Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of
$27.1 million, $1.17 per diluted share, for the second quarter of
2022 compared to $35.6 million, $1.55 per diluted share, for the
second quarter of 2021. Net income was $58.9 million, $2.55 per
diluted share, for the first half of 2022 compared to $67.7
million, $2.94 per diluted share, for the first half of 2021.
Net operating earnings(1) were $44.4 million, $1.92 per diluted
share, for the second quarter of 2022 compared to $29.4 million,
$1.28 per diluted share, for the second quarter of 2021. Net
operating earnings(1) were $82.1 million, $3.56 per diluted share,
for the first half of 2022 compared to $54.9 million, $2.38 per
diluted share, for the first half of 2021.
Highlights for the quarter included:
- Net income decreased by 24.0% from a decline in the fair value
of equity investments during the quarter compared to an increase in
the fair value of these investments during the same period last
year
- Net operating earnings(1) of $44.4 million increased by 51.0%
compared to the second quarter of 2021
- Gross written premiums increased by 42.7% to $277.0 million
compared to the second quarter of 2021
- Net investment income increased by 42.6% to $10.6 million
compared to the second quarter of 2021
- Underwriting income(2) was $44.1 million in the second quarter
of 2022, resulting in a combined ratio of 76.8%, compared to $28.7
million and a combined ratio of 79.2% in the second quarter of
2021
- Annualized operating return on equity(4) of 24.6% for the six
months ended June 30, 2022
“Our business continues to perform at high level with 43%
premium growth for the second quarter over the same period last
year and a combined ratio of just under 77%. These results reflect
the combination of a superior business model and favorable E&S
market conditions. Looking ahead, we remain confident in our
ability to create shareholder value through best-in-class
underwriting and technology driven low costs,” said President and
Chief Executive Officer, Michael P. Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $277.0 million for the second
quarter of 2022 compared to $194.1 million for the second quarter
of 2021, an increase of 42.7%. Gross written premiums were $522.5
million for the first half of 2022 compared to $362.9 million for
the first half of 2021, an increase of 44.0%. The increase in gross
written premiums during the second quarter and first half of 2022
over the same periods last year reflected strong submission flow
from brokers and a favorable pricing environment.
Underwriting income(2) was $44.1 million, resulting in a
combined ratio of 76.8%, for the second quarter of 2022, compared
to $28.7 million and a combined ratio of 79.2% for the same period
last year. The increase in underwriting income(2) quarter over
quarter was due to a combination of premium growth and favorable
rate increases from a strong underwriting environment and lower
levels of relative reported losses and operating expenses. Loss and
expense ratios were 56.3% and 20.5%, respectively, for the second
quarter of 2022 compared to 57.5% and 21.7% for the second quarter
of 2021. Results for the second quarters of 2022 and 2021 included
net favorable development of loss reserves from prior accident
years of $9.5 million, or 5.0 points, and $9.1 million, or 6.6
points, respectively.
Underwriting income(2) was $81.7 million, resulting in a
combined ratio of 77.8%, for the first half of 2022, compared to
$53.3 million and a combined ratio of 79.5% for the first half of
2021. The increase in underwriting income(2) period over period was
due to a combination of premium growth and favorable rate increases
from a strong underwriting environment and lower levels of relative
reported losses and operating expenses. Loss and expense ratios
were 56.8% and 21.0%, respectively, for the first half of 2022
compared to 57.3% and 22.2% for the first half of 2021. Results for
the first six months of 2022 and 2021 included net favorable
development of loss reserves from prior accident years of $17.9
million, or 4.8 points, and $16.2 million, or 6.2 points,
respectively.
Summary of Operating Results
The Company’s operating results for the three and six months
ended June 30, 2022 and 2021 are summarized as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
($ in thousands)
Gross written premiums
$ 277,001
$ 194,061
$ 522,514
$ 362,937
Ceded written premiums
(34,658)
(26,308)
(63,673)
(50,886)
Net written premiums
$ 242,343
$ 167,753
$ 458,841
$ 312,051
Net earned premiums
$ 190,158
$ 137,700
$ 368,720
$ 260,741
Losses and loss adjustment expenses
107,040
79,115
209,545
149,375
Underwriting, acquisition and insurance
expenses
38,972
29,889
77,517
58,025
Underwriting income(2)
$ 44,146
$ 28,696
$ 81,658
$ 53,341
Loss ratio
56.3 %
57.5 %
56.8 %
57.3 %
Expense ratio
20.5 %
21.7 %
21.0 %
22.2 %
Combined ratio
76.8 %
79.2 %
77.8 %
79.5 %
Annualized return on equity(3)
16.7 %
23.4 %
17.7 %
22.5 %
Annualized operating return on
equity(4)
27.3 %
19.3 %
24.6 %
18.2 %
(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 six months ended June 30, 2022 and 2021:
Three Months Ended
June 30, 2022
Three Months Ended
June 30, 2021
Losses and
Loss Adjustment
Expenses
% of Earned Premiums
Losses and
Loss Adjustment
Expenses
% of Earned Premiums
Loss ratio:
($ in thousands)
Current accident year
$ 116,531
61.3 %
$ 85,416
62.0 %
Current accident year - catastrophe
losses
21
— %
2,834
2.1 %
Effect of prior accident year
development
(9,512)
(5.0) %
(9,135)
(6.6) %
Total
$ 107,040
56.3 %
$ 79,115
57.5 %
Six Months Ended
June 30, 2022
Six Months Ended
June 30, 2021
Losses and
Loss Adjustment
Expenses
% of Earned Premiums
Losses and
Loss Adjustment
Expenses
% of Earned Premiums
Loss ratio:
($ in thousands)
Current accident year
$ 227,320
61.6 %
$ 162,673
62.4 %
Current accident year - catastrophe
losses
83
— %
2,910
1.1 %
Effect of prior accident year
development
(17,858)
(4.8) %
(16,208)
(6.2) %
Total
$ 209,545
56.8 %
$ 149,375
57.3 %
Investment Results
Net investment income was $10.6 million in the second quarter of
2022 compared to $7.4 million in the second quarter of 2021, an
increase of 42.6%. Net investment income was $19.7 million in the
first half of 2022 compared to $14.4 million in the first half of
2021, an increase of 37.0%. These increases were driven by growth
in the Company's investment portfolio generated largely from the
investment of strong operating cash flows since June 30, 2021. Net
operating cash flows were $278.7 million in the first half of 2022
compared to $194.9 million in the first half of 2021, an increase
of 42.9%. The Company’s investment portfolio had an annualized
gross investment return(5) of 2.6% for both the first six months of
2022 and 2021. The Company expects the current rising interest rate
environment to contribute to higher reinvestment yields on
fixed-maturity securities prospectively. Funds are generally
invested conservatively in high quality securities with an average
credit quality of "AA-" and the weighted average duration of the
fixed-maturity investment portfolio, including cash equivalents,
was 4.2 years and 4.3 years at June 30, 2022 and December 31, 2021,
respectively. Cash and invested assets totaled $1.8 billion at June
30, 2022 and $1.7 billion at December 31, 2021.
(5) Gross investment return is investment income from
fixed-maturity and equity securities, excluding cash equivalents,
before any deductions for fees and expenses, expressed as a
percentage of the average beginning and ending book values of those
investments during the period.
Other
On July 22, 2022, the Company entered into a Note Purchase and
Private Shelf Agreement and issued 5.15% senior promissory notes of
$125.0 million, the proceeds of which will be available to fund
surplus at Kinsale Insurance Company, refinance indebtedness and
for general corporate purposes.
On July 22, 2022, the Company entered into an Amended and
Restated Credit Agreement, which primarily extended the maturity
date to July 22, 2027 and increased the aggregate commitment to
$100.0 million.
The effective tax rates for the six months ended June 30, 2022
and 2021 were 17.4% and 18.5%, respectively. In the first half of
2022 and 2021, 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 $634.1 million at June 30, 2022
compared to $699.3 million at December 31, 2021. The decrease in
stockholders' equity was primarily due to a decline in the fair
value of the Company's fixed-maturity investments, resulting from a
higher interest rate environment, offset in part by net income.
Annualized operating return on equity(4) was 24.6% for the first
half of 2022, an increase from 18.2% for the first half of 2021,
which was attributable primarily to growth in the business from
favorable market conditions and rate increases.
Non-GAAP Financial Measures
Net Operating Earnings
Net operating earnings is defined as net income excluding the
effects of the change in the fair value of equity securities, after
taxes, and net realized investment gains and losses, after taxes.
Management believes the exclusion of these items provides a useful
comparison of the Company's underlying business performance from
period to period. Net operating earnings and percentages or
calculations using net operating earnings (e.g., diluted operating
earnings per share and annualized operating return on equity) are
non-GAAP financial measures. Net operating earnings should not be
viewed as a substitute for net income calculated in accordance with
GAAP, and other companies may define net operating earnings
differently.
For the three and six months ended June 30, 2022 and 2021, net
income and diluted earnings per share reconcile to net operating
earnings and diluted operating earnings per share as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
($ in thousands, except per
share data)
Net operating earnings:
Net income
$ 27,090
$ 35,635
$ 58,881
$ 67,714
Adjustments:
Change in the fair value of equity
securities, before taxes
23,353
(7,565)
31,104
(14,656)
Income tax (benefit) expense (1)
(4,904)
1,589
(6,532)
3,078
Change in fair value of equity securities,
after taxes
18,449
(5,976)
24,572
(11,578)
Net realized investment gains, before
taxes
(1,413)
(304)
(1,708)
(1,502)
Income tax expense (1)
297
64
359
315
Net realized investment gains, after
taxes
(1,116)
(240)
(1,349)
(1,187)
Net operating earnings
$ 44,423
$ 29,419
$ 82,104
$ 54,949
Diluted operating earnings per
share:
Diluted earnings per share
$ 1.17
$ 1.55
$ 2.55
$ 2.94
Change in the fair value of equity
securities, after taxes, per share
0.80
(0.26)
1.06
(0.50)
Net realized investment gains, after
taxes, per share
(0.05)
(0.01)
(0.06)
(0.05)
Diluted operating earnings per
share(2)
$ 1.92
$ 1.28
$ 3.56
$ 2.38
Operating return on equity:
Average equity(3)
$ 649,818
$ 608,601
$ 666,701
$ 602,937
Annualized return on equity(4)
16.7 %
23.4 %
17.7 %
22.5 %
Annualized operating return on
equity(5)
27.3 %
19.3 %
24.6 %
18.2 %
(1) Income taxes on adjustments to reconcile net income to net
operating earnings use a 21% effective tax rate.
(2) Diluted operating earnings per share may not add due to
rounding.
(3) 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.
(4) 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.
(5) 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
expenses, other income 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, 2022 and 2021, net
income reconciles to underwriting income as follows:
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
(in thousands)
Net income
$ 27,090
$ 35,635
$ 58,881
$ 67,714
Income tax expense
5,352
7,973
12,433
15,333
Income before income taxes
32,442
43,608
71,314
83,047
Net investment income
(10,594)
(7,429)
(19,682)
(14,371)
Change in the fair value of equity
securities
23,353
(7,565)
31,104
(14,656)
Net realized investment gains
(1,413)
(304)
(1,708)
(1,502)
Other expenses (6)
503
398
899
846
Other income
(145)
(12)
(269)
(23)
Underwriting income
$ 44,146
$ 28,696
$ 81,658
$ 53,341
(6) Other expenses are comprised of interest expense on the
Company's Credit Facility and 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, July 29, 2022 at 9:00 a.m. (Eastern
Time). Members of the public may access the conference call by
dialing (888) 660-6493, conference ID# 3573726, 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 August 26, 2022.
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.
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Consolidated
Statements of Income and Comprehensive Income
Three Months Ended June
30,
Six Months Ended June
30,
2022
2021
2022
2021
Revenues
(in thousands, except per
share data)
Gross written premiums
$ 277,001
$ 194,061
$ 522,514
$ 362,937
Ceded written premiums
(34,658)
(26,308)
(63,673)
(50,886)
Net written premiums
242,343
167,753
458,841
312,051
Change in unearned premiums
(52,185)
(30,053)
(90,121)
(51,310)
Net earned premiums
190,158
137,700
368,720
260,741
Net investment income
10,594
7,429
19,682
14,371
Change in the fair value of equity
securities
(23,353)
7,565
(31,104)
14,656
Net realized investment gains
1,413
304
1,708
1,502
Other income
145
12
269
23
Total revenues
178,957
153,010
359,275
291,293
Expenses
Losses and loss adjustment expenses
107,040
79,115
209,545
149,375
Underwriting, acquisition and insurance
expenses
38,972
29,889
77,517
58,025
Other expenses
503
398
899
846
Total expenses
146,515
109,402
287,961
208,246
Income before income taxes
32,442
43,608
71,314
83,047
Total income tax expense
5,352
7,973
12,433
15,333
Net income
27,090
35,635
58,881
67,714
Other comprehensive (loss)
income
Change in net unrealized (losses) gains on
available-for-sale investments, net of taxes
(54,882)
9,583
(118,812)
(10,039)
Total comprehensive (loss)
income
$ (27,792)
$ 45,218
$ (59,931)
$ 57,675
Earnings per share:
Basic
$ 1.19
$ 1.57
$ 2.59
$ 2.99
Diluted
$ 1.17
$ 1.55
$ 2.55
$ 2.94
Weighted-average shares
outstanding:
Basic
22,781
22,678
22,767
22,665
Diluted
23,103
23,054
23,095
23,055
KINSALE CAPITAL GROUP, INC.
AND SUBSIDIARIES
Unaudited Condensed
Consolidated Balance Sheets
June 30, 2022
December 31, 2021
Assets
(in thousands)
Investments:
Fixed-maturity securities at fair
value
$ 1,493,074
$ 1,392,066
Equity securities at fair value
139,539
172,611
Short-term investments
10,770
—
Total investments
1,643,383
1,564,677
Cash and cash equivalents
120,890
121,040
Investment income due and accrued
9,539
7,658
Premiums receivable, net
97,308
71,004
Reinsurance recoverables, net
135,037
122,970
Ceded unearned premiums
38,307
33,679
Deferred policy acquisition costs, net of
ceding commissions
54,806
41,968
Intangible assets
3,538
3,538
Deferred income tax asset, net
43,167
2,109
Other assets
52,144
57,012
Total assets
$ 2,198,119
$ 2,025,655
Liabilities & Stockholders'
Equity
Liabilities:
Reserves for unpaid losses and loss
adjustment expenses
$ 1,036,741
$ 881,344
Unearned premiums
442,479
347,730
Payable to reinsurers
18,870
16,112
Accounts payable and accrued expenses
15,557
23,250
Credit facility
42,759
42,696
Other liabilities
7,647
15,188
Total liabilities
1,564,053
1,326,320
Stockholders' equity
634,066
699,335
Total liabilities and stockholders'
equity
$ 2,198,119
$ 2,025,655
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220728005629/en/
Kinsale Capital Group, Inc. Bryan Petrucelli Executive Vice
President, Chief Financial Officer and Treasurer 804-289-1272
ir@kinsalecapitalgroup.com
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