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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
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
98-0664337
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)
2221 Edward Holland Drive
Suite 600
Richmond, Virginia 23230
(Address of principal executive offices, including zip code)
(804) 289-1300
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01KNSLNasdaq Global Select Market
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  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company 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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  ☒
Number of shares of the registrant's common stock outstanding at July 24, 2020: 22,303,443


Table of Contents
KINSALE CAPITAL GROUP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.
1

Table of Contents

Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that does not directly relate to historical or current fact. These statements may discuss, among others, our future financial performance, our business prospects and strategy, our anticipated financial position, liquidity and capital, dividends and general market and industry conditions. You can identify forward-looking statements by words such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," "believes," "seeks," "outlook," "future," "will," "would," "should," "could," "may," "can have" and similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements are only predictions and are not guarantees of future performance. Actual results may differ materially from those contemplated by a forward-looking statement. Factors that may cause such differences include, without limitation:
the possibility that our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows;
the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;
adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity resulting in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, affecting our growth and profitability;
a decline in our financial strength rating adversely affecting the amount of business we write;
the potential loss of one or more key executives or an inability to attract and retain qualified personnel adversely affecting our results of operations;
our reliance on a select group of brokers;
the failure of any of the loss limitations or exclusions we employ, or change in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;
the performance of our investment portfolio adversely affecting our financial results;
the changing market conditions of our excess and surplus lines ("E&S") insurance operations, as well as the cyclical nature of our business, affecting our financial performance;
extensive regulation adversely affecting our ability to achieve our business objectives or the failure to comply with these regulations adversely affecting our financial condition and results of operations;
the ability to pay dividends being dependent on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary;
being forced to sell investments to meet our liquidity requirements;
the inability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;
our employees taking excessive risks;
the possibility that severe weather conditions, catastrophes, pandemics and similar events may adversely affect our business, results of operations and financial condition;
2

Table of Contents
the inability to manage our growth effectively;
the intense competition for business in our industry;
the effects of litigation having an adverse effect on our business;
the failure to maintain effective internal controls in accordance with the Sarbanes-Oxley of 2002 (the "Sarbanes-Oxley Act"); and
the other risks and uncertainties discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2019.
Forward-looking statements speak only as of the date on which they are made. Except as expressly required under federal securities laws or the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

3

Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
June 30,
2020
December 31,
2019
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities available for sale, at fair value (amortized cost: $856,136 in 2020; $714,817 in 2019)
$893,364  $729,532  
Equity securities, at fair value (cost: $96,178 in 2020 $64,245 in 2019)
107,905  78,294  
Total investments1,001,269  807,826  
Cash and cash equivalents62,976  100,408  
Investment income due and accrued6,174  4,743  
Premiums receivable, net50,866  34,483  
Reinsurance recoverables73,123  72,574  
Ceded unearned premiums19,399  16,118  
Deferred policy acquisition costs, net of ceding commissions28,942  23,564  
Intangible assets3,538  3,538  
Deferred income tax asset, net  3,374  
Other assets43,061  23,922  
Total assets$1,289,348  $1,090,550  
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$525,801  $460,058  
Unearned premiums229,599  187,374  
Payable to reinsurers14,407  7,151  
Accounts payable and accrued expenses9,936  12,366  
Credit facility33,107  16,744  
Deferred income tax liability, net61    
Other liabilities20,323  977  
Total liabilities833,234  684,670  
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,302,943 and 22,205,665 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
223  222  
Additional paid-in capital230,265  229,229  
Retained earnings194,323  162,911  
Accumulated other comprehensive income 31,303  13,518  
Total stockholders’ equity456,114  405,880  
Total liabilities and stockholders’ equity$1,289,348  $1,090,550  

See accompanying notes to condensed consolidated financial statements.
4

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,
2020201920202019
(in thousands, except per share data)
Revenues:
Gross written premiums$134,091  $94,947  $258,127  $179,573  
Ceded written premiums(16,484) (12,260) (32,467) (23,819) 
Net written premiums117,607  82,687  225,660  155,754  
Change in unearned premiums(20,650) (16,600) (38,942) (28,176) 
Net earned premiums96,957  66,087  186,718  127,578  
Net investment income6,645  4,806  12,605  9,321  
Change in the fair value of equity securities
13,839  1,909  (2,322) 7,804  
Net realized investment gains (losses)253  (235) 1,029  45  
Other income13  5  23  9  
Total revenues117,707  72,572  198,053  144,757  
Expenses:
Losses and loss adjustment expenses58,304  39,579  112,037  73,311  
Underwriting, acquisition and insurance expenses22,961  16,437  44,544  32,053  
Other expenses  21    57  
Total expenses81,265  56,037  156,581  105,421  
Income before income taxes36,442  16,535  41,472  39,336  
Total income tax expense6,180  2,768  6,124  6,849  
Net income30,262  13,767  35,348  32,487  
Other comprehensive income:
Change in unrealized gains on available-for-sale investments, net of taxes of $7,180 and $4,728 in 2020 and $1,743 and $3,544 in 2019
27,008  6,555  17,785  13,335  
Total comprehensive income$57,270  $20,322  $53,133  $45,822  
Earnings per share:
Basic$1.37  $0.65  $1.60  $1.53  
Diluted$1.33  $0.63  $1.56  $1.49  
Weighted-average shares outstanding:
Basic22,153  21,210  22,131  21,190  
Diluted22,707  21,832  22,694  21,803  

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)
Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
Other
Compre-
hensive
Income
Total
Stock-
holders' Equity
(in thousands)
Balance at December 31, 2019
22,206  $222  $229,229  $162,911  $13,518  $405,880  
Adoption of new accounting standard for credit losses, net
—  —  —  78  —  78  
Issuance of common stock under stock-based compensation plan
48  1  701  —  —  702  
Stock-based compensation expense
—  —  812  —  —  812  
Dividends declared ($0.09 per share)
—  —  —  (2,001) —  (2,001) 
Other comprehensive loss, net of tax
—  —  —  —  (9,223) (9,223) 
Net income—  —  —  5,086  —  5,086  
Balance at March 31, 202022,254  223  230,742  166,074  4,295  401,334  
Issuance of common stock under stock-based compensation plan
61    395  —  —  395  
Stock-based compensation expense
—  —  931  —  —  931  
Restricted shares withheld for taxes (12) —  (1,803) —  —  (1,803) 
Dividends declared ($0.09 per share)
—  —  —  (2,013) —  (2,013) 
Other comprehensive income, net of tax
—  —  —  27,008  27,008  
Net income—  —  —  30,262  —  30,262  
Balance at June 30, 202022,303  $223  $230,265  $194,323  $31,303  $456,114  
Balance at December 31, 2018
21,242  $212  $158,485  $106,545  $(1,256) $263,986  
Issuance of common stock under stock-based compensation plan
43  1  597  —  —  598  
Stock-based compensation expense
—  —  507  —  —  507  
Dividends declared ($0.08 per share)
—  —  —  (1,702) —  (1,702) 
Other comprehensive income, net of tax
—  —  —  —  6,780  6,780  
Net income—  —  —  18,720  —  18,720  
Balance at March 31, 201921,285  213  159,589  123,563  5,524  288,889  
Issuance of common stock under stock-based compensation plan
78  1  393  —  —  394  
Stock-based compensation expense
—  —  621  —  —  621  
Restricted shares withheld for taxes (7) —  (617) —  —  (617) 
Dividends declared ($0.08 per share)
—  —  —  (1,702) —  (1,702) 
Other comprehensive income, net of tax
—  —  —  —  6,555  6,555  
Net income—  —  —  13,767  —  13,767  
Balance at June 30, 201921,356  $214  $159,986  $135,628  $12,079  $307,907  

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
20202019
(in thousands)
Operating activities:
Net cash provided by operating activities$132,587  $71,292  
Investing activities:
Purchase of property and equipment(20,113) (5,999) 
Sale of property and equipment4,999    
Purchases – fixed-maturity securities(231,112) (115,356) 
Purchases – equity securities(31,985) (3,593) 
Sales – fixed-maturity securities54,525  31,441  
Sales – equity securities  2,869  
Maturities and calls – fixed-maturity securities42,079  25,699  
Net cash used in investing activities(181,607) (64,939) 
Financing activities:
Proceeds from credit facility16,300    
Debt issuance costs  (284) 
Payroll taxes withheld and remitted on share-based payments(1,803) (617) 
Proceeds from stock options exercised1,097  991  
Dividends paid(4,006) (3,401) 
Net cash provided by (used in) financing activities11,588  (3,311) 
Net change in cash and cash equivalents(37,432) 3,042  
Cash and cash equivalents at beginning of year100,408  75,089  
Cash and cash equivalents at end of period$62,976  $78,131  


See accompanying notes to condensed consolidated financial statements.

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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 U.S. generally accepted accounting principles ("U.S. 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 Kinsale Capital Group, Inc. and its wholly owned subsidiaries' (the "Company") business and accounting policies, these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Annual Report on Form 10-K for the year ended December 31, 2019. 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, the 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.
Recently adopted accounting pronouncements
Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326)
On June 16, 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" to provide more useful information about the expected credit losses on financial instruments. The update requires a financial asset measured at amortized cost to be presented at the net 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 must also be recorded through an allowance for credit losses. However, the amendments 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 previous GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. The FASB has issued additional ASUs on Topic 326 that do not change the core principle of the guidance in ASU 2016-13 but clarify certain aspects of it.
Effective January 1, 2020, the Company adopted this ASU using the modified-retrospective approach and recorded a cumulative effect adjustment to beginning retained earnings. The adoption of this ASU resulted in the recognition of an allowance for credit loss related to the Company’s reinsurance recoverables. However, since the Company enters into contracts with reinsurers that have A.M. Best ratings of “A” (Excellent) or better, the allowance was not material to the Company’s consolidated financial statements.
ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
On August 29, 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up and other up-front costs incurred in a cloud computing arrangement hosted by the vendor. The new guidance requires an
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entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The new guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. Effective January 1, 2020, the Company adopted ASU 2018-15 using a modified-retrospective approach. The adoption of ASU 2018-15 did not have a material impact on the Company's financial statements.
There are no other prospective accounting standards which, upon their effective date, would have a material impact on the Company's consolidated financial statements.

2.  Investments
Available-for-sale investments
The following tables summarize the available-for-sale investments at June 30, 2020 and December 31, 2019:
June 30, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$1,130  $  $(17) $1,113  
Obligations of states, municipalities and political subdivisions
178,620  11,939  (15) 190,544  
Corporate and other securities277,485  17,968  (1,120) 294,333  
Commercial mortgage and asset-backed securities261,734  6,916  (2,763) 265,887  
Residential mortgage-backed securities
137,167  4,500  (180) 141,487  
Total available-for-sale investments$856,136  $41,323  $(4,095) $893,364  

December 31, 2019
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$110  $2  $  $112  
Obligations of states, municipalities and political subdivisions
166,312  7,542  (961) 172,893  
Corporate and other securities180,287  4,736  (255) 184,768  
Commercial mortgage and asset-backed securities195,750  2,930  (710) 197,970  
Residential mortgage-backed securities
172,358  1,819  (388) 173,789  
Total available-for-sale investments$714,817  $17,029  $(2,314) $729,532  

Available-for-sale securities in a loss position
The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss. The Company considers a number of factors in completing its
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review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition 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 a credit loss.
For fixed-maturity securities, the Company also 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 and the ability to recover all amounts outstanding when contractually due. When assessing whether it intends to sell a fixed-maturity security or if it is likely to be required to sell a fixed-maturity security 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 fixed-maturity securities where a decline in fair value is below the amortized cost basis 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. For fixed-maturity securities that the Company has the intent and ability to hold, the Company compares the estimated present value 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 impairment, which is recognized in net income through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income. Beginning on January 1, 2020, credit losses are recognized through an allowance account. See Note 1 - Recently adopted accounting pronouncements - ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) for additional information.
The Company reports investment income due and accrued separately from fixed-maturity securities, available for sale, and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments at the time the issuer of the bond defaults or is expected to default on payments.
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The following tables summarize gross unrealized losses and estimated fair value for available-for-sale investments by length of time that the securities have continuously been in an unrealized loss position:
June 30, 2020
Less than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$573  $(17) $  $  $573  $(17) 
Obligations of states, municipalities and political subdivisions
2,007  (15)     2,007  (15) 
Corporate and other securities
32,899  (1,120)     32,899  (1,120) 
Commercial mortgage and asset-backed securities
86,355  (1,912) 23,256  (851) 109,611  (2,763) 
Residential mortgage-backed securities
12,716  (162) 276  (18) 12,992  (180) 
Total available-for-sale investments$134,550  $(3,226) $23,532  $(869) $158,082  $(4,095) 

At June 30, 2020, the Company held 89 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $158.1 million and gross unrealized losses of $4.1 million. Of these securities, 12 were in a continuous unrealized loss position for greater than one year. As discussed above, the Company regularly reviews all fixed-maturity securities within its investment portfolio to determine whether a credit loss has occurred. Based on the Company's review as of June 30, 2020, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At June 30, 2020, 82.6% of the Company’s fixed-maturity securities were rated "A-" or better and all of the Company’s fixed-maturity securities made expected coupon payments under the contractual terms of the securities. For the six months ended June 30, 2020, the Company concluded that there were no credit losses from fixed-maturity securities with unrealized losses.
December 31, 2019
Less than 12 Months
12 Months or Longer
Total
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions
$28,997  $(961) $254  $  $29,251  $(961) 
Corporate and other securities
22,409  (251) 1,509  (4) 23,918  (255) 
Commercial mortgage and asset-backed securities
37,723  (303) 46,623  (407) 84,346  (710) 
Residential mortgage-backed securities
36,986  (148) 24,815  (240) 61,801  (388) 
Total available-for-sale investments$126,115  $(1,663) $73,201  $(651) $199,316  $(2,314) 
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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, 2020 are summarized, by contractual maturity, as follows:
June 30, 2020
AmortizedEstimated
CostFair Value
(in thousands)
Due in one year or less$11,926  $12,047  
Due after one year through five years114,967  122,401  
Due after five years through ten years142,571  152,692  
Due after ten years187,771  198,850  
Commercial mortgage and asset-backed securities261,734  265,887  
Residential mortgage-backed securities137,167  141,487  
Total fixed-maturity securities $856,136  $893,364  

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 for the three and six months ended June 30, 2020 and 2019:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Interest:
Taxable bonds$5,259  $3,476  $9,870  $6,543  
Tax exempt municipal bonds908  888  1,823  1,896  
Cash equivalents and short-term investments
11  156  261  401  
Dividends on equity securities879  566  1,454  1,087  
Gross investment income7,057  5,086  13,408  9,927  
Investment expenses(412) (280) (803) (606) 
Net investment income$6,645  $4,806  $12,605  $9,321  
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Realized investment gains and losses
The following table presents realized investment gains and losses for the three and six months ended June 30, 2020 and 2019: