Kinsale Capital Group, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the supplied text does not provide a separate fourth-quarter results summary. Kinsale is a U.S. property and casualty insurer focused exclusively on excess and surplus lines, distributing primarily through independent brokers.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Gross written premiums | $1.569 billion | $1.102 billion | +42.3% |
| Net written premiums | $1.265 billion | $936.8 million | +35.0% |
| Net earned premiums | $1.073 billion | $794.1 million | +35.1% |
| Net income | $308.1 million | $159.1 million | +93.6% |
| Diluted EPS | $13.22 | $6.88 | +92.2% |
| Net investment income | $102.3 million | $51.3 million | +99.6% |
| Operating cash flow | $859.8 million | $557.8 million | +$302.0 million |
- Underwriting: Loss ratio was 54.6%, expense ratio 20.8%, and combined ratio 75.4%, versus 56.3%, 22.2%, and 78.5% in 2022. Underwriting income, a non-GAAP measure, rose 54.1% to $270.4 million. A combined ratio below 100% indicates underwriting profit.
- Returns: Return on equity was 33.6%, compared with 22.0%; operating return on equity, a non-GAAP measure, was 31.8%, compared with 25.0%.
- Cash and investments: Cash and invested assets totaled $3.094 billion at year-end, up from $2.187 billion. Consolidated cash and cash equivalents were $126.7 million. Fixed maturities were $2.712 billion, with an average rating of AA- and duration of 2.8 years. Gross investment return was 4.0%, up from 3.0%.
- Balance sheet and debt: Total assets were $3.773 billion; stockholders’ equity was $1.087 billion, up from $745.4 million. Debt was $183.8 million net of issuance costs, including $125 million of 5.15% notes, $50 million of 6.21% notes, and $11 million drawn on the revolving facility. The company reported compliance with debt covenants.
- Cash flow and dividends: Operating cash flow was $859.8 million; investing activities used $860.9 million and financing activities used $28.5 million. Cash declined by $29.6 million during the year. Dividends paid totaled approximately $13.0 million ($0.56 per share); a $0.15-per-share dividend was declared for payment in March 2024.
Material changes versus 2022
- Premium growth reflected higher broker submission activity, higher rates across most lines, and favorable E&S market conditions. Commercial property premiums rose 127.0% to $412.0 million and represented 26.3% of gross written premiums.
- Net retention declined to 80.6% from 85.0%, largely because of greater ceded premiums as property and excess casualty grew and the commercial property quota-share cession rate increased at the June 2023 renewal.
- The loss ratio improved, mainly because catastrophe losses were lower: $4.6 million in 2023 versus $26.6 million in 2022, which included Hurricane Ian. Prior-year reserves developed favorably by $35.8 million in 2023, similar to $35.9 million in 2022.
- Investment income nearly doubled as the portfolio grew and yields increased; equity securities also produced a $15.3 million fair-value gain, compared with a $27.7 million loss in 2022. The portfolio’s unrealized fixed-maturity losses narrowed, contributing to improved other comprehensive income.
- The company issued $50 million of 6.21% senior notes and used $62 million of real-estate sale proceeds to reduce revolving credit borrowings. It sold part of a property for approximately $62 million and recorded a $4.3 million gain; the remaining office building is intended for future office expansion.
Outlook, risks and unusual items
- Management stated that it believes Kinsale is positioned to pursue growth in the E&S market while prioritizing underwriting profitability, expense discipline, technology investment, and a strong balance sheet. The filing provides no numerical earnings, premium-growth, or margin guidance.
- Key risks include reserve uncertainty and claims inflation, catastrophe and climate-related losses, reinsurance availability and counterparty concentration, competition and insurance-market cyclicality, investment-market and interest-rate risk, dependence on a select group of brokers, cybersecurity and technology disruption, and extensive insurance regulation.
- Reserves for unpaid losses were $1.693 billion gross and $1.452 billion net; 90.5% of net reserves were IBNR. Management noted that a 5% change in net IBNR would change reserves by $65.7 million and net income by $51.9 million. The auditor identified reserves as a critical audit matter, citing estimation uncertainty and reliance on company and industry data.
- A jury awarded $140 million in a wrongful-death case involving a policyholder with a Kinsale $1 million general-liability policy. Kinsale asserts policy exclusions apply, intends to defend the matter, and expects appeals; it says resolution of its liability may take years and does not expect a material adverse effect. This is a notable contingency to monitor.
- The company corrected prior-period presentation of policy fees by reclassifying them from a reduction of underwriting expenses to fee income: $19.6 million for 2022 and $13.7 million for 2021. It concluded the correction was not material to previously issued statements. The filing cover indicates the statements reflect a correction of an error, but not a restatement requiring an incentive-compensation recovery analysis.
- Auditor KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Investor facts to verify
- Track reserve development by accident year, especially long-tailed construction-related casualty claims exposed to inflation, and compare future outcomes with the disclosed IBNR sensitivity.
- Assess whether rapid premium growth and the expansion of commercial property can be sustained profitably, including the impact of higher reinsurance cessions on net retention and margins.
- Monitor the wrongful-death litigation, the asserted coverage exclusions, and any change to reserves or the company’s assessment of potential exposure.
- Review broker concentration: three brokers generated 49.8% of 2023 gross written premiums; five generated 63.4%.
- Evaluate investment portfolio credit quality, unrealized losses, interest-rate sensitivity, and the concentration of reinsurance recoverables among counterparties.
- Confirm holding-company liquidity and access to insurance-subsidiary dividends. Kinsale Insurance paid no dividend to the parent in 2023; the stated 2024 ordinary dividend capacity is up to $257.3 million, subject to statutory requirements and regulatory discretion.