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 Reports Second Quarter 2023 Results