 

 

(in thousands)

Net income

 

$

98,941

 

 

$

55,800

 

Income tax expense

 

 

16,926

 

 

 

12,593

 

Income before income taxes

 

 

115,867

 

 

 

68,393

 

Net investment income

 

 

(32,933

)

 

 

(20,695

)

Change in the fair value of equity securities

 

 

(18,053

)

 

 

(3,518

)

Net realized investment (gains) losses

 

 

(3,866

)

 

 

4,652

 

Change in allowance for credit losses on investments

 

 

(10

)

 

 

81

 

Interest expense

 

 

2,422

 

 

 

2,570

 

Other expenses (6)

 

 

1,963

 

 

 

402

 

Other income

 

 

(319

)

 

 

(306

)

Underwriting income

 

$

65,071

 

 

$

51,579

 

(6)

Other expenses includes primarily 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 26, 2024 at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (800) 715-9871, conference ID# 7469751, 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 24, 2024.

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,

 

 

 

2024

 

 

 

2023

 

Revenues

 

(in thousands, except per share data)

Gross written premiums

 

$

448,644

 

 

$

357,588

 

Ceded written premiums

 

 

(97,590

)

 

 

(58,558

)

Net written premiums

 

 

351,054

 

 

 

299,030

 

Change in unearned premiums

 

 

(41,536

)

 

 

(61,872

)

Net earned premiums

 

 

309,518

 

 

 

237,158

 

Fee income

 

 

8,092

 

 

 

6,201

 

Net investment income

 

 

32,933

 

 

 

20,695

 

Change in the fair value of equity securities

 

 

18,053

 

 

 

3,518

 

Net realized investment gains (losses)

 

 

3,866

 

 

 

(4,652

)

Change in allowance for credit losses on investments

 

 

10

 

 

 

(81

)

Other income

 

 

319

 

 

 

306

 

Total revenues

 

 

372,791

 

 

 

263,145

 

 

 

 

 

 

Expenses

 

 

 

 

Losses and loss adjustment expenses

 

 

186,786

 

 

 

139,034

 

Underwriting, acquisition and insurance expenses

 

 

65,753

 

 

 

52,746

 

Interest expense

 

 

2,422

 

 

 

2,570

 

Other expenses

 

 

1,963

 

 

 

402

 

Total expenses

 

 

256,924

 

 

 

194,752

 

Income before income taxes

 

 

115,867

 

 

 

68,393

 

Total income tax expense

 

 

16,926

 

 

 

12,593

 

Net income

 

 

98,941

 

 

 

55,800

 

 

 

 

 

 

Other comprehensive (loss) income

 

 

 

 

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

 

 

(9,940

)

 

 

17,509

 

Total comprehensive income

 

$

89,001

 

 

$

73,309

 

 

 

 

 

 

Earnings per share:

 

 

 

 

Basic

 

$

4.28

 

 

$

2.43

 

Diluted

 

$

4.24

 

 

$

2.40

 

 

 

 

 

 

Weighted-average shares outstanding:

 

 

 

 

Basic

 

 

23,108

 

 

 

23,008

 

Diluted

 

 

23,335

 

 

 

23,290

 

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

 

 

 

March 31, 2024

 

December 31, 2023

Assets

 

(in thousands)

Investments:

 

 

 

 

Fixed-maturity securities at fair value

 

$

2,852,360

 

$

2,711,759

Equity securities at fair value

 

 

287,655

 

 

234,813

Real estate investments, net

 

 

15,032

 

 

14,791

Short-term investments

 

 

5,644

 

 

5,589

Total investments

 

 

3,160,691

 

 

2,966,952

 

 

 

 

 

Cash and cash equivalents

 

 

136,132

 

 

126,694

Investment income due and accrued

 

 

21,843

 

 

21,689

Premiums receivable, net

 

 

159,154

 

 

143,212

Reinsurance recoverables, net

 

 

272,215

 

 

247,836

Ceded unearned premiums

 

 

57,031

 

 

52,516

Deferred policy acquisition costs, net of ceding commissions

 

 

94,489

 

 

88,395

Intangible assets

 

 

3,538

 

 

3,538

Deferred income tax asset, net

 

 

56,100

 

 

55,699

Other assets

 

 

70,094

 

 

66,443

Total assets

 

$

4,031,287

 

$

3,772,974

 

 

 

 

 

Liabilities & Stockholders' Equity

 

 

 

 

Liabilities:

 

 

 

 

Reserves for unpaid losses and loss adjustment expenses

 

$

1,844,787

 

$

1,692,875

Unearned premiums

 

 

747,402

 

 

701,351

Payable to reinsurers

 

 

47,806

 

 

47,582

Accounts payable and accrued expenses

 

 

16,302

 

 

44,922

Debt

 

 

183,915

 

 

183,846

Other liabilities

 

 

20,106

 

 

15,566

Total liabilities

 

 

2,860,318

 

 

2,686,142

 

 

 

 

 

Stockholders' equity

 

 

1,170,969

 

 

1,086,832

Total liabilities and stockholders' equity

 

$

4,031,287

 

$

3,772,974

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240425919941/en/

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