RICHMOND, Va., Nov. 10, 2016 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (NASDAQ:KNSL) reported net income of $8.0 million for the third quarter of 2016 compared to $5.9 million for the third quarter of 2015. Net income was $19.3 million for the first nine months of 2016 compared to $17.7 million for the first nine months of 2015.
Highlights for the third quarter of 2016 included:
- 18.8% annualized return on equity (ROE) for the three months ended September 30, 2016
- 85.0% growth in book value to $209.9 million from $113.5 million at December 31, 2015
- Net income of $8.0 million in the third quarter of 2016
- Underwriting income of $10.7 million, resulting in a combined ratio of 67.5%
- 4.4% growth in gross written premiums to $47.8 million from $45.8 million in the third quarter of 2015
- 31.9% increase in net investment income to $1.9 million from $1.4 million in the third quarter of 2015
"We are pleased with our results for the third quarter with premium growth of 4.4% for the quarter and an annualized return on equity of 18.8%. Our results reflect our ability to compete in the current competitive pricing environment, and reflect Kinsale's consistent strategy of matching disciplined underwriting with a low-cost business platform," said President and Chief Executive Officer, Michael P. Kehoe.
The Company participated in a quota share reinsurance agreement ("multiple line quota share" or "MLQS") whereby it transferred part of its risk to reinsurers in exchange for a proportion of the gross written premiums on that business. During the first nine months of 2016 and 2015, the ceding percentages were 15% and 50%, respectively. As a result of the successful completion of its initial public offering ("IPO") in August 2016, the Company terminated and commuted its 2016 MLQS contract on October 1, 2016. For comparative purposes, an exhibit that shows the calculation of underwriting income excluding the effects of the MLQS is included under the "Summary of Operating Results" section below.
Results of Operations
Underwriting Results
Gross written premiums were $47.8 million for the three months ended September 30, 2016, an increase of 4.4% compared to $45.8 million for the three months ended September 30, 2015. Gross written premiums were $141.0 million for the nine months ended September 30, 2016, an increase of 7.0% compared to $131.8 million for the nine months ended September 30, 2015. The increase in gross written premiums for both the third quarter and first nine months of 2016 was due to a greater number of policies written, offset in part by a decrease in average premium size.
The Company generated underwriting income of $10.7 million on a combined ratio of 67.5% in the third quarter of 2016 compared to underwriting income of $7.9 million on a combined ratio of 57.0% in the third quarter of 2015. Underwriting income increased by $2.9 million, or 36.4%, due primarily to an increase in number of policies written and higher favorable prior year loss development during the third quarter of 2016 compared to the same period in 2015. Loss and expense ratios were 48.4% and 19.1%, respectively, for the three months ended September 30, 2016 compared to 56.7% and 0.3% for the three months ended September 30, 2015. Adjusted loss and expense ratios, each of which excludes the effects of the MLQS, were 44.7% and 27.1%, respectively, for the three months ended September 30, 2016 compared to 50.6% and 26.1% for the three months ended September 30, 2015. See the table below under "Summary of Operating Results" for a reconciliation of adjusted loss and expense ratios, which are non-GAAP financial measures.
For the nine months ended September 30, 2016, underwriting income was $24.8 million on a combined ratio of 74.0% compared to $23.7 million on a combined ratio of 54.2% for same period last year. Loss and expense ratios were 54.0% and 20.0%, respectively, for the nine months ended September 30, 2016 compared to 53.4% and 0.8% for the nine months ended September 30, 2015. Adjusted loss and expense ratios, each of which excludes the effects of the MLQS, were 50.8% and 26.5%, respectively, for the first nine months of 2016 compared to 49.3% and 26.0% for the first nine months of 2015. The slight increase in the adjusted loss ratio reflects lower favorable loss development as a percentage of earned premiums in first nine months of 2016 when compared to the same periods 2015; however, reported loss activity continues to be lower than expected.
Investment Results
The Company’s net investment income was $1.9 million for the third quarter of 2016 compared to $1.4 million for the third quarter of 2015, an increase of 31.9%. Net investment income was $5.4 million for the first nine months of 2016 compared to $4.0 million for the first nine months of 2015, an increase of 33.8%. The Company’s investment portfolio had a gross investment return of 2.14% for the nine months ended September 30, 2016 compared to 2.09% for the same period in 2015. Funds are invested conservatively in high quality securities including, government agency, mortgage-backed, municipal and corporate bonds with an average credit quality of “AA.” The weighted average duration of the investment portfolio was 3.0 years at September 30, 2016 and 3.2 years at December 31, 2015. Investments totaled $416.8 million at September 30, 2016 compared to $344.1 million at December 31, 2015, an increase of 21.1%.
Other
Total comprehensive income, which includes after-tax unrealized gains and losses from the Company’s investment portfolio, was $8.0 million for the third quarter of 2016 compared to $6.1 million for the same period in 2015. Total comprehensive income was $24.3 million for the first nine months of 2016 compared to $16.6 million for the same period in 2015.
On August 2, 2016, the Company completed its IPO of 7,590,000 shares of common stock at a price to the public of $16.00 per share. After the reclassification of Class A and Class B common stock into a single class of common stock and the issuance of shares of common stock in the IPO, the Company has 20,968,707 shares of common stock outstanding. The Company received net proceeds from the offering of approximately $72.8 million, after underwriting discounts and commissions and offering expenses. Stockholders' equity increased by 85.0% between December 31, 2015 and September 30, 2016 as a result of the net proceeds from the IPO, higher profits and unrealized investment gains, net of taxes. Stockholders' equity was $209.9 million at September 30, 2016, compared to $113.5 million at December 31, 2015.
Summary of Operating Results
The Company’s operating results for the three and nine months ended September 30, 2016 and 2015 are summarized as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||
| ($ in thousands) | |||||||||||||||
| Gross written premiums | $ | 47,823 | $ | 45,798 | $ | 141,012 | $ | 131,840 | |||||||
| Ceded written premiums | (14,177 | ) | (26,919 | ) | (23,910 | ) | (77,137 | ) | |||||||
| Net written premiums | $ | 33,646 | $ | 18,879 | $ | 117,102 | $ | 54,703 | |||||||
| Net earned premiums | $ | 32,974 | $ | 18,279 | $ | 95,354 | $ | 51,736 | |||||||
| Losses and loss adjustment expenses | 15,949 | 10,369 | 51,526 | 27,648 | |||||||||||
| Underwriting, acquisition and insurance expenses | 6,302 | 46 | 19,031 | 408 | |||||||||||
| Underwriting income (1) | $ | 10,723 | $ | 7,864 | $ | 24,797 | $ | 23,680 | |||||||
| Loss ratio | 48.4 | % | 56.7 | % | 54.0 | % | 53.4 | % | |||||||
| Expense ratio | 19.1 | % | 0.3 | % | 20.0 | % | 0.8 | % | |||||||
| Combined ratio | 67.5 | % | 57.0 | % | 74.0 | % | 54.2 | % | |||||||
| Annualized return on equity | 18.8 | % | 22.4 | % | 15.9 | % | 23.3 | % | |||||||
The following tables summarize the effect of the MLQS for the three and nine months ended September 30, 2016 and 2015:
| Three Months Ended September 30, 2016 | Three Months Ended September 30, 2015 | ||||||||||||||||||||||
| Including Quota Share | Effects of Quota Share | Excluding Quota Share | Including Quota Share | Effects of Quota Share | Excluding Quota Share | ||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Gross written premiums | $ | 47,823 | $ | — | $ | 47,823 | $ | 45,798 | $ | — | $ | 45,798 | |||||||||||
| Ceded written premiums | (14,177 | ) | (6,000 | ) | (8,177 | ) | (26,919 | ) | (19,572 | ) | (7,347 | ) | |||||||||||
| Net written premiums | $ | 33,646 | $ | (6,000 | ) | $ | 39,646 | $ | 18,879 | $ | (19,572 | ) | $ | 38,451 | |||||||||
| Net earned premiums | $ | 32,974 | $ | (5,872 | ) | $ | 38,846 | $ | 18,279 | $ | (18,618 | ) | $ | 36,897 | |||||||||
| Losses and loss adjustment expenses: | |||||||||||||||||||||||
| Current accident year | (19,408 | ) | 2,976 | (22,384 | ) | (12,078 | ) | 9,563 | (21,641 | ) | |||||||||||||
| Favorable development on prior accident years | 3,459 | (1,574 | ) | 5,033 | 1,709 | (1,260 | ) | 2,969 | |||||||||||||||
| Total losses and loss adjustment expenses | (15,949 | ) | 1,402 | (17,351 | ) | (10,369 | ) | 8,303 | (18,672 | ) | |||||||||||||
| Underwriting, acquisition and insurance expenses | (6,302 | ) | 4,234 | (10,536 | ) | (46 | ) | 9,571 | (9,617 | ) | |||||||||||||
| Underwriting income (1) | $ | 10,723 | $ | (236 | ) | $ | 10,959 | $ | 7,864 | $ | (744 | ) | $ | 8,608 | |||||||||
| Loss ratio | 48.4 | % | 23.9 | % | — | 56.7 | % | 44.6 | % | — | |||||||||||||
| Expense ratio | 19.1 | % | 72.1 | % | — | 0.3 | % | 51.4 | % | — | |||||||||||||
| Combined ratio | 67.5 | % | 96.0 | % | — | 57.0 | % | 96.0 | % | — | |||||||||||||
| Adjusted loss ratio (2) | — | — | 44.7 | % | — | — | 50.6 | % | |||||||||||||||
| Adjusted expense ratio (2) | — | — | 27.1 | % | — | — | 26.1 | % | |||||||||||||||
| Adjusted combined ratio (2) | — | — | 71.8 | % | — | — | 76.7 | % | |||||||||||||||
| Nine Months Ended September 30, 2016 | Nine Months Ended September 30, 2015 | ||||||||||||||||||||||
| Including Quota Share | Effects of Quota Share | Excluding Quota Share | Including Quota Share | Effects of Quota Share | Excluding Quota Share | ||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Gross written premiums | $ | 141,012 | $ | — | $ | 141,012 | $ | 131,840 | $ | — | $ | 131,840 | |||||||||||
| Ceded written premiums | (23,910 | ) | (774 | ) | (23,136 | ) | (77,137 | ) | (55,482 | ) | (21,655 | ) | |||||||||||
| Net written premiums | $ | 117,102 | $ | (774 | ) | $ | 117,876 | $ | 54,703 | $ | (55,482 | ) | $ | 110,185 | |||||||||
| Net earned premiums | $ | 95,354 | $ | (16,996 | ) | $ | 112,350 | $ | 51,736 | $ | (52,612 | ) | $ | 104,348 | |||||||||
| Losses and loss adjustment expenses: | |||||||||||||||||||||||
| Current accident year | (60,392 | ) | 9,339 | (69,731 | ) | (36,172 | ) | 28,641 | (64,813 | ) | |||||||||||||
| Favorable development on prior accident years | 8,866 | (3,742 | ) | 12,608 | 8,524 | (4,863 | ) | 13,387 | |||||||||||||||
| Total losses and loss adjustment expenses | (51,526 | ) | 5,597 | (57,123 | ) | (27,648 | ) | 23,778 | (51,426 | ) | |||||||||||||
| Underwriting, acquisition and insurance expenses | (19,031 | ) | 10,719 | (29,750 | ) | (408 | ) | 26,730 | (27,138 | ) | |||||||||||||
| Underwriting income (1) | $ | 24,797 | $ | (680 | ) | $ | 25,477 | $ | 23,680 | $ | (2,104 | ) | $ | 25,784 | |||||||||
| Loss ratio | 54.0 | % | 32.9 | % | — | 53.4 | % | 45.2 | % | — | |||||||||||||
| Expense ratio | 20.0 | % | 63.1 | % | — | 0.8 | % | 50.8 | % | — | |||||||||||||
| Combined ratio | 74.0 | % | 96.0 | % | — | 54.2 | % | 96.0 | % | — | |||||||||||||
| Adjusted loss ratio (2) | — | — | 50.8 | % | — | — | 49.3 | % | |||||||||||||||
| Adjusted expense ratio (2) | — | — | 26.5 | % | — | — | 26.0 | % | |||||||||||||||
| Adjusted combined ratio (2) | — | — | 77.3 | % | — | — | 75.3 | % | |||||||||||||||
(1) Underwriting income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below.
(2) Adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. See discussion of "Non-GAAP Financial Measures" below.
Dividends Declared
The Company's Board of Directors declared a cash dividend of $0.05 per share of common stock. This dividend is payable on December 15, 2016 to all stockholders of record as of the close of business on December 1, 2016.
Non-GAAP Financial Measures
Underwriting Income
Underwriting income is a non-GAAP financial measure that is useful in evaluating the Company's underwriting performance without regard to investment income. Underwriting income represents the pre-tax profitability of the Company's insurance operations and is derived by subtracting losses and loss adjustment expenses and underwriting, acquisition and insurance expenses from net earned premiums. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company's financial information useful insight into the Company's results of operations and underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.
Underwriting income for the three and nine months ended September 30, 2016 and 2015, reconciles to net income as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| (in thousands) | ||||||||||||||||
| Underwriting income | $ | 10,723 | $ | 7,864 | $ | 24,797 | $ | 23,680 | ||||||||
| Net investment income | 1,894 | 1,436 | 5,389 | 4,027 | ||||||||||||
| Net investment (losses) gains | — | (8 | ) | 383 | 8 | |||||||||||
| Other income | — | 128 | 136 | 443 | ||||||||||||
| Other expenses | (523 | ) | (468 | ) | (1,469 | ) | (1,481 | ) | ||||||||
| Income before income taxes | 12,094 | 8,952 | 29,236 | 26,677 | ||||||||||||
| Income tax expense | 4,112 | 3,008 | 9,940 | 9,008 | ||||||||||||
| Net income | $ | 7,982 | $ | 5,944 | $ | 19,296 | $ | 17,669 | ||||||||
Adjusted Loss and Expense Ratios
Adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. The Company defines its adjusted loss ratio, adjusted expense ratio and adjusted combined ratio as each of its loss ratio, expense ratio and combined ratio, respectively, excluding the effects of the MLQS. The Company uses these adjusted ratios as internal performance measures in the management of its operations because the Company believes they give management and other users of the Company's financial information useful insight into the Company's results of operations and underlying business performance. The Company's adjusted loss ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for its loss ratio, expense ratio and combined ratio, respectively, which are presented in accordance with GAAP.
Conference Call
Kinsale Capital Group will hold a conference call to discuss this press release on Friday, November 11, 2016, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282 Conference ID# 98762324 or via the Internet by going to www.kinsalecapitalgroup.com and clicking on the "Investor Relations" link. A replay of the call will be available at the website until the close of business on January 11, 2017.
Forward-Looking Statements
This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as "believe," "expect," "seek," "may," "will," "intend," "project," "plan," "estimate" or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and factors, they include, among others, the following: inadequate loss reserves to cover the Company's actual losses; adverse economic factors; a decline in the Company's financial strength rating; loss of one or more key executives; loss of a group of brokers that generate significant portions of the Company's business; failure of any of the loss limitations or exclusions the Company employs, or change in other claims or coverage issues; adverse performance of the Company's investment portfolio; adverse market conditions that affect its E&S insurance operations and other risks described in the Company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.
About Kinsale Capital Group, Inc.
Kinsale Capital Group, Inc. is a specialty insurance group headquartered in Richmond, VA, focusing on the excess and surplus lines market.
| KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES | ||||||||||||||||
| Unaudited Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Revenues | ($ in thousands) | |||||||||||||||
| Gross written premiums | $ | 47,823 | $ | 45,798 | $ | 141,012 | $ | 131,840 | ||||||||
| Ceded written premiums | (14,177 | ) | (26,919 | ) | (23,910 | ) | (77,137 | ) | ||||||||
| Net written premiums | 33,646 | 18,879 | 117,102 | 54,703 | ||||||||||||
| Change in unearned premiums | (672 | ) | (600 | ) | (21,748 | ) | (2,967 | ) | ||||||||
| Net earned premiums | 32,974 | 18,279 | 95,354 | 51,736 | ||||||||||||
| Net investment income | 1,894 | 1,436 | 5,389 | 4,027 | ||||||||||||
| Net realized investment (losses) gains | — | (8 | ) | 383 | 8 | |||||||||||
| Other income | — | 128 | 136 | 443 | ||||||||||||
| Total revenues | 34,868 | 19,835 | 101,262 | 56,214 | ||||||||||||
| Expenses | ||||||||||||||||
| Losses and loss adjustment expenses | 15,949 | 10,369 | 51,526 | 27,648 | ||||||||||||
| Underwriting, acquisition and insurance expenses | 6,302 | 46 | 19,031 | 408 | ||||||||||||
| Other expenses | 523 | 468 | 1,469 | 1,481 | ||||||||||||
| Total expenses | 22,774 | 10,883 | 72,026 | 29,537 | ||||||||||||
| Income before income taxes | 12,094 | 8,952 | 29,236 | 26,677 | ||||||||||||
| Total income tax expense | 4,112 | 3,008 | 9,940 | 9,008 | ||||||||||||
| Net income | $ | 7,982 | $ | 5,944 | $ | 19,296 | $ | 17,669 | ||||||||
| Other comprehensive income | ||||||||||||||||
| Change in unrealized gains (losses) on investments, net of taxes | (1 | ) | 118 | 5,016 | (1,095 | ) | ||||||||||
| Total comprehensive income | $ | 7,981 | $ | 6,062 | $ | 24,312 | $ | 16,574 | ||||||||
| Loss ratio | 48.4 | % | 56.7 | % | 54.0 | % | 53.4 | % | ||||||||
| Expense ratio | 19.1 | % | 0.3 | % | 20.0 | % | 0.8 | % | ||||||||
| Combined ratio | 67.5 | % | 57.0 | % | 74.0 | % | 54.2 | % | ||||||||
| KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES | ||||||||
| Unaudited Condensed Consolidated Balance Sheets | ||||||||
| September 30, 2016 | December 31, 2015 | |||||||
| Assets | ($ in thousands) | |||||||
| Investments: | ||||||||
| Fixed maturity securities available-for-sale | $ | 398,779 | $ | 327,602 | ||||
| Equity securities available-for-sale | 17,788 | 14,240 | ||||||
| Short-term investments | 254 | 2,299 | ||||||
| Total investments | 416,821 | 344,141 | ||||||
| Cash and cash equivalents | 103,757 | 24,544 | ||||||
| Investment income due and accrued | 1,833 | 1,844 | ||||||
| Premiums receivable, net | 15,483 | 15,550 | ||||||
| Receivable from reinsurers | 7,306 | 11,928 | ||||||
| Reinsurance recoverables | 77,610 | 95,670 | ||||||
| Ceded unearned premiums | 24,143 | 39,329 | ||||||
| Deferred policy acquisition costs, net of ceding commissions | 5,558 | — | ||||||
| Intangible assets | 3,538 | 3,538 | ||||||
| Deferred income tax asset, net | 4,940 | 6,822 | ||||||
| Other assets | 2,282 | 1,912 | ||||||
| Total assets | $ | 663,271 | $ | 545,278 | ||||
| Liabilities & Stockholders' Equity | ||||||||
| Liabilities: | ||||||||
| Reserves for unpaid losses and loss adjustment expenses | $ | 253,458 | $ | 219,629 | ||||
| Unearned premiums | 88,276 | 81,713 | ||||||
| Funds held for reinsurers | 52,545 | 87,206 | ||||||
| Payable to reinsurers | 3,914 | 3,833 | ||||||
| Accounts payable and accrued expenses | 6,239 | 7,410 | ||||||
| Deferred policy acquisition costs, net of ceding commissions | — | 1,696 | ||||||
| Note payable | 27,223 | 29,603 | ||||||
| Other liabilities | 21,732 | 737 | ||||||
| Total liabilities | 453,387 | 431,827 | ||||||
| Stockholders' equity | 209,884 | 113,451 | ||||||
| Total liabilities and stockholders' equity | $ | 663,271 | $ | 545,278 | ||||