RICHMOND, Va., Oct. 28, 2021 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (Nasdaq: KNSL) reported net income of $36.6 million, $1.59 per diluted share, for the third quarter of 2021 compared to $14.9 million, $0.65 per diluted share, for the third quarter of 2020. Net income included after-tax catastrophe losses of $4.6 million in the third quarter of 2021 and $13.2 million in the third quarter of 2020. Net income was $104.3 million, $4.53 per diluted share, for the first nine months of 2021 compared to $50.2 million, $2.21 per diluted share, for the first nine months of 2020. After-tax catastrophe losses were $6.9 million for the first nine months of 2021 and $13.5 million for the first nine months of 2020.
Net operating earnings(1) were $36.7 million, $1.59 per diluted share, for the third quarter of 2021 compared to $9.6 million, $0.42 per diluted share, for the third quarter of 2020. Net operating earnings(1) were $91.7 million, $3.98 per diluted share, for the first nine months of 2021 compared to $46.0 million, $2.02 per diluted share, for the first nine months of 2020.
Highlights for the quarter included:
- Net income increased by 146.0% compared to the third quarter of 2020
- Net operating earnings(1) of $36.7 million increased by 281.9% compared to the third quarter of 2020
- 36.5% growth in gross written premiums to $197.6 million compared to the third quarter of 2020
- 15.5% increase in net investment income to $8.1 million compared to the third quarter of 2020
- Underwriting income(2) of $38.1 million in the third quarter of 2021, resulting in a combined ratio of 75.7%
- 19.8% annualized operating return on equity(4) for the nine months ended September 30, 2021
“Third quarter premium growth and profitability were both favorable. In particular, our quarterly combined ratio of 75.7% reflects the margin expansion resulting from several years of robust rate increases as well as our disciplined underwriting and low cost model. Looking ahead, we remain optimistic about overall market conditions as well as our ability to deliver strong returns and expand our market share over the long term,” said President and Chief Executive Officer, Michael P. Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $197.6 million for the third quarter of 2021 compared to $144.8 million for the third quarter of 2020, an increase of 36.5%. Gross written premiums were $560.6 million for the first nine months of 2021 compared to $402.9 million for the first nine months of 2020, an increase of 39.1%. Growth in gross written premiums during the third quarter and first nine months of 2021 over the same periods last year was driven by higher submission activity from brokers and rate increases on bound accounts.
Underwriting income(2) was $38.1 million, resulting in a combined ratio of 75.7%, for the third quarter of 2021, compared to $2.9 million and a combined ratio of 97.3% for the same period last year. The increase in underwriting income(2) quarter over quarter, was due to a combination of factors including premium growth and continued rate increases from a strong underwriting environment, lower catastrophe activity and higher net favorable development of loss reserves from prior accident years. Loss and expense ratios were 55.7% and 20.0%, respectively, for the third quarter of 2021 compared to 76.1% and 21.2% for the third quarter of 2020. Results for the third quarters of 2021 and 2020 included net favorable development of loss reserves from prior accident years of $9.2 million, or 5.9 points, and $3.0 million, or 2.8 points, respectively. The loss ratio for the third quarter of 2021 included 3.8 points of net incurred losses related to catastrophes, primarily from Hurricane Ida. The loss ratio for the third quarter of 2020 included 15.4 points of net incurred losses related to catastrophes, primarily related to Hurricanes Laura and Sally, and the California wildfires.
Underwriting income(2) was $91.4 million, resulting in a combined ratio of 78.1%, for the first nine months of 2021, compared to $33.0 million and a combined ratio of 88.8% for the same period last year. The increase in underwriting income(2) for the first nine months of 2021 compared to the prior year period was primarily due to premium growth and continued rate increases, higher net favorable development of loss reserves from prior accident years and lower catastrophe activity. Loss and expense ratios were 56.7% and 21.4%, respectively, for the first nine months of 2021 compared to 65.9% and 22.9% for the first nine months of 2020. Results for the first nine months of 2021 and 2020 included net favorable development of loss reserves from prior accident years of $25.4 million, or 6.1 points, and $9.6 million, or 3.3 points, respectively. The loss ratio for the nine months ended September 30, 2021 included 2.1 points of net incurred losses related to catastrophes compared to 5.8 points for the same period last year. The catastrophe activity in first nine months of 2021 primarily related to Hurricane Ida and winter storms Uri and Viola in Texas. Catastrophe activity in first nine months of 2020 primarily related to Hurricanes Laura and Sally and the California wildfires.
Summary of Operating Results
The Company’s operating results for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| ($ in thousands) | |||||||||||||||||||
| Gross written premiums | $ | 197,616 | $ | 144,777 | $ | 560,553 | $ | 402,904 | |||||||||||
| Ceded written premiums | (26,939 | ) | (22,529 | ) | (77,825 | ) | (54,996 | ) | |||||||||||
| Net written premiums | $ | 170,677 | $ | 122,248 | $ | 482,728 | $ | 347,908 | |||||||||||
| Net earned premiums | $ | 156,871 | $ | 108,244 | $ | 417,612 | $ | 294,962 | |||||||||||
| Losses and loss adjustment expenses | 87,352 | 82,431 | 236,727 | 194,468 | |||||||||||||||
| Underwriting, acquisition and insurance expenses | 31,465 | 22,927 | 89,490 | 67,471 | |||||||||||||||
| Underwriting income(2) | $ | 38,054 | $ | 2,886 | $ | 91,395 | $ | 33,023 | |||||||||||
| Loss ratio | 55.7 | % | 76.1 | % | 56.7 | % | 65.9 | % | |||||||||||
| Expense ratio | 20.0 | % | 21.2 | % | 21.4 | % | 22.9 | % | |||||||||||
| Combined ratio | 75.7 | % | 97.3 | % | 78.1 | % | 88.8 | % | |||||||||||
| Annualized return on equity(3) | 22.7 | % | 12.0 | % | 22.5 | % | 14.3 | % | |||||||||||
| Annualized operating return on equity(4) | 22.8 | % | 7.8 | % | 19.8 | % | 13.0 | % | |||||||||||
| (1) | Net operating earnings is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below. |
| (2) | Underwriting income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below. |
| (3) | Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. |
| (4) | Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. |
The following tables summarize losses incurred for the current accident year and the development of prior accident years for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | ||||||||||||||||
| Losses and Loss Adjustment Expenses | % of Earned Premiums | Losses and Loss Adjustment Expenses | % of Earned Premiums | ||||||||||||||
| Loss ratio: | ($ in thousands) | ||||||||||||||||
| Current accident year | $ | 90,675 | 57.8 | % | $ | 68,764 | 63.5 | % | |||||||||
| Current accident year - catastrophe losses | 5,882 | 3.8 | % | 16,670 | 15.4 | % | |||||||||||
| Effect of prior accident year development | (9,205 | ) | (5.9 | ) | % | (3,003 | ) | (2.8 | ) | % | |||||||
| Total | $ | 87,352 | 55.7 | % | $ | 82,431 | 76.1 | % | |||||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||||||||||||
| Losses and Loss Adjustment Expenses | % of Earned Premiums | Losses and Loss Adjustment Expenses | % of Earned Premiums | ||||||||||||||
| Loss ratio: | ($ in thousands) | ||||||||||||||||
| Current accident year | $ | 253,348 | 60.7 | % | $ | 186,965 | 63.4 | % | |||||||||
| Current accident year - catastrophe losses | 8,792 | 2.1 | % | 17,131 | 5.8 | % | |||||||||||
| Effect of prior accident year development | (25,413 | ) | (6.1 | ) | % | (9,628 | ) | (3.3 | ) | % | |||||||
| Total | $ | 236,727 | 56.7 | % | $ | 194,468 | 65.9 | % | |||||||||
Investment Results
Net investment income was $8.1 million in the third quarter of 2021 compared to $7.0 million in the third quarter of 2020, an increase of 15.5%. Net investment income was $22.5 million in the first nine months of 2021 compared to $19.6 million in the first nine months of 2020, an increase of 14.5%. These increases were primarily due to growth in the Company's investment portfolio generated from the investment of positive operating cash flow since September 30, 2020 and proceeds from the Company's equity offering in the third quarter of 2020. The Company’s investment portfolio, excluding cash and cash equivalents, had an annualized gross investment return(5) of 2.5% for the first nine months of 2021 compared to 3.0% for the first nine months of 2020. Funds are generally invested conservatively in high quality securities, including government agency, asset- and mortgage-backed securities, and municipal and corporate bonds with an average credit quality of "AA-." The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 4.4 years and 4.3 years at September 30, 2021 and December 31, 2020, respectively. Cash and invested assets totaled $1.6 billion at September 30, 2021 compared to $1.3 billion at December 31, 2020.
| (5) | Gross investment return is investment income from fixed-maturity and equity securities, before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending book value of those investments during the period. |
Other
Total comprehensive income was $88.2 million for the first nine months of 2021 compared to $74.6 million for the first nine months of 2020. The increase was due to higher net income offset in part by a decrease in the fair values of the Company's fixed-maturity investments, resulting from a higher interest rate environment.
The effective tax rates for the nine months ended September 30, 2021 and 2020 were 18.9% and 12.8%, respectively. In the first nine months of 2021 and 2020, the effective tax rates were lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.
Stockholders' equity was $659.2 million at September 30, 2021, compared to $576.2 million at December 31, 2020. Annualized operating return on equity(4) was 19.8% for the first nine months of 2021, an increase from 13.0% for the first nine months of 2020, which was attributable primarily to growth in the business from continuing favorable market conditions and rate increases and higher net favorable development of loss reserves from prior accident years.
Non-GAAP Financial Measures
Net Operating Earnings
Net operating earnings is defined as net income excluding the effects of the change in the fair value of equity securities, after taxes, and net realized investment gains and losses, after taxes. Management believes the exclusion of these items provides a more useful comparison of the Company's underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.
For the three and nine months ended September 30, 2021 and 2020, net income and diluted earnings per share reconcile to net operating earnings and diluted operating earnings per share as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||
| ($ in thousands, except per share data) | |||||||||||||||||||
| Net operating earnings: | |||||||||||||||||||
| Net income | $ | 36,625 | $ | 14,890 | $ | 104,339 | $ | 50,238 | |||||||||||
| Change in the fair value of equity securities, after taxes | 799 | (4,764 | ) | (10,779 | ) | (2,930 | ) | ||||||||||||
| Net realized investment gains, after taxes | (707 | ) | (511 | ) | (1,894 | ) | (1,324 | ) | |||||||||||
| Net operating earnings | $ | 36,717 | $ | 9,615 | $ | 91,666 | $ | 45,984 | |||||||||||
| Diluted operating earnings per share: | |||||||||||||||||||
| Diluted earnings per share | $ | 1.59 | $ | 0.65 | $ | 4.53 | $ | 2.21 | |||||||||||
| Change in the fair value of equity securities, after taxes, per share | 0.03 | (0.21 | ) | (0.47 | ) | (0.13 | ) | ||||||||||||
| Net realized investment gains, after taxes, per share | (0.03 | ) | (0.02 | ) | (0.08 | ) | (0.06 | ) | |||||||||||
| Diluted operating earnings per share(1) | $ | 1.59 | $ | 0.42 | $ | 3.98 | $ | 2.02 | |||||||||||
| Operating return on equity: | |||||||||||||||||||
| Average stockholders' equity(2) | $ | 644,401 | $ | 495,123 | $ | 617,702 | $ | 470,006 | |||||||||||
| Annualized return on equity(3) | 22.7 | % | 12.0 | % | 22.5 | % | 14.3 | % | |||||||||||
| Annualized operating return on equity(4) | 22.8 | % | 7.8 | % | 19.8 | % | 13.0 | % | |||||||||||
| (1) | Diluted operating earnings per share may not add due to rounding. |
| (2) | Computed by adding the total stockholders' equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two. |
| (3) | Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. |
| (4) | Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. |
Underwriting Income
Underwriting income is defined as net income excluding net investment income, the change in the fair value of equity securities, net realized investment gains and losses, other income, other expenses and income tax expense. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company's financial information useful insight into the Company's results of operations and underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.
For the three and nine months ended September 30, 2021 and 2020, net income reconciles to underwriting income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||
| (in thousands) | |||||||||||||||
| Net income | $ | 36,625 | $ | 14,890 | $ | 104,339 | $ | 50,238 | |||||||
| Income tax expense | 9,054 | 1,231 | 24,387 | 7,355 | |||||||||||
| Income before income taxes | 45,679 | 16,121 | 128,726 | 57,593 | |||||||||||
| Other expenses (5) | 388 | 1,022 | 1,234 | 1,022 | |||||||||||
| Net investment income | (8,095 | ) | (7,008 | ) | (22,466 | ) | (19,613 | ) | |||||||
| Change in the fair value of equity securities | 1,012 | (6,031 | ) | (13,644 | ) | (3,709 | ) | ||||||||
| Net realized investment gains | (895 | ) | (647 | ) | (2,397 | ) | (1,676 | ) | |||||||
| Other income | (35 | ) | (571 | ) | (58 | ) | (594 | ) | |||||||
| Underwriting income | $ | 38,054 | $ | 2,886 | $ | 91,395 | $ | 33,023 | |||||||
| (5) | Other expenses are comprised of interest expense on the Company's Credit Facility and other corporate expenses not allocated to the Company's insurance operations. |
Conference Call
Kinsale Capital Group will hold a conference call to discuss this press release on Friday, October 29, 2021, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 3495415 , or via the Internet by going to www.kinsalecapitalgroup.com and clicking on the "Investor Relations" link. A replay of the call will be available on the website until the close of business on December 30, 2021.
Forward-Looking Statements
This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," "believes," "seeks," "outlook," "future," "will," "would," "should," "could," "may," "can have," "prospects" or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and factors, they include, among others, the following: inadequate loss reserves to cover the Company's actual losses; inherent uncertainty of models resulting in actual losses that are materially different than the Company's estimates; adverse economic factors; a decline in the Company's financial strength rating; loss of one or more key executives; loss of a group of brokers that generate significant portions of the Company's business; failure of any of the loss limitations or exclusions the Company employs, or change in other claims or coverage issues; adverse performance of the Company's investment portfolio; adverse market conditions that affect its excess and surplus lines insurance operations; and other risks described in the Company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
About Kinsale Capital Group, Inc.
Kinsale Capital Group, Inc. is a specialty insurance group headquartered in Richmond, Virginia, focusing on the excess and surplus lines market.
Contact
Kinsale Capital Group, Inc.
Bryan Petrucelli
Executive Vice President, Chief Financial Officer and Treasurer
804-289-1272
ir@kinsalecapitalgroup.com
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Income and Comprehensive Income
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||
| Revenues | (in thousands, except per share data) | ||||||||||||||
| Gross written premiums | $ | 197,616 | $ | 144,777 | $ | 560,553 | $ | 402,904 | |||||||
| Ceded written premiums | (26,939 | ) | (22,529 | ) | (77,825 | ) | (54,996 | ) | |||||||
| Net written premiums | 170,677 | 122,248 | 482,728 | 347,908 | |||||||||||
| Change in unearned premiums | (13,806 | ) | (14,004 | ) | (65,116 | ) | (52,946 | ) | |||||||
| Net earned premiums | 156,871 | 108,244 | 417,612 | 294,962 | |||||||||||
| Net investment income | 8,095 | 7,008 | 22,466 | 19,613 | |||||||||||
| Change in the fair value of equity securities | (1,012 | ) | 6,031 | 13,644 | 3,709 | ||||||||||
| Net realized investment gains | 895 | 647 | 2,397 | 1,676 | |||||||||||
| Other income | 35 | 571 | 58 | 594 | |||||||||||
| Total revenues | 164,884 | 122,501 | 456,177 | 320,554 | |||||||||||
| Expenses | |||||||||||||||
| Losses and loss adjustment expenses | 87,352 | 82,431 | 236,727 | 194,468 | |||||||||||
| Underwriting, acquisition and insurance expenses | 31,465 | 22,927 | 89,490 | 67,471 | |||||||||||
| Other expenses | 388 | 1,022 | 1,234 | 1,022 | |||||||||||
| Total expenses | 119,205 | 106,380 | 327,451 | 262,961 | |||||||||||
| Income before income taxes | 45,679 | 16,121 | 128,726 | 57,593 | |||||||||||
| Total income tax expense | 9,054 | 1,231 | 24,387 | 7,355 | |||||||||||
| Net income | 36,625 | 14,890 | 104,339 | 50,238 | |||||||||||
| Other comprehensive income | |||||||||||||||
| Change in net unrealized gains on available-for-sale investments, net of taxes | (6,072 | ) | 6,554 | (16,111 | ) | 24,339 | |||||||||
| Total comprehensive income | $ | 30,553 | $ | 21,444 | $ | 88,228 | $ | 74,577 | |||||||
| Earnings per share: | |||||||||||||||
| Basic | $ | 1.61 | $ | 0.66 | $ | 4.60 | $ | 2.26 | |||||||
| Diluted | $ | 1.59 | $ | 0.65 | $ | 4.53 | $ | 2.21 | |||||||
| Weighted-average shares outstanding: | |||||||||||||||
| Basic | 22,714 | 22,398 | 22,681 | 22,220 | |||||||||||
| Diluted | 23,064 | 22,928 | 23,057 | 22,775 | |||||||||||
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
| September 30, 2021 | December 31, 2020 | ||||||
| Assets | (in thousands) | ||||||
| Investments: | |||||||
| Fixed-maturity securities at fair value | $ | 1,342,873 | $ | 1,081,800 | |||
| Equity securities at fair value | 151,792 | 129,662 | |||||
| Total investments | 1,494,665 | 1,211,462 | |||||
| Cash and cash equivalents | 90,012 | 77,093 | |||||
| Investment income due and accrued | 7,276 | 6,637 | |||||
| Premiums receivable, net | 63,709 | 48,641 | |||||
| Reinsurance recoverables | 112,026 | 93,215 | |||||
| Ceded unearned premiums | 32,783 | 24,265 | |||||
| Deferred policy acquisition costs, net of ceding commissions | 40,273 | 31,912 | |||||
| Intangible assets | 3,538 | 3,538 | |||||
| Deferred income tax asset, net | 392 | — | |||||
| Other assets | 54,221 | 50,133 | |||||
| Total assets | $ | 1,898,895 | $ | 1,546,896 | |||
| Liabilities & Stockholders' Equity | |||||||
| Liabilities: | |||||||
| Reserves for unpaid losses and loss adjustment expenses | $ | 814,856 | $ | 636,013 | |||
| Unearned premiums | 334,620 | 260,986 | |||||
| Payable to reinsurers | 15,097 | 12,672 | |||||
| Accounts payable and accrued expenses | 16,725 | 13,651 | |||||
| Credit facility | 42,664 | 42,570 | |||||
| Deferred income tax liability, net | — | 4,648 | |||||
| Other liabilities | 15,768 | 118 | |||||
| Total liabilities | 1,239,730 | 970,658 | |||||
| Stockholders' equity | 659,165 | 576,238 | |||||
| Total liabilities and stockholders' equity | $ | 1,898,895 | $ | 1,546,896 | |||
