Kinsale Capital Group, Inc. — Q2 2022 Form 10-Q
Business context and period. Unaudited results for the three and six months ended June 30, 2022. Kinsale is a specialty insurer focused on U.S. excess and surplus lines, distributing primarily through independent brokers. In the first half, gross written premiums were 79% casualty and 21% property.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Gross written premiums | $277.0m | $194.1m | $522.5m | $362.9m |
| Net written premiums | $242.3m | $167.8m | $458.8m | $312.1m |
| Net earned premiums | $190.2m | $137.7m | $368.7m | $260.7m |
| Net income | $27.1m | $35.6m | $58.9m | $67.7m |
| Diluted EPS | $1.17 | $1.55 | $2.55 | $2.94 |
| Underwriting income (non-GAAP) | $44.1m | $28.7m | $81.7m | $53.3m |
| Combined ratio | 76.8% | 79.2% | 77.8% | 79.5% |
- Premium growth was driven by increased broker submissions and higher rates across most lines amid favorable E&S market conditions. Net retention was 87.5% in Q2 and 87.8% for the half-year.
- Underwriting improved: the loss ratio was 56.3% in Q2 and 56.8% for the half, while the expense ratio was 20.5% and 21.0%, respectively. Management cited lower catastrophe activity, favorable pricing, and expense leverage.
- Net income fell 24% in Q2 and 13% for the first half, chiefly because equity-security fair values declined; the corresponding losses were $23.4m and $31.1m. Net investment income increased 42.6% in Q2 and 37.0% for the half.
- Six-month operating cash flow was $278.7m, compared with $194.9m in 2021. Investing cash outflow was $270.1m; ending cash and equivalents were $120.9m.
- At June 30, investments totaled $1.643bn, including $1.493bn of available-for-sale fixed maturities. Stockholders’ equity was $634.1m, down from $699.3m at year-end 2021, primarily reflecting investment-related unrealized losses and dividends. Other comprehensive loss for the half was $118.8m.
- Credit-facility borrowings were $42.8m at June 30, net of issuance costs, at a 3.15% weighted-average rate. Gross unpaid-loss reserves were $1.037bn; net reserves were $905.2m.
Changes, outlook, and risks
- Compared with 2021, premium growth and underwriting income accelerated, and the combined ratio improved. Favorable reserve development was $17.9m for the first half, versus $16.2m a year earlier; management attributed most favorable development to the 2020 and 2021 accident years, partly offset by adverse development, largely in 2018.
- The investment portfolio faced material market-value pressure: fixed-maturity unrealized losses rose to $131.7m at June 30 from $9.8m at year-end 2021. Management attributed these losses to interest-rate and other market movements and reported no credit losses on available-for-sale securities for the half.
- Subsequent to quarter-end, on July 22, the company issued $125m of 5.15% senior notes due 2034 and amended its revolving credit facility, extending maturity to 2027 and increasing commitments to $100m, with a conditional $30m accordion. Note proceeds were used July 25 to repay approximately $43m of revolver borrowings.
- Management said it expected available liquidity to cover operating needs and committed capital expenditures for the next 12 months. The filing gives no earnings or premium-growth guidance.
- Key risks include reserve estimation uncertainty, catastrophe and severe-weather losses, inflation and economic weakness, competition and E&S market cycles, reliance on brokers and reinsurance, reinsurer default, and equity-price and interest-rate exposure. Kinsale Insurance Company held an A (Excellent), stable A.M. Best rating; all reinsurers were rated A- or better. The company reported no material change in risk factors, no material expected adverse effect from ordinary-course litigation, and effective disclosure controls.
Investor verification points
- Track whether premium growth and rate adequacy persist, and whether combined-ratio improvement continues as the business expands.
- Assess reserve development by accident year and compare actual claims emergence with management’s assumptions.
- Monitor interest-rate and equity-market effects on investment values, accumulated other comprehensive income, and reported earnings.
- Review the cost, covenants, and use of proceeds for the new notes and amended revolving facility, as well as liquidity at the insurance subsidiary.
- Evaluate reinsurance protection, recoverables, and counterparty credit quality, particularly as property exposure and catastrophe losses evolve.