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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 September 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)
2035 Maywill Street
Suite 100
Richmond, Virginia 23230
(Address of principal executive offices, including zip code)
(804) 289-1300
(Registrant's telephone number, including area code)
2221 Edward Holland Drive
Suite 600
Richmond, Virginia 23230
(Former address, if changed since last report)
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 October 23, 2020: 22,677,083

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.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
September 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: $979,365 in 2020; $714,817 in 2019)$1,024,889 $729,532 
Equity securities, at fair value (cost: $98,253 in 2020 $64,245 in 2019)116,011 78,294 
Total investments1,140,900 807,826 
Cash and cash equivalents78,696 100,408 
Investment income due and accrued6,245 4,743 
Premiums receivable, net47,646 34,483 
Reinsurance recoverables88,305 72,574 
Ceded unearned premiums22,870 16,118 
Deferred policy acquisition costs, net of ceding commissions30,293 23,564 
Intangible assets3,538 3,538 
Deferred income tax asset, net— 3,374 
Other assets50,096 23,922 
Total assets$1,468,589 $1,090,550 
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$603,200 $460,058 
Unearned premiums247,075 187,374 
Payable to reinsurers11,636 7,151 
Accounts payable and accrued expenses10,400 12,366 
Credit facility40,138 16,744 
Deferred income tax liability, net1,248 — 
Other liabilities20,761 977 
Total liabilities934,458 684,670 
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,661,754 and 22,205,665 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively227 222 
Additional paid-in capital288,868 229,229 
Retained earnings207,179 162,911 
Accumulated other comprehensive income 37,857 13,518 
Total stockholders’ equity534,131 405,880 
Total liabilities and stockholders’ equity$1,468,589 $1,090,550 
See accompanying notes to condensed consolidated financial statements.
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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands, except per share data)
Revenues:
Gross written premiums$144,777 $97,984 $402,904 $277,557 
Ceded written premiums(22,529)(11,232)(54,996)(35,051)
Net written premiums122,248 86,752 347,908 242,506 
Change in unearned premiums(14,004)(14,131)(52,946)(42,307)
Net earned premiums108,244 72,621 294,962 200,199 
Net investment income7,008 5,265 19,613 14,586 
Change in the fair value of equity securities
6,031 246 3,709 8,050 
Net realized investment gains647 185 1,676 230 
Other income571 10 594 19 
Total revenues122,501 78,327 320,554 223,084 
Expenses:
Losses and loss adjustment expenses82,431 44,810 194,468 118,121 
Underwriting, acquisition and insurance expenses22,927 18,324 67,471 50,377 
Other expenses1,022 — 1,022 57 
Total expenses106,380 63,134 262,961 168,555 
Income before income taxes16,121 15,193 57,593 54,529 
Total income tax expense1,231 2,217 7,355 9,066 
Net income14,890 12,976 50,238 45,463 
Other comprehensive income:
Change in unrealized gains on available-for-sale investments, net of taxes of $1,742 and $6,470 in 2020 and $863 and $4,407 in 20196,554 3,242 24,339 16,577 
Total comprehensive income$21,444 $16,218 $74,577 $62,040 
Earnings per share:
Basic$0.66 $0.60 $2.26 $2.13 
Diluted$0.65 $0.58 $2.21 $2.07 
Weighted-average shares outstanding:
Basic22,398 21,660 22,220 21,348 
Diluted22,928 22,277 22,775 21,965 

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, except per share data)
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 
Issuance of common stock, net of issuance costs
311 3 56,698 — — 56,701 
Issuance of common stock under stock-based compensation plan
48 1 953 — — 954 
Stock-based compensation expense
— — 952 — — 952 
Dividends declared ($0.09 per share)
— — — (2,034)— (2,034)
Other comprehensive income, net of tax
— — — — 6,554 6,554 
Net income— — — 14,890 — 14,890 
Balance at September 30, 202022,662 $227 $288,868 $207,179 $37,857 $534,131 













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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - Continued

Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
Other
Compre-
hensive
Income		Total
Stock-
holders' Equity
(in thousands, except per share data)
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 
Issuance of common stock, net of issuance costs742 7 65,872 — — 65,879 
Issuance of common stock under stock-based compensation plan
61 1 989 — — 990 
Stock-based compensation expense
— — 814 — — 814 
Dividends declared ($0.08 per share)
— — — (1,772)— (1,772)
Other comprehensive income, net of tax
— — — — 3,242 3,242 
Net income— — — 12,976 — 12,976 
Balance at September 30, 201922,159 $222 $227,661 $146,832 $15,321 $390,036 

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)
Nine Months Ended September 30,
20202019
(in thousands)
Operating activities:
Net cash provided by operating activities$206,461 $119,100 
Investing activities:
Purchase of property and equipment(29,088)(12,406)
Sale of property and equipment4,999 — 
Purchases – fixed-maturity securities(389,713)(245,335)
Purchases – equity securities(33,830)(21,139)
Sales – fixed-maturity securities79,042 32,510 
Sales – equity securities— 20,755 
Maturities and calls – fixed-maturity securities66,204 44,481 
Net cash used in investing activities(302,386)(181,134)
Financing activities:
Proceeds from issuance of common stock, net of issuance costs56,701 65,879 
Proceeds from credit facility23,300 11,800 
Debt issuance costs— (628)
Payroll taxes withheld and remitted on share-based payments(1,803)(617)
Proceeds from stock options exercised2,051 1,982 
Dividends paid(6,036)(5,163)
Net cash provided by financing activities74,213 73,253 
Net change in cash and cash equivalents(21,712)11,219 
Cash and cash equivalents at beginning of year100,408 75,089 
Cash and cash equivalents at end of period$78,696 $86,308 


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 consolidated financial statements.
There are no 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 September 30, 2020 and December 31, 2019:
September 30, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions
$210,703 $14,240 $(57)$224,886 
Corporate and other securities317,977 19,911 (700)337,188 
Asset-backed securities225,969 4,139 (1,328)228,780 
Commercial mortgage-backed securities62,421 4,739 (88)67,072 
Residential mortgage-backed securities
162,295 4,719 (51)166,963 
Total fixed-maturity investments$979,365 $47,748 $(2,224)$1,024,889 

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 
Asset-backed securities141,123 1,272 (471)141,924 
Commercial mortgage-backed securities54,627 1,658 (239)56,046 
Residential mortgage-backed securities
172,358 1,819 (388)173,789 
Total fixed-maturity investments$714,817 $17,029 $(2,314)$729,532 
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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 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. 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 available-for-sale investments 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:
September 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:
Obligations of states, municipalities and political subdivisions
$9,598 $(57)$— $— $9,598 $(57)
Corporate and other securities
48,288 (700)— — 48,288 (700)
Asset-backed securities82,614 (852)23,605 (476)106,219 (1,328)
Commercial mortgage-backed securities6,747 (88)— — 6,747 (88)
Residential mortgage-backed securities
24,615 (42)279 (9)24,894 (51)
Total fixed-maturity investments$171,862 $(1,739)$23,884 $(485)$195,746 $(2,224)

At September 30, 2020, the Company held 106 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $195.7 million and gross unrealized losses of $2.2 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 September 30, 2020, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At September 30, 2020, 81.6% 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 nine months ended September 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)
Asset-backed securities21,371 (79)44,115 (392)65,486 (471)
Commercial mortgage-backed securities16,352 (224)2,508 (15)18,860 (239)
Residential mortgage-backed securities
36,986 (148)24,815 (240)61,801 (388)
Total fixed-maturity 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 September 30, 2020 are summarized, by contractual maturity, as follows:
September 30, 2020
AmortizedEstimated
CostFair Value
(in thousands)
Due in one year or less$9,043 $9,192 
Due after one year through five years112,714 120,488 
Due after five years through ten years169,530 181,209 
Due after ten years237,393 251,185 
Asset-backed securities225,969 228,780 
Commercial mortgage-backed securities62,421 67,072 
Residential mortgage-backed securities162,295 166,963 
Total fixed-maturity securities $979,365 $1,024,889 

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 nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Interest:
Taxable bonds$5,383 $4,050 $15,253 $10,593 
Tax exempt municipal bonds918 887 2,741 2,783 
Cash equivalents and short-term investments
— 266 261 667 
Dividends on equity securities1,100 406 2,554 1,493 
Gross investment income7,401 5,609 20,809 15,536 
Investment expenses(393)(344)(1,196)(950)
Net investment income$7,008 $5,265 $19,613 $14,586 
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Realized investment gains and losses
The following table presents realized investment gains and losses for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in thousands)
Fixed-maturity securities:
Realized gains$719 $61 $1,826 $457 
Realized losses(72)— (162)(79)
Net realized gains from fixed-maturity securities647 61 1,664 378 
Equity securities:
Realized gains— 505 — 539 
Realized losses— (381)— (687)
Net realized gains (losses) from equity securities— 124 — (148)
Realized gains from the sales of short-term investments— — 12 — 
Net realized investment gains$647 $185 $1,676 $230 

Change in net unrealized gains on fixed-maturity securities
For the three and nine months ended September 30, 2020, the changes in net unrealized gains for fixed-maturity securities were $8.3 million and $30.8 million, respectively. For the three and nine months ended September 30, 2019, the changes in net unrealized gains for fixed-maturity securities were $4.1 million and $21.0 million, respectively.
Insurance – statutory deposits
The Company had invested assets with a carrying value of $7.0 million and $6.9 million on deposit with state regulatory authorities at September 30, 2020 and December 31, 2019, respectively.
Payable for investments purchased
The Company recorded a payable for investments purchased, not yet settled, of $20.7 million at September 30, 2020. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet and treated as a non-cash transaction for purposes of cash flow presentation. 

3.     Fair value measurements
Fair value is estimated for each class of financial instrument for which it is practical to estimate fair value. Fair value is defined as the price in the principal market that would be received in exchange for an asset or a liability 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
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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 defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.
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 obtains 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.
Given management's understanding of the investment manager's pricing methodologies and procedures, investments valued by third-party pricing services are typically classified as Level 2. While the vast majority of the Company’s fixed-maturity investments are valued by third-party pricing services, the Company purchased a residential mortgage-backed security with an estimated fair value of $1.2 million that was valued using a broker quote at September 30, 2020. Broker quotes are typically based on an income approach given the lack of available market data and are therefore classified as Level 3. In addition, in September of 2020, the Company purchased two residential mortgage-backed securities for $3.2 million that have not been valued by a third-party pricing service or broker quote as of period end. As a result, these securities are valued at the securities' transaction prices and are classified as Level 3. These securities are expected to be valued by a third-party pricing service in the fourth quarter of 2020.
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The following tables present the balances of assets measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, by level within the fair value hierarchy.
September 30, 2020
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
Obligations of states, municipalities and political subdivisions
$— $224,886 $— $224,886 
Corporate and other securities— 337,188 — 337,188 
Asset-backed securities— 228,780 — 228,780 
Commercial mortgage-backed securities— 67,072 — 67,072 
Residential mortgage-backed securities— 162,519 4,444 166,963 
Total fixed-maturity securities— 1,020,445 4,444 1,024,889 
Equity securities:
Exchange traded funds85,617 — — 85,617 
Nonredeemable preferred stock— 30,394 — 30,394 
Total equity securities85,617 30,394 — 116,011 
Total$85,617 $1,050,839 $4,444 $1,140,900 

December 31, 2019
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$112 $— $— $112 
Obligations of states, municipalities and political subdivisions
— 172,893 — 172,893 
Corporate and other securities— 184,768 — 184,768 
Asset-backed securities— 141,924 — 141,924 
Commercial mortgage-backed securities— 56,046