Kinsale Capital Group, Inc. Reports 2020 Fourth Quarter and Year-End Results

February 18, 2021 4:05 PM EST

Get instant alerts when news breaks on your stocks. Claim your 1-week free trial to StreetInsider Premium here.

RICHMOND, Va., Feb. 18, 2021 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (Nasdaq: KNSL) reported net income of $38.2 million, $1.65 per diluted share, for the fourth quarter of 2020 compared to $17.9 million, $0.79 per diluted share, for the fourth quarter of 2019. Net income was $88.4 million, $3.87 per diluted share, for the year ended December 31, 2020 compared to $63.3 million, $2.86 per diluted share, for the year ended December 31, 2019. For the fourth quarter and year ended December 31, 2020, net income included after-tax catastrophe losses of $4.8 million and $18.3 million, respectively. For the fourth quarter and year ended December 31, 2019, net income included after-tax catastrophe losses of $1.2 million and $2.4 million, respectively.

Net operating earnings(1) were $26.3 million, $1.14 per diluted share, for the fourth quarter of 2020 compared to $14.3 million, $0.63 per diluted share, for the fourth quarter of 2019. Net operating earnings(1) were $72.3 million, $3.16 per diluted share, for the year ended December 31, 2020 compared to $53.2 million, $2.41 per diluted share, for the year ended December 31, 2019.

Highlights for the fourth quarter of 2020 included:

  • Net income increased by 113.9% compared to the fourth quarter of 2019
  • Net operating earnings(1) increased by 83.8% compared to the fourth quarter of 2019
  • 33.7% growth in gross written premiums to $149.9 million compared to the fourth quarter of 2019
  • 17.1% increase in net investment income to $6.5 million compared to the fourth quarter of 2019
  • 88.1% increase in underwriting income(2) to $21.6 million compared to the fourth quarter of 2019, resulting in a combined ratio of 81.6%
  • 19.0% annualized operating return on equity(4) for the fourth quarter of 2020

Highlights for the full year of 2020 included:

  • Net income increased by 39.6% compared to the full year of 2019
  • Net operating earnings(1) increased by 35.8% compared to the full year of 2019
  • 41.9% growth in gross written premiums to $552.8 million compared to the full year of 2019
  • 29.7% increase in net investment income to $26.1 million compared to the full year of 2019
  • 26.5% increase in underwriting income(2) to $54.7 million compared to the full year of 2019, resulting in a combined ratio of 86.7%
  • 14.7% operating return on equity(4) for the year ended December 31, 2020

(1) Net operating earnings is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below.

"We concluded the year with another strong quarter with growth in gross written premiums of 34% and a combined ratio of just under 82%. This past year provided remarkable opportunities as well as challenges. We again capitalized on favorable market conditions where we generated record premium growth during the year of 42%, while successfully navigating through heightened catastrophe levels and the impact of the pandemic. Our results highlight the strength and durability of our business model and we are optimistic about delivering another successful year in 2021," said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $149.9 million for the fourth quarter of 2020 compared to $112.1 million for the fourth quarter of 2019, an increase of 33.7%. Gross written premiums were $552.8 million for the year ended December 31, 2020 compared to $389.7 million for the year ended December 31, 2019, an increase of 41.9%. Growth in gross written premiums during the fourth quarter and year ended December 31, 2020 over the same periods last year was driven by higher submission activity and premium rates on bound accounts.

Underwriting income(2) was $21.6 million, resulting in a combined ratio of 81.6%, for the fourth quarter of 2020, compared to $11.5 million, and a combined ratio of 86.1% for the same period last year. The increase in underwriting income(2) for the fourth quarter of 2020 was due primarily to premium growth quarter over quarter and higher favorable development on loss reserves from prior accident years. These increases were offset in part by higher catastrophe losses in the fourth quarter of 2020 compared to the prior year period. Loss and expense ratios were 58.8% and 22.8%, respectively, for the fourth quarter of 2020 compared to 62.1% and 24.0% for the fourth quarter of 2019. The loss ratios included current accident year catastrophe losses of $6.1 million, or 5.1 points, for the fourth quarter of 2020, and $1.5 million, or 1.8 points, for the fourth quarter of 2019. Favorable development on reserves from prior accident years was $3.7 million, or 3.1 points, for the fourth quarter of 2020, and $1.1 million, or 1.3 points, for the fourth quarter of 2019.

Underwriting income(2) was $54.7 million, resulting in a combined ratio of 86.7%, for the year ended December 31, 2020, compared to $43.2 million, and a combined ratio of 84.7% for the prior year. The increase in underwriting income(2) for the year ended December 31, 2020 was due primarily to premium growth year over year and the improvement in the development of loss reserves from prior accident years, offset in part by higher catastrophe losses. Loss and expense ratios were 63.9% and 22.8%, respectively, for the year ended December 31, 2020 compared to 59.9% and 24.8%, respectively, for the year ended December 31, 2019. The loss ratios included current accident year catastrophe losses of $23.2 million, or 5.6 points, for the year ended December 31, 2020 and $3.0 million, or 1.1 points, for the year ended December 31, 2019. Favorable development on reserves from prior accident years was $13.3 million, or 3.2 points, for the year ended December 31, 2020 and $9.4 million, or 3.3 points, for the year ended December 31, 2019.

Summary of Operating Results

The Company’s operating results for the three months and year ended December 31, 2020 and 2019 are summarized as follows:

 Three Months Ended December 31, Year Ended December 31,
 2020 2019 2020 2019
                    
 ($ in thousands)
Gross written premiums$149,910   $112,137   $552,814   $389,694  
Ceded written premiums(19,599)  (12,582)  (74,595)  (47,633) 
Net written premiums$130,311   $99,555   $478,219   $342,061  
        
Net earned premiums$117,792   $82,782   $412,754   $282,981  
Losses and loss adjustment expenses69,334   51,442   263,802   169,563  
Underwriting, acquisition and insurance expenses26,825   19,840   94,296   70,217  
Underwriting income(2)$21,633   $11,500   $54,656   $43,201  
        
Loss ratio58.8 % 62.1 % 63.9 % 59.9 %
Expense ratio22.8 % 24.0 % 22.8 % 24.8 %
Combined ratio81.6 % 86.1 % 86.7 % 84.7 %
        
Annualized return on equity(3)27.5 % 17.9 % 18.0 % 18.9 %
Annualized operating return on equity(4)19.0 % 14.4 % 14.7 % 15.9 %

(2)   Underwriting income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below.

(3)   Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending 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. See discussion of "Non-GAAP Financial Measures" below.

The following tables summarize losses incurred for the current accident year and the development of prior accident years for the three months and year ended December 31, 2020 and 2019:

 Three Months Ended December 31, 2020 Three Months Ended December 31, 2019
 Losses and Loss Adjustment Expenses % of Earned Premiums Losses and Loss Adjustment Expenses % of Earned Premiums
                
Loss ratio:($ in thousands)
Current accident year$66,983  56.8 % $51,022  61.6 %
Current accident year - catastrophe losses6,061  5.1 % 1,493  1.8 %
Effect of prior accident year development(3,710) (3.1)% (1,073) (1.3)%
Total$69,334  58.8 % $51,442  62.1 %

 Year Ended December 31, 2020 Year Ended December 31, 2019
 Losses and Loss Adjustment Expenses % of Earned Premiums Losses and Loss Adjustment Expenses % of Earned Premiums
                
Loss ratio:($ in thousands)
Current accident year$253,948  61.5 % $175,939  62.1 %
Current accident year - catastrophe losses23,192  5.6 % 3,047  1.1 %
Effect of prior accident year development(13,338) (3.2)% (9,423) (3.3)%
Total$263,802  63.9 % $169,563  59.9 %

Investment Results

The Company’s net investment income was $6.5 million in the fourth quarter of 2020 compared to $5.5 million in the fourth quarter of 2019, an increase of 17.1%. Net investment income was $26.1 million for the full year of 2020 compared to $20.1 million for the full year of 2019. This increase was primarily due to growth in our investment portfolio balance generated from the investment of operating funds since December 31, 2019 and from proceeds from our equity offerings. The Company’s investment portfolio, excluding cash and cash equivalents, had a gross investment return(5) of 2.9% for the year ended December 31, 2020 compared to 3.1% for the year ended December 31, 2019. Funds are generally 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 fixed-maturity investment portfolio, including cash equivalents, was 4.3 years at both December 31, 2020 and 2019. Cash and invested assets totaled $1.3 billion at December 31, 2020 compared to $908.2 million at December 31, 2019.

(5)   Gross investment return is investment income from fixed-maturity and equity securities, before any deductions for fees and expenses, expressed as a percentage of average beginning and ending balances of those investments during the period.

Other

Total comprehensive income, which includes net income and the change in after-tax unrealized gains and losses from the Company’s available-for-sale investments, was $116.3 million for the full year of 2020 compared to $78.1 million for the full year of 2019. The increase in total comprehensive income for the year ended 2020 over the prior year was due to higher net income as well as an increase in the fair value of the Company's fixed-maturity investments.

The effective tax rate for the year ended December 31, 2020 was 11.9%. The effective tax rate was lower than the federal statutory rate primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.

Stockholders' equity was $576.2 million at December 31, 2020, compared to $405.9 million at December 31, 2019. Operating return on equity was 14.7% for the full year of 2020, a decrease from 15.9% for the full year of 2019, which was attributable primarily to the proceeds received from the Company's equity offering in the third quarter of 2020 and catastrophe losses incurred during the year, offset in part by higher net income.

Non-GAAP Financial Measures

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, and net realized gains and losses on investments, after taxes. Management believes the exclusion of these items provides a more useful comparison of the Company's underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.

For the three months and year ended December 31, 2020 and 2019, net income and diluted earnings per share reconcile to net operating earnings and diluted operating earnings per share as follows:

  Three Months Ended December 31, Year Ended December 31,
  2020 2019 2020 2019
                     
  ($ in thousands, except per share data)
Net operating earnings:        
Net income $38,181   $17,853   $88,419   $63,316  
Change in fair value of equity securities, after taxes (10,385)  (3,428)  (13,315)  (9,787) 
Net realized gains on investments, after taxes (1,467)  (102)  (2,791)  (284) 
Net operating earnings $26,329   $14,323   $72,313   $53,245  
         
Diluted operating earnings per share:        
Diluted earnings per share $1.65   $0.79   $3.87   $2.86  
Change in fair value of equity securities, after taxes, per share (0.45)  (0.15)  (0.58)  (0.44) 
Net realized gains on investments, after taxes, per share (0.06)     (0.12)  (0.01) 
Diluted operating earnings per share(1) $1.14   $0.63   $3.16   $2.41  
         
Operating return on equity:        
Average equity(2) $555,185   $397,958   $491,059   $334,933  
Annualized return on equity(3) 27.5 % 17.9 % 18.0 % 18.9 %
Annualized operating return on equity(4) 19.0 % 14.4 % 14.7 % 15.9 %

(1)   Diluted operating earnings per share may not add due to rounding.

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

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

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

Underwriting Income

Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized gains and losses on investments, other income, other expenses and income tax expense. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company's financial information useful insight into the Company's results of operations and underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.

For the three months and year ended December 31, 2020 and 2019, net income reconciles to underwriting income as follows:

  Three Months Ended December 31, Year Ended December 31,
  2020 2019 2020 2019
                 
  (in thousands)
Net income $38,181  $17,853  $88,419  $63,316 
Income tax expense 4,639  3,669  11,994  12,735 
Income before income taxes 42,820  21,522  100,413  76,051 
Other expenses 353    1,375  57 
Net investment income (6,497) (5,547) (26,110) (20,133)
Change in fair value of equity securities (13,146) (4,339) (16,855) (12,389)
Net realized investment gains (1,857) (129) (3,533) (359)
Other income (40) (7) (634) (26)
Underwriting income $21,633  $11,500  $54,656  $43,201 

Conference Call

Kinsale Capital Group will hold a conference call to discuss this press release on Friday, February 19, 2021, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 1081715, or via the Internet by going to www.kinsalecapitalgroup.com and clicking on the "Investor Relations" link. A replay of the call will be available on the website until the close of business on April 19, 2021.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as "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; inherent uncertainty of models resulting in actual losses that are materially different than the Company's estimates; adverse economic factors; a decline in the Company's financial strength rating; loss of one or more key executives; loss of a group of brokers that generate significant portions of the Company's business; failure of any of the loss limitations or exclusions the Company employs, or change in other claims or coverage issues; adverse performance of the Company's investment portfolio; adverse market conditions that affect its excess and surplus lines insurance operations; and other risks described in the Company's filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

About Kinsale Capital Group, Inc.

Kinsale Capital Group, Inc. is a specialty insurance group headquartered in Richmond, Virginia, focusing on the excess and surplus lines market.

Contact

Kinsale Capital Group, Inc. Bryan Petrucelli Executive Vice President, Chief Financial Officer and Treasurer804-289-1272 ir@kinsalecapitalgroup.com

 
 
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
 
Unaudited Consolidated Statements of Income and Comprehensive Income
 
  Three Months Ended December 31, Year Ended December 31,
  2020 2019 2020 2019
                 
Revenues (in thousands, except per share data)
Gross written premiums $149,910  $112,137  $552,814  $389,694 
Ceded written premiums (19,599) (12,582) (74,595) (47,633)
Net written premiums 130,311  99,555  478,219  342,061 
Change in unearned premiums (12,519) (16,773) (65,465) (59,080)
Net earned premiums 117,792  82,782  412,754  282,981 
         
Net investment income 6,497  5,547  26,110  20,133 
Change in fair value of equity securities 13,146  4,339  16,855  12,389 
Net realized investment gains 1,857  129  3,533  359 
Other income 40  7  634  26 
Total revenues 139,332  92,804  459,886  315,888 
         
Expenses        
Losses and loss adjustment expenses 69,334  51,442  263,802  169,563 
Underwriting, acquisition and insurance expenses 26,825  19,840  94,296  70,217 
Other expenses 353    1,375  57 
Total expenses 96,512  71,282  359,473  239,837 
Income before income taxes 42,820  21,522  100,413  76,051 
Income tax expense 4,639  3,669  11,994  12,735 
Net income 38,181  17,853  88,419  63,316 
         
Other comprehensive income        
Change in unrealized gains (losses) on available-for-sale            
 investments, net of taxes 3,523  (1,803) 27,862  14,774 
Total comprehensive income $41,704  $16,050  $116,281  $78,090 
         
Earnings per share:        
Basic $1.69  $0.81  $3.96  $2.94 
Diluted $1.65  $0.79  $3.87  $2.86 
         
Weighted-average shares outstanding:        
Basic 22,611  22,060  22,319  21,528 
Diluted 23,073  22,645  22,852  22,136 
             

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
 
Unaudited Condensed Consolidated Balance Sheets
 
  December 31, 2020 December 31, 2019
         
  (in thousands)
Assets    
Investments:    
Fixed-maturity securities at fair value $1,081,800  $729,532 
Equity securities at fair value 129,662  78,294 
Total investments 1,211,462  807,826 
     
Cash and cash equivalents 77,093  100,408 
Investment income due and accrued 6,637  4,743 
Premiums receivable, net 48,641  34,483 
Reinsurance recoverable 93,215  72,574 
Ceded unearned premiums 24,265  16,118 
Deferred policy acquisition costs, net of ceding commissions 31,912  23,564 
Intangible assets 3,538  3,538 
Deferred income tax asset, net   3,374 
Other assets 50,133  23,922 
Total assets $1,546,896  $1,090,550 
     
Liabilities & Stockholders' Equity    
Liabilities:    
Reserves for unpaid losses and loss adjustment expenses $636,013  $460,058 
Unearned premiums 260,986  187,374 
Payable to reinsurers 12,672  7,151 
Accounts payable and accrued expenses 13,651  12,366 
Credit facility 42,570  16,744 
Deferred income tax liability, net 4,648   
Other liabilities 118  977 
Total liabilities 970,658  684,670 
     
Stockholders' equity 576,238  405,880 
Total liabilities and stockholders' equity $1,546,896  $1,090,550 

 

Primary Logo

Source: Kinsale Capital Group, Inc.


Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Globe Newswire, Press Releases

Related Entities

Earnings, Definitive Agreement, Equity Offerings