Kinsale Capital Group, Inc. Reports 2020 Second Quarter Results

Rhea-AI Summary

Kinsale Capital Group (NASDAQ: KNSL) reported a significant increase in net income for Q2 2020, reaching $30.3 million ($1.33 per diluted share), up 119.8% from $13.8 million ($0.63 per diluted share) in Q2 2019. Year-to-date net income also rose to $35.3 million ($1.56 per diluted share). Gross written premiums surged by 41.2% to $134.1 million, driven by improved submission activity and underwriting performance, reflected in a combined ratio of 83.8%. Net investment income showed a robust 38.3% increase to $6.6 million. The company aims to sustain strong returns through disciplined underwriting.

Positive

• Net income increased by 119.8% year-over-year to $30.3 million in Q2 2020.
• Gross written premiums grew by 41.2% to $134.1 million in Q2 2020.
• Net operating earnings rose to $19.1 million, a 53.7% increase from Q2 2019.
• Combined ratio improved to 83.8%, demonstrating strong underwriting performance.
• Net investment income increased 38.3% to $6.6 million in Q2 2020.

Negative

• Annualized operating return on equity decreased to 16.9% from 18.4% year-over-year.

RICHMOND, Va., July 30, 2020 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (NASDAQ:KNSL) reported net income of $30.3 million, $1.33 per diluted share, for the second quarter of 2020 compared to $13.8 million, $0.63 per diluted share, for the second quarter of 2019. Net income was $35.3 million, $1.56 per diluted share, for the first half of 2020 compared to $32.5 million, $1.49 per diluted share, for the first half of 2019.

Net operating earnings⁽¹⁾ were $19.1 million, $0.84 per diluted share, for the second quarter of 2020 compared to $12.4 million, $0.57 per diluted share, for the second quarter of 2019. Net operating earnings⁽¹⁾ were $36.4 million, $1.60 per diluted share, for the first half of 2020 compared to $26.3 million, $1.21 per diluted share, for the first half of 2019.

Highlights for the second quarter and first half of 2020 included:

• Net income increased by 119.8% compared to the second quarter of 2019
• Net operating earnings⁽¹⁾ of $19.1 million increased by 53.7% compared to the second quarter of 2019
• 41.2% growth in gross written premiums to $134.1 million compared to the second quarter of 2019
• 38.3% increase in net investment income to $6.6 million compared to the second quarter of 2019
• Underwriting income⁽²⁾ of $15.7 million in the second quarter of 2020, resulting in a combined ratio of 83.8%
• 16.9% annualized operating return on equity⁽¹⁾ for the six months ended June 30, 2020
  
  ⁽¹⁾ Net operating earnings and annualized operating return on equity are non-GAAP financial measures. See discussion of "Non-GAAP Financial Measures" below.

“Our second quarter performance yielded strong results as favorable market conditions continued to gain ground and new business submissions accelerated during the course of the quarter. As a result, written premiums were 41% higher for the quarter over last year and we achieved a combined ratio of just under 84%. We remain steadfast in our commitment to provide best-in-class returns by capitalizing on our strategy of disciplined underwriting and technology enabled low costs.” said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $134.1 million for the second quarter of 2020 compared to $94.9 million for the second quarter of 2019, an increase of 41.2%. Gross written premiums were $258.1 million for the first half of 2020 compared to $179.6 million for the first half of 2019, an increase of 43.7%. Submission activity and rates on bound accounts continued to improve, which resulted in higher gross written premiums during the second quarter and first half of 2020 over the same periods last year.

Underwriting income⁽²⁾ was $15.7 million, resulting in a combined ratio of 83.8%, for the second quarter of 2020, compared to $10.1 million and a combined ratio of 84.8% for the same period last year. The increase in underwriting income⁽²⁾ for the second quarter of 2020 was due primarily to premium growth quarter over quarter and higher favorable development on loss reserves from prior accident years. Loss and expense ratios were 60.1% and 23.7%, respectively, for the second quarter of 2020 compared to 59.9% and 24.9% for the second quarter of 2019. Results for the second quarter of 2020 and 2019 included favorable development on loss reserves from prior accident years of $3.6 million, or 3.7 points, and $1.4 million, or 2.2 points, respectively.

Underwriting income⁽²⁾ was $30.1 million, resulting in a combined ratio of 83.9%, for the first half of 2020, compared to $22.2 million and a combined ratio of 82.6% for the same period last year. The increase in underwriting income⁽²⁾ for the first half of 2020 was due primarily to premium growth period over period, offset in part by lower favorable development on loss reserves from prior accident years. Loss and expense ratios were 60.0% and 23.9%, respectively, for the first half of 2020 compared to 57.5% and 25.1% for the first half of 2019. Results for the first half of 2020 and 2019 included favorable development on loss reserves from prior accident years of $6.6 million, or 3.5 points, and $7.8 million, or 6.1 points, respectively.

Summary of Operating Results

The Company’s operating results for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30,										Six Months Ended June 30,
	2020					2019					2020					2019
	($ in thousands)
Gross written premiums	$	134,091				$	94,947				$	258,127				$	179,573
Ceded written premiums	(16,484		)			(12,260		)			(32,467		)			(23,819		)
Net written premiums	$	117,607				$	82,687				$	225,660				$	155,754
Net earned premiums	$	96,957				$	66,087				$	186,718				$	127,578
Losses and loss adjustment expenses	58,304					39,579					112,037					73,311
Underwriting, acquisition and insurance expenses	22,961					16,437					44,544					32,053
Underwriting income(2)	$	15,692				$	10,071				$	30,137				$	22,214
Loss ratio	60.1		%			59.9		%			60.0		%			57.5		%
Expense ratio	23.7		%			24.9		%			23.9		%			25.1		%
Combined ratio	83.8		%			84.8		%			83.9		%			82.6		%
Annualized return on equity(3)	28.2		%			18.5		%			16.4		%			22.7		%
Annualized operating return on equity(4)	17.8		%			16.7		%			16.9		%			18.4		%

⁽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 stockholders’ equity during the period.

⁽⁴⁾  Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of stockholders’ equity during the period. See discussion of "Non-GAAP Financial Measures" below.

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, 2020 and 2019:

	Three Months Ended June 30, 2020							Three Months Ended June 30, 2019
	Losses and Loss Adjustment Expenses				% of Earned Premiums			Losses and Loss Adjustment Expenses				% of Earned Premiums
Loss ratio:	($ in thousands)
Current accident year	$	61,530			63.4	%		$	40,360			61.1	%
Current accident year - catastrophe losses	390				0.4	%		639				1.0	%
Effect of prior accident year development	(3,616		)		(3.7	)%		(1,420		)		(2.2	)%
Total	$	58,304			60.1	%		$	39,579			59.9	%

	Six Months Ended June 30, 2020							Six Months Ended June 30, 2019
	Losses and Loss Adjustment Expenses				% of Earned Premiums			Losses and Loss Adjustment Expenses				% of Earned Premiums
Loss ratio:	($ in thousands)
Current accident year	$	118,201			63.3	%		$	80,458			63.1	%
Current accident year - catastrophe losses	461				0.2	%		669				0.5	%
Effect of prior accident year development	(6,625		)		(3.5	)%		(7,816		)		(6.1	)%
Total	$	112,037			60.0	%		$	73,311			57.5	%

Investment Results

The Company’s net investment income was $6.6 million in the second quarter of 2020 compared to $4.8 million in the second quarter of 2019, an increase of 38.3%. The Company’s net investment income was $12.6 million in the first half of 2020 compared to $9.3 million in the first half of 2019, an increase of 35.2%. This increase was primarily due to growth in our investment portfolio balance generated from the investment of excess operating funds since June 30, 2019 and from proceeds from our equity offering in the third quarter of 2019. The Company’s investment portfolio, excluding cash and cash equivalents, had an annualized gross investment return⁽⁵⁾ of 3.0% for the first half of 2020 compared to 3.2% for the first half of 2019. Funds are generally invested conservatively in high quality securities, including government agency, asset- and mortgage-backed securities, and municipal and corporate bonds with an average credit quality of "AA-." The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 4.6 years at June 30, 2020 and 4.3 years at December 31, 2019. Cash and invested assets totaled $1.1 billion at June 30, 2020 compared to $908.2 million at December 31, 2019.

⁽⁵⁾  Gross investment return is investment income from fixed-maturity and equity securities, before any deductions for fees and expenses, expressed as a percentage of average beginning and ending balances of those investments during the period.

Other

Total comprehensive income, which includes the change in after-tax unrealized gains and losses from the Company’s available-for-sale investments, was  $57.3 million for the second quarter of 2020 compared to $20.3 million for the second quarter of 2019. Total comprehensive income was $53.1 million for the first half of 2020 compared to $45.8 million for the first half of 2019. The increase in total comprehensive income for both the second quarter and first half of 2020 was due to higher net income in addition to higher fair values of the Company's fixed-maturity investments.

The effective tax rates for the six months ended June 30, 2020 and 2019 were 14.8% and 17.4%, respectively. In the first half of 2020, the effective tax rate was 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 $456.1 million at June 30, 2020, compared to $405.9 million at December 31, 2019. Annualized operating return on equity⁽⁴⁾ was 16.9% for the first six months of 2020, a decrease from 18.4% for the first six months of 2019, which was attributable to the proceeds received from the Company's equity offering in the third quarter of 2019.

Non-GAAP Financial Measures

Net Operating Earnings

Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized gains and losses on investments, 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 and six months ended June 30, 2020 and 2019, 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,
		2020				2019				2020				2019
		($ in thousands, except per share data)
Net operating earnings:
Net income		$	30,262			$	13,767			$	35,348			$	32,487
Change in the fair value of equity securities, after taxes		(10,933		)		(1,508		)		1,834				(6,165		)
Net realized (gains) losses on investments, after taxes		(200		)		186				(813		)		(36		)
Net operating earnings		$	19,129			$	12,445			$	36,369			$	26,286
Diluted operating earnings per share:
Diluted earnings per share		$	1.33			$	0.63			$	1.56			$	1.49
Change in the fair value of equity securities, after taxes, per share		(0.48		)		(0.07		)		0.08				(0.28		)
Net realized (gains) losses on investments, after taxes, per share		(0.01		)		0.01				(0.04		)		—
Diluted operating earnings per share(1)		$	0.84			$	0.57			$	1.60			$	1.21
Operating return on equity:
Average stockholders' equity(2)		$	428,724			$	298,398			$	430,997			$	285,947
Annualized return on equity(3)		28.2		%		18.5		%		16.4		%		22.7		%
Annualized operating return on equity(4)		17.8		%		16.7		%		16.9		%		18.4		%

⁽¹⁾  Diluted operating earnings per share may not add due to rounding.

⁽²⁾  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.

⁽³⁾  Annualized return on equity is net income expressed on an annualized basis as a percentage of average stockholders’ equity during the period.

⁽⁴⁾  Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of stockholders’ equity during the period.

Underwriting Income

Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized gains and losses on investments, 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 and six months ended June 30, 2020 and 2019, net income reconciles to underwriting income as follows:

		Three Months Ended June 30,										Six Months Ended June 30,
		2020					2019					2020					2019
		(in thousands)
Net income		$	30,262				$	13,767				$	35,348				$	32,487
Income tax expense		6,180					2,768					6,124					6,849
Income before income taxes		36,442					16,535					41,472					39,336
Other expenses		—					21					—					57
Net investment income		(6,645		)			(4,806		)			(12,605		)			(9,321		)
Change in the fair value of equity securities		(13,839		)			(1,909		)			2,322					(7,804		)
Net realized investment (gains) losses		(253		)			235					(1,029		)			(45		)
Other income		(13		)			(5		)			(23		)			(9		)
Underwriting income		$	15,692				$	10,071				$	30,137				$	22,214

Conference Call

Kinsale Capital Group will hold a conference call to discuss this press release on Friday, July 31, 2020, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 4996240, 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 September 30, 2020.

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 "believe," "expect," "seek," "may," "will," "intend," "project," "plan," "estimate" 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.

Contact

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

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Unaudited Consolidated Statements of Income and Comprehensive Income

		Three Months Ended June 30,								Six Months Ended June 30,
		2020				2019				2020				2019
Revenues		(in thousands, except per share data)
Gross written premiums		$	134,091			$	94,947			$	258,127			$	179,573
Ceded written premiums		(16,484		)		(12,260		)		(32,467		)		(23,819		)
Net written premiums		117,607				82,687				225,660				155,754
Change in unearned premiums		(20,650		)		(16,600		)		(38,942		)		(28,176		)
Net earned premiums		96,957				66,087				186,718				127,578
Net investment income		6,645				4,806				12,605				9,321
Change in the fair value of equity securities		13,839				1,909				(2,322		)		7,804
Net realized investment gains (losses)		253				(235		)		1,029				45
Other income		13				5				23				9
Total revenues		117,707				72,572				198,053				144,757
Expenses
Losses and loss adjustment expenses		58,304				39,579				112,037				73,311
Underwriting, acquisition and insurance expenses		22,961				16,437				44,544				32,053
Other expenses		—				21				—				57
Total expenses		81,265				56,037				156,581				105,421
Income before income taxes		36,442				16,535				41,472				39,336
Total income tax expense		6,180				2,768				6,124				6,849
Net income		30,262				13,767				35,348				32,487
Other comprehensive income
Change in unrealized gains on available-for-sale investments, net of taxes		27,008				6,555				17,785				13,335
Total comprehensive income		$	57,270			$	20,322			$	53,133			$	45,822
Earnings per share:
Basic		$	1.37			$	0.65			$	1.60			$	1.53
Diluted		$	1.33			$	0.63			$	1.56			$	1.49
Weighted-average shares outstanding:
Basic		22,153				21,210				22,131				21,190
Diluted		22,707				21,832				22,694				21,803

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

		June 30, 2020				December 31, 2019
Assets		(in thousands)
Investments:
Fixed-maturity securities at fair value		$	893,364			$	729,532
Equity securities at fair value		107,905				78,294
Total investments		1,001,269				807,826
Cash and cash equivalents		62,976				100,408
Investment income due and accrued		6,174				4,743
Premiums receivable, net		50,866				34,483
Reinsurance recoverable		73,123				72,574
Ceded unearned premiums		19,399				16,118
Deferred policy acquisition costs, net of ceding commissions		28,942				23,564
Intangible assets		3,538				3,538
Deferred income tax asset, net		—				3,374
Other assets		43,061				23,922
Total assets		$	1,289,348			$	1,090,550
Liabilities & Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses		$	525,801			$	460,058
Unearned premiums		229,599				187,374
Payable to reinsurers		14,407				7,151
Accounts payable and accrued expenses		9,936				12,366
Credit facility		33,107				16,744
Other liabilities		20,323				977
Deferred income tax liability, net		61				—
Total liabilities		833,234				684,670
Stockholders' equity		456,114				405,880
Total liabilities and stockholders' equity		$	1,289,348			$	1,090,550

FAQ

What are Kinsale Capital Group's earnings for Q2 2020?

Kinsale Capital Group reported net income of $30.3 million, or $1.33 per diluted share, for Q2 2020.

How much did Kinsale Capital Group's gross written premiums increase?

Gross written premiums increased by 41.2% to $134.1 million in Q2 2020 compared to Q2 2019.

What was the combined ratio for Kinsale Capital Group in Q2 2020?

The combined ratio for Kinsale Capital Group in Q2 2020 was 83.8%.

When is Kinsale Capital Group's next conference call?

Kinsale Capital Group will hold a conference call on July 31, 2020, at 9:00 a.m. Eastern Time.

What is the net investment income for Kinsale Capital Group in Q2 2020?

Net investment income for Kinsale Capital Group in Q2 2020 was $6.6 million, an increase of 38.3% from the previous year.