Kinsale Capital Group, Inc. — 2021 Form 10-K
Business and reporting period. This annual filing covers the fiscal year ended December 31, 2021, with comparisons primarily to 2020. Kinsale is a U.S. property-and-casualty insurer focused exclusively on excess and surplus (E&S) lines, principally serving hard-to-place commercial risks through independent brokers. Commercial business accounted for 96.5% of 2021 gross written premiums; casualty represented 85.1% of premiums.
Key financial results
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Gross written premiums | $764.4 million | $552.8 million | Up 38.3% |
| Net written premiums | $660.2 million | $478.2 million | Up 38.1%; net retention 86.4% |
| Net earned premiums | $582.9 million | $412.8 million | Up 41.2% |
| Total revenue | $639.8 million | $459.9 million | Includes investment income and investment gains |
| Net income | $152.7 million | $88.4 million | Up 72.7% |
| Diluted EPS | $6.62 | $3.87 | Up from $3.87 |
| Net investment income | $31.0 million | $26.1 million | Up 18.9% |
| Operating cash flow | $407.0 million | $280.0 million | Increase reflected business growth and timing of claims and reinsurance flows |
| Cash and cash equivalents | $121.0 million | $77.1 million | At year-end |
| Total cash and invested assets | $1.686 billion | $1.289 billion | At year-end |
| Stockholders’ equity | $699.3 million | $576.2 million | Up primarily from earnings, partly offset by dividends and lower unrealized investment gains |
| Credit facility debt | $42.7 million | $42.6 million | $50 million revolving facility; maturity May 2024 |
Underwriting and profitability
- Underwriting income, a non-GAAP measure, was $133.6 million, versus $54.7 million.
- The combined ratio improved to 77.1% from 86.7%; the loss ratio was 55.7% versus 63.9%, and the expense ratio was 21.4% versus 22.8%. A combined ratio below 100% indicates an underwriting profit.
- Return on equity rose to 23.9% from 18.0%; operating return on equity, a non-GAAP measure, was 20.8% versus 14.7%.
- Investment gains included a $22.8 million increase in fair value of equity securities and $2.8 million of realized investment gains. Fixed-maturity unrealized losses reduced other comprehensive income by $23.3 million after tax.
Material changes and management commentary
- Management attributed premium growth and stronger underwriting results to higher broker submissions, favorable E&S market conditions, and rate increases that exceeded loss-cost trends.
- Prior accident-year reserves developed favorably by $32.0 million in 2021, including $33.7 million for the 2020 accident year, partly offset by adverse development in 2016 and 2018. Catastrophe losses were $8.6 million, primarily related to Hurricane Ida and Texas winter storms, compared with $23.2 million in 2020.
- The company reported no material adverse impact on loss ratios from COVID-19 to date; management said relevant policy terms generally exclude virus-related claims, while noting uncertainty around court decisions and economic effects.
- Management stated that liquidity at the holding company and subsidiaries was sufficient for operating needs and obligations for the next 12 months. The holding company had $14.6 million in cash and investments; the insurance subsidiary paid it an $8.0 million dividend in 2021. The insurer’s maximum dividend capacity to the parent without regulatory approval in 2022 was reported as $114.0 million, subject to statutory restrictions and regulatory discretion.
- The board declared quarterly 2021 dividends of $0.11 per share. A $0.13-per-share dividend was declared in February 2022, payable in March.
- No specific financial guidance or quantified forward outlook is provided. Management expressed confidence in the company’s ability to pursue E&S growth while maintaining underwriting discipline and a conservative balance sheet.
Risks, contingencies, and unusual items
- Reserves: Net loss reserves were $763.8 million, of which 85.9% was IBNR. A 5% change in net IBNR was estimated to change reserves by $32.8 million and net income by $25.9 million. Reserve estimation was identified as a critical audit matter; KPMG issued an unqualified opinion on the financial statements.
- Catastrophe and climate exposure: Weather events can drive claim frequency and severity. Kinsale uses catastrophe modeling and reinsurance, but modeled losses may differ materially from actual experience.
- Reinsurance: Reinsurance recoverables were $123.0 million; the company remains liable to policyholders if reinsurers fail to pay. Five reinsurers represented 74.3% of recoverables on paid and unpaid losses.
- Distribution concentration: Two brokers produced 33.4% of gross written premiums in 2021; five produced 56.3%.
- Investments and rates: The portfolio included $1.392 billion of fixed maturities, with a 4.3-year duration and average rating of AA-. A hypothetical 100-basis-point rate increase was estimated to reduce fair value of fixed maturities and preferred stock by 4.7% at year-end, affecting comprehensive income and equity.
- Other exposures: Risks include E&S market cyclicality, pricing competition, inflation and litigation trends, broker and reinsurance counterparty risk, cyber and technology disruptions, regulatory constraints, and potential changes in financial strength ratings. Kinsale Insurance held an A (Excellent) A.M. Best rating and was reported to have statutory capital substantially above regulatory requirements.
- The company reported no legal proceeding expected to have a material adverse effect and no material contingencies identified in the filing. It was in compliance with credit-facility financial covenants.
Important facts for investors to verify
- Whether favorable reserve development—especially the 2020 accident-year release—continues as claims mature, given the high IBNR share and limited operating history.
- Whether premium growth and rate increases remain adequate relative to claims inflation, loss trends, and changing E&S market conditions.
- Catastrophe exposure and the adequacy, pricing, and renewal terms of reinsurance, including the concentration of recoverables among a small number of reinsurers.
- Broker concentration and the effect of any change in relationships with the largest distributors.
- Investment portfolio sensitivity to interest rates, credit deterioration, and equity-market declines, and the effect on book value and investment returns.
- Holding-company liquidity and dividend capacity, including the insurance subsidiary’s statutory constraints and the $42.7 million credit-facility balance.