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CST: 18/10/2019 03:31:36   

Kinsale Capital Group, Inc. Reports 2019 Second Quarter Results

77 Days ago

RICHMOND, Va., Aug. 01, 2019 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (NASDAQ:KNSL) reported net income of $13.8 million, $0.63 per diluted share, for the second quarter of 2019 compared to $10.1 million, $0.47 per diluted share, for the second quarter of 2018. Net income was $32.5 million, $1.49 per diluted share, for the first half of 2019 compared to $17.4 million, $0.80 per diluted share, for the first half of 2018.

Net operating earnings(1) were $12.4 million, $0.57 per diluted share, for the second quarter of 2019 compared to $9.9 million, $0.46 per diluted share, for the second quarter of 2018. Net operating earnings(1) were $26.3 million, $1.21 per diluted share, for the first half of 2019 compared to $18.1 million, $0.83 per diluted share, for the first half of 2018.

Highlights for the second quarter and first half of 2019 included:

  • Net income increased by 36.1% compared to the second quarter of 2018
  • Net operating earnings(1) increased by 25.7% compared to the second quarter of 2018
  • 35.7% growth in gross written premiums to $94.9 million compared to the second quarter of 2018
  • 27.1% increase in net investment income to $4.8 million compared to the second quarter of 2018
  • Underwriting income(1) of $10.1 million in the second quarter of 2019, resulting in a combined ratio of 84.8%
  • 18.4% annualized operating return on equity(1) for the six months ended June 30, 2019

(1) See discussion of "Non-GAAP Financial Measures" below.

"The steadily improving E&S trading environment combined with Kinsale's differentiated business model resulted in the strong 36% top line growth for the quarter. With disciplined underwriting and expense control, we achieved a combined ratio of just under 85% for the quarter and an annualized operating return on equity of over 18% for the first six months of 2019. Given recent improvements in the pricing environment and growth trends, we are monitoring our capital levels to ensure that we are well positioned to take advantage of these opportunities should market conditions continue to support our growth prospects,” said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $94.9 million for the three months ended June 30, 2019 compared to $70.0 million for the three months ended June 30, 2018, an increase of 35.7%. Gross written premiums were $179.6 million for the six months ended June 30, 2019 compared to $133.8 million for the six months ended June 30, 2018, an increase of 34.2%. The increase in gross written premiums during the second quarter and first half of 2019 over the same periods last year was due to a combination of factors including higher submission activity from brokers, a favorable E&S market and rate increases on new and renewal policies.

Underwriting income(2) was $10.1 million, resulting in a combined ratio of 84.8%, for the second quarter of 2019, compared to $8.4 million, and a combined ratio of 83.5% for the same period last year. The increase in underwriting income(2) for the second quarter of 2019 was due primarily to premium growth quarter over quarter. Loss and expense ratios were 59.9% and 24.9%, respectively, for the three months ended June 30, 2019 compared to 58.9% and 24.6% for the three months ended June 30, 2018. Results for the second quarters of 2019 and 2018 included favorable development on loss reserves from prior accident years of $1.4 million, or 2.2 points, and $2.2 million, or 4.4 points, respectively.

Underwriting income(2) was $22.2 million, resulting in a combined ratio of 82.6%, for the six months ended June 30, 2019, compared to $15.2 million, and a combined ratio of 84.7% for the same period last year. The increase in underwriting income(2) for the first half of 2019 was due primarily to premium growth period over period and higher favorable development on loss reserves from prior accident years. Loss and expense ratios were 57.5% and 25.1%, respectively, for the six months ended June 30, 2019 compared to 59.5% and 25.2% for the six months ended June 30, 2018. Results for the six months ended June 30, 2019 and 2018 included favorable development on loss reserves from prior accident years of $7.8 million, or 6.1 points, and $3.5 million, or 3.6 points, respectively.

Summary of Operating Results

The Company’s operating results for the three and six months ended June 30, 2019 and 2018 are summarized as follows:

  Three Months Ended June 30,   Six Months Ended June 30,
  2019   2018   2019   2018
               
  ($ in thousands)
Gross written premiums $ 94,947     $ 69,981     $ 179,573     $ 133,828  
Ceded written premiums (12,260 )   (9,090 )   (23,819 )   (17,846 )
Net written premiums $ 82,687     $ 60,891     $ 155,754     $ 115,982  
               
Net earned premiums $ 66,087     $ 50,893     $ 127,578     $ 98,954  
Losses and loss adjustment expenses 39,579     29,967     73,311     58,866  
                       
Underwriting, acquisition and insurance expenses 16,437     12,519     32,053     24,917  
Underwriting income(2) $ 10,071     $ 8,407     $ 22,214     $ 15,171  
               
Loss ratio 59.9 %   58.9 %   57.5 %   59.5 %
Expense ratio 24.9 %   24.6 %   25.1 %   25.2 %
Combined ratio 84.8 %   83.5 %   82.6 %   84.7 %
               
Annualized return on equity(3) 18.5 %   16.6 %   22.7 %   14.3 %
Annualized operating return on equity(4) 16.7 %   16.2 %   18.4 %   14.9 %
                       

(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 total stockholders’ equity during the period.

(4) Annualized operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed as a percentage of average beginning and ending total stockholders’ equity during the period. See discussion of "Non-GAAP Financial Measures" below.

The following tables summarize losses incurred for the current accident year and the development of prior accident years for the three and six months ended June 30, 2019 and 2018:

  Three Months Ended
June 30, 2019
  Three Months Ended
June 30, 2018
  Losses and
Loss
Adjustment
Expenses
  % of Earned
Premiums
  Losses and
Loss
Adjustment
Expenses
  % of Earned
Premiums
               
Loss ratio: ($ in thousands)
Current accident year $ 40,360     61.1 %   $ 32,050     63.0 %
Current accident year - catastrophe losses 639     1.0 %   156     0.3 %
Effect of prior accident year development (1,420 )   (2.2 )%   (2,239 )   (4.4 )%
Total $ 39,579     59.9 %   $ 29,967     58.9 %
                           


       
  Six Months Ended
June 30, 2019
  Six Months Ended
June 30, 2018
  Losses and
Loss
Adjustment
Expenses
  % of Earned
Premiums
  Losses and
Loss
Adjustment
Expenses
  % of Earned
Premiums
               
Loss ratio: ($ in thousands)
Current accident year $ 80,458     63.1 %   $ 62,233     62.9 %
Current accident year - catastrophe losses 669     0.5 %   156     0.2 %
Effect of prior accident year development (7,816 )   (6.1 )%   (3,523 )   (3.6 )%
Total $ 73,311     57.5 %   $ 58,866     59.5 %
                           

Investment Results

The Company’s net investment income was $4.8 million in the second quarter of 2019 compared to $3.8 million in the second quarter of 2018, an increase of 27.1%. Net investment income was $9.3 million in the first half of 2019 compared to $7.0 million in the first half of 2018, an increase of 32.9%. The Company’s investment portfolio, excluding cash and cash equivalents, had an annualized gross investment return(5) of 3.2% for the six months ended June 30, 2019 compared to 2.9% for the six months ended June 30, 2018. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, 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 3.9 years at June 30, 2019 and December 31, 2018. Cash and invested assets totaled $734.1 million at June 30, 2019 compared to $643.1 million at December 31, 2018.

(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 average beginning and ending balances of those investments during the period.

Other

Total comprehensive income, which includes the change in after-tax unrealized gains and losses from the Company’s available-for-sale investments, was $20.3 million for the second quarter of 2019 compared to $9.1 million for the second quarter of June 30, 2018. Total comprehensive income was $45.8 million for the first half of 2019 compared to $11.5 million for the first half of 2018. The increase in total comprehensive income was due to an increase in the fair value of Company's fixed-maturity investments.

Stockholders' equity was $307.9 million at June 30, 2019, compared to $264.0 million at December 31, 2018. Annualized operating return on equity was 18.4% for the first six months of 2019, an increase from 14.9% for the first six months of 2018, which was attributable to growth in the business year over year, favorable development on loss reserves from prior accident years and an increase in the fair value of the Company's equity investment portfolio.

The effective tax rates for the six months ended June 30, 2019 and 2018 were 17.4% and 18.2%. The effective tax rates were lower than the federal statutory rate of 21% largely due to the tax benefits from the exercise of stock options and tax-exempt interest income on certain tax-advantaged investments.

Non-GAAP Financial Measures

Net Operating Earnings

Net operating earnings is defined as net income excluding the effects of net unrealized gains and losses on equity securities, after taxes, and net realized gains and losses on investments, 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 six months ended June 30, 2019 and 2018, net income and diluted earnings per share reconcile to net operating earnings and diluted operating earnings per share as follows:

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
                 
    ($ in thousands, except per share data)
Net operating earnings:                
Net income   $ 13,767     $ 10,112     $ 32,487     $ 17,399  
Net unrealized (gains) losses on equity securities, after taxes   (1,508 )   (74 )   (6,165 )   936  
Net realized losses (gains) on investments, after taxes   186     (137 )   (36 )   (226 )
Net operating earnings   $ 12,445     $ 9,901     $ 26,286     $ 18,109  
                 
Diluted operating earnings per share:                
Diluted earnings per share   $ 0.63     $ 0.47     $ 1.49     $ 0.80  
Net unrealized (gains) losses on equity securities, after taxes, per share   (0.07 )       (0.28 )   0.04  
Net realized losses (gains) on investments, after taxes, per share   0.01     (0.01 )       (0.01 )
Diluted operating earnings per share   $ 0.57     $ 0.46     $ 1.21     $ 0.83  
                 
Operating return on equity:                
Average equity(1)   $ 298,398     $ 243,898     $ 285,947     $ 243,067  
Annualized return on equity(2)   18.5 %   16.6 %   22.7 %   14.3 %
Annualized operating return on equity(3)   16.7 %   16.2 %   18.4 %   14.9 %
                         

(1) Computed by adding the total equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two.

(2) Annualized return on equity is net income expressed on an annualized basis as a percentage of average total stockholders’ equity during the period.

(3) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average total stockholders’ equity during the period.

Underwriting Income

Underwriting income is defined as net income excluding net investment income, net unrealized gains and losses on equity securities, net realized gains and losses on investments, 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 six months ended June 30, 2019 and 2018, net income reconciles to underwriting income as follows:

    Three Months Ended June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
                 
    (in thousands)
Net income   $ 13,767     $ 10,112     $ 32,487     $ 17,399  
Income tax expense   2,768     2,349     6,849     3,877  
Income before income taxes   16,535     12,461     39,336     21,276  
Other expenses   21         57     14  
Net investment income   (4,806 )   (3,782 )   (9,321 )   (7,011 )
                         
Net unrealized (gains) losses on equity securities   (1,909 )   (94 )   (7,804 )   1,185  
Net realized investment losses (gains)   235     (174 )   (45 )   (286 )
Other income   (5 )   (4 )   (9 )   (7 )
Underwriting income   $ 10,071     $ 8,407     $ 22,214     $ 15,171  
                                 

Conference Call

Kinsale Capital Group will hold a conference call to discuss this press release on Friday, August 2, 2019, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 9782436, 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 October 1, 2019.

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 "believe," "expect," "seek," "may," "will," "intend," "project," "plan," "estimate" 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; adverse economic factors; inherent uncertainty of models resulting in actual losses that are materially different than the Company's estimates; 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
Senior 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 June 30,   Six Months Ended June 30,
    2019   2018   2019   2018
                 
Revenues   (in thousands, except per share data)
Gross written premiums   $ 94,947     $ 69,981     $ 179,573     $ 133,828  
Ceded written premiums   (12,260 )   (9,090 )   (23,819 )   (17,846 )
Net written premiums   82,687     60,891     155,754     115,982  
Change in unearned premiums   (16,600 )   (9,998 )   (28,176 )   (17,028 )
Net earned premiums   66,087     50,893     127,578     98,954  
                 
Net investment income   4,806     3,782     9,321     7,011  
Net unrealized gains (losses) on equity securities   1,909     94     7,804     (1,185 )
Net realized (losses) investment gains   (235 )   174     45     286  
Other income   5     4     9     7  
Total revenues   72,572     54,947     144,757     105,073  
                 
Expenses                
Losses and loss adjustment expenses   39,579     29,967     73,311     58,866  
Underwriting, acquisition and insurance expenses   16,437     12,519     32,053     24,917  
Other expenses   21         57     14  
Total expenses   56,037     42,486     105,421     83,797  
Income before income taxes   16,535     12,461     39,336     21,276  
Total income tax expense   2,768     2,349     6,849     3,877  
Net income   13,767     10,112     32,487     17,399  
                 
Other comprehensive income                
Change in unrealized gains (losses) on available-for-sale investments, net of taxes   6,555     (1,016 )   13,335     (5,872 )
Total comprehensive income   $ 20,322     $ 9,096     $ 45,822     $ 11,527  
                 
Earnings per share:                
Earnings per share - basic   $ 0.65     $ 0.48     $ 1.53     $ 0.83  
Earnings per share - diluted   $ 0.63     $ 0.47     $ 1.49     $ 0.80  
                 
Weighted-average shares outstanding:                
Weighted-average shares outstanding - basic   21,210     21,070     21,190     21,058  
Weighted-average shares outstanding - diluted   21,832     21,666     21,803     21,648  
                         


 
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
         
    June 30, 2019   December 31, 2018
         
Assets   (in thousands)
Investments:        
Fixed-maturity securities at fair value   $ 590,077     $ 510,251  
Equity securities at fair value   65,910     57,711  
Total investments   655,987     567,962  
         
Cash and cash equivalents   78,131     75,089  
Investment income due and accrued   3,972     3,783  
Premiums receivable, net   34,150     24,253  
Reinsurance recoverable   65,937     56,788  
Ceded unearned premiums   17,397     16,072  
Deferred policy acquisition costs, net of ceding commissions   18,652     14,801  
Intangible assets   3,538     3,538  
Deferred income tax asset, net   6,068     7,176  
Other assets   10,974     3,601  
Total assets   $ 894,806     $ 773,063  
         
Liabilities & Stockholders' Equity        
Liabilities:        
Reserves for unpaid losses and loss adjustment expenses   $ 407,433     $ 369,152  
Unearned premiums   157,752     128,250  
Payable to reinsurers   6,769     4,565  
Accounts payable and accrued expenses   7,655     7,090  
Other liabilities   7,290     20  
Total liabilities   586,899     509,077  
         
Stockholders' equity   307,907     263,986  
Total liabilities and stockholders' equity   $ 894,806     $ 773,063  
                 

 

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