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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2023
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to _______

Commission File Number: 001-37848
KINSALE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware
98-0664337
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)
2035 Maywill Street
Suite 100
Richmond, Virginia 23230
(Address of principal executive offices, including zip code)
(804) 289-1300
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareKNSLNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐     No  ☒
Number of shares of the registrant's common stock outstanding at April 21, 2023: 23,154,606

Table of Contents
KINSALE CAPITAL GROUP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.
1
Table of Contents
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that does not directly relate to historical or current fact. These statements may discuss, among others, our future financial performance, our business prospects and strategy, our anticipated financial position, liquidity and capital, dividends and general market and industry conditions. You can identify forward-looking statements by words such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," "believes," "seeks," "outlook," "future," "will," "would," "should," "could," "may," "can have," "prospects" or similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements are only predictions and are not guarantees of future performance. Actual results may differ materially from those contemplated by a forward-looking statement. Factors that may cause such differences include, without limitation:
•the possibility that our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows;
•the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;
•the failure of any of the loss limitations or exclusions we employ, or change in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;
•the inability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;
•the possibility that severe weather conditions and catastrophes, including due to climate change, pandemics and similar events adversely affecting our business, results of operations and financial condition;
•adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity resulting in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, affecting our growth and profitability;
•a decline in our financial strength rating adversely affecting the amount of business we write;
•the potential loss of one or more key executives or an inability to attract and retain qualified personnel adversely affecting our results of operations;
•our reliance on a select group of brokers;
•the changing market conditions of our excess and surplus lines ("E&S") insurance operations, as well as the cyclical nature of our business, affecting our financial performance;
•our employees taking excessive risks;
•the intense competition for business in our industry;
•the effects of litigation having an adverse effect on our business;
•the performance of our investment portfolio adversely affecting our financial results;
•the ability to pay dividends being dependent on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary;
•being forced to sell investments to meet our liquidity requirements;
2
Table of Contents
•our credit agreements contain a number of financial and other covenants, the breach of which could result in acceleration of payment of amounts due under our borrowings;
•extensive regulation adversely affecting our ability to achieve our business objectives or the failure to comply with these regulations adversely affecting our financial condition and results of operations;
•the other risks and uncertainties discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022.
Forward-looking statements speak only as of the date on which they are made. Except as expressly required under federal securities laws or the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
March 31,
2023		December 31,
2022
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $2,123,256 – 2023, $447 allowance for credit loss; $1,933,632 and $366 – 2022)
$1,971,800 $1,760,100 
Equity securities, at fair value (cost: $141,855 – 2023; $126,478 – 2022)
171,366 152,471 
Real estate investments, net76,475 76,387 
Short-term investments26,640 41,337 
Total investments2,246,281 2,030,295 
Cash and cash equivalents158,648 156,274 
Investment income due and accrued14,948 14,451 
Premiums receivable, net of allowance for credit losses of $10,127 – 2023; $8,067 – 2022
128,774 105,754 
Reinsurance recoverables, net of allowance for credit losses of $459 – 2023; $459 – 2022
218,796 220,454 
Ceded unearned premiums45,115 42,935 
Deferred policy acquisition costs, net of ceding commissions69,444 61,594 
Intangible assets3,538 3,538 
Deferred income tax asset, net53,320 56,983 
Other assets58,958 54,844 
Total assets$2,997,822 $2,747,122 
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$1,354,151 $1,238,402 
Unearned premiums563,729 499,677 
Payable to reinsurers33,111 32,024 
Accounts payable and accrued expenses12,509 31,361 
Debt195,812 195,747 
Other liabilities22,779 4,462 
Total liabilities2,182,091 2,001,673 
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 23,153,945 and 23,090,526 shares issued and outstanding at March 31, 2023 and December 31, 2022 respectively
232 231 
Additional paid-in capital347,222 347,015 
Retained earnings585,686 533,121 
Accumulated other comprehensive loss(117,409)(134,918)
Total stockholders’ equity815,731 745,449 
Total liabilities and stockholders’ equity$2,997,822 $2,747,122 
See accompanying notes to condensed consolidated financial statements.
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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended March 31,
20232022
(in thousands, except per share data)
Revenues:
Gross written premiums$357,588 $245,513 
Ceded written premiums(58,558)(29,015)
Net written premiums299,030 216,498 
Change in unearned premiums(61,872)(37,936)
Net earned premiums237,158 178,562 
Net investment income20,695 9,088 
Change in the fair value of equity securities
3,518 (7,751)
Net realized investment (losses) gains(4,652)295 
Change in allowance for credit losses on investments(81)— 
Other income306 124 
Total revenues256,944 180,318 
Expenses:
Losses and loss adjustment expenses139,034 102,505 
Underwriting, acquisition and insurance expenses46,545 38,545 
Interest expense2,570 253 
Other expenses402 143 
Total expenses188,551 141,446 
Income before income taxes68,393 38,872 
Total income tax expense 12,593 7,081 
Net income55,800 31,791 
Other comprehensive income (loss):
Change in net unrealized gains (losses) on available-for-sale investments, net of taxes17,509 (63,930)
Total comprehensive income (loss) $73,309 $(32,139)
Earnings per share:
Basic$2.43 $1.40 
Diluted$2.40 $1.38 
Weighted-average shares outstanding:
Basic23,008 22,753 
Diluted23,290 23,093 

See accompanying notes to condensed consolidated financial statements.
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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
 Other
Compre-
hensive (Loss)
Income 		Total
Stock-
holders' Equity
(in thousands, except share and per share data)
Balance at December 31, 202223,090,526 $231 $347,015 $533,121 $(134,918)$745,449 
Issuance of common stock under stock-based compensation plan
70,047 1 323 — — 324 
Stock-based compensation expense
— — 1,988 — — 1,988 
Restricted shares withheld for taxes(6,628)— (2,104)— — (2,104)
Dividends declared ($0.14 per share)
— — — (3,235)— (3,235)
Other comprehensive income, net of tax— — — — 17,509 17,509 
Net income— — — 55,800 — 55,800 
Balance at March 31, 202323,153,945 $232 $347,222 $585,686 $(117,409)$815,731 
Balance at December 31, 202122,834,377 $228 $295,040 $385,942 $18,125 $699,335 
Issuance of common stock under stock-based compensation plan
75,630 1 377 — — 378 
Stock-based compensation expense
— — 1,489 — — 1,489 
Restricted shares withheld for taxes(2,459)— (516)— — (516)
Dividends declared ($0.13 per share)
— — — (2,977)— (2,977)
Other comprehensive loss, net of tax— — — — (63,930)(63,930)
Net income— — — 31,791 — 31,791 
Balance at March 31, 202222,907,548 $229 $296,390 $414,756 $(45,805)$665,570 

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
20232022
(in thousands)
Operating activities:
Net cash provided by operating activities$197,604 $121,929 
Investing activities:
Purchase of property and equipment(2,660)(703)
Purchase of real estate investment(558)— 
Change in short-term investments, net15,066 (840)
Purchases – fixed-maturity securities(258,220)(226,496)
Purchases – equity securities(20,300)(487)
Sales – fixed-maturity securities49,220 54,238 
Sales – equity securities1,137 1,625 
Maturities and calls – fixed-maturity securities26,103 36,953 
Net cash used in investing activities(190,212)(135,710)
Financing activities:
Payroll taxes withheld and remitted on share-based payments(2,104)(516)
Proceeds from stock options exercised324 378 
Dividends paid(3,238)(2,963)
Net cash used in financing activities(5,018)(3,101)
Net change in cash and cash equivalents2,374 (16,882)
Cash and cash equivalents at beginning of year156,274 121,040 
Cash and cash equivalents at end of period$158,648 $104,158 
See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

1.    Summary of Significant Accounting Policies
Basis of presentation
The unaudited condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of Kinsale Capital Group, Inc. and its subsidiaries ("the Company") included in the Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results of operations for the full year.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if any, at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Prospective accounting pronouncements
There are no prospective accounting standards which, upon their effective date, would have a material impact on the Company's condensed consolidated financial statements.
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2.     Investments
Available-for-sale investments
The following tables summarize the available-for-sale investments at March 31, 2023 and December 31, 2022:
March 31, 2023
Amortized CostGross Unrealized GainsGross Unrealized LossesAllowance for Credit LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$17,940 $— $(964)$— $16,976 
Obligations of states, municipalities and political subdivisions
206,449 327 (20,973)— 185,803 
Corporate and other securities1,008,098 1,803 (70,423)(447)939,031 
Asset-backed securities484,384 830 (6,703)— 478,511 
Residential mortgage-backed securities
341,064 52 (49,225)— 291,891 
Commercial mortgage-backed securities65,321 — (5,733)— 59,588 
Total fixed-maturity investments$2,123,256 $3,012 $(154,021)$(447)$1,971,800 

December 31, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesAllowance for Credit LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$17,934 $— $(1,193)$— $16,741 
Obligations of states, municipalities and political subdivisions
230,746 330 (26,444)— 204,632 
Corporate and other securities909,285 730 (76,757)(366)832,892 
Asset-backed securities361,248 292 (8,534)— 353,006 
Residential mortgage-backed securities
349,066 52 (55,156)— 293,962 
Commercial mortgage-backed securities65,353 — (6,486)— 58,867 
Total fixed-maturity investments$1,933,632 $1,404 $(174,570)$(366)$1,760,100 
Available-for-sale securities in a loss position
The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss. The Company considers a number of factors in completing its review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition of an issuer. In addition to specific issuer information, the Company also evaluates the current market and interest rate environment. Generally, a decline in a security’s value caused by a change in the market or interest rate environment does not constitute a credit loss.
For fixed-maturity securities, the Company also considers whether it intends to sell the security or, if it is more likely than not that it will be required to sell the security before recovery, and its ability to recover all amounts outstanding when contractually due. When assessing whether it intends to sell a fixed-maturity security or, if it is
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likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.
For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment. For fixed-maturity securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before recovery of its amortized cost, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income.
The Company reports investment income due and accrued separately from available-for-sale investments and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through earnings at the time the issuer of the bond defaults or is expected to default on payments.
As of March 31, 2023, the Company's credit loss review resulted in an allowance for credit losses on 7 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities:
Three Months Ended March 31,
20232022
(in thousands)
Beginning balance$366 $— 
Increase to allowance from securities for which credit losses were not previously recorded— — 
Reduction from securities sold during the period— — 
Net increase (decrease) from securities that had an allowance at the beginning of the period81 — 
Ending balance$447 $— 
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The following tables summarize gross unrealized losses and estimated fair value for available-for-sale investments by length of time that the securities have continuously been in an unrealized loss position:
March 31, 2023
Less than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of the U.S. government agencies$3,344 $(27)$13,632 $(937)$16,976 $(964)
Obligations of states, municipalities and political subdivisions
73,448 (3,397)62,164 (17,576)135,612 (20,973)
Corporate and other securities
380,272 (7,621)386,348 (62,802)766,620 (70,423)
Asset-backed securities163,407 (1,236)201,074 (5,467)364,481 (6,703)
Residential mortgage-backed securities
9,915 (465)281,614 (48,760)291,529 (49,225)
Commercial mortgage-backed securities6,351 (353)53,237 (5,380)59,588 (5,733)
Total fixed-maturity investments$636,737 $(13,099)$998,069 $(140,922)$1,634,806 $(154,021)

At March 31, 2023, the Company held 897 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $1.6 billion and gross unrealized losses of $154.0 million. Of these securities, 569 were in a continuous unrealized loss position for greater than one year. As discussed above, the Company regularly reviews all fixed-maturity securities within its investment portfolio to determine whether a credit loss has occurred. Based on the Company's review as of March 31, 2023, except for securities previously discussed, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At March 31, 2023, 80.3% of the Company’s fixed-maturity securities were rated "A-" or better and all of the Company’s fixed-maturity securities made expected coupon payments under the contractual terms of the securities.
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December 31, 2022
Less than 12 Months
12 Months or Longer
Total
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$10,538 $(447)$6,204 $(746)$16,742 $(1,193)
Obligations of states, municipalities and political subdivisions
141,460 (20,347)17,314 (6,097)158,774 (26,444)
Corporate and other securities
583,619 (42,675)156,148 (34,082)739,767 (76,757)
Asset-backed securities216,487 (5,429)97,703 (3,105)314,190 (8,534)
Residential mortgage-backed securities
98,909 (12,324)194,773 (42,832)293,682 (55,156)
Commercial mortgage-backed securities50,666 (4,732)8,201 (1,754)58,867 (6,486)
Total fixed-maturity investments$1,101,679 $(85,954)$480,343 $(88,616)$1,582,022 $(174,570)

Contractual maturities of available-for-sale fixed-maturity securities
The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at March 31, 2023 are summarized, by contractual maturity, as follows:
March 31, 2023
AmortizedEstimated
CostFair Value
(in thousands)
Due in one year or less$55,240 $54,255 
Due after one year through five years724,427 703,547 
Due after five years through ten years214,934 189,970 
Due after ten years237,886 194,038 
Asset-backed securities484,384 478,511 
Residential mortgage-backed securities341,064 291,891 
Commercial mortgage-backed securities65,321 59,588 
Total fixed-maturity securities $2,123,256 $1,971,800 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.
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Real estate investments
In December 2022, the Company completed the purchase of a real estate investment property. Real estate investments consisted of the following:
March 31, 2023December 31, 2022
(in thousands)
Building$45,253 $44,931 
Land18,166 17,946 
Intangible in-place lease9,776 9,749 
Site improvements2,714 2,686 
Parking deck1,314 1,311 
77,223 76,623 
Accumulated depreciation(748)(236)
Total real estate investments, net$76,475 $76,387 
Concurrent with the purchase of the real estate investment property, the Company entered into two operating lease agreements for office space as the lessor. The terms of these two leases are 5 years and 12 years. Future minimum rental income expected on these operating leases is $3.3 million in 2023, $4.5 million in 2024, $4.6 million in 2025, $4.8 million in 2026, $4.9 million in 2027 and $36.2 million thereafter.
Net investment income
The following table presents the components of net investment income for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Interest:
Taxable bonds$18,104 $7,795 
Tax exempt municipal bonds636 857 
Cash equivalents and short-term investments713 19 
Dividends on equity securities1,143 1,030 
Real estate investment income1,358 — 
Gross investment income21,954 9,701 
Investment expenses(1,259)(613)
Net investment income$20,695 $9,088 

Investment expenses included depreciation expense related to real estate investments of $0.5 million for the three months ended March 31, 2023. There was no depreciation of real estate investments for the three months ended March 31, 2022.
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Realized investment gains and losses
The following table presents realized investment gains and losses for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Fixed-maturity securities:
Realized gains$399 $842 
Realized losses(1,259)(365)
Net realized (losses) gains from fixed-maturity securities(860)477 
Equity securities:
Realized gains15 — 
Realized losses(3,800)(148)
Net realized losses from equity securities(3,785)(148)
Realized losses from the sales of short-term investments(7)(34)
Net realized investment (losses) gains$(4,652)$295 
The net realized gains or losses on sales of equity securities represent the total gains or losses from the purchase dates of the equity securities. The change in unrealized gains (losses) in the consolidated statement of income consists of two components: (1) the reversal of the gain or loss recognized in previous periods on equity securities sold and (2) the change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.
Change in net unrealized gains (losses) on fixed-maturity securities
For the three months ended March 31, 2023 and 2022, the changes in net unrealized gains (losses) for fixed-maturity securities were $22.2 million and $(80.9) million, respectively.
Insurance – statutory deposits
The Company had invested assets with a fair value of $5.9 million on deposit with state regulatory authorities at both March 31, 2023 and December 31, 2022.
Payable for investments purchased
The Company recorded a payable for investments purchased, not yet settled, of $9.6 million and $1.8 million at March 31, 2023 and December 31, 2022, respectively. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet.
3.     Fair Value Measurements
Fair value is estimated for each class of financial instrument based on the framework established in the fair value accounting guidance. Fair value is defined as the price in the principal market that would be received for an asset or paid to transfer a liability to facilitate an orderly transaction between market participants on the measurement date. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).
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Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value.
The three levels of the fair value hierarchy are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement.
Fair values of the Company's investment portfolio are estimated using unadjusted prices obtained by its investment accounting vendor from nationally recognized third-party pricing services, where available. Values for U.S. Treasuries, exchange traded funds and common stocks are generally based on Level 1 inputs, which use quoted prices in active markets for identical assets. For other fixed-maturity securities and non-redeemable preferred stock, the pricing vendors use a pricing methodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or securities with similar characteristics to establish a valuation. The estimates of fair value of these investments are included in the amounts disclosed as Level 2. For those investments where significant inputs are unobservable, the Company's investment accounting vendor obtains valuations from pricing vendors or brokers using the market approach and income approach valuation techniques and are disclosed as Level 3.
Management performs several procedures to ascertain the reasonableness of investment values included in the condensed consolidated financial statements, including 1) obtaining and reviewing internal control reports from the Company's investment accounting vendor that assess fair values from third party pricing services, 2) discussing with the Company's investment accounting vendor its process for reviewing and validating pricing obtained from third party pricing services and 3) reviewing the security pricing received from the Company's investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level. The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs.
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The following tables present the balances of assets measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022, by level within the fair value hierarchy:
March 31, 2023
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$16,976 $— $— $16,976 
Obligations of states, municipalities and political subdivisions
— 185,803 — 185,803 
Corporate and other securities— 939,031 — 939,031 
Asset-backed securities— 478,511 — 478,511 
Residential mortgage-backed securities— 291,891 — 291,891 
Commercial mortgage-backed securities— 59,588 — 59,588 
Total fixed-maturity securities16,976 1,954,824 — 1,971,800 
Equity securities:
Exchange traded funds107,367 — — 107,367 
Non-redeemable preferred stock— 34,287 — 34,287 
Common stocks29,712 — — 29,712 
Total equity securities137,079 34,287 — 171,366 
Short-term investments16,909 9,731 — 26,640 
Total$170,964 $1,998,842 $— $2,169,806 

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December 31, 2022
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$16,741 $— $— $16,741 
Obligations of states, municipalities and political subdivisions
— 204,632 — 204,632 
Corporate and other securities— 832,892 — 832,892 
Asset-backed securities— 353,006 — 353,006 
Residential mortgage-backed securities— 293,962 — 293,962 
Commercial mortgage-backed securities— 58,867 — 58,867 
Total fixed-maturity securities16,741 1,743,359 — 1,760,100 
Equity securities:
Exchange traded funds104,202 — — 104,202 
Non-redeemable preferred stock— 38,162 — 38,162 
Common stocks10,107 — — 10,107 
Total equity securities114,309 38,162 — 152,471 
Short-term investments31,366 9,971 — 41,337 
Total$162,416 $1,791,492 $— $1,953,908 
There were no assets or liabilities measured at fair value on a nonrecurring basis as of March 31, 2023 or December 31, 2022.
The carrying amount of the Company's 5.15% Series A Senior Notes was $125.0 million, less debt issuance cost, and the corresponding estimated fair value was $120.9 million and $117.2 million at March 31, 2023 and December 31, 2022, respectively. The fair value measurement was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under the Company's credit profile. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2. The estimated fair value of outstanding borrowings under the Company's revolving Credit Facility approximated its carrying value at March 31, 2023 and December 31, 2022. See Note 13 for further information regarding the Company's debt arrangements.
The Company holds cash equivalents that are managed as part of its investment portfolio and, due to the short-term maturities of these assets, the carrying value of these investments approximates fair value. The Company held cash equivalents of $15.9 million and $58.0 million at March 31, 2023 and December 31, 2022, respectively.

4.     Allowance For Credit Losses
Premiums receivable
Premiums receivable balances are carried at face value, net of any allowance for credit losses. The allowance for credit losses represents an estimate of amounts considered uncollectible based on the Company’s assessment of the collectability of receivables that are past due. The estimate considers historical loss data, current and future economic conditions and specific identification of collectability concerns, where applicable. The following table presents the change in the allowance for credit losses for premiums receivable for the three months ended March 31, 2023 and 2022:
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Three Months Ended March 31,
20232022
(in thousands)
Beginning balance$8,067 $3,391 
Current period change for estimated uncollectible premiums2,407 2,016 
Write-offs of uncollectible premiums receivable(347)(366)
Ending balance$10,127 $5,041 

5.     Deferred Policy Acquisition Costs
The following table presents the amounts of policy acquisition costs deferred and amortized for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Balance, beginning of period$61,594 $41,968 
Policy acquisition costs deferred:
Direct commissions51,364 35,860 
Ceding commissions(17,378)(8,545)
Other underwriting and policy acquisition costs2,646 1,988 
Policy acquisition costs deferred36,632 29,303 
Amortization of net policy acquisition costs
(28,782)(23,788)
Balance, end of period$69,444 $47,483 
Amortization of net policy acquisition costs is included in the line item "Underwriting, acquisition and insurance expenses" in the accompanying consolidated statements of income and comprehensive income.
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6.     Property and Equipment, Net
Property and equipment are included in "other assets" in the accompanying consolidated balance sheets and consist of the following:
March 31, 2023December 31, 2022
(in thousands)
Building$36,870 $33,065 
Parking deck5,072 5,072 
Land3,068 3,068 
Equipment3,558 3,444 
Software12,305 11,410 
Furniture and fixtures3,011 2,615 
Land improvements474 474 
Leasehold improvements67 — 
Construction in progress - building— 2,618 
64,425 61,766 
Accumulated depreciation(9,027)(8,291)
Total property and equipment, net$55,398 $53,475 

7.     Underwriting, Acquisition and Insurance Expenses
Underwriting, acquisition and insurance expenses for the three months ended March 31, 2023 and 2022 consist of the following:
Three Months Ended March 31,
20232022
(in thousands)
Underwriting, acquisition and insurance expenses incurred:
Direct commissions$43,169 $29,951 
Ceding commissions(16,559)(7,829)
Other underwriting expenses19,935 16,423 
Total$46,545 $38,545 
Other underwriting expenses within underwriting, acquisition and insurance expenses included salaries, bonus and employee benefits expenses of $19.3 million and $15.0 million for the three months ended March 31, 2023 and 2022, respectively.

8.    Stock-based Compensation
On July 27, 2016, the Kinsale Capital Group, Inc. 2016 Omnibus Incentive Plan (the "2016 Incentive Plan") became effective. The 2016 Incentive Plan, which is administered by the Compensation, Nominating and Corporate Governance Committee of the Company’s Board of Directors, provides for grants of stock options, restricted stock, restricted stock units and other stock-based awards to officers, employees, directors, independent contractors and consultants. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832.
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The total compensation cost that has been charged against income for share-based compensation arrangements was $2.0 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively.
Restricted Stock Awards
During the three months ended March 31, 2023, the Company granted restricted stock awards under the 2016 Incentive Plan. The restricted stock awards were valued on the date of grant and will vest over a period of 1 to 4 years corresponding to the anniversary date of the grants. The fair value of restricted stock awards was determined based on the closing trading price of the Company’s shares on the grant date or, if no shares were traded on the grant date, the last preceding date for which there was a sale of shares. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive dividends. Unvested shares of restricted stock awards and accrued dividends, if any, are forfeited upon the termination of service to or employment with the Company.
A summary of restricted stock activity under the 2016 Incentive Plan for the three months ended March 31, 2023 is as follows:
For the Three Months Ended
March 31, 2023
Number of SharesWeighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the period98,621 $182.37 
Granted50,515 $313.51 
Vested(22,482)$205.80 
Forfeited(725)$225.64 
Non-vested outstanding at the end of the period125,929 $230.54 
Employees surrender shares to pay for withholding tax obligations resulting from any vesting of restricted stock awards. During the three months ended March 31, 2023, shares withheld for taxes in connection with the vesting of restricted stock awards totaled 6,628.
The weighted average grant-date fair value per share of the Company's restricted stock awards granted during the three months ended March 31, 2023 and 2022 was $313.51 and $211.86, respectively. The fair value of restricted stock awards that vested during the three months ended March 31, 2023 and 2022 was $6.9 million and $2.3 million, respectively. As of March 31, 2023, the Company had $26.5 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 3.2 years.
Stock Options
On July 27, 2016, the Board of Directors approved, and the Company granted, 1,036,916 stock options with an exercise price equal to the initial public offering price of $16.00 per share and a weighted-average grant-date fair value of $2.71 per share. The options have a maximum contractual term of 10 years and vested in 4 equal annual installments following the date of the grant. The value of the options granted was estimated at the date of grant using the Black-Scholes pricing model.
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A summary of option activity as of March 31, 2023, and changes during the period then ended is presented below:
Number of SharesWeighted-Average Exercise PriceWeighted-Average Remaining Years of Contractual TermAggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2023256,357 $16.00 
Granted— — 
Forfeited— — 
Exercised(20,257)16.00 
Outstanding at March 31, 2023
236,100 $16.00 3.3$67,088 
Exercisable at March 31, 2023
236,100 $16.00 3.3$67,088 
The total intrinsic value of options exercised was $6.0 million and $4.5 million during the three months ended March 31, 2023 and 2022, respectively. 
9.    Earnings Per Share
The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in the condensed consolidated financial statements:
Three Months Ended March 31,
20232022
(in thousands, except per share data)
Net income$55,800 $31,791 
Weighted average common shares outstanding - basic23,008 22,753 
Effect of potential dilutive securities:
Conversion of stock options234 291 
Conversion of restricted stock48 49 
Weighted average common shares outstanding - diluted23,290 23,093 
Earnings per common share:
Basic$2.43 $1.40 
Diluted$2.40 $1.38 
There were 47 thousand and 53 thousand anti-dilutive stock awards for the three months ended March 31, 2023 and 2022, respectively.
10. Income Taxes
The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company's best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate, primarily as a result of tax-exempt investment income and any discrete items recognized during the period. The Company's effective tax rates were 18.4% and 18.2% for the three months ended March 31, 2023 and 2022, respectively. The effective tax rates were
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lower than the federal statutory rate of 21% due primarily to the tax benefits from stock-based compensation and from income generated by certain tax-exempt investments.
11.     Reserves For Unpaid Losses and Loss Adjustment Expenses
The following table presents a reconciliation of consolidated beginning and ending reserves for unpaid losses and loss adjustment expenses:
March 31,
20232022
(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year
$1,238,402 $881,344 
Less: reinsurance recoverable on unpaid losses
177,039 117,561 
Net reserves for unpaid losses and loss adjustment expenses, beginning of year
1,061,363 763,783 
Incurred losses and loss adjustment expenses:
Current year148,077 110,851 
Prior years(9,043)(8,346)
Total net losses and loss adjustment expenses incurred139,034 102,505 
Payments:
Current year1,452 1,142 
Prior years43,749 28,938 
Total payments45,201 30,080 
Net reserves for unpaid losses and loss adjustment expenses, end of period
1,155,196 836,208 
Reinsurance recoverable on unpaid losses198,955 121,367 
Gross reserves for unpaid losses and loss adjustment expenses, end of period
$1,354,151 $957,575 
During the three months ended March 31, 2023, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2022 developed favorably by $9.0 million, of which $12.6 million was attributable to the 2021 and 2022 accident years due to lower emergence of reported losses than expected across most lines of business. This favorable development was offset in part by adverse development largely from the 2017 and 2019 accident years due primarily to long-tail property damage claims within the construction-related primary casualty business that are more exposed to the recent increase in inflation.
During the three months ended March 31, 2022, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2021 developed favorably by $8.3 million, of which $10.1 million was attributable to the 2020 and 2021 accident years due to lower than expected reported losses across most lines of business. This was offset by $2.0 million of unfavorable development from accident years 2016 and 2018 due to routine variability in reported losses.
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12.     Reinsurance
The following table summarizes the effect of reinsurance on premiums written and earned for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Premiums written:
Direct$357,588 $245,513 
Ceded(58,558)(29,015)
Net written$299,030 $216,498 
Premiums earned:
Direct$293,536 $205,628 
Ceded(56,378)(27,066)
Net earned$237,158 $178,562 
The following table summarizes ceded losses and loss adjustment expenses for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Ceded incurred losses and loss adjustment expenses$36,009 $9,636 
The following table presents reinsurance recoverables on paid and unpaid losses as of March 31, 2023 and December 31, 2022:
March 31, 2023December 31, 2022
(in thousands)
Reinsurance recoverables on paid losses$19,841 $43,415 
Reinsurance recoverables on unpaid losses, net198,955 177,039 
Reinsurance recoverables, net$218,796 $220,454 

13.     Debt
Note Purchase and Private Shelf Agreement
On July 22, 2022, the Company entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”) with PGIM, Inc. (“Prudential”) and the purchasers of the Series A Notes (as defined below), named in the Purchaser Schedule attached thereto (collectively, the “Note Purchasers”). Pursuant to the Note Purchase Agreement, on July 22, 2022, the Company issued $125.0 million aggregate principal amount of 5.15% Series A Senior Notes Due July 22, 2034 (collectively, the "Series A Notes”) to the Note Purchasers. The Note Purchase Agreement also provides for the issuance of additional shelf notes from time to time issued thereunder (the “Shelf Notes” and, together with the Series A Notes, the “Notes”) not to exceed $150.0 million of Notes outstanding thereunder. The proceeds of the Notes may be used, among other things, to fund surplus at Kinsale Insurance
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Company, or any other insurance subsidiary of the Company, refinance indebtedness and for general corporate purposes. The Series A Notes are senior unsecured obligations of the Company and rank pari passu with the Company’s Amended and Restated Credit Agreement. At March 31, 2023, there was $123.2 million outstanding under the Series A Notes, net of debt issuance costs of $1.8 million. The Note Purchase Agreement contains representations and affirmative and negative covenants, including financial covenants customary for agreements of this type, as well as customary events of default provisions. As of March 31, 2023, the Company was in compliance with all of its financial covenants under the Note Purchase Agreement.
The Series A Notes bear interest at 5.15% per annum and mature on July 22, 2034, unless paid earlier by the Company. Should the Company elect to prepay the Series A Notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Note Purchase Agreement. Principal payments are required annually beginning on July 22, 2030 in equal installments of $25.0 million through July 22, 2034.
Credit Agreement
On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $30.0 million. On July 22, 2022, the Company entered into an Amended and Restated Credit Agreement, with JPMorgan Chase Bank, N.A., as administrative agent and as issuing bank, Truist Bank, as syndication agent, and the lenders party thereto (collectively, the “Lenders”). The Amended and Restated Credit Agreement extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to the Company obtaining commitments from existing or new lenders and satisfying other conditions specified in the Amended and Restated Credit Agreement. The Company is required to pay a Commitment Fee Rate (as defined therein) of 0.25% on the average daily amount of the Available Revolving Commitment (as defined therein). Borrowings under the Amended and Restated Credit Agreement may be used for general corporate purposes (which may include, without limitation, to fund future growth, to finance working capital needs, to fund capital expenditures, and to refinance, redeem or repay indebtedness). At March 31, 2023, there was $72.6 million outstanding, net of debt issuance costs of $0.4 million, with a weighted average interest rate of 6.4%. The Amended and Restated Credit Agreement also contains representations and affirmative and negative covenants, including financial covenants customary for agreements of this type, as well as customary events of default provisions. As of March 31, 2023, the Company was in compliance with all of its financial covenants under the Credit Facility.
The loans under the Amended and Restated Credit Agreement bear interest, at the Company's option, at a rate equal to the Adjusted Term SOFR Rate (as defined therein) plus 1.625% or the Alternate Base Rate (as defined therein) plus 0.625%.
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14.     Other Comprehensive Income (Loss)
The following table summarizes the components of other comprehensive income (loss) for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
(in thousands)
Unrealized gains (losses) on fixed-maturity securities arising during the period, before income taxes$21,170 $(80,485)
Income tax (expense) benefit(4,446)16,902 
Unrealized gains (losses) arising during the period, net of income taxes16,724 (63,583)
Less reclassification adjustment:
Net realized (losses) gains on fixed-maturity securities, before income taxes(912)439 
Income tax benefit (expense)191 (92)
Reclassification adjustment included in net income(721)347 
Change in allowance for credit losses on investments, before income taxes(81)— 
Income tax benefit17 — 
Reclassification adjustment included in net income(64)— 
Other comprehensive income (loss)$17,509 $(63,930)
The sale or credit loss of an available-for-sale fixed-maturity security results in amounts being reclassified from accumulated other comprehensive loss to realized gains or losses in current period earnings. The related tax effect of the reclassification adjustment is recorded in income tax expense in current period earnings. See Note 2 for additional information.

15.     Subsequent Events
During the fourth quarter of 2022, the Company completed the purchase of real estate investment property for $76.6 million. The property comprises two office buildings totaling over 580,000 square feet situated on approximately 29 acres of land. During the second quarter of 2023, the Company initiated plans to sell certain parcels and one of the office buildings. Subsequent to March 31, 2023, the Company determined that the related assets met held-for-sale accounting criteria.
Upon the determination to classify a property as held for sale, the Company ceases depreciation and amortization on the real estate property held for sale, as well as amortization of acquired in-place leases. The real estate property held for sale is classified separately on the condensed consolidated balance sheets and is recorded at the lesser of the carrying value or estimated fair value less estimated cost to sell.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis below include certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk Factors" in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2022. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.
The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022.
References to the "Company," "Kinsale," "we," "us," and "our" are to Kinsale Capital Group, Inc. and its subsidiaries, unless the context otherwise requires.

Overview
Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses exclusively on the excess and surplus lines ("E&S") market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place small business risks and personal lines risks. We market these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, primarily through a network of independent insurance brokers.
We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers property and casualty ("P&C") insurance products through the E&S market. For the first three months of 2023, the percentage breakdown of our gross written premiums was 70% casualty and 30% property. Our commercial underwriting divisions include commercial property, excess casualty, small business casualty, construction, general casualty, allied health, products liability, professional liability, life sciences, energy, small property, entertainment, management liability, environmental, health care, inland marine, public entity, commercial auto, aviation, ocean marine and product recall. We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2% of our gross written premiums in the first three months of 2023 and is included within our personal insurance division.
Components of Our Results of Operations
Gross written premiums
Gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by:
•New business submissions;
•Conversion of new business submissions into policies;
•Renewals of existing policies; and
•Average size and premium rate of bound policies.
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We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year. Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements.
Ceded written premiums
Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premiums is impacted by the level of our gross written premiums, any decision we make to increase or decrease retention levels and reinstatement premiums, if any.
Losses and loss adjustment expenses
Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage. In general, our losses and loss adjustment expenses are affected by:
•Frequency of claims associated with the particular types of insurance contracts that we write;
•Trends in the average size of losses incurred on a particular type of business;
•Mix of business written by us;
•Changes in the legal or regulatory environment related to the business we write;
•Trends in legal defense costs;
•Wage inflation
•Social inflation;
•Inflation in material costs, and
•Inflation in medical costs.
Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Losses and loss adjustment expenses may be paid out over a period of years.
Underwriting, acquisition and insurance expenses
Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs also include underwriting expenses that are directly related to the successful acquisition of those policies which are deferred. The amortization of policy acquisition costs is charged to expense in proportion to premium earned over the policy life.
Other underwriting expenses represent the general and administrative expenses of our insurance business such as employment costs, telecommunication and technology costs, and legal and auditing fees.
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Net investment income
Net investment income is an important component of our results of operations. We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of fixed-maturity securities, and may also include cash equivalents, equity securities and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value), the size of our investment portfolio is mainly a function of our invested equity capital combined with premiums we receive from our insureds less payments on policyholder claims. Net investment income also includes rental income and depreciation expense from our real estate investment property.
Change in fair value of equity securities
Change in fair value of equity securities represents the increase or decrease in the fair value of equity securities held during the period.
Net realized investment gains (losses)
Net realized investment gains (losses) are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost.
Income tax expense
Currently, substantially all of our income tax expense relates to federal income taxes. Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes, but have not generated any material taxable income to date. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.
Key metrics
We discuss certain key metrics, described below, which we believe provide useful information about our business and the operational factors underlying our financial performance.
Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other income, other expenses and income tax expense. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.
Net operating earnings is a non-GAAP financial measure. We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes and change in allowance for credit losses on investments, after taxes. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to net earned premiums.
Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net earned premiums.
Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.
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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.
Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.
Net retention ratio is the ratio of net written premiums to gross written premiums.
Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), 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.




































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Results of Operations
Three months ended March 31, 2023 compared to three months ended March 31, 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022Change% Change
Gross written premiums$357,588 $245,513 $112,075 45.6 %
Ceded written premiums(58,558)(29,015)(29,543)101.8 %
Net written premiums$299,030 $216,498 $82,532 38.1 %
Net earned premiums $237,158 $178,562 $58,596 32.8 %
Losses and loss adjustment expenses139,034 102,505 36,529 35.6 %
Underwriting, acquisition and insurance expenses46,545 38,545 8,000 20.8 %
Underwriting income (1)
51,579 37,512 14,067 37.5 %
Net investment income20,695 9,088 11,607 127.7 %
Change in fair value of equity securities3,518 (7,751)11,269 NM
Net realized investment (losses) gains(4,652)295 (4,947)NM
Change in allowance for credit losses on investments(81)— (81)NM
Interest expense(2,570)(253)(2,317)915.8 %
Other expense, net(96)(19)(77)405.3 %
Income before taxes68,393 38,872 29,521 75.9 %
Income tax expense12,593 7,081 5,512 77.8 %
Net income$55,800 $31,791 $24,009 75.5 %
Net operating earnings (2)
$56,760 $37,681 $19,079 50.6 %
Loss ratio58.6 %57.4 %
Expense ratio19.6 %21.6 %
Combined ratio (3)
78.2 %79.0 %
Annualized return on equity28.6 %18.6 %
Annualized operating return on equity (2)
29.1 %22.1 %
NM - Percentage change not meaningful.
(1) Underwriting income is a non-GAAP financial measure. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.
(2) Net operating earnings and annualized operating return on equity are non-GAAP financial measures. Net operating earnings is defined as net income excluding the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and change in allowance for credit losses on investments, after taxes. Annualized operating return on equity is defined as net operating earnings expressed as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.
(3) The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding.
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Overview
Net income was $55.8 million for the three months ended March 31, 2023 compared to $31.8 million for the three months ended March 31, 2022, an increase of 75.5%. The increase in net income for the first three months of 2023 over the same period last year was primarily due to a combination of strong growth in the business from favorable E&S market conditions and continued rate increases, higher returns on equity investments and an increase in investment income driven by higher investment balances and higher interest rates.
Underwriting income was $51.6 million for the three months ended March 31, 2023 compared to $37.5 million for the three months ended March 31, 2022, an increase of 37.5%. The corresponding combined ratios were 78.2% for the three months ended March 31, 2023 compared to 79.0% for the three months ended March 31, 2022. The increase in underwriting income for the first three months of 2023 compared to the same period last year was due to a combination of premium growth, favorable loss experience, lower net commissions and scale.
Premiums
Our gross written premiums were $357.6 million for the three months ended March 31, 2023 compared to $245.5 million for the three months ended March 31, 2022, an increase of $112.1 million, or 45.6%. The increase in gross written premiums for the first three months of 2023 over the same period last year was due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable conditions in the E&S market. The average premium on a policy written was $14,900 in the first three months of 2023 compared to $11,800 in the first three months of 2022. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was $16,200 for the first three months of 2023 and $14,200 for the first three months of 2022.
Net written premiums increased by $82.5 million, or 38.1%, to $299.0 million for the three months ended March 31, 2023 from $216.5 million for the three months ended March 31, 2022. The increase in net written premiums for the first three months of 2023 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 83.6% for the three months ended March 31, 2023 compared to 88.2% for the same period last year. The decrease in the net retention ratio was due to higher premiums ceded under the new commercial property quota share reinsurance treaty, effective June 1, 2022, and a change in the mix of business.
Net earned premiums increased by $58.6 million, or 32.8%, to $237.2 million for the three months ended March 31, 2023 from $178.6 million for the three months ended March 31, 2022 due to growth in gross written premiums.
Loss ratio
The loss ratio was 58.6% for the three months ended March 31, 2023 compared to 57.4% for the three months ended March 31, 2022. The increase in the loss ratio in the first three months of 2023 compared to the first three months of 2022 was due primarily to lower net favorable development of loss reserves from prior accident years as a percentage of earned premiums and higher catastrophe losses incurred during the period.
During the three months ended March 31, 2023, prior accident years developed favorably by $9.0 million, of which $12.6 million was attributable to the 2021 and 2022 accident years due to lower emergence of reported losses than expected across most lines of business. This favorable development was offset in part by adverse development largely from the 2017 and 2019 accident years due primarily to long-tail property damage claims within our construction-related primary casualty business that are more exposed to the recent increase in inflation. On an inception-to-date basis, all prior accident years have developed favorably with the exception of the 2011 accident year.
During the three months ended March 31, 2022, prior accident years developed favorably by $8.3 million, of which $10.1 million was attributable to the 2020 and 2021 accident years due to lower than expected reported losses across
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most lines of business. This was offset by $2.0 million of unfavorable development from accident years 2016 and 2018 due to routine variability in reported losses.
The following table summarizes the loss ratios for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
($ in thousands)Losses and Loss Adjustment Expenses% of Earned PremiumsLosses and Loss Adjustment Expenses% of Earned Premiums
Loss ratio:
Current accident year before catastrophe losses
$146,503 61.8 %$110,789 62.1 %
Current year catastrophe losses1,574 0.6 %62 — %
Effect of prior year development(9,043)(3.8)%(8,346)(4.7)%
Total$139,034 58.6 %$102,505 57.4 %

Expense ratio
The following table summarizes the components of the expense ratio for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
20232022
($ in thousands)Underwriting Expenses% of Earned PremiumsUnderwriting Expenses% of Earned Premiums
Net commissions incurred26,610 11.2 %22,122 12.4 %
Other underwriting expenses
19,935 8.4 %16,423 9.2 %
Total$46,545 19.6 %$38,545 21.6 %
The expense ratio was 19.6% for the three months ended March 31, 2023 compared to 21.6% for the three months ended March 31, 2022. The decrease in the expense ratio was due to lower net commissions incurred and lower other underwriting expenses as a percentage of earned premiums. The decrease in net commissions incurred was due primarily to higher ceding commissions earned under the commercial property quota share treaty as a result of commercial property premium growth. Underwriting expenses relative to earned premium decreased as the Company continues to benefit from scale. Direct commissions paid as a percentage of gross written premiums was 14.4% and 14.6% for the three months ended March 31, 2023 and 2022, respectively.
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Investing results
The following table summarizes net investment income, change in the fair value of equity securities and net realized investment (losses) and gains for the three months ended March 31, 2023 and 2022:
Three Months Ended March 31,
($ in thousands)20232022Change
Interest from fixed-maturity securities$18,740 $8,652 $10,088 
Dividends from equity securities1,143 1,030 113 
Cash equivalents and short-term investments713 19 694 
Real estate investment income1,358 — 1,358 
Gross investment income21,954 9,701 12,253 
Investment expenses(1,259)(613)(646)
Net investment income20,695 9,088 11,607 
Change in fair value of equity securities3,518 (7,751)11,269 
Net realized investment (losses) gains(4,652)295 (4,947)
Change in allowance for credit losses on investments(81)— (81)
Net realized and unrealized investment losses(1,215)(7,456)6,241 
Total$19,480 $1,632 $17,848 
Our net investment income increased by 127.7% to $20.7 million for the three months ended March 31, 2023 from $9.1 million for the three months ended March 31, 2022. The increase in the first three months of 2023 compared to the same period last year was primarily due to growth in our investment portfolio largely generated from the investment of strong operating cash flows and higher interest rates relative to the prior year period. Our fixed-maturity investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 3.7% and 2.5% for the three months ended March 31, 2023 and 2022, respectively.
During the first three months of 2023, the change in fair value of equity securities was comprised of unrealized gains related to exchange traded funds ("ETFs") of $2.7 million and unrealized gains related to non-redeemable preferred stock of $0.8 million. The change in unrealized gains during the first three months of 2023 attributable to ETFs reflected higher valuations in the broader U.S. stock market during the period.
During the first three months of 2022, the change in fair value of equity securities was comprised of unrealized losses related to exchange traded funds ("ETFs") of $4.5 million and unrealized losses related to non-redeemable preferred stock of $3.2 million. The change in unrealized losses during the first three months of 2022 attributable to ETFs was largely reflective of the broader U.S. stock market. The change in unrealized losses during the first three months of 2022 attributable to non-redeemable preferred stock was reflective of a higher interest rate environment.
Net realized investments losses were $4.7 million for the three months ended March 31, 2023 and were primarily related to disposing of securities issued by certain banking and financial institutions.
We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss. Based on our review, we recorded an allowance for credit losses of $0.4 million at March 31, 2023. There were no credit losses recorded at March 31, 2022. See Note 2 of the notes to the consolidated financial statements for further information regarding credit losses.
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Income tax expense
Our effective tax rate was 18.4% for the three months ended March 31, 2023 compared to 18.2% for the three months ended March 31, 2022. The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.
Return on equity
Our annualized return on equity was 28.6% for the three months ended March 31, 2023 compared to 18.6% for the three months ended March 31, 2022. Our annualized operating return on equity was 29.1% for the three months ended March 31, 2023 compared to 22.1% for the three months ended March 31, 2022. The increase in annualized operating return on equity for the three months ended March 31, 2023 compared to the prior period was attributable largely to continued profitable growth in the business from continuing favorable market conditions and rate increases.
Liquidity and Capital Resources
Sources and uses of funds
We are organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary, Kinsale Insurance Company, which is domiciled in Arkansas. Accordingly, we may receive cash through (1) loans from banks and other third parties, (2) issuance of equity and debt securities, (3) corporate service fees from our insurance subsidiary, (4) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions, and (5) dividends from our insurance subsidiary. We may use the proceeds from these sources to contribute funds to Kinsale Insurance Company in order to support premium growth, reduce our reliance on reinsurance, pay dividends and taxes and for other business purposes.
We receive corporate service fees from Kinsale Insurance Company to reimburse us for most of the operating expenses that we incur. Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs.
In August 2022, we filed a universal shelf registration statement with the SEC that expires in 2025. We can use this shelf registration to issue an unspecified amount of common stock, preferred stock, depositary shares and warrants. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.
In July 2022, we entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), which provides for the issuance of senior promissory notes with an aggregate principal amount of up to $150.0 million. Pursuant to the Note Purchase Agreement, on July 22, 2022 we issued $125.0 million aggregate principal amount of 5.15% senior promissory notes (the “Series A Notes”), the proceeds of which were used to fund surplus at Kinsale Insurance Company, refinance indebtedness and for general corporate purposes. See Note 13 for further information regarding the Note Purchase Agreement.
In July 2022, we entered into an Amended and Restated Credit Agreement, which extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to certain conditions. Borrowings under the Amended and Restated Credit Agreement may be used for general corporate purposes (which may include, without limitation, to fund future growth, to finance working capital needs, to fund capital expenditures, and to refinance, redeem or repay indebtedness). See Note 13 for further information regarding the Amended and Restated Credit Agreement.
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Management believes that the Company has sufficient liquidity available both in Kinsale and in its insurance subsidiary, Kinsale Insurance Company, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.
Cash flows
Our most significant source of cash is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that earn interest and dividends. We also use cash to pay commissions to insurance brokers, as well as to pay for ongoing operating expenses such as salaries, consulting services and taxes. As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take related to the issuance of our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.
The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, so their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future.
Our cash flows for the three months ended March 31, 2023 and 2022 were:
Three Months Ended March 31,
20232022
(in thousands)
Cash and cash equivalents provided by (used in):
Operating activities
$197,604 $121,929 
Investing activities(190,212)(135,710)
Financing activities
(5,018)(3,101)
Change in cash and cash equivalents$2,374 $(16,882)
Net cash provided by operating activities was approximately $197.6 million for the three months ended March 31, 2023, compared to $121.9 million for the same period in 2022. This increase was largely driven by higher premium volume, the timing of claim payments and reinsurance recoveries, offset in part by changes in operating assets and liabilities.
Net cash used in investing activities was $190.2 million for the three months ended March 31, 2023, compared to $135.7 million for the three months ended March 31, 2022. Net cash used in investing activities during the first three months of 2023 included purchases of fixed-maturity securities of $258.2 million, which were comprised largely of asset-backed securities, corporate bonds, and to a lesser extent, municipal securities. During the first three months of 2023, we received proceeds of $49.2 million from sales of fixed-maturity securities, largely municipal securities and corporate bonds, and $26.1 million from redemptions and maturities of mortgage- and asset-backed securities and corporate bonds. For the three months ended March 31, 2023, purchases of equity securities of $20.3 million consisted of common stocks. In addition, net sales of short-term investments of $15.1 million consisted of U.S. Treasuries and corporate bonds.
Net cash used in investing activities of $135.7 million for the three months ended March 31, 2022 included purchases of fixed-maturity securities of $226.5 million, which were comprised largely of corporate bonds, mortgage-backed securities, and to a lesser extent, asset-backed securities, sovereign and municipal securities.
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During the first three months of 2022, we received proceeds of $54.2 million from sales of fixed-maturity securities, largely corporate bonds and mortgage- and asset-backed securities, and $37.0 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the three months ended March 31, 2022, purchases of ETFs were $0.5 million.
During the first three months of 2023, cash used in financing activities reflected dividends paid of $0.14 per common share, or $3.2 million in aggregate. In addition, for the three months ended March 31, 2023, payroll taxes withheld and remitted on restricted stock awards were $2.1 million, offset in part by proceeds received from our equity compensation plans of $0.3 million.
During the first three months of 2022, cash used in financing activities reflected dividends paid of $0.13 per common share, or $3.0 million in aggregate. In addition, for the three months ended March 31, 2022, payroll taxes withheld and remitted on restricted stock awards were $0.5 million, offset in part by proceeds received from our equity compensation plans of $0.4 million.
Reinsurance
We enter into reinsurance contracts primarily to limit our exposure to potential large losses. Reinsurance involves an insurance company transferring ("ceding") a portion of its exposure on a risk to another insurer, the reinsurer. The reinsurer assumes the exposure in return for a portion of the premium. Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties. In quota-share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company's losses, in excess of a specified amount. Under excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses.
We renew our reinsurance treaties annually. During each renewal cycle, there are a number of factors we consider when determining our reinsurance coverage, including (1) plans to change the underlying insurance coverage we offer, (2) trends in loss activity, (3) the level of our capital and surplus, (4) changes in our risk appetite and (5) the cost and availability of reinsurance coverage. Effective with the June 1, 2022 renewal, we entered into a new commercial property insurance quota share treaty in place of our previous property per-risk reinsurance treaty.
To manage our natural catastrophe exposure, we use computer models to analyze the risk of severe losses. We measure exposure to these losses in terms of probable maximum loss ("PML"), which is an estimate of the amount of loss we would expect to meet or exceed once in a given number of years (referred to as the return period). When managing our catastrophe exposure, we focus on the 100-year and the 250-year return periods.
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The following is a summary of our significant reinsurance programs as of March 31, 2023:
Line of Business CoveredCompany Policy LimitReinsurance CoverageCompany Retention
Property - commercial insurance (1)N/A
42.5% up to $93.3 million per catastrophe
57.5% of all commercial property losses
Property - personal insurance (2)N/A
50% up to $35.5 million per catastrophe
50% of all personal property losses
Property - catastrophe (3)N/A$75.0 million excess of $25.0 million$25.0 million per catastrophe
Primary casualty (4)Up to $10.0 million per occurrence$8.0 million excess of $2.0 million$2.0 million per occurrence
Excess casualty (5)Up to $10.0 million per occurrence
Variable quota share$2.0 million per occurrence except as described in note (5) below
(1)    Our commercial property quota-share reinsurance reduces the financial impact of property losses on our commercial property, small property and inland marine policies. Reinsurance is not applicable to any individual policy with a limit of $2.0 million or less.
(2)    Our personal insurance quota share reinsurance reduces the financial impact of property losses on our personal insurance policies.
(3)    Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders. Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage. Including the reinstatement provision, the maximum aggregate loss recovery limit is $150 million and is in addition to the per-occurrence coverage provided by our treaty coverages.
(4)    Reinsurance is not applicable to any individual policy with a per-occurrence limit of $2.0 million or less.
(5)    For casualty policies with a per-occurrence limit higher than $2.0 million, the ceding percentage varies such that the retention is always $2.0 million or less. For example, for a $4.0 million limit excess policy, our retention would be 50%, whereas for a $10.0 million limit excess policy, our retention would be 20%. For policies for which we also write an underlying primary limit, the retention on the primary and excess policy combined would not exceed $2.0 million.
Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligation could result in losses to us, and therefore, we established an allowance for credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At March 31, 2023, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better. As of March 31, 2023, we recorded an allowance for credit losses of $0.5 million related to our reinsurance balances.
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Ratings
Kinsale Insurance Company has a financial strength rating of "A" (Excellent) with a stable outlook from A.M. Best. A.M. Best assigns ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer's ability to meet its obligation to policyholders and is not an evaluation directed at investors.
The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A" (Excellent) rating obtained by Kinsale Insurance Company is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.
Financial Condition
Stockholders' equity
At March 31, 2023, total stockholders' equity was $815.7 million and tangible stockholders' equity was $812.9 million, compared to total stockholders' equity of $745.4 million and tangible stockholders' equity $742.7 million at December 31, 2022. The increases in both total and tangible stockholders' equity over the prior year-end balances were due to profits generated during the period, an increase in the fair value of our fixed-maturity investments and net activity related to stock-based compensation plans, offset in part by payment of dividends. Tangible stockholders’ equity is a non-GAAP financial measure. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity.
Investment portfolio
At March 31, 2023, our cash and invested assets of $2.4 billion consisted of fixed-maturity securities, equity securities, cash and cash equivalents, real estate investments and short-term investments. At March 31, 2023, the majority of the investment portfolio was comprised of fixed-maturity securities of $2.0 billion that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. At March 31, 2023, we also held $171.4 million of equity securities, which were comprised of ETF securities, non-redeemable preferred stock and common stocks, $158.6 million of cash and cash equivalents, $76.5 million of real estate investments and $26.6 million of short-term investments.
Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 3.4 years and 3.5 years at March 31, 2023 and December 31, 2022, respectively, and an average rating of "AA-" at both March 31, 2023 and December 31, 2022.
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At March 31, 2023 and December 31, 2022, the amortized cost and estimated fair value on fixed-maturity securities were as follows:
March 31, 2023December 31, 2022
Amortized CostEstimated Fair Value% of Total Fair ValueAmortized CostEstimated Fair Value% of Total Fair Value
($ in thousands)
Fixed-maturity securities:
U.S. Treasury securities and obligations of U.S. government agencies
$17,940 $16,976 0.9 %$17,934 $16,741 1.0 %
Obligations of states, municipalities and political subdivisions
206,449 185,803 9.4 %230,746 204,632 11.6 %
Corporate and other securities1,008,098 939,031 47.6 %909,285 832,892 47.3 %
Asset-backed securities484,384 478,511 24.3 %361,248 353,006 20.1 %
Residential mortgage-backed securities
341,064 291,891 14.8 %349,066 293,962 16.7 %
Commercial mortgage-backed securities65,321 59,588 3.0 %65,353 58,867 3.3 %
Total fixed-maturity securities$2,123,256 $1,971,800 100.0 %$1,933,632 $1,760,100 100.0 %
The table below summarizes the credit quality of our fixed-maturity securities at March 31, 2023 and December 31, 2022, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):
March 31, 2023December 31, 2022
Standard & Poor’s or Equivalent DesignationEstimated Fair Value% of TotalEstimated Fair Value% of Total
($ in thousands)
AAA$582,712 29.6 %$452,001 25.7 %
AA485,746 24.6 %496,761 28.2 %
A514,876 26.1 %434,388 24.7 %
BBB326,848 16.6 %313,875 17.8 %
Below BBB and unrated61,618 3.1 %63,075 3.6 %
Total$1,971,800 100.0 %$1,760,100 100.0 %

The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of March 31, 2023 and December 31, 2022, were as follows:
March 31, 2023December 31, 2022
Amortized
Cost		Estimated Fair Value% of Total Fair ValueAmortized
Cost		Estimated Fair Value% of Total Fair Value
($ in thousands)
Due in one year or less$55,240 $54,255 2.8 %$15,133 $14,925 0.9 %
Due after one year through five years724,427 703,547 35.7 %647,263 626,182 35.6 %
Due after five years through ten years214,934 189,970 9.6 %245,670 213,539 12.1 %
Due after ten years237,886 194,038 9.8 %249,899 199,619 11.3 %
Asset-backed securities484,384 478,511 24.3 %361,248 353,006 20.1 %
Residential mortgage-backed securities
341,064 291,891 14.8 %349,066 293,962 16.7 %
Commercial mortgage-backed securities65,321 59,588 3.0 %65,353 58,867 3.3 %
Total fixed-maturity securities$2,123,256 $1,971,800 100.0 %$1,933,632 $1,760,100 100.0 %
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Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Restricted investments
In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of high-grade securities. The fair value of our restricted assets was $5.9 million at both March 31, 2023 and December 31, 2022.
Reconciliation of Non-GAAP Financial Measures
Reconciliation of underwriting income
Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income. Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other expenses, other income and income tax expense. We use underwriting income as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations and our underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.
Net income for the three months ended March 31, 2023 and 2022, reconciles to underwriting income as follows:
Three Months Ended March 31,
($ in thousands)20232022
Net income$55,800 $31,791 
Income tax expense12,593 7,081 
Income before income taxes68,393 38,872 
Net investment income(20,695)(9,088)
Change in the fair value of equity securities(3,518)7,751 
Net realized investment losses (gains)4,652 (295)
Change in allowance for credit losses on investments81 — 
Interest expense2,570 253 
Other expenses (1)
402 143 
Other income(306)(124)
Underwriting income$51,579 $37,512 
(1) Other expenses are comprised of corporate expenses not allocated to our insurance operations.

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Reconciliation of net operating earnings
Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and the change in allowance for credit losses on investments, after taxes. We believe the exclusion of these items provides a useful comparison of our 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.
Net income for the three months ended March 31, 2023 and 2022, reconciles to net operating earnings as follows:
Three Months Ended March 31,
($ in thousands)20232022
Net income$55,800 $31,791 
Adjustments:
Change in the fair value of equity securities, before taxes(3,518)7,751 
Income tax (benefit) expense (1)
739 (1,628)
Change in the fair value of equity securities, after taxes(2,779)6,123 
Net realized investment losses (gains), before taxes4,652 (295)
Income tax (benefit) expense (1)
(977)62 
Net realized investment losses (gains), after taxes3,675 (233)
Change in allowance for credit losses on investments, before taxes81 — 
Income tax benefit (1)
(17)— 
Change in allowance for credit losses on investments, after taxes64 — 
Net operating earnings$56,760 $37,681 
Operating return on equity:
Average stockholders' equity (2)
$780,590 $682,453 
Annualized return on equity (3)
28.6 %18.6 %
Annualized operating return on equity (4)
29.1 %22.1 %
(1) Income taxes on adjustments to reconcile net income to net operating earnings use an effective tax rate of 21%.
(2) Computed by adding the total stockholders' equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two.
(3) Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.
(4) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.
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Reconciliation of tangible stockholders' equity
Tangible stockholders’ equity is defined as total stockholders’ equity less intangible assets, net of deferred taxes. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders' equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.
Stockholders' equity at March 31, 2023 and December 31, 2022, reconciles to tangible stockholders' equity as follows:
($ in thousands)March 31, 2023December 31, 2022
Stockholders' equity$815,731 $745,449 
Less: intangible assets, net of deferred taxes2,795 2,795 
Tangible stockholders' equity$812,936 $742,654 

Critical Accounting Estimates
We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities, if any. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. Our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. We do not have any material exposure to foreign currency exchange rate risk or commodity risk.
There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.
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As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of that date.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the first quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.
Item 1A. Risk Factors
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K
for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 6. Exhibits
Exhibit
Number		Description
101.INS **XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KINSALE CAPITAL GROUP, INC.
Date: April 27, 2023
By:
/s/ Michael P. Kehoe
Michael P. Kehoe
President and Chief Executive Officer
Date: April 27, 2023
By:
/s/ Bryan P. Petrucelli
Bryan P. Petrucelli
Executive Vice President, Chief Financial Officer and Treasurer
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