Kinsale Capital Group, Inc. — Q2 2019 Form 10-Q
Business and period. The filing covers the quarter and six months ended June 30, 2019. Kinsale is a specialty insurer focused on U.S. excess and surplus lines, distributing mainly through independent brokers. Its sole reportable segment is E&S insurance; first-half gross written premiums were 90.4% casualty and 9.6% property.
Financial and operating performance
Amounts are in millions except per-share data and ratios.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Gross written premiums | $94.9 | $70.0 | $179.6 | $133.8 |
| Net earned premiums | $66.1 | $50.9 | $127.6 | $99.0 |
| Total revenues | $72.6 | $54.9 | $144.8 | $105.1 |
| Net income | $13.8 | $10.1 | $32.5 | $17.4 |
| Diluted EPS | $0.63 | $0.47 | $1.49 | $0.80 |
| Underwriting income (non-GAAP) | $10.1 | $8.4 | $22.2 | $15.2 |
| Loss / expense / combined ratio | 59.9% / 24.9% / 84.8% | 58.9% / 24.6% / 83.5% | 57.5% / 25.1% / 82.6% | 59.5% / 25.2% / 84.7% |
| Operating cash flow | — | $71.3 | $50.4 |
Balance sheet and liquidity
- At June 30, total assets were $894.8 million, including $590.1 million of fixed maturities, $65.9 million of equity securities, and $78.1 million of cash and cash equivalents.
- Total liabilities were $586.9 million, including $407.4 million of gross loss and LAE reserves. Stockholders’ equity was $307.9 million, up from $264.0 million at year-end 2018.
- Cash increased $3.0 million in the first half. Investing activities used $64.9 million, including $6.0 million for property and equipment; financing activities used $3.3 million, including $3.4 million in dividends paid.
- A $50 million senior unsecured revolving credit facility, maturing May 28, 2024, was established in May; no amount was drawn at June 30. The company reported no material off-balance-sheet arrangements.
Changes and management commentary
- Year-over-year premium growth was strong: Q2 gross written premiums rose 35.7%, and first-half premiums rose 34.2%. Management attributed growth to broker submission activity, favorable E&S market conditions, and rate increases on new and renewal business. First-half net retention was 86.7%, unchanged year over year.
- First-half net income increased 86.7%, supported by premium growth, higher investment returns, and greater favorable prior-year reserve development. Q2 net income rose 36.1%; underwriting income rose 19.8%, while the combined ratio worsened to 84.8% from 83.5%.
- First-half prior-year reserves developed favorably by $7.8 million, versus $3.5 million in 2018. Favorable development in 2017–2018 accident years was partly offset by $6.2 million of adverse development in 2011–2016 years, reflecting additional IBNR conservatism. Q2 favorable development was $1.4 million, compared with $2.2 million a year earlier.
- Net investment income increased 32.9% in the first half to $9.3 million. First-half net income also included $7.8 million of unrealized gains on equity securities, versus a $1.2 million unrealized loss in the prior-year period.
Outlook, risks, and unusual items
- The filing provides no specific full-year earnings, premium, or combined-ratio guidance. Management stated it believes liquidity is sufficient for operating needs and committed capital expenditures over the next 12 months; interim results are not necessarily indicative of full-year results.
- The company purchased land for a new headquarters and estimated total project cost at $50–$55 million, targeting completion in Q3 2020. It expects to fund construction from operating cash flows and debt financing.
- Key risks identified include reserve-estimation uncertainty, catastrophe and severe-weather losses, economic and claims inflation, reinsurance availability and collectibility, investment market risk, competition, broker concentration, regulation, and managing growth. Management reported no material change in previously disclosed risk factors.
- Management found no other-than-temporary impairment on available-for-sale investments in the first half. Unrealized fixed-maturity losses were attributed to interest-rate or other market factors, not credit-specific issues; 85.9% of fixed maturities were rated A- or better.
- Legal proceedings arise in the ordinary course; the company believes they will not materially adversely affect its consolidated financial position. Disclosure controls were deemed effective, with no material second-quarter change in internal control over financial reporting.
Investor verification points
- Assess whether premium growth and rate increases persist, and how much is driven by submission volume, policy mix, or pricing.
- Review reserve development by accident year, particularly the favorable emergence in recent years and IBNR additions for older years.
- Separate recurring underwriting and investment income from equity-market-driven unrealized gains when evaluating earnings growth.
- Track catastrophe losses, reinsurance recoverables and counterparty exposure, and whether reinsurance costs or retentions change.
- Monitor headquarters spending against the $50–$55 million estimate, funding plans, and any use of the undrawn credit facility.