Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 10, 2016
 
 
 
 
 
KINSALE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)

001-37848
(Commission File Number)
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)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o

 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o

 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o

 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))








Item 2.02     Results of Operations and Financial Condition.
On November 10, 2016, Kinsale Capital Group, Inc. (the “Company”) issued a press release announcing its financial results for the three and nine month periods ended September 30, 2016. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.
Item 9.01    Financial Statements and Exhibits.
(d) Exhibits.
Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of the Company dated November 10, 2016
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
Kinsale Capital Group, Inc.
 
 
 
Dated: November 10, 2016
By:
/s/ Bryan P. Petrucelli
 
 
Bryan P. Petrucelli

 
 
Senior Vice President, Chief Financial Officer and Treasurer







EXHIBIT INDEX
Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of the Company dated November 10, 2016




Exhibit
Exhibit 99.1

https://cdn.kscope.io/2482fb30bb7efebaf5a5e8f4728f12d3-kinsalecapitalgrouplogo.jpg


Kinsale Capital Group, Inc. Reports 2016 Third Quarter Results

Richmond, VA, November 10, 2016 - 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.

1








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.


2








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
%

3








 
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.

4








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.

5








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.

Contact:

Kinsale Capital Group, Inc.
Bryan Petrucelli
Senior Vice President, Chief Financial Officer and Treasurer
804-289-1272
ir@kinsalecapitalgroup.com



6








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