Kinsale Capital Group, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet amounts compared with December 31, 2021. Kinsale is a specialty insurer focused on the U.S. excess and surplus lines market. Figures below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Gross written premiums | $245.5 | $168.9 | +45.4% |
| Net written premiums | $216.5 | $144.3 | +50.0% |
| Net earned premiums | $178.6 | $123.0 | +45.1% |
| Total revenues | $180.3 | $138.3 | +30.4% |
| Net investment income | $9.1 | $6.9 | +30.9% |
| Net income | $31.8 | $32.1 | -0.9% |
| Diluted EPS | $1.38 | $1.39 | -0.7% |
| Operating income (non-GAAP) | $37.5 | $24.6 | +52.2% |
| Operating earnings (non-GAAP) | $37.7 | $25.5 | +47.6% |
The loss ratio was 57.4% versus 57.1%; the expense ratio improved to 21.6% from 22.9%, bringing the combined ratio to 79.0% from 80.0%. A combined ratio below 100% indicates underwriting profit. Annualized return on equity was 18.6% versus 22.1%; annualized operating return on equity, a non-GAAP measure, was 22.1% versus 17.6%.
Cash flow, balance sheet and capital
- Operating cash flow was $121.9 million, up from $91.3 million. Investing activities used $135.7 million, primarily reflecting purchases of fixed-maturity securities; financing activities used $3.1 million. Cash and cash equivalents ended the quarter at $104.2 million, down from $121.0 million at year-end.
- Total investments were $1.626 billion, including $1.461 billion of available-for-sale fixed maturities and $163.6 million of equity securities. The portfolio’s fixed-maturity securities had a 4.6-year weighted-average duration and an average rating of AA-.
- Total assets were $2.115 billion; total liabilities were $1.449 billion. Stockholders’ equity was $665.6 million, down from $699.3 million at year-end, principally due to unrealized investment losses and dividends.
- Credit facility debt was $42.7 million, with a weighted-average interest rate of 2.19%; the $50 million facility matures May 28, 2024. The company reported compliance with its financial covenants.
- The company declared a quarterly dividend of $0.13 per share. Management said liquidity was sufficient for operating needs and committed capital expenditures over the next 12 months.
Material changes and management commentary
- Premium growth reflected increased broker submissions, higher rates across most lines, and favorable E&S market conditions. Net retention rose to 88.2% from 85.4%, which the company attributed mainly to lower reinstatement premiums on certain property treaties and a changed business mix.
- Underwriting income increased substantially, while GAAP net income was nearly flat. Management attributed the difference primarily to a $7.8 million decline in the fair value of equity securities in Q1 2022, compared with a $7.1 million gain in Q1 2021. Higher investment income and underwriting growth partly offset that decline.
- Prior-year reserves developed favorably by $8.3 million in Q1 2022, including $10.1 million favorable development for accident years 2020 and 2021, partly offset by $2.0 million unfavorable development for 2016 and 2018. The comparable prior-year period had $7.1 million favorable development.
- Available-for-sale fixed maturities had $66.5 million of gross unrealized losses at quarter-end, compared with $9.8 million at December 31, 2021. Management attributed the losses to interest-rate and other market factors, reported no credit losses, and said all securities made expected coupon payments. The quarter’s $63.9 million after-tax other comprehensive loss reduced reported equity.
Outlook, risks and contingencies
The filing provides no specific earnings or premium guidance. Management described favorable E&S market conditions and continued rate increases, but cautioned that interim results are not necessarily indicative of full-year results. Principal risks include reserve-estimation uncertainty; catastrophe and severe-weather losses; inflation and economic weakness; reinsurance availability, cost and counterparty performance; interest-rate and equity-market movements; competition; regulation; and reliance on brokers. The company reported that COVID-19 did not materially affect Q1 2022 results or financial position. Ordinary-course legal proceedings were not expected to have a material adverse effect; the filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether premium growth and favorable E&S pricing persist, and how the higher net retention level affects exposure to large losses.
- Reserve adequacy and the sustainability of favorable prior-year development, especially given unfavorable development in older accident years.
- Portfolio sensitivity to rising interest rates and equity-market declines, including effects on accumulated other comprehensive loss and capital.
- Reinsurance recoverables, renewal pricing and coverage terms; quarter-end reinsurance recoverables were $129.3 million.
- Liquidity and debt capacity, including the $42.7 million facility balance and its 2024 maturity.
- Non-GAAP underwriting income, operating earnings and return measures alongside GAAP results; definitions may differ from those used by other companies.