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): August 3, 2017
 
KINSALE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction
of incorporation)
001-37848
(Commission File Number)
98-0664337
(IRS Employer Identification No.)
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:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒






Item 2.02     Results of Operations and Financial Condition.
On August 3, 2017, Kinsale Capital Group, Inc. (the “Company”) issued a press release announcing its financial results for the three and six month periods ended June 30, 2017. 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 August 3, 2017





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: August 3, 2017
By:
/s/ Bryan P. Petrucelli
       
 
Name: Bryan P. Petrucelli
 
 
Title: Senior Vice President, Chief Financial Officer and Treasurer








EXHIBIT INDEX
Exhibit No.
 
Description
 
 
 
99.1
 
Press Release of the Company dated August 3, 2017




Exhibit
Exhibit 99.1

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Kinsale Capital Group, Inc. Reports 2017 Second Quarter Results

Richmond, VA, August 3, 2017-Kinsale Capital Group, Inc. (NASDAQ:KNSL) reported net income of $8.5 million for the second quarter of 2017 compared to $6.1 million for the second quarter of 2016. Net income was $14.8 million for the first half of 2017 compared to $11.3 million for the first half of 2016.
Highlights for the second quarter and first six months of 2017 included:
13.5% annualized return on equity for the six months ended June 30, 2017
Net income of $8.5 million in the second quarter of 2017, an increase of 40.3% over the second quarter of 2016
Diluted earnings per share of $0.40 for the second quarter of 2017
15.3% growth in gross written premiums to $57.8 million in the second quarter of 2017
Underwriting income of $10.7 million in the second quarter of 2017, resulting in a combined ratio of 75.2%
33.7% increase in net investment income to $2.4 million in the second quarter of 2017
"Results for the second quarter of 2017 reflected continued strong momentum from the first quarter with written premium growth of 15.3%. In addition, the company delivered a 36.4% increase in underwriting income, which resulted in a 75.2% combined ratio. These results highlight the Kinsale strategy of combining disciplined underwriting with an intense focus on managing costs,” said President and Chief Executive Officer, Michael P. Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $57.8 million for the three months ended June 30, 2017 compared to $50.1 million for the three months ended June 30, 2016, an increase of 15.3%. Gross written premiums were $110.6 million for the six months ended June 30, 2017 compared to $93.2 million for the six months ended June 30, 2016, an increase of 18.7%. The increase in gross written premiums for the second quarter and the first half of 2017 over the same periods last year was primarily due to growth across most lines of business and was most notable in the small business, construction, energy, product liability, and personal insurance divisions.
For the six months ended June 30, 2016, 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. The Company did not renew the MLQS program for the 2017 calendar year. For comparative purposes, an exhibit showing the calculation of underwriting income excluding the effects of the MLQS is included under the "Summary of Operating Results" section below.
Underwriting income was $10.7 million resulting in a combined ratio of 75.2% for the three months ended June 30, 2017, compared to $7.8 million resulting in a combined ratio of 75.3% for same period last year. Underwriting income increased by $2.9 million, or 36.4%, quarter over quarter, which was due primarily to the increase in premiums written and higher net favorable prior year loss reserve development. Net favorable prior year loss reserve development was $3.8 million in the second quarter of 2017 compared to $2.7 million in the second quarter of 2016. Loss and expense ratios were 50.8% and 24.4%, respectively, for the three months ended June 30, 2017 compared to 54.9% and 20.4% for the three months ended June 30, 2016.

1








Adjusted loss and expense ratios, each of which excludes the effects of the MLQS, were 52.9% and 25.5% for the three months ended June 30, 2016.
For the six months ended June 30, 2017, underwriting income was $17.7 million resulting in a combined ratio of 78.8% compared to $14.1 million resulting in a combined ratio of 77.4% for same period last year. Loss and expense ratios were 52.7% and 26.1%, respectively, for the six months ended June 30, 2017 compared to 57.0% and 20.4%, respectively, for the six months ended June 30, 2016. Adjusted loss and expense ratios, each of which excludes the effects of the MLQS, were 54.1% and 26.1%, respectively, for the first half of 2016. The increase in underwriting income of 26.0% reflected an increase in premiums written and higher net favorable prior year loss reserve development during the first half of 2017 over the first half of 2016.
See the tables below under "Summary of Operating Results" for a reconciliation of adjusted loss and expense ratios, and "Non-GAAP Financial Measures" for a reconciliation of underwriting income, which are non-GAAP financial measures.
Investment Results
The Company’s net investment income was $2.4 million in the second quarter of 2017 compared to $1.8 million in the second quarter of 2016, an increase of 33.7%. Net investment income was $4.7 million in the first half of 2017 compared to $3.5 million in the first half of 2016. The increase in net investment income was due primarily to the investment of the net proceeds received from the initial public offering in the second half of 2016 and net cash flow from operations. The Company’s investment portfolio had an annualized gross investment return of 2.3% for the six months ended June 30, 2017 compared to 2.1% for the six months ended June 30, 2016. 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 investment portfolio was 3.4 years at June 30, 2017 and 3.7 years at December 31, 2016. Cash and invested assets totaled $524.8 million at June 30, 2017 compared to $480.3 million at December 31, 2016.
Other
Total comprehensive income, which includes the change in after-tax unrealized gains and losses from the Company’s investment portfolio, was $10.7 million for the second quarter of 2017 compared to $8.9 million for the same period in 2016. Total comprehensive income was $18.0 million for the first half of 2017 compared to $16.3 million for the first half of 2016. The change in unrealized gains on investments during the second quarter and first six months of 2017 resulted from higher overall fair values in both the Company's equity and fixed income investments, as the equity markets remained strong and interest rates decreased slightly for longer term fixed maturity securities.
Stockholders' equity increased by 7.5% for the six months ended June 30, 2017 due to higher profits and unrealized investment gains, net of taxes. Stockholders' equity was $226.0 million at June 30, 2017, compared to $210.2 million at December 31, 2016. Annualized return on equity was 13.5% for the first half of 2017, down from 18.6% for the first half of 2016, primarily as a result of the net proceeds received from the initial public offering.

2








Summary of Operating Results
The Company’s operating results for the three and six months ended June 30, 2017 and 2016 are summarized as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
 
($ in thousands)
Gross written premiums
$
57,753

 
$
50,107

 
$
110,615

 
$
93,189

Ceded written premiums
(7,980
)
 
(14,446
)
 
(16,680
)
 
(9,733
)
Net written premiums
$
49,773

 
$
35,661

 
$
93,935

 
$
83,456

 
 
 
 
 
 
 
 
Net earned premiums
$
43,052

 
$
31,783

 
$
83,485

 
$
62,380

Losses and loss adjustment expenses
21,859

 
17,456

 
43,966

 
35,577

Underwriting, acquisition and insurance expenses

10,492

 
6,481

 
21,786

 
12,729

Underwriting income (1)
$
10,701

 
$
7,846

 
$
17,733

 
$
14,074

 
 
 
 
 
 
 
 
Loss ratio
50.8
%
 
54.9
%
 
52.7
%
 
57.0
%
Expense ratio
24.4
%
 
20.4
%
 
26.1
%
 
20.4
%
Combined ratio
75.2
%
 
75.3
%
 
78.8
%
 
77.4
%
 
 
 
 
 
 
 
 
Annualized return on equity (2)

15.4
%
 
19.3
%
 
13.5
%
 
18.6
%

The following tables summarize the effect of the MLQS for the three and six months ended June 30, 2017 and 2016:
 
Three Months Ended June 30, 2017
 
Three Months Ended June 30, 2016
 
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
$
57,753

 
$

 
$
57,753

 
$
50,107

 
$

 
$
50,107

Ceded written premiums
(7,980
)
 

 
(7,980
)
 
(14,446
)
 
(6,363
)
 
(8,083
)
Net written premiums
$
49,773

 
$

 
$
49,773

 
$
35,661

 
$
(6,363
)
 
$
42,024

 
 
 
 
 
 
 
 
 
 
 
 
Net earned premiums
$
43,052

 
$

 
$
43,052

 
$
31,783

 
$
(5,692
)
 
$
37,475

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(25,691
)
 

 
(25,691
)
 
(20,140
)
 
3,147

 
(23,287
)
Development on prior accident years
3,832

 

 
3,832

 
2,684

 
(762
)
 
3,446

Total losses and loss adjustment expenses
(21,859
)
 

 
(21,859
)
 
(17,456
)
 
2,385

 
(19,841
)
Underwriting, acquisition and insurance expenses
(10,492
)
 

 
(10,492
)
 
(6,481
)
 
3,080

 
(9,561
)
Underwriting income (1)
$
10,701

 
$

 
$
10,701

 
$
7,846

 
$
(227
)
 
$
8,073

 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
50.8
%
 
%
 

 
54.9
%
 
41.9
%
 

Expense ratio
24.4
%
 
%
 

 
20.4
%
 
54.1
%
 

Combined ratio
75.2
%
 
%
 

 
75.3
%
 
96.0
%
 

 
 
 
 
 
 
 
 
 
 
 
 
Adjusted loss ratio (3)

 

 
50.8
%
 

 

 
52.9
%
Adjusted expense ratio (3)

 

 
24.4
%
 

 

 
25.5
%
Adjusted combined ratio (3)

 

 
75.2
%
 

 

 
78.4
%

3








 
Six Months Ended June 30, 2017
 
Six Months Ended June 30, 2016
 
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
$
110,615

 
$

 
$
110,615

 
$
93,189

 
$

 
$
93,189

Ceded written premiums
(16,680
)
 

 
(16,680
)
 
(9,733
)
 
5,226

 
(14,959
)
Net written premiums
$
93,935

 
$

 
$
93,935

 
$
83,456

 
$
5,226

 
$
78,230

 
 
 
 
 
 
 
 
 
 
 
 
Net earned premiums
$
83,485

 
$

 
$
83,485

 
$
62,380

 
$
(11,124
)
 
$
73,504

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(52,902
)
 

 
(52,902
)
 
(40,984
)
 
6,363

 
(47,347
)
Development on prior accident years
8,936

 

 
8,936

 
5,407

 
(2,168
)
 
7,575

Total losses and loss adjustment expenses
(43,966
)
 

 
(43,966
)
 
(35,577
)
 
4,195

 
(39,772
)
Underwriting, acquisition and insurance expenses
(21,786
)
 

 
(21,786
)
 
(12,729
)
 
6,485

 
(19,214
)
Underwriting income (1)
$
17,733

 
$

 
$
17,733

 
$
14,074

 
$
(444
)
 
$
14,518

 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
52.7
%
 
%
 

 
57.0
%
 
37.7
%
 

Expense ratio
26.1
%
 
%
 

 
20.4
%
 
58.3
%
 

Combined ratio
78.8
%
 
%
 

 
77.4
%
 
96.0
%
 

 
 
 
 
 
 
 
 
 
 
 
 
Adjusted loss ratio (3)

 

 
52.7
%
 

 

 
54.1
%
Adjusted expense ratio (3)

 

 
26.1
%
 

 

 
26.1
%
Adjusted combined ratio (3)

 

 
78.8
%
 

 

 
80.2
%
(1) Underwriting income is a non-GAAP financial measure. See discussion of "Non-GAAP Financial Measures" below.
(2) Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
(3) Adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. See discussion of "Non-GAAP Financial Measures" below.

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








Net income for the three and six months ended June 30, 2017 and 2016, reconciles to underwriting income as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(in thousands)
Net income
 
$
8,495

 
$
6,057

 
$
14,776

 
$
11,314

Income tax expense
 
4,260

 
3,196

 
7,265

 
5,828

Other expenses
 
402

 
486

 
402

 
946

Net investment income
 
(2,432
)
 
(1,819
)
 
(4,718
)
 
(3,495
)
Net realized investment (gains) losses
 
(24
)
 
4

 
8

 
(383
)
Other income
 

 
(78
)
 

 
(136
)
Underwriting income
 
$
10,701

 
$
7,846

 
$
17,733

 
$
14,074

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, August 4, 2017, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 56235581, 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 October 4, 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; inherent uncertainty of models resulting in actual losses that are materially different than the Company's estimates; 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, Virginia, 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 June 30,
 
Six Months Ended June 30,
 
 
2017
 
2016
 
2017
 
2016
Revenues
 
(in thousands, except per share data)
Gross written premiums
 
$
57,753

 
$
50,107

 
$
110,615

 
$
93,189

Ceded written premiums
 
(7,980
)
 
(14,446
)
 
(16,680
)
 
(9,733
)
Net written premiums
 
49,773

 
35,661

 
93,935

 
83,456

Change in unearned premiums
 
(6,721
)
 
(3,878
)
 
(10,450
)
 
(21,076
)
Net earned premiums
 
43,052

 
31,783

 
83,485

 
62,380

 
 
 
 
 
 
 
 
 
Net investment income
 
2,432

 
1,819

 
4,718

 
3,495

Net realized investment gains (losses)
 
24

 
(4
)
 
(8
)
 
383

Other income
 

 
78

 

 
136

Total revenues
 
45,508

 
33,676

 
88,195

 
66,394

 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
21,859

 
17,456

 
43,966

 
35,577

Underwriting, acquisition and insurance expenses
 
10,492

 
6,481

 
21,786

 
12,729

Other expenses
 
402

 
486

 
402

 
946

Total expenses
 
32,753

 
24,423

 
66,154

 
49,252

Income before income taxes
 
12,755

 
9,253

 
22,041

 
17,142

Total income tax expense
 
4,260

 
3,196

 
7,265

 
5,828

Net income
 
8,495

 
6,057

 
14,776

 
11,314

 
 
 
 
 
 
 
 
 
Other comprehensive income
 
 
 
 
 
 
 
 
Change in unrealized gains on investments, net of taxes
 
2,174

 
2,890

 
3,247

 
5,016

Total comprehensive income
 
$
10,669

 
$
8,947

 
$
18,023

 
$
16,330

 
 
 
 
 
 
 
 
 
Earnings per share - basic:
 
 
 
 
 
 
 
 
Common stock
 
$
0.41

 
$

 
$
0.70

 
$

Common stock - Class A
 
$

 
$
0.42

 
$

 
$
0.79

Common stock - Class B
 
$

 
$
0.19

 
$

 
$
0.26

 
 
 
 
 
 
 
 
 
Earnings per share - diluted:
 
 
 
 
 
 
 
 
Common stock
 
$
0.40

 
$

 
$
0.69

 
$

Common stock - Class A
 
$

 
$
0.42

 
$

 
$
0.79

Common stock - Class B
 
$

 
$
0.18

 
$

 
$
0.25

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - basic:
 
 
 
 
 
 
 
 
Common stock
 
20,969

 

 
20,969

 

Common stock - Class A
 

 
13,803

 

 
13,803

Common stock - Class B
 

 
1,583

 

 
1,557

 
 
 
 
 
 
 
 
 
Weighted-average shares outstanding - diluted:
 
 
 
 
 
 
 
 
Common stock
 
21,457

 

 
21,425

 

Common stock - Class A
 

 
13,803

 

 
13,803

Common stock - Class B
 

 
1,666

 

 
1,650


7








KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets

 
 
June 30, 2017
 
December 31, 2016
Assets
 
(in thousands)
Investments:
 
 
 
 
Fixed maturity securities available-for-sale
 
$
390,678

 
$
411,223

Equity securities available-for-sale
 
26,173

 
18,374

Short-term investments
 
14,481

 

Total investments
 
431,332

 
429,597

 
 
 
 
 
Cash and cash equivalents
 
93,430

 
50,752

Investment income due and accrued
 
2,522

 
2,293

Premiums receivable, net
 
19,043

 
16,984

Receivable from reinsurers
 

 
8,567

Reinsurance recoverable
 
39,742

 
70,317

Ceded unearned premiums
 
13,911

 
13,512

Deferred policy acquisition costs, net of ceding commissions
 
11,578

 
10,150

Intangible assets
 
3,538

 
3,538

Deferred income tax asset, net

 
6,210

 
6,605

Other assets
 
1,660

 
2,074

Total assets
 
$
622,966

 
$
614,389

 
 
 
 
 
Liabilities & Stockholders' Equity
 
 
 
 
Liabilities:
 
 
 
 
Reserves for unpaid losses and loss adjustment expenses
 
$
284,428

 
$
264,801

Unearned premiums
 
100,193

 
89,344

Payable to reinsurers
 
3,246

 
4,090

Funds held for reinsurers
 

 
36,497

Accounts payable and accrued expenses
 
4,986

 
8,752

Other
 
4,068

 
691

Total liabilities
 
396,921

 
404,175

 
 
 
 
 
Stockholders' equity
 
226,045

 
210,214

Total liabilities and stockholders' equity
 
$
622,966

 
$
614,389




8