Kinsale Capital Group, Inc. Reports 2022 Fourth Quarter and Year-End Results

Rhea-AI Summary

Kinsale Capital Group reported a net income of $67.2 million for Q4 2022, an increase of 39.2% compared to Q4 2021. Full-year net income reached $159.1 million, growing by 4.2% year-over-year. Net operating earnings for Q4 were $60.3 million, a 48.1% rise, while for the year, they were $180.4 million, up 36.2%. Gross written premiums surged 45.0% to $295.5 million in Q4 and 44.2% to $1.1 billion for the year. Underwriting income for Q4 was $59.5 million, with a combined ratio of 72.4%.

Positive

• Net income increased by 39.2% in Q4 2022 to $67.2 million.
• Net operating earnings rose 48.1% to $60.3 million in Q4 2022.
• Gross written premiums up 45.0% to $295.5 million in Q4 2022.
• Net investment income increased by 106.7% to $17.7 million in Q4 2022.
• Combined ratio improved to 72.4% in Q4 2022.

Negative

• Catastrophe losses for the year were $26.6 million, impacting earnings.
• Loss ratio increased to 57.7% for the year ended December 31, 2022.

RICHMOND, Va.--(BUSINESS WIRE)-- Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of $67.2 million, $2.90 per diluted share, for the fourth quarter of 2022 compared to $48.3 million, $2.09 per diluted share, for the fourth quarter of 2021. Net income was $159.1 million, $6.88 per diluted share, for the year ended December 31, 2022 compared to $152.7 million, $6.62 per diluted share, for the year ended December 31, 2021. For both the fourth quarters of 2022 and 2021, the impact on net income related to catastrophes was negligible. For the years ended December 31, 2022 and 2021, net income included after-tax catastrophe losses of $21.0 million and $6.8 million, respectively.

Net operating earnings⁽¹⁾ were $60.3 million, $2.60 per diluted share, for the fourth quarter of 2022 compared to $40.7 million, $1.76 per diluted share, for the fourth quarter of 2021. Net operating earnings⁽¹⁾ were $180.4 million, $7.80 per diluted share, for the year ended December 31, 2022 compared to $132.4 million, $5.74 per diluted share, for the year ended December 31, 2021.

Highlights for the fourth quarter of 2022 included:

• Net income increased by 39.2% compared to the fourth quarter of 2021
• Net operating earnings⁽¹⁾ of $60.3 million increased by 48.1% compared to the fourth quarter of 2021
• Gross written premiums increased by 45.0% to $295.5 million compared to the fourth quarter of 2021
• Net investment income increased by 106.7% to $17.7 million compared to the fourth quarter of 2021
• Underwriting income⁽²⁾ was $59.5 million in the fourth quarter of 2022, resulting in a combined ratio of 72.4%

Highlights for the full year of 2022 included:

• Net income increased by 4.2% compared to the full year of 2021
• Net operating earnings⁽¹⁾ of $180.4 million increased by 36.2% compared to the full year of 2021
• Gross written premiums increased by 44.2% to $1.1 billion compared to the full year of 2021
• Net investment income increased by 65.2% to $51.3 million compared to the full year of 2021
• Underwriting income⁽²⁾ was $175.5 million for the year ended December 31, 2022, resulting in a combined ratio of 77.9%
• Operating return on equity⁽⁴⁾ was 25.0% for the year ended December 31, 2022

"Our strong performance during the fourth quarter ended another year of exceptional operating results. Our fourth quarter results were underscored by premium growth of 45% and a combined ratio of 72.4% as we capitalized on favorable E&S market conditions while maintaining underwriting and expense discipline. We are confident that with the strength of our business model and financial position we will deliver another successful year in 2023," said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $295.5 million for the fourth quarter of 2022 compared to $203.8 million for the fourth quarter of 2021, an increase of 45.0%. Gross written premiums were $1.1 billion for the year ended December 31, 2022 compared to $764.4 million for the year ended December 31, 2021, an increase of 44.2%. Growth in gross written premiums during the fourth quarter and year ended December 31, 2022 over the same periods last year reflected strong submission flow from brokers and a favorable pricing environment.

Underwriting income⁽²⁾ was $59.5 million, resulting in a combined ratio of 72.4%, for the fourth quarter of 2022, compared to $42.2 million, and a combined ratio of 74.5% for the same period last year. The increase in underwriting income⁽²⁾ for the fourth quarter of 2022 was due to a combination of premium growth and favorable rate increases from a strong underwriting environment and lower levels of operating expenses relative to premium growth and management's cost control efforts. Loss and expense ratios were 52.5% and 19.9%, respectively, for the fourth quarter of 2022 compared to 53.1% and 21.4% for the fourth quarter of 2021. Favorable development of reserves from prior accident years was $7.0 million, or 3.3 points, for the fourth quarter of 2022, and $6.6 million, or 4.0 points, for the fourth quarter of 2021.

Underwriting income⁽²⁾ was $175.5 million, resulting in a combined ratio of 77.9%, for the year ended December 31, 2022, compared to $133.6 million, and a combined ratio of 77.1% for the prior year. The increase in underwriting income⁽²⁾ for the year ended December 31, 2022 was due to a combination of premium growth and favorable rate increases from a strong underwriting environment and lower levels of operating expenses relative to premium growth and management's cost control efforts. These increases were offset in part by higher catastrophe losses incurred during 2022. Loss and expense ratios were 57.7% and 20.2%, respectively, for the year ended December 31, 2022 compared to 55.7% and 21.4%, respectively, for the year ended December 31, 2021. The loss ratios included current accident year catastrophe losses of $26.6 million, or 3.4 points, for the year ended December 31, 2022 and $8.6 million, or 1.5 points, for the year ended December 31, 2021. Catastrophe activity in 2022 primarily related to Hurricane Ian and in 2021 largely related to Hurricane Ida and winter storms in Texas. Favorable development of reserves from prior accident years was $35.9 million, or 4.5 points, for the year ended December 31, 2022 and $32.0 million, or 5.5 points, for the year ended December 31, 2021.

Summary of Operating Results

The Company’s operating results for the three months and year ended December 31, 2022 and 2021 are summarized as follows:

	Three Months Ended December 31,								Year Ended December 31,
		2022				2021				2022				2021
	($ in thousands)
Gross written premiums	$	295,467			$	203,820			$	1,102,092			$	764,373
Ceded written premiums		(53,397	)			(26,339	)			(165,282	)			(104,164	)
Net written premiums	$	242,070			$	177,481			$	936,810			$	660,209
Net earned premiums	$	216,140			$	165,267			$	794,119			$	582,879
Losses and loss adjustment expenses		113,580				87,688				457,913				324,415
Underwriting, acquisition and insurance expenses		43,056				35,410				160,718				124,900
Underwriting income(2)	$	59,504			$	42,169			$	175,488			$	133,564
Loss ratio		52.5	%			53.1	%			57.7	%			55.7	%
Expense ratio		19.9	%			21.4	%			20.2	%			21.4	%
Combined ratio		72.4	%			74.5	%			77.9	%			77.1	%
Annualized return on equity(3)		39.4	%			28.5	%			22.0	%			23.9	%
Annualized operating return on equity(4)		35.4	%			24.0	%			25.0	%			20.8	%

(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 tables summarize losses incurred for the current accident year and the development of prior accident years for the three months and year ended December 31, 2022 and 2021:

	Three Months Ended December 31, 2022							Three Months Ended December 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	$	120,212			55.6	%		$	94,413			57.1	%
Current accident year - catastrophe losses		405			0.2	%			(152	)		—	%
Effect of prior accident year development		(7,037	)		(3.3	) %			(6,573	)		(4.0	) %
Total	$	113,580			52.5	%		$	87,688			53.1	%
	Year Ended December 31, 2022							Year Ended December 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	$	467,182			58.8	%		$	347,761			59.7	%
Current accident year - catastrophe losses		26,618			3.4	%			8,640			1.5	%
Effect of prior accident year development		(35,887	)		(4.5	) %			(31,986	)		(5.5	) %
Total	$	457,913			57.7	%		$	324,415			55.7	%

Investment Results

Net investment income was $17.7 million in the fourth quarter of 2022 compared to $8.6 million in the fourth quarter of 2021, an increase of 106.7%. Net investment income was $51.3 million for the full year of 2022 compared to $31.0 million for the full year of 2021. These increases were driven by growth in the Company's investment portfolio generated mostly from the investment of strong operating cash flows since December 31, 2021 and higher interest rates relative to the prior year periods. Net operating cash flows were $557.8 million for the full year of 2022 compared to $407.0 million for the full year of 2021, an increase of 37.0%. The Company’s investment portfolio, excluding cash and cash equivalents, had a gross investment return⁽⁵⁾ of 3.0% for the year ended December 31, 2022 compared to 2.5% for the year ended December 31, 2021. 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 3.5 years and 4.3 years at December 31, 2022 and 2021, respectively. Cash and invested assets totaled $2.2 billion at December 31, 2022 compared to $1.7 billion at December 31, 2021.

(5)

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 rate for the year ended December 31, 2022 was 18.6%. The effective tax rate was lower than the federal statutory rate primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.

In November 2022, the Company completed an underwritten public offering and sold and issued 155,000 shares of its common stock at a price of $308.30 per share, to the underwriter. The Company received net proceeds from the offering of $47.5 million, which were used for general corporate purposes, including to fund organic growth.

In December 2022, the Company acquired real estate property adjacent to its current headquarters for $76.6 million. The property is comprised of two office buildings totaling over 580,000 square feet situated on approximately 29 acres of land. The property is expected to provide flexibility for future expansion of operations as well as serve as an investment opportunity. The acquisition was funded primarily through a draw down on the Company's revolving credit facility.

Stockholders' equity was $745.4 million at December 31, 2022, compared to $699.3 million at December 31, 2021. Operating return on equity was 25.0% for the full year of 2022, an increase from 20.8% for the full year of 2021. This increase was due primarily to growth in the business from favorable market conditions and rate increases and a decrease in average stockholders' equity driven by the decline in the fair value of investments as a result of the higher interest rate environment. These increases were offset in part by higher catastrophe losses incurred during 2022.

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 the 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 and year ended December 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 December 31,								Year Ended December 31,
			2022				2021				2022				2021
		($ in thousands, except per share data)
Net operating earnings:
Net income		$	67,249			$	48,320			$	159,114			$	152,659
Adjustments:
Change in the fair value of equity securities, before taxes			(9,476	)			(9,168	)			27,723				(22,812	)
Income tax expense (benefit) (1)			1,990				1,925				(5,822	)			4,791
Change in fair value of equity securities, after taxes			(7,486	)			(7,243	)			21,901				(18,021	)
Net realized investment losses (gains), before taxes			344				(431	)			(1,191	)			(2,828	)
Income tax (benefit) expense (1)			(72	)			91				250				594
Net realized investment losses (gains), after taxes			272				(340	)			(941	)			(2,234	)
Change in allowance for credit losses on investments, before taxes			366				—				366				—
Income tax benefit (1)			(77	)			—				(77	)			—
Change in allowance for credit losses on investments, after taxes			289				—				289				—
Net operating earnings		$	60,324			$	40,737			$	180,363			$	132,404
Diluted operating earnings per share:
Diluted earnings per share		$	2.90			$	2.09			$	6.88			$	6.62
Change in fair value of equity securities, after taxes, per share			(0.32	)			(0.31	)			0.95				(0.78	)
Net realized investment losses (gains), after taxes, per share			0.01				(0.01	)			(0.04	)			(0.10	)
Change in allowance for credit losses on investments, after taxes, per share			0.01				—				0.01				—
Diluted operating earnings per share(2)		$	2.60			$	1.76			$	7.80			$	5.74
Operating return on equity:
Average equity(3)		$	682,452			$	679,250			$	722,392			$	637,787
Annualized return on equity(4)			39.4	%			28.5	%			22.0	%			23.9	%
Annualized operating return on equity(5)			35.4	%			24.0	%			25.0	%			20.8	%

(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, the 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 and year ended December 31, 2022 and 2021, net income reconciles to underwriting income as follows:

		Three Months Ended December 31,								Year Ended December 31,
			2022				2021				2022				2021
		(in thousands)
Net income		$	67,249			$	48,320			$	159,114			$	152,659
Income tax expense			16,901				11,755				36,450				36,142
Income before income taxes			84,150				60,075				195,564				188,801
Net investment income			(17,742	)			(8,582	)			(51,282	)			(31,048	)
Change in fair value of equity securities			(9,476	)			(9,168	)			27,723				(22,812	)
Net realized investment losses (gains)			344				(431	)			(1,191	)			(2,828	)
Change in allowance for credit losses on investments			366				—				366				—
Interest expense			1,978				242				4,284				994
Other expenses (6)			200				187				721				669
Other income			(316	)			(154	)			(697	)			(212	)
Underwriting income		$	59,504			$	42,169			$	175,488			$	133,564

(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, February 17, 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 March 17, 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 December 31,								Year Ended December 31,
			2022				2021				2022				2021
Revenues		(in thousands, except per share data)
Gross written premiums		$	295,467			$	203,820			$	1,102,092			$	764,373
Ceded written premiums			(53,397	)			(26,339	)			(165,282	)			(104,164	)
Net written premiums			242,070				177,481				936,810				660,209
Change in unearned premiums			(25,930	)			(12,214	)			(142,691	)			(77,330	)
Net earned premiums			216,140				165,267				794,119				582,879
Net investment income			17,742				8,582				51,282				31,048
Change in fair value of equity securities			9,476				9,168				(27,723	)			22,812
Net realized investment (losses) gains			(344	)			431				1,191				2,828
Change in allowance for credit losses on investments			(366	)			—				(366	)			—
Other income			316				154				697				212
Total revenues			242,964				183,602				819,200				639,779
Expenses
Losses and loss adjustment expenses			113,580				87,688				457,913				324,415
Underwriting, acquisition and insurance expenses			43,056				35,410				160,718				124,900
Interest expense			1,978				242				4,284				994
Other expenses			200				187				721				669
Total expenses			158,814				123,527				623,636				450,978
Income before income taxes			84,150				60,075				195,564				188,801
Income tax expense			16,901				11,755				36,450				36,142
Net income			67,249				48,320				159,114				152,659
Other comprehensive income (loss)
Change in unrealized gains (losses) on available-for-sale investments, net of taxes			12,421				(7,144	)			(153,043	)			(23,255	)
Total comprehensive income		$	79,670			$	41,176			$	6,071			$	129,404
Earnings per share:
Basic		$	2.94			$	2.13			$	6.97			$	6.73
Diluted		$	2.90			$	2.09			$	6.88			$	6.62
Weighted-average shares outstanding:
Basic			22,909				22,728				22,815				22,693
Diluted			23,208				23,083				23,125				23,062

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
		December 31, 2022			December 31, 2021
		(in thousands)
Assets
Investments:
Fixed-maturity securities at fair value		$	1,760,100		$	1,392,066
Equity securities at fair value			152,471			172,611
Real estate investments, net			76,387			—
Short-term investments			41,337			—
Total investments			2,030,295			1,564,677
Cash and cash equivalents			156,274			121,040
Investment income due and accrued			14,451			7,658
Premiums receivable, net			105,754			71,004
Reinsurance recoverables, net			220,454			122,970
Ceded unearned premiums			42,935			33,679
Deferred policy acquisition costs, net of ceding commissions			61,594			41,968
Indefinite-lived intangible assets			3,538			3,538
Deferred income tax asset, net			56,983			2,109
Other assets			54,844			57,012
Total assets		$	2,747,122		$	2,025,655
Liabilities & Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses		$	1,238,402		$	881,344
Unearned premiums			499,677			347,730
Payable to reinsurers			32,024			16,112
Accounts payable and accrued expenses			31,361			23,250
Debt			195,747			42,696
Other liabilities			4,462			15,188
Total liabilities			2,001,673			1,326,320
Stockholders' equity			745,449			699,335
Total liabilities and stockholders' equity		$	2,747,122		$	2,025,655

 

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Kinsale Capital Group, Inc.

Bryan Petrucelli

Executive Vice President, Chief Financial Officer and Treasurer

804-289-1272

ir@kinsalecapitalgroup.com

Source: Kinsale Capital Group, Inc.

FAQ

What was KNSL's net income for Q4 2022?

Kinsale Capital Group reported a net income of $67.2 million for Q4 2022.

How much did gross written premiums rise in Q4 2022 for KNSL?

Gross written premiums increased by 45.0% to $295.5 million in Q4 2022.

What was the combined ratio for KNSL in Q4 2022?

The combined ratio for Kinsale Capital Group in Q4 2022 was 72.4%.

What were KNSL's net operating earnings for the year 2022?

Net operating earnings for Kinsale Capital Group for the year 2022 were $180.4 million.

How much did net investment income grow in Q4 2022 for KNSL?

Net investment income grew by 106.7% to $17.7 million in Q4 2022.