Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
X
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2016
 
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
(State or other jurisdiction of
incorporation or organization)

 
98-0664337
(I.R.S. Employer
Identification Number)
 
2221 Edward Holland Drive, Suite 600
Richmond, VA 23230

 
 
(Address of principal executive offices)
 
 
(804) 289-1300
 
 
(Registrant's telephone number, including area code)
 

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  x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
(Do not check if a smaller reporting company)
Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes  
¨     No  x
Number of shares of the registrant's common shares outstanding at September 2, 2016: 20,968,707


Table of Contents

KINSALE CAPITAL GROUP, INC.
TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.
Financial Statements
 
 
 
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015
 
 
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015
 
 
Consolidated Statements of Changes in Stockholders' Equity for the Six Months Ended June 30, 2016 and 2015
 
 
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015
 
 
Notes to Condensed Consolidated Financial Statements
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 4.
Controls and Procedures
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
Item 1.
Legal Proceedings
 
Item IA.
Risk Factors
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
Item 6.
Exhibits
 
 
 
 
 
Signatures
 
 
 
 
 
Exhibit Index
 





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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
 
 
June 30,
2016
 
December 31,
2015
 
 
(in thousands, except share and per share data)
Assets
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost: $370,758 in 2016; $326,953 in 2015)
 
$
378,423

 
$
327,602

Equity securities available-for-sale, at fair value (cost: $14,386 in 2016; $12,184 in 2015)
 
17,143

 
14,240

Short-term investments
 
6,653

 
2,299

Total investments
 
402,219

 
344,141

Cash and cash equivalents
 
22,236

 
24,544

Investment income due and accrued
 
1,897

 
1,844

Premiums receivable, net
 
16,667

 
15,550

Receivable from reinsurers
 
5,219

 
11,928

Reinsurance recoverables
 
75,542

 
95,670

Ceded unearned premiums
 
23,421

 
39,329

Deferred policy acquisition costs, net of ceding commissions
 
5,515

 

Intangible assets
 
3,538

 
3,538

Deferred income tax asset, net
 
4,601

 
6,822

Other assets
 
2,737

 
1,912

Total assets
 
$
563,592

 
$
545,278

 
 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
 
Liabilities:
 
 
 
 
Reserves for unpaid losses and loss adjustment expenses
 
$
245,210

 
$
219,629

Unearned premiums
 
86,881

 
81,713

Payable to reinsurers
 
4,135

 
3,833

Funds held for reinsurers
 
49,887

 
87,206

Accounts payable and accrued expenses
 
4,870

 
7,410

Deferred policy acquisition costs, net of ceding commissions
 

 
1,696

Note payable
 
29,683

 
29,603

Other liabilities
 
13,101

 
737

Total liabilities
 
433,767

 
431,827

Commitments and contingencies
 
 
 
 

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited) (continued)
 
 
 
June 30,
2016
 
December 31,
2015
 
 
(in thousands, except share and per share data)
Stockholders’ equity:
 
 
 
 
Class A common stock, $0.0001 par value. Authorized 15,000,000 shares; issued and outstanding 13,803,183 shares in 2016 and 2015; liquidation preference $171,696 in 2016; $162,002 in 2015

 
1

 
1

Class B common stock, $0.0001 par value. Authorized 3,333,333 shares; issued and outstanding 1,676,456 shares in 2016 and 1,513,592 shares in 2015

 

 

Additional paid-in capital
 
80,273

 
80,229

Retained earnings
 
40,884

 
29,570

Accumulated other comprehensive income
 
8,667

 
3,651

Stockholders’ equity
 
129,825

 
113,451

Total liabilities and stockholders’ equity
 
$
563,592

 
$
545,278


See accompanying notes to condensed consolidated financial statements.


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Table of Contents

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited)
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands, except share and per share data)
Revenues:
 
 
 
 
 
 
 
 
Gross written premiums
 
$
50,107

 
$
45,112

 
$
93,189

 
$
86,042

Ceded written premiums
 
(14,446
)
 
(26,274
)
 
(9,733
)
 
(50,218
)
Net written premiums
 
35,661

 
18,838

 
83,456

 
35,824

Change in unearned premiums
 
(3,878
)
 
(1,822
)
 
(21,076
)
 
(2,367
)
Net earned premiums
 
31,783

 
17,016

 
62,380

 
33,457

Net investment income
 
1,819

 
1,377

 
3,495

 
2,591

Net realized investment (losses) gains
 
(4
)
 
8

 
383

 
16

Other income
 
78

 
191

 
136

 
315

Total revenues
 
33,676

 
18,592

 
66,394

 
36,379

 
 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
17,456

 
8,061

 
35,577

 
17,279

Underwriting, acquisition and insurance expenses
 
6,481

 
31

 
12,729

 
362

Other expenses
 
486

 
517

 
946

 
1,013

Total expenses
 
24,423

 
8,609

 
49,252

 
18,654

Income before income taxes
 
9,253

 
9,983

 
17,142

 
17,725

Total income tax expense
 
3,196

 
3,374

 
5,828

 
6,000

Net income
 
$
6,057

 
$
6,609

 
$
11,314

 
$
11,725

 
 
 
 
 
 
 
 
 
Other comprehensive income:
 
 
 
 
 
 
 
 
Unrealized gains (losses), net of taxes of $1,557 and $2,702 in 2016 and $(1,060) and $(653) in 2015
 
2,890

 
(1,970
)
 
5,016

 
(1,213
)
Total comprehensive income
 
$
8,947

 
$
4,639

 
$
16,330

 
$
10,512


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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (unaudited) (continued)

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands, except share and per share data)
Earnings per share:
 
 
 
 
 
 
 
 
Basic - Class A
 
$
0.42

 
$
0.44

 
$
0.79

 
$
0.80

Diluted - Class A
 
$
0.42

 
$
0.44

 
$
0.79

 
$
0.80

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic - Class A
 
13,803,183

 
13,795,530

 
13,803,183

 
13,795,530

Diluted - Class A
 
13,803,183

 
13,795,530

 
13,803,183

 
13,795,530

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic - Class B
 
$
0.19

 
$
0.42

 
$
0.26

 
$
0.57

Diluted - Class B
 
$
0.18

 
$
0.42

 
$
0.25

 
$
0.56

 
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
Basic - Class B
 
1,583,470

 
1,359,183

 
1,557,089

 
1,331,881

Diluted - Class B
 
1,665,936

 
1,369,738

 
1,649,971

 
1,350,411


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)
 
 
Class A Common Stock
 
Class B Common Stock
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated
 Other
Compre-
hensive
Income
 
Total
Stock-
holders' Equity
 
 
(in thousands)
Balance at December 31, 2014
 
$
1

 
$

 
$
80,074

 
$
7,297

 
$
5,214

 
$
92,586

Restricted stock grants
 

 

 
50

 

 

 
50

Other comprehensive loss, net of tax
 

 

 

 

 
(1,213
)
 
(1,213
)
Net income
 

 

 

 
11,725

 

 
11,725

Balance at June 30, 2015
 
$
1

 
$

 
$
80,124

 
$
19,022

 
$
4,001

 
$
103,148

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$
1

 
$

 
$
80,229

 
$
29,570

 
$
3,651

 
$
113,451

Restricted stock grants
 

 

 
44

 

 

 
44

Other comprehensive income, net of tax
 

 

 

 

 
5,016

 
5,016

Net income
 

 

 

 
11,314

 

 
11,314

Balance at June 30, 2016
 
$
1

 
$

 
$
80,273

 
$
40,884

 
$
8,667

 
$
129,825



See accompanying notes to condensed consolidated financial statements.


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Table of Contents

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (unaudited)
 
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
(in thousands)
Operating activities:
 
 
 
 
Net cash provided by operating activities
 
$
36,480

 
$
34,524

 
 
 
 
 
Investing activities:
 
 
 
 
Purchase of property and equipment
 
(236
)
 
(92
)
Change in short-term investments, net
 
(4,354
)
 
1,960

Securities available-for-sale:
 
 
 
 
Purchases – fixed maturity securities
 
(64,207
)
 
(66,472
)
Purchases – equity securities
 
(2,202
)
 
(81
)
Sales – fixed maturity securities
 
13,055

 
4,002

Maturities and calls – fixed maturity securities
 
19,223

 
21,345

Net cash used in investing activities
 
(38,721
)
 
(39,338
)
 
 
 
 
 
Financing activities:
 
 
 
 
Payments on capital lease
 
(67
)
 
(53
)
Net cash used in financing activities
 
(67
)
 
(53
)
Net change in cash and cash equivalents
 
(2,308
)
 
(4,867
)
Cash and cash equivalents at beginning of year
 
24,544

 
23,958

Cash and cash equivalents at end of period
 
$
22,236

 
$
19,091



See accompanying notes to condensed consolidated financial statements.


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Table of Contents

Kinsale Capital Group, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (unaudited)
1.    Summary of significant accounting policies
Basis of presentation
The accompanying condensed consolidated financial statements and notes have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. For a more complete description of the Company’s business and accounting policies, these condensed consolidated interim financial statements should be read in conjunction with the 2015 audited consolidated financial statements of Kinsale Capital Group, Inc. and its wholly owned subsidiaries (the "Company") included in the final prospectus filed with the SEC on July 29, 2016. 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. 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 and disclosure of contingent assets and liabilities 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. Management periodically reviews its estimates and assumptions.
Prospective accounting pronouncements
ASU 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts
In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-09, "Insurance (Topic 944), Disclosures about Short-Duration Contracts.” This ASU was issued to enhance disclosures about an entity’s insurance liabilities, including the nature, amount, timing and uncertainty of cash flows related to those liabilities. The new guidance requires the disclosure of the following information related to unpaid claims and claim adjustment expenses:
net incurred and paid claims development information by accident year for the number of years for which claims incurred typically remain outstanding, but need not exceed 10 years;
a reconciliation of incurred and paid claims development information to the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses, with separate disclosure of reinsurance recoverable on unpaid claims for each period presented in the statement of financial position;
for each accident year presented, the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses;

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for each accident year presented, quantitative information about claim frequency accompanied by a qualitative description of methodologies used for determining claim frequency information; and
for all claims, the average annual percentage payout of incurred claims by age.
This ASU is effective for annual reporting periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016. Early adoption is permitted. The Company has not early-adopted this ASU and while disclosures will be increased, the Company does not believe adoption will have a material effect on its financial statements.
ASU 2016-01, Financial Instruments Overall: Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which requires equity investments to be measured at fair value with changes in fair value recognized in net income, requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for annual reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.
ASU 2016-02, Leases (Topic 842)
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to improve the financial reporting of leasing transactions. Under this ASU, lessees will recognize a right-of-use asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of fewer than 12 months. The liability is to be measured as the present value of the future minimum lease payments taking into account renewal options (if probable of exercise) plus initial incremental direct costs such as commissions. The minimum payments are discounted using the rate implicit in the lease or, if not known, the lessee’s incremental borrowing rate. The lessee’s income statement treatment for leases will vary depending on the nature of what is being leased. A financing type lease is present when, among other matters, the asset is being leased for a substantial portion of its economic life or has an end-of-term title transfer or a bargain purchase option. The payment of the liability set up for such leases will be apportioned between interest and principal; the right-of use asset will be generally amortized on a straight-line basis. If the lease does not qualify as a financing type lease, it will be accounted for on the income statement as rent on a straight-line basis. This ASU is effective for annual and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
On June 16, 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)" to provide more useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost to be presented at the net

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amount expected to be collected by means of an allowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.
 This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented. The Company is currently evaluating the impact of the adoption on its consolidated financial statements.
There are no other prospective accounting standards which, upon their effective date, would have a material impact on the Company's financial statements.


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2.     Investments
Available-for-sale investments
The following tables summarize the Company’s available-for-sale investments:
 
 
June 30, 2016
 
 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
 
(in thousands)
Fixed maturities:
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$
12,410

 
$
65

 
$

 
$
12,475

Obligations of states, municipalities and political subdivisions
 
62,488

 
4,619

 
(141
)
 
66,966

Corporate and other securities
 
131,482

 
1,295

 
(258
)
 
132,519

Asset-backed securities
 
72,148

 
801

 
(136
)
 
72,813

Residential mortgage-backed securities
 
92,230

 
1,479

 
(59
)
 
93,650

Total fixed maturities
 
370,758

 
8,259

 
(594
)
 
378,423

 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
Exchange traded funds
 
14,386

 
3,117

 
(360
)
 
17,143

Total available-for-sale investments
 
$
385,144

 
$
11,376

 
$
(954
)
 
$
395,566

 
 
December 31, 2015

 
Amortized Cost
 
Gross Unrealized Holding Gains
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
 
(in thousands)
Fixed maturities:
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$
3,422

 
$
13

 
$
(2
)
 
$
3,433

Obligations of states, municipalities and political subdivisions
 
69,997

 
2,562

 
(46
)
 
72,513

Corporate and other securities
 
130,758

 
306

 
(1,543
)
 
129,521

Asset-backed securities
 
58,680

 
58

 
(431
)
 
58,307

Residential mortgage-backed securities
 
64,096

 
760

 
(1,028
)
 
63,828

Total fixed maturities
 
326,953

 
3,699

 
(3,050
)
 
327,602

 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
Exchange traded funds
 
12,184

 
2,392

 
(336
)
 
14,240

Total available-for-sale investments
 
$
339,137

 
$
6,091

 
$
(3,386
)
 
$
341,842


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Available-for-sale securities in a loss position
The Company regularly reviews all securities with unrealized losses to assess whether the decline in the securities’ fair value is deemed to be an other-than-temporary impairment ("OTTI"). The Company considers a number of factors in completing its OTTI review, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of an issuer. In addition to specific issuer information, the Company also evaluates the current market and interest rate environment. Generally, a change in a security's value caused by a change in the market or interest rate environment does not constitute an other-than-temporary impairment, but rather a temporary decline in fair value. 
For fixed maturities, the Company 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, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due. When assessing whether it intends to sell a fixed maturity or if it is likely to be required to sell a fixed maturity 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 equity securities, the ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery is considered.
For fixed maturities where a decline in fair value is considered to be other-than-temporary 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, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity security below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value at the security's effective yield 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 OTTI, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the noncredit portion of the OTTI, which is recognized in other comprehensive income (loss). For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security.

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The following tables summarize gross unrealized losses and fair value for available-for-sale securities by length of time that the securities have continuously been in an unrealized loss position:
 
 
June 30, 2016
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
 
(in thousands)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$

 
$

 
$

 
$

 
$

 
$

Obligations of states, municipalities and political subdivisions
 
4,385

 
(80
)
 
2,536

 
(61
)
 
6,921

 
(141
)
Corporate and other securities
 
17,882

 
(39
)
 
15,559

 
(219
)
 
33,441

 
(258
)
Asset-backed securities
 
7,815

 
(6
)
 
15,076

 
(130
)
 
22,891

 
(136
)
Residential mortgage-backed securities
 
4,949

 
(20
)
 
9,178

 
(39
)
 
14,127

 
(59
)
Total fixed maturities
 
35,031

 
(145
)
 
42,349

 
(449
)
 
77,380

 
(594
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Exchange traded funds
 
1,209

 
(103
)
 
1,592

 
(257
)
 
2,801

 
(360
)
Total
 
$
36,240

 
$
(248
)
 
$
43,941

 
$
(706
)
 
$
80,181

 
$
(954
)
At June 30, 2016, the Company held 69 fixed maturity securities with a total estimated fair value of $77.4 million and gross unrealized losses of $0.6 million. Of these securities, 36 were in a continuous unrealized loss position for greater than one year. As discussed above, the Company regularly reviews all securities within its investment portfolio to determine whether any impairment has occurred. Unrealized losses were caused by interest rate changes or other market factors and were not credit specific issues. Substantially all fixed maturity securities are of high credit quality and continue to pay the expected coupon payments under the contractual terms of the securities. Management concluded that there were no other-than-temporary impairments from fixed maturity or equity securities with unrealized losses for the six months ended June 30, 2016.
At June 30, 2016, the Company held three exchange traded funds ("ETFs") in its equity portfolio with a total estimated fair value of $2.8 million and gross unrealized losses of $0.4 million. One of these securities were in a continuous unrealized loss position for greater than one year. Given the Company's intent to hold and expectation of recovery to cost within a reasonable time, the Company did not consider any of the equities securities to be other-than-temporarily impaired at June 30, 2016.

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Table of Contents

 
 
December 31, 2015
 
 
Less than 12 Months
 
12 Months or Longer
 
Total
 
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
Estimated Fair Value
 
Gross Unrealized Holding Losses
 
 
(in thousands)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$
2,999

 
$
(2
)
 
$

 
$

 
$
2,999

 
$
(2
)
Obligations of states, municipalities and political subdivisions
 
844

 
(2
)
 
2,550

 
(44
)
 
3,394

 
(46
)
Corporate and other securities
 
89,334

 
(1,515
)
 
6,978

 
(28
)
 
96,312

 
(1,543
)
Asset-backed securities
 
30,002

 
(209
)
 
13,070

 
(222
)
 
43,072

 
(431
)
Residential mortgage-backed securities
 
30,243

 
(434
)
 
16,072

 
(594
)
 
46,315

 
(1,028
)
Total fixed maturities
 
153,422

 
(2,162
)
 
38,670

 
(888
)
 
192,092

 
(3,050
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
Exchange traded funds
 
3,256

 
(331
)
 
26

 
(5
)
 
3,282

 
(336
)
Total
 
$
156,678

 
$
(2,493
)
 
$
38,696

 
$
(893
)
 
$
195,374

 
$
(3,386
)
At December 31, 2015, the Company held 156 fixed maturity securities with a total estimated fair value of $192.1 million and gross unrealized losses of $3.1 million. Of those securities, 36 were in a continuous unrealized loss position for greater than one year. Unrealized losses were caused by interest rate changes or other market factors and were not credit specific issues. Unrealized losses related to corporate fixed maturity securities in the energy sector were approximately $1.1 million at December 31, 2015. Substantially all fixed maturity securities are of high credit quality and continue to pay the expected coupon payments under the contractual terms of the securities. Based on its review, the Company concluded that none of the fixed maturity securities with an unrealized loss at December 31, 2015 experienced an other-than-temporary impairment.
At December 31, 2015, the Company held five ETFs in its equity portfolio with a total estimated fair value of $3.3 million and gross unrealized losses of $0.3 million. One of these securities was in a continuous unrealized loss position for greater than one year. Given the Company's intent to hold and expectation of recovery to cost within a reasonable time, the Company did not consider any of the equities securities to be other-than-temporarily impaired at December 31, 2015.

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Contractual maturities of available-for-sale fixed maturity securities
The amortized cost and estimated fair value of available-for-sale fixed maturity securities at June 30, 2016 are summarized, by contractual maturity, as follows:
 
 
Amortized
 
Estimated
 
 
Cost
 
Fair Value
 
 
(in thousands)
Due in one year or less
 
$
36,817

 
$
36,855

Due after one year through five years
 
104,397

 
105,535

Due after five years through ten years
 
24,932

 
26,280

Due after ten years
 
40,234

 
43,290

Asset-backed securities
 
72,148

 
72,813

Residential mortgage-backed securities
 
92,230

 
93,650

Total fixed maturities
 
$
370,758

 
$
378,423

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.
Net investment income
The following table presents the components of net investment income:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Interest:
 
 
 
 
 
 
 
 
Municipal bonds (tax exempt)
 
$
1,524

 
$
1,144

 
$
2,913

 
$
2,084

Taxable bonds
 
375

 
313

 
781

 
694

Cash, cash equivalents, and short-term investments
 
12

 
2

 
20

 
4

Dividends on equity securities
 
118

 
106

 
202

 
180

Gross investment income
 
2,029

 
1,565

 
3,916

 
2,962

Investment expenses
 
(210
)
 
(188
)
 
(421
)
 
(371
)
Net investment income
 
$
1,819

 
$
1,377

 
$
3,495

 
$
2,591


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Net investment gains and losses
There were no significant realized investment gains or losses for the three months ended June 30, 2016. Realized investment gains for the six months ended June 30, 2016 of $0.4 million resulted from the sales of fixed maturity securities. There were no significant realized investment gains or losses for the three months and six months ended June 30, 2015.
Change in net unrealized gains (losses) on investments
The following table presents the change in available-for-sale net unrealized gains (losses) by investment type:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Change in net unrealized gains (losses):
 
 
 
 
 
 
 
 
Fixed maturities
 
$
4,087

 
$
(2,915
)
 
$
7,016

 
$
(1,923
)
Equity securities
 
360

 
(115
)
 
701

 
57

Net increase (decrease)
 
$
4,447

 
$
(3,030
)
 
$
7,717

 
$
(1,866
)
Insurance – statutory deposits
The Company had invested assets with a carrying value of $7.5 million and $7.2 million on deposit with state regulatory authorities at June 30, 2016 and December 31, 2015, respectively.
Payable for investments purchased
At June 30, 2016, payable for investments purchased, a non-cash transaction, was $12.3 million and was included in the "other liabilities" line item of the balance sheet. There were no payables for investments purchased at December 31, 2015.
3.     Fair value measurements
Fair value was estimated for each class of financial instrument for which it was practical to estimate fair value. Fair value is defined as the price in the principal market that would be received for an asset 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). 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 described below:
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.

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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 manager from third party pricing services, where available. For securities where the Company is unable to obtain fair values from a pricing service or broker, fair values are estimated using information obtained from the Company's investment manager. 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 manager that obtain fair values from third party pricing services, 2) discussing with the Company's investment manager its process for reviewing and validating pricing obtained from outside pricing services and 3) reviewing the security pricing received from the Company's investment manager and monitoring changes in unrealized gains and losses. 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.
The following tables present the balances of assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015, by level within the fair value hierarchy.
 
 
June 30, 2016
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$
12,475

 
$

 
$

 
$
12,475

Obligations of states, municipalities and political subdivisions
 

 
66,966

 

 
66,966

Corporate and other securities
 

 
132,519

 

 
132,519

Asset-backed securities
 

 
72,813

 

 
72,813

Residential mortgage-backed securities
 

 
93,650

 

 
93,650

Total fixed maturities
 
12,475

 
365,948

 

 
378,423

 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
Exchange traded funds
 
17,143

 

 

 
17,143

Short-term investments
 

 
6,653

 

 
6,653

Total
 
$
29,618

 
$
372,601

 
$

 
$
402,219


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December 31, 2015
 
 
Level 1
 
Level 2
 
Level 3
 
Total
 
 
(in thousands)
Assets
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
 
$
3,433

 
$

 
$

 
$
3,433

Obligations of states, municipalities and political subdivisions
 

 
72,513

 

 
72,513

Corporate and other securities
 

 
129,521

 

 
129,521

Asset-backed securities
 

 
58,307

 

 
58,307

Residential mortgage-backed securities
 

 
63,828

 

 
63,828

Total fixed maturities
 
3,433

 
324,169

 

 
327,602

 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
Exchange traded funds
 
14,240

 

 

 
14,240

Short-term investments
 

 
2,299

 

 
2,299

Total
 
$
17,673

 
$
326,468

 
$

 
$
344,141

There were no transfers into or out of Level 1 and Level 2 during the three and six months ended June 30, 2016. There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2016 and December 31, 2015.
Due to the relatively short-term nature of cash, cash equivalents, receivables and payables, their carrying amounts are reasonable estimates of fair value. Additionally, due to variable interest rates and no change in the Company's credit standing, the carrying value of the note payable approximates fair value as of June 30, 2016 and December 31, 2015.


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4.     Deferred policy acquisition costs
The following table presents the amounts of policy acquisition costs deferred and amortized for the three and six months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Balance, beginning of period
 
$
5,305

 
$
(3,821
)
 
$
(1,696
)
 
$
(3,762
)
Policy acquisition costs deferred:
 
 
 
 
 
 
 
 
Direct commissions
 
7,448

 
6,687

 
13,848

 
12,769

Ceding commissions
 
(4,995
)
 
(9,831
)
 
(2,204
)
 
(18,738
)
Other underwriting and policy acquisition costs
 
700

 
822

 
1,426

 
1,601

Policy acquisition costs deferred
 
3,153

 
(2,322
)
 
13,070

 
(4,368
)
Amortization of net policy acquisition costs
 
(2,943
)
 
2,093

 
(5,859
)
 
4,080

Balance, end of period
 
$
5,515

 
$
(4,050
)
 
$
5,515

 
$
(4,050
)
For the three and six months ended June 30, 2016, the deferred ceding commissions decreased as a result of the change in the ceding percentage under the Company’s multi-line quota share reinsurance treaty ("MLQS"). The negative, or liability, balance at June 30, 2015 was also due to the effect of the deferred ceding commissions related to the MLQS. See note 8 for further details regarding the MLQS.

5.     Underwriting, acquisition and insurance expenses
Underwriting, acquisition and insurance expenses consist of the following:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Underwriting, acquisition and insurance expenses incurred:
 
 
 
 
 
 
 
 
Gross commissions
 
$
6,668

 
$
6,085

 
$
13,074

 
$
12,048

Ceding commissions
 
(5,218
)
 
(10,817
)
 
(10,626
)
 
(20,897
)
Other operating expenses
 
5,031

 
4,763

 
10,281

 
9,211

Total
 
$
6,481

 
$
31

 
$
12,729

 
$
362

Other operating expenses within underwriting, acquisition and insurance expenses include salaries, bonus and employee benefits expenses of $4.2 million and $3.9 million for the three months ended June 30, 2016 and 2015. Salaries, bonus and employee benefits expenses were $8.8 million and $7.6 million for the six months ended June 30, 2016 and 2015.

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6.    Earnings per share
Earnings per share for Class A and Class B common stock were calculated using the two-class method. Under the two-class method, net income attributable to Class A and Class B common stockholders was determined by allocating undistributed earnings to each class of stock. The net income per share attributable to common stockholders was allocated based on the contractual participation rights of the Class A common stock and Class B common stock as if the income for the period has been distributed. Net income attributable to Class A common stockholders equaled the sum of dividends at the rate per annum of 12% compounding annually during the period ("Accruing Dividends") plus seventy-five percent of any remaining assets of the Company available for distribution to its stockholders in the event of a liquidation, dissolution, winding up or sale of the Company after payment of the Accruing Dividends ("Residual Proceeds"). Net income attributable to Class B common stockholders equaled twenty-five percent of the Residual Proceeds.
Basic earnings per share for each class of common stock was computed by dividing the net income attributable to the common stockholders by the weighted-average number of shares of each respective class of common stock outstanding during the period. Diluted earnings per share attributable to each class of common stock was computed by dividing net income attributable to common stockholders by the weighted-average shares outstanding for each respective class of common stock outstanding during the period, including potentially dilutive shares of common stock for the period determined using the treasury stock method. There were no potentially dilutive shares attributable to Class A common stockholders. For purposes of the diluted earnings per share attributable to Class B common stockholders calculation, unvested restricted grants of common stock were considered to be potentially dilutive shares of common stock.


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The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in the consolidated financial statements:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands, except share and per share data)
Earnings per share - Class A stockholders:
 
 
 
 
 
 
 
 
Numerator for earnings per share:
 
 
 
 
 
 
 
 
Net income
 
$
6,057

 
$
6,609

 
$
11,314

 
$
11,725

Less: net income attributable to Class B stockholders
 
303

 
571

 
405

 
754

Net income attributable to Class A stockholders
 
$
5,754

 
$
6,038

 
$
10,909

 
$
10,971

 
 
 
 
 
 
 
 
 
Denominator for earnings per share:
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
 
13,803,183

 
13,795,530

 
13,803,183

 
13,795,530

Weighted average shares outstanding - diluted
 
13,803,183

 
13,795,530

 
13,803,183

 
13,795,530

 
 
 
 
 
 
 
 
 
Earnings per Class A common share - basic
 
$
0.42

 
$
0.44

 
$
0.79

 
$
0.80

Earnings per Class A common share - diluted
 
$
0.42

 
$
0.44

 
$
0.79

 
$
0.80

 
 
 
 
 
 
 
 
 
Earnings per share - Class B stockholders:
 
 
 
 
 
 
 
 
Numerator for earnings per share:
 
 
 
 
 
 
 
 
Net income attributable to Class B stockholders
 
$
303

 
$
571

 
$
405

 
$
754

 
 
 
 
 
 
 
 
 
Denominator for earnings per share:
 
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
 
1,583,470

 
1,359,183

 
1,557,089

 
1,331,881

Unvested restricted stock grants
 
82,466

 
10,555

 
92,882

 
18,530

Weighted average shares outstanding - diluted
 
1,665,936

 
1,369,738

 
1,649,971

 
1,350,411

 
 
 
 
 
 
 
 
 
Earnings per Class B common share - basic
 
$
0.19

 
$
0.42

 
$
0.26

 
$
0.57

Earnings per Class B common share - diluted
 
$
0.18

 
$
0.42

 
$
0.25

 
$
0.56

There were no material anti-dilutive Class B shares for the three months and six months ended June 30, 2016 and 2015. See note 12 for details regarding changes to the Company's equity structure subsequent to June 30, 2016.


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7.     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:
 
 
June 30,
 
 
2016
 
2015
 
 
(in thousands)
Net reserves for unpaid losses and loss adjustment expenses, beginning of year
 
$
124,126

 
$
91,970

Commutation of MLQS
 
24,296

 
8,587

Adjusted net reserves for losses and loss adjustment expenses, beginning of year
 
148,422

 
100,557

Incurred losses and loss adjustment expenses:
 
 
 
 
Current year
 
40,984

 
24,094

Prior years
 
(5,407
)
 
(6,815
)
Total net losses and loss adjustment expenses incurred
 
35,577

 
17,279

 
 
 
 
 
Payments:
 
 
 
 
Current year
 
1,078

 
605

Prior years
 
13,026

 
9,237

Total payments
 
14,104

 
9,842

Net reserves for unpaid losses and loss adjustment expenses, end of period
 
169,895

 
107,994

Reinsurance recoverable on unpaid losses
 
75,315

 
77,848

Gross reserves for unpaid losses and loss adjustment expenses, end of period
 
$
245,210

 
$
185,842

During the six months ended June 30, 2016, $5.4 million of redundancy developed on the reserves for unpaid losses and loss adjustment expenses held at December 31, 2015. This favorable development was primarily attributable to the Company’s casualty lines for accident years 2014 and 2015, which were below the Company's initial expected loss ratios.
During the six months ended June 30, 2015, $6.8 million of redundancy developed on the reserves for unpaid losses and loss adjustment expenses held at December 31, 2014. The favorable development was attributable primarily to the Company’s casualty lines for accident years 2013 and 2014, which were below the Company's initial expected loss ratios.
See note 8 for further details regarding the commutation of the MLQS.

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8.     Reinsurance
The following table summarizes the effect of reinsurance on premiums written and earned:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Written:
 
 
 
 
 
 
 
 
Direct
 
$
50,161

 
$
45,075

 
$
93,151

 
$
85,898

Assumed
 
(54
)
 
37

 
38

 
144

Ceded
 
(14,446
)
 
(26,274
)
 
(9,733
)
 
(50,218
)
Net written
 
$
35,661

 
$
18,838

 
$
83,456

 
$
35,824

 
 
 
 
 
 
 
 
 
Earned:
 
 
 
 
 
 
 
 
Direct
 
$
44,895

 
$
41,129

 
$
87,987

 
$
81,205

Assumed
 
2

 
37

 
34

 
75

Ceded
 
(13,114
)
 
(24,150
)
 
(25,641
)
 
(47,823
)
Net earned
 
$
31,783

 
$
17,016

 
$
62,380

 
$
33,457

Incurred losses and loss adjustment expenses were net of reinsurance (ceded incurred losses and loss adjustment expenses) of $3.4 million and $10.6 million for the three months ended June 30, 2016 and 2015, respectively. Ceded incurred losses and loss adjustment expenses were $7.8 million and $21.5 million for the six months ended June 30, 2016 and 2015 respectively. At June 30, 2016, reinsurance recoverables on paid and unpaid losses were $0.2 million and $75.3 million, respectively. At December 31, 2015, reinsurance recoverables on paid and unpaid losses were and $0.2 million and $95.5 million, respectively.
Multi-line quota share reinsurance
The Company participates in a MLQS treaty that transfers a proportion of the risk related to certain lines of business written by its subsidiary, Kinsale Insurance Company, an Arkansas insurance company ("Kinsale Insurance"), to reinsurers in exchange for a proportion of the direct written premiums on that business. Under the terms of the MLQS covering the period January 1, 2015 to December 31, 2015 (the "2015 MLQS"), Kinsale Insurance received a provisional ceding commission equal to 41% of ceded written premiums and paid a reinsurance margin equal to 4.00% of ceded written premium. The 2015 MLQS contract includes a sliding scale commission provision that can adjust the ceding commissions within a range of 25% to 41% based on the loss experience of the business ceded. The 2015 MLQS ceding percentage during the first nine months of 2015 was 50%. The ceding percentage remained at 50% until October 1, 2015, at which time the Company decreased the percentage to 40%. Effective January 1, 2016, the Company further reduced the ceding percentage from 40% to 15%. The change in the ceding percentage reduced ceded written premiums by $17.0 million at January 1, 2016, with a corresponding reduction to ceded unearned premiums.
Effective January 1, 2016, the Company commuted the MLQS covering the period January 1, 2014 to December 31, 2014 (the "2014 MLQS"). The commutation reduced reinsurance recoverables on unpaid losses and receivable from reinsurers by $34.2 million at January 1, 2016, with a

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corresponding reduction to funds held for reinsurers. Effective January 1, 2015, the Company commuted 55% of the treaty covering the period July 1, 2012 to December 31, 2013 (the "2013 MLQS"). The commutation reduced reinsurance recoverables on unpaid losses and receivable from reinsurers by $11.9 million at January 1, 2015, with a corresponding reduction to funds held for reinsurers. The commutations did not have any effect on the Company's results of operations or cash flows for the applicable periods.
9. Credit facility
The Company has a loan and security agreement (the "Credit Agreement") with The PrivateBank and Trust Company ("PrivateBank") with a five-year secured term loan in the amount of $30.0 million. Pursuant to the terms of the Credit Agreement, the applicable interest rate on the term loan accrues daily at a rate equal to the 3 month LIBOR plus a margin, and is payable on the last day of each calendar quarter. The term loan has a maturity of December 4, 2020. The Company's wholly-owned subsidiaries, Kinsale Management, Inc. ("Kinsale Management") and Aspera Insurance Services Inc. ("Aspera"), are guarantors of the term loan. The assets of Kinsale Management and the stock of Kinsale Insurance have been pledged as collateral to PrivateBank.
On June 28, 2016, the Company amended and restated its Credit Agreement to, among other things, (i) increase the materiality thresholds and grace periods for events of default thereunder, (ii) add additional permitted categories to the debt, lien, restricted payments, mergers, disposals, transactions with affiliates and investment covenants, as well as to increase the general permitted baskets under the debt, lien, restricted payments and investment covenants, (iii) remove certain representations and warranties and affirmative covenants, (iv) add materiality qualifiers to certain representations and warranties, (v) add reinvestment rights and a minimum threshold with respect to net cash proceeds of certain asset disposals (other than disposals of the stock of Kinsale Insurance, which has been pledged as collateral to PrivateBank) which must be used to prepay the outstanding term loans and (vi) make the creation and perfection requirements with respect to collateral less onerous.

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Table of Contents

10.     Other comprehensive income (loss)
The following table summarizes the components of other comprehensive income (loss):
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Unrealized gains (losses) arising during the period, before income taxes
 
$
4,421

 
$
(3,022
)
 
$
8,079

 
$
(1,850
)
Income taxes
 
(1,548
)
 
1,057

 
(2,828
)
 
647

Unrealized gains (losses) arising during the period, net of income taxes
 
2,873

 
(1,965
)
 
5,251

 
(1,203
)
Less reclassification adjustment:
 
 
 
 
 
 
 
 
Net realized investment gains (losses)
 
(26
)
 
8

 
361

 
16

Income taxes
 
9

 
(3
)
 
(126
)
 
(6
)
Reclassification adjustment included in net income
 
(17
)
 
5

 
235

 
10

Other comprehensive income (loss)
 
$
2,890

 
$
(1,970
)
 
$
5,016

 
$
(1,213
)
The sale of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive income 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.

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Table of Contents

11.      Underwriting information
The Company has one reportable segment, the Excess and Surplus Lines Insurance segment, which primarily offers commercial excess and surplus lines liability and property insurance products through its underwriting divisions. Gross written premiums by underwriting division are presented below:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(in thousands)
Commercial:
 
 
 
 
 
 
 
 
Construction
 
$
12,053

 
$
9,528

 
$
21,305

 
$
17,640

Small Business
 
6,896

 
5,042

 
13,328

 
9,328

Professional Liability
 
4,040

 
3,936

 
7,985

 
8,212

Excess Casualty
 
4,858

 
4,465

 
8,503

 
8,305

Energy
 
3,515

 
4,227

 
7,159

 
8,615

General Casualty
 
4,771

 
5,269

 
7,857

 
10,269

Life Sciences
 
3,015

 
3,167

 
5,874

 
5,728

Allied Health
 
2,271

 
1,924

 
4,397

 
3,955

Products Liability
 
2,779

 
2,876

 
4,870

 
4,943

Healthcare
 
1,275

 
1,287

 
3,152

 
3,179

Commercial Property
 
1,268

 
1,873

 
2,386

 
3,397

Management Liability
 
531