DRS

As confidentially submitted to the U.S. Securities and Exchange Commission on April 22, 2016. This draft registration statement has not been publicly filed with the Securities and Exchange Commission and all information herein remains strictly confidential.

Registration No. 333-

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
 
 
KINSALE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
(State or other jurisdiction of
incorporation or organization)

6331
(Primary Standard Industrial
Classification Code Number)
98-0664337
(I.R.S. Employer
Identification Number)
 
2221 Edward Holland Drive, Suite 600
Richmond, VA 23230
(804) 289-1300
 
 
(Address including zip code, and telephone number, including area code, of registrant's principal executive offices)
 
 
 
 
 
Michael P. Kehoe
President and Chief Executive Officer
2221 Edward Holland Drive, Suite 600
Richmond, VA 23230
Telephone: (804) 289-1300
 
 
 
 
 
 (Name, address, including zip code, and telephone number, including area code, of agent for service) 
 
Copies to:
Gregory A. Fernicola, Esq.
Dwight S. Yoo, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
(212) 735-2000 (facsimile)

 
Richard D. Truesdell, Jr., Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
(212) 701-5800 (facsimile)


Approximate date of commencement of proposed sale to public: As soon as practicable after this registration statement becomes effective.



If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Large accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer x
(Do not check if a smaller reporting company)
Smaller reporting company ¨
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Proposed maximum
aggregate offering price (1)(2)
Amount of
registration fee
Common stock, par value $0.01 per share
 
 
(1)
Includes any additional shares that the underwriters have the option to purchase.
(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”).

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to completion, dated April 22, 2016

Preliminary prospectus

shares
Common stock

This is the initial public offering of common stock of Kinsale Capital Group, Inc. We are offering all of the shares of our common stock to be sold in this offering.
Prior to this offering, there has been no public market for our common stock. The initial public offering price of our common stock is estimated to be between and per share. We intend to apply to list our common stock on the under the symbol "KNSL." The listing will be subject to the approval of our application.
 
Per Share
 
Total
Initial public offering price
$
 
$
Underwriting discounts and commissions (1)
$
 
$
Proceeds, before expenses, to Kinsale Capital Group, Inc.
$
 
$
We have granted the underwriters a 30-day option to purchase up to an additional shares of common stock at the public offering price, less the underwriting discount.
Investing in our common stock involves risks. See "Risk factors" beginning on page 13.
We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startup Act and, as such, have elected to comply with certain reduced public company reporting requirements. See "Prospectus summary — Implications of being an emerging growth company."
Neither the Securities and Exchange Commission ("SEC") nor any state securities commission or regulatory authority has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares of common stock through the book-entry facilities of the Depository Trust Company on or about , 2016.


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J.P. Morgan
William Blair
, 2016


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Table of contents
 
Page





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About this prospectus
Market and industry data
In this prospectus, we present certain market and industry data. This information is based on third-party sources which we believe to be reliable. We have not independently verified any third-party information. Forecasts and projections are based on historical market data, other publicly available information, our knowledge of our industry and assumptions based on such information and knowledge. These forecasts and projections have not been verified by any independent source. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk factors." These and other factors could cause future performance to differ materially from our assumptions and estimates. See "Forward-looking statements."
Trademarks and service marks
This prospectus contains references to a number of trademarks and service marks which are our registered trademarks or service marks, such as "Kinsale Capital Group," or trademarks or service marks for which we have pending applications or common law rights. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders. Solely for convenience, the trademarks, service marks and trade names are referred to in this prospectus without the SM and ® symbols, but such references are not intended to indicate, in any way, that the owner thereof will not assert, to the fullest extent under applicable law, such owner’s rights to their trademarks, service marks and trade names.
Other considerations
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized anyone to provide you with information different from that contained in this prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our shares of common stock. Our business, financial condition, results of operations and prospects may have changed since that date. Information contained on our website is not part of this prospectus.
No action is being taken in any jurisdiction outside the United States to permit a public offering of shares of common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.


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Prospectus summary
This summary highlights information contained elsewhere in this prospectus and does not contain all the information you should consider before making an investment decision. You should read this entire prospectus carefully, including the sections entitled "Risk factors," "Forward-looking statements," "Selected consolidated financial and other data," "Management’s discussion and analysis of financial condition and results of operations" and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. References in this prospectus to the "Company," "we," "us," and "our" are to Kinsale Capital Group, Inc. and its subsidiaries, unless the context otherwise requires. References to "Kinsale" are to Kinsale Capital Group, Inc. only. References to "Kinsale Insurance" are to our subsidiary Kinsale Insurance Company, an Arkansas insurance company. For the definitions of certain terms used in this prospectus, see "Glossary of selected insurance and other terms."

Kinsale Capital Group, Inc.
Who we are
Founded in 2009, we are an established and growing specialty insurance company. We focus exclusively on the excess and surplus lines ("E&S") market in the U.S., where we can use our underwriting expertise to write coverages for hard-to-place small business risks. We market and sell these insurance products in all 50 states and the District of Columbia through a network of independent insurance brokers. We have an experienced and cohesive management team, who have an average of 20 years of experience in the E&S market. Many of our employees and members of our management team have also worked together for decades at other E&S insurance companies.
Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns. We seek to accomplish this by generating consistent and attractive underwriting profits while managing our capital prudently. We have built a company that is entrepreneurial and highly efficient, using our proprietary technology platform and leveraging the expertise of our highly experienced employees in our daily operations. We believe our systems and technology are at the digital forefront of the insurance industry, allowing us to quickly collect and analyze data, thereby improving our ability to manage our business and reducing response times for our customers. We believe that we have differentiated ourselves from our competitors by effectively leveraging technology, vigilantly controlling expenses and maintaining control over our underwriting and claims operations.
We have significantly grown our business and have generated attractive returns. We have organically grown our stockholders’ equity from $76.5 million as of December 31, 2013 to $113.5 million as of December 31, 2015, a compound annual growth rate ("CAGR") of 21.8%. We have grown our gross written premiums from $125.3 million for the year ended December 31, 2013 to $177.0 million for the year ended December 31, 2015, a CAGR of 18.9%. Our return on equity was 21.6% for the year ended December 31, 2015, and our combined ratio for the same year was 60.6%. Our adjusted combined ratio (a non-GAAP financial measure), which excludes the effects of our multi-line quota share reinsurance agreement ("MLQS"), for the same year was 77.5%. For a reconciliation of adjusted combined ratio to combined ratio, see "Management's discussion and analysis of financial condition and results of operations — Factors affecting our results of operations

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— The MLQS." We believe that we are well positioned to continue to capitalize on attractive opportunities in our target market and to prudently grow our business.
Our products
We write a broad array of insurance coverages for risks that are unique or hard-to-place in the standard insurance market. Typical E&S risks include newly established companies or industries, high-risk operations, insureds in litigious venues, or companies with poor loss histories. We target classes of business where our underwriters have extensive experience, allowing us to compete effectively and earn attractive risk-adjusted returns. Our underwriters specialize in individual lines of business which allows them to develop in-depth knowledge and experience of the risks they underwrite. Our core client focus is small to medium-sized accounts, which we believe tend to be subject to less competition and have better pricing. The average premium paid on a policy written by us in 2015 was $10,424. We believe that our strategy, experience and expertise allow us to compete effectively in the E&S market and will enable us to generate attractive long-term stockholder value.
In 2015, the percentage breakdown of our gross written premiums was 94.4% casualty and 5.6% property. Our commercial lines offerings include construction, small business, general casualty, energy, excess casualty, professional liability, life sciences, product liability, allied health, health care, commercial property, environmental, management liability and inland marine. We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2.2% of our gross written premiums in 2015.

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The following table shows our gross written premiums by underwriting division for the year ended December 31, 2015.
 
 
Year ended December 31, 2015
 
 
Gross written premiums by division
 
% of total gross written premiums
(in thousands)
 
 
 
 
Commercial:
 
 
 
 
Construction
 
$
36,932

 
20.9
%
Small business
 
21,468

 
12.1

General casualty
 
20,511

 
11.6

Energy
 
19,022

 
10.7

Excess casualty
 
16,194

 
9.1

Professional liability
 
14,636

 
8.3

Life sciences
 
11,935

 
6.7

Product liability
 
9,480

 
5.4

Allied health
 
8,644

 
4.9

Health care
 
6,579

 
3.7

Commercial property
 
6,181

 
3.5

Environmental
 
1,005

 
0.6

Management liability
 
420

 
0.2

Inland marine
 
195

 
0.1

     Total commercial
 
173,202

 
97.8

Personal:
 
 
 
 
Personal insurance
 
3,807

 
2.2

     Total personal
 
3,807

 
2.2

Total
 
$
177,009

 
100.0
%
As an E&S insurance company, we are not subject to the rate and form requirements of state insurance regulators. Therefore, we have more flexibility to use policy forms and rates that we believe are appropriate for the risks that we underwrite. Because the underlying risks that we underwrite tend to have unique qualities, we evaluate those risks and use customized pricing and terms and conditions to meet the needs of the insured. This customized approach provides us with the opportunity to achieve attractive long-term growth and profitability.
Kinsale Insurance, our principal operating subsidiary, has been assigned an "A-" (Excellent) rating by A.M. Best Company ("A.M. Best"), a leading rating agency for the insurance industry. This rating is based on matters of concern to policyholders and is not designed or intended for use by investors in evaluating our securities.
Our competitive strengths
We believe that our competitive strengths include:
Exclusive focus on the E&S market. The E&S, or non-admitted, market has historically operated at lower loss ratios and higher margins, and has grown direct premiums written more quickly than the

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admitted market. From 2001 to 2014, A.M. Best’s domestic professional surplus lines composite produced an average net loss and loss adjustment expense ratio of 68.4% and grew direct premiums written by 7.7% annually, versus 74.3% and 3.4% respectively for the property and casualty ("P&C") industry.  
Underwriting expertise across a broad spectrum of hard-to-place risks. We have a broad appetite to underwrite a diverse set of risks across the E&S market. Our underwriting team is highly experienced, and individually underwrites each risk to appropriately price and structure solutions. We balance our broad risk appetite by maintaining a diversified book of smaller accounts with strong pricing and well defined coverages. Unlike many of our competitors, we do not extend underwriting authority to brokers, agents or other third parties. Our loss ratio in 2015 was 56.8%; our adjusted loss ratio (a non-GAAP financial measure), which excludes the effects of our MLQS, for the same year was 51.5%. For a reconciliation of adjusted loss ratio to loss ratio, see "Management's discussion and analysis of financial condition and results of operations — Factors affecting our results of operations — The MLQS."
Technology is a core competency. As an insurance company that was founded in 2009, we have the benefit of having built a proprietary technology platform that reflects the best practices our management team has learned from its extensive prior experience. We operate on a single digital platform with a data warehouse that collects a vast array of statistical data. Our platform provides a high degree of efficiency, accuracy and speed across all of our processes. We are able to use the data that we collect to quickly analyze trends across all functions in our business. Our customized proprietary system helps us to reduce the risk of administrative errors in our policy forms and include all of the necessary exclusions for the specified risk, and provides for the efficient and accurate handling of claims. Additionally, our systems enable us to rapidly respond to brokers, allowing our underwriters to reply to the majority of submissions within 24 hours, a significant benefit to our brokers. We believe that our technology platform will provide us with an enduring competitive advantage as it allows us to quickly respond to market opportunities, and will continue to scale as our business grows.
Significantly lower expense ratio than our competitors. Expense management is ingrained in our business culture. We believe that our proprietary technology platform coupled with our low-cost operation allows us to process policy quotes, underwrite policies and operate at a lower cost than our direct competitors. In particular, our efficient platform allows us to provide a higher level of service to our brokers and to target smaller accounts which we believe are generally subject to less competition. Our expense ratio in 2015 was 3.8%; our adjusted expense ratio (a non-GAAP financial measure), which excludes the effects of our MLQS, for the same year was 26.0%. For a reconciliation of adjusted expense ratio to expense ratio, see "Management's discussion and analysis of financial condition and results of operations — Factors affecting our results of operations — The MLQS."
Fully integrated claims management. We believe that actively managing our claims is an important aspect of keeping losses low, while accurately setting reserves. We manage all of our claims in-house and do not delegate claims management authority to third parties. We promptly and thoroughly investigate all claims, generally through direct contact with the insured, and leverage both our systems and our underwriters to gather the relevant facts. When we believe claims are without merit, we vigorously contest payment. We currently average 120 open claims per claims adjuster, which we believe is significantly lower than industry average. As of December 31, 2015, our reserves for claims incurred but not reported were approximately 79.2% of our total net loss

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reserves. Only 25.9% of claims for accident years 2013 and prior were open as of December 31, 2015.
Entrepreneurial management team with a track record of success. Our management team is highly experienced with an average of 20 years of relevant experience, bringing together a full suite of underwriting, claims, technology and operating skills that we believe will drive our long-term success. The majority of our management team has a proven track record of successfully building high performing specialty insurance companies. We are led by Michael Kehoe who, prior to founding Kinsale, was the president and chief executive officer of James River Insurance Company ("James River") from 2002 until 2008. Prior to James River, Mr. Kehoe held several senior positions at Colony Insurance Company. Many of our other employees and members of our management team worked with Mr. Kehoe at James River and have decades of experience at other E&S insurance companies. As meaningful owners of Kinsale, we believe our management team has closely aligned interests with our stockholders.
Our Board of Directors has deep insurance and financial services industry experience. Our Board of Directors is comprised of accomplished industry veterans. Collectively, our board members bring decades of experience from their prior roles operating and working in insurance and other financial services companies.
Our strategy
We believe that our approach to our business will allow us to achieve our goals of both growing our business and generating attractive returns. Our approach involves:
Expand our presence in the E&S market. According to A.M. Best, the total E&S market was approximately $40.2 billion of gross written premiums in 2014. Based on our 2015 gross written premiums of $177.0 million, our current market share is less than 0.5%. We believe that our exclusive focus on the E&S market and our high levels of service, including our ability to quote, underwrite and bind insurance policies in a timely manner given our efficient systems, allow us to better serve our brokers and positions us to profitably increase our market share.
Generate underwriting profits. We will continue to focus on underwriting profitability regardless of market cycles. Our strategy is to concentrate on hard-to-place risks and to maintain adequate rate levels for the risks that we underwrite. We maintain control over our underwriting process to ensure consistent quality of work. We underwrite each account individually and never delegate authority to any outside agents or brokers.
Maintain a contrarian risk appetite. Our flexibility as an E&S insurer enables us to write business at attractive returns while offering competitive policies to our brokers and insureds. We believe we distinguish ourselves in the market with our contrarian risk appetite and our willingness to offer terms on risks requiring more extensive underwriting that some of our competitors may decline to consider. Such accounts frequently offer us a better risk-adjusted return than those preferred by our competitors due to reduced competition.
Leverage investment in technology to drive efficiencies. We use a proprietary technology platform to drive a high level of efficiency, accuracy and speed in our underwriting and quoting process. We have organized our workflows, designed our systems and aligned our staff to provide superior service levels to brokers while achieving a level of efficiency that we believe provides us with a competitive advantage and helps contribute to our low expense ratio. We believe that automation also reduces human error in our underwriting, policy processing, accounting, collections, and claims

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adjusting processes. Additionally, we are able to track quotes, monitor historical loss experience and reserve development, and measure other relevant metrics at a granular level of detail. We believe that our technology is scalable and will allow us to maintain a low expense ratio as we continue to organically grow our business.
Maintain a strong balance sheet. In order to maintain the confidence of policyholders, brokers, reinsurers, investors, regulators, and rating agencies we seek to establish and maintain a conservative balance sheet. We have a robust process for setting our loss reserves and regularly review our estimates. In addition, we maintain a conservative investment portfolio. Our strong balance sheet allows us to maintain the confidence of our investors and other constituencies, and thereby position ourselves to better achieve our goals.
Our challenges and risks
Investing in our common stock involves substantial risk. The risks described under the heading "Risk factors" immediately following this summary may cause us to not realize the benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant risks include:
Our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition and results of operations.
Given the inherent uncertainty of models, the usefulness of such models as a tool to evaluate risk is subject to a high degree of uncertainty that could result in actual losses that are materially different than our estimates, including probable maximum losses ("PMLs"). A deviation from our loss estimates may adversely impact, perhaps significantly, our financial results.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.
A decline in our financial strength rating may adversely affect the amount of business we write.
We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
We rely on a select group of brokers, and such relationships may not continue.
Because our business is dependent on insurance brokers, we are exposed to certain risks arising out of our reliance on these distribution channels that could cause our results to be adversely affected.
The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on our financial condition or results of operations.
Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our E&S insurance operations are subject to increased risk from changing market conditions. In addition, our business is cyclical in nature, which may affect our financial performance.

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Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends and service our debt obligations depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary.
The failure of our information technology and telecommunications systems could adversely affect our business.
Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us.
There is no public market for our common stock and a market may never develop.
Our stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment.
Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common stock.
The Moelis Funds will be able to exert significant influence over us and our significant corporate decisions.
You will incur immediate dilution as a result of this offering.
Applicable insurance laws may make it difficult to effect a change of control.
Principal executive office and corporate information
Our office is located at 2221 Edward Holland Drive, Suite 600, Richmond, Virginia 23230 and our telephone number is (804) 289-1300. Our website is www.kinsaleins.com. The information on our website should not be construed as part of this prospectus.
Implications of being an emerging growth company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"), enacted in April 2012. An “emerging growth company” may take advantage of reduced reporting requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
being permitted to present only two years of audited financial statements and only two years of related disclosure in our “Management's discussion and analysis of financial condition and results of operations (“MD&A“) in this prospectus (though we chose to include three years of audited financial statements and related disclosures in the MD&A);
not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act);
the ability to use an extended transition period for complying with new or revised accounting standards, of which we have irrevocably elected not to avail ourselves;
reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and

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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We may take advantage of these provisions until the last day of our fiscal year following the fifth anniversary of the date of the first sale of our common equity securities pursuant to an effective registration statement under the Securities Act. Such fifth anniversary will occur in 2021. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our gross revenues for any fiscal year equal or exceed $1.0 billion or we issue more than $1.0 billion of non-convertible debt in any three-year period, we will cease to be an emerging growth company prior to the end of such five-year period.
Our principal stockholder
We are, and after giving effect to this offering, will continue to be, controlled in significant part by funds managed by, or entities affiliated with, Moelis Capital Partners LLC (collectively, the "Moelis Funds"). Upon the consummation of this offering, the Moelis Funds are expected to own approximately         % of our outstanding common stock, or         % if the underwriters exercise their option to purchase additional shares in full. See “Principal stockholders.” As a result, the Moelis Funds will be able to exert significant influence over us and our corporate decisions. See “Risk factors-Risks related to this offering and ownership of our common stock-The Moelis Funds will be able to exert significant influence over us and our corporate decisions.”
The Moelis Funds are a New York-based private equity firm that targets equity investments between $25 and $75 million in leading middle market, growth-oriented companies with a strategy of sector-focused, control investments. The Moelis Funds specialize in the healthcare, industrial services, software and consumer sectors and manage approximately $870 million of private equity capital. NexPhase Capital, LP ("NexPhase Capital") provides investment advisory services to Moelis Capital Partners LLC pursuant to a sub-investment advisory arrangement whereby it acts as investment advisor to the Moelis Funds.
Our structure
The chart below displays our corporate structure:
 
 
 
Kinsale Capital Group, Inc.
(Delaware corporation)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Kinsale Management, Inc.
(Delaware corporation; management services company)
 
Kinsale Insurance Company
(Arkansas domiciled corporation; stock insurance company)
 
Aspera Insurance Services, Inc.
(Virginia corporation; insurance broker)
 
 
 
 
 
 
 
 
 

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Selected consolidated financial and other data
The following tables present our selected consolidated financial and other data, at the dates and for the periods indicated. The selected consolidated financial and other data set forth below as of and for the years ended December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements, included elsewhere in this prospectus.
These historical results are not necessarily indicative of the results that may be expected for any future period. The following information is only a summary and should be read in conjunction with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
 
 
Year Ended
 
 
December 31,
 
 
2015
 
2014
 
2013
 
 
(in thousands)
Revenues:
 
 
 
 
 
 
Gross written premiums
 
$
177,009

 
$
158,523

 
$
125,267

Ceded written premiums
 
(92,991
)
 
(97,012
)
 
(80,870
)
Net written premiums
 
$
84,018

 
$
61,511

 
$
44,397

 
 
 
 
 
 
 
Net earned premiums
 
$
74,322

 
$
58,996

 
$
45,122

Net investment income
 
5,643

 
4,070

 
3,344

Net investment gains
 
59

 
201

 
8

Other income
 
572

 
409

 
10

Total revenues
 
80,596

 
63,676

 
48,484

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Losses and loss adjustment expenses
 
42,238

 
41,108

 
28,890

Underwriting, acquisition and insurance expenses
 
2,809

 
1,451

 
6,894

Other expenses
 
1,992

 
1,644

 
597

Total expenses
 
47,039

 
44,203

 
36,381

Income before income taxes
 
33,557

 
19,473

 
12,103

 
 
 
 
 
 
 
Income tax expense (benefit)
 
11,284

 
6,500

 
(164
)
Net income
 
$
22,273

 
$
12,973

 
$
12,267

Underwriting income (1)
 
$
29,275

 
$
16,437

 
$
9,338


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At December 31,
 
 
2015
 
2014
 
 
(in thousands)
Balance sheet data:
 
 
 
 
Cash and invested assets
 
$
368,685

 
$
292,285

Premiums receivable, net
 
15,550

 
14,226

Reinsurance recoverables
 
95,670

 
70,348

Ceded unearned premiums
 
39,329

 
42,565

Intangible assets
 
3,538

 
3,538

Total assets
 
545,675

 
438,120

 
 
 
 
 
Reserves for unpaid losses and loss adjustment expenses
 
219,629

 
162,210

Unearned premiums
 
81,713

 
75,253

Funds held for reinsurers
 
87,206

 
63,932

Note payable
 
30,000

 
28,000

Total liabilities
 
432,224

 
345,534

Total stockholders' equity
 
113,451

 
92,586

 
 
 
 
 
Underwriting ratios:
 
 
 
 
Loss ratio (2)
 
56.8
%
 
69.7
%
Expense ratio (3)
 
3.8
%
 
2.4
%
Combined ratio (4)
 
60.6
%
 
72.1
%
 
 
 
 
 
Adjusted loss ratio (5)
 
51.5
%
 
59.4
%
Adjusted expense ratio (5)
 
26.0
%
 
24.7
%
Adjusted combined ratio (5)
 
77.5
%
 
84.1
%
 
 
 
 
 
Other data:
 
 
 
 
Return on equity (6)
 
21.6
%
 
15.3
%
Tangible stockholders' equity (7)
 
$
111,151

 
$
90,286

Debt to total capitalization ratio (8)
 
21.0
%
 
23.4
%
Statutory capital and surplus (9)
 
$
127,675

 
$
104,101

                                                   
 
 
 
 
(1)
Underwriting income is a non-GAAP financial measure. See "Management’s discussion and analysis of financial condition and results of operations — Reconciliation of non-GAAP financial measures" for a reconciliation of underwriting income to net income in accordance with GAAP.
(2)
The loss ratio is the ratio, expressed as a percentage, of losses and loss adjustment expenses to net earned premiums, net of the effects of reinsurance.
(3)
The expense ratio is the ratio, expressed as a percentage, of underwriting, acquisition and insurance expenses to net earned premiums.
(4)
The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
(5)
The adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. See "Management's discussion and analysis of financial condition and results of operations — Factors affecting our results of operations — The MLQS."

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(6)
Return on equity represents net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
(7)
Tangible stockholders’ equity is a non-GAAP financial measure. See "Management’s discussion and analysis of financial condition and results of operations — Liquidity and capital resources — Financial condition" for a reconciliation of tangible stockholders’ equity to stockholders’ equity.
(8)
The ratio, expressed as a percentage, of total indebtedness for borrowed money, including capitalized lease obligations, to the sum of total indebtedness for borrowed money, including capitalized lease obligations, and stockholders’ equity.
(9)
For our insurance subsidiary, the excess of assets over liabilities as determined in accordance with statutory accounting principles as determined by the National Association of Insurance Commissioners ("NAIC").


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The offering
Common stock offered by us in this offering

 
shares
 
 
 
Common stock to be outstanding immediately after this offering

 
shares
 
 
 
Underwriters' option to purchase additional shares
 
The underwriters have an option for a period of 30 days to purchase from up to an additional shares of our common stock.

 
 
 
Use of proceeds
 
We intend to use the proceeds from the offering to make contributions to the capital of our insurance subsidiary and for other general corporate purposes. See "Use of proceeds."
 
 
 
Dividend policy
 
We intend to pay quarterly dividends on our common stock. The declaration, payment and amount of future dividends will be subject to the discretion of our Board of Directors. See "Dividend Policy."
 
 
 
Stock exchange symbol
 
"KNSL"
 
 
 
Risk factors
 
You should read the “Risk factors” section of this prospectus for a discussion of factors to carefully consider before deciding to invest in shares of our common stock.

The number of shares of our common stock to be outstanding after this offering is based on the shares of our common stock outstanding as of , 2016.
The number of shares of our common stock to be outstanding after this offering excludes
shares of common stock reserved as of , 2016 for future issuance under our 2016 Stock Incentive Plan (the "2016 Incentive Plan").
Unless otherwise indicated, this prospectus reflects and assumes:
the conversion of all of the outstanding shares of Class A Common Stock and Class B Common Stock into shares of our common stock immediately prior to the effectiveness of this offering;
the filing of our amended and restated certificate of incorporation and the adoption of our amended and restated by-laws upon the closing of this offering; and
no exercise by the underwriters of their option to purchase additional shares of our common stock.

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Risk factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, before deciding to invest in our common stock. The risks and uncertainties described below are not the only ones facing us. There may be additional risks and uncertainties of which we currently are unaware or currently believe to be immaterial. The occurrence of any of these risks could materially and adversely affect our business, financial condition, liquidity, results of operations or prospects. In that event, the market price of our common stock could decline, and you could lose all or part of your investment.
Risks related to our business and our industry
Our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition and results of operations.
Our success depends on our ability to accurately assess the risks related to the businesses and people that we insure. We establish loss and loss adjustment expense reserves for the ultimate payment of all claims that have been incurred, and the related costs of adjusting those claims, as of the date of our financial statements. Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what we expect the ultimate settlement and administration of claims will cost us, and our ultimate liability may be greater or less than our estimate.
As part of the reserving process, we review historical data and consider the impact of such factors as:
claims inflation, which is the sustained increase in cost of raw materials, labor, medical services and other components of claims cost;
claims development patterns by line of business and by "claims made" versus "occurrence" policies;
legislative activity;
social and economic patterns; and
litigation and regulatory trends.
These variables are affected by both internal and external events that could increase our exposure to losses, and we continually monitor our reserves using new information on reported claims and a variety of statistical techniques. This process assumes that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting future events. There is no precise method, however, for evaluating the impact of any specific factor on the adequacy of reserves, and actual results may deviate, perhaps substantially, from our reserve estimates. For instance, the following uncertainties may have an impact on the adequacy of our resources:
When we write “occurrence” policies, we are obligated to pay covered claims, up to the contractually agreed amount, for any covered loss that occurs while the policy is in force. Accordingly, claims may arise many years after a policy has lapsed. Approximately 78.0% of our net casualty loss reserves were associated with “occurrence” policies as of December 31, 2015.
Even when a claim is received (irrespective of whether the policy is a “claims made” or “occurrence” basis form), it may take considerable time to fully appreciate the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time.
New theories of liability are enforced retroactively from time to time by courts. See also “—The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on our financial condition or results of operations.”

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Volatility in the financial markets, economic events and other external factors may result in an increase in the number of claims and/or severity of the claims reported. In addition, elevated inflationary conditions would, among other things, cause loss costs to increase. See also “—Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.”
If claims were to become more frequent, even if we had no liability for those claims, the cost of evaluating such potential claims could escalate beyond the amount of the reserves we have established. As we enter new lines of business, or as a result of new theories of claims, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated.
In addition, there may be significant reporting lags between the occurrence of the insured event and the time it is actually reported to us and additional lags between the time of reporting and final settlement of any claims. Consequently, estimates of loss associated with specified claims can increase as new information emerges, which could cause the reserves for the claim to become inadequate.
If any of our reserves should prove to be inadequate, we will be required to increase our reserves resulting in a reduction in our net income and stockholders’ equity in the period in which the deficiency is identified. Future loss experience substantially in excess of established reserves could also have a material adverse effect on our future earnings and liquidity and our financial rating.
For further discussion of our reserve experience, please see "Management’s discussion and analysis of financial condition and results of operations — Critical accounting estimates — Reserves for unpaid losses and loss adjustment expenses."
Given the inherent uncertainty of models, the usefulness of such models as a tool to evaluate risk is subject to a high degree of uncertainty that could result in actual losses that are materially different than our estimates, including probable maximum losses ("PMLs"). A deviation from our loss estimates may adversely impact, perhaps significantly, our financial results.
Our approach to risk management relies on subjective variables that entail significant uncertainties. For example, we rely heavily on estimates of PMLs for certain events that are generated by computer-run models. In addition, we rely on historical data and scenarios in managing credit and interest rate risks in our investment portfolio. These estimates, models, data and scenarios may not produce accurate predictions and consequently, we could incur losses both in the risks we underwrite and to the value of our investment portfolio.
We use third party vendor analytic and modeling capabilities to provide us with objective risk assessment relating to other risks in our reinsurance portfolio. We use these models to help us control risk accumulation, inform management and other stakeholders of capital requirements and to improve the risk/return profile or minimize the amount of capital required to cover the risks in each of our reinsurance contracts. However, given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address a variety of matters which might impact certain of our coverages.
Small changes in assumptions, which depend heavily on our judgment and foresight, can have a significant impact on the modeled outputs. For example, catastrophe models that simulate loss estimates based on a set of assumptions are important tools used by us to estimate our PMLs. These assumptions address a number of factors that impact loss potential including, but not limited to, the characteristics of a given natural catastrophe event; demand surge resulting from an event; the types, function, location and characteristics of exposed risks; susceptibility of exposed risks to damage from an event with specific characteristics; and the financial and contractual provisions of the (re)insurance contracts that cover losses arising from an event. We run many model simulations in order to understand the impact of these

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assumptions on a catastrophe's loss potential. Furthermore, there are risks associated with catastrophe events, which are either poorly represented or not represented at all by catastrophe models. Each modeling assumption or un-modeled risk introduces uncertainty into PML estimates that management must consider. These uncertainties can include, but are not limited to, the following:
The models do not address all the possible hazard characteristics of a catastrophe peril (e.g. the precise path and wind speed of a hurricane);
The models may not accurately reflect the true frequency of events;
The models may not accurately reflect a risk's vulnerability or susceptibility to damage for a given event characteristic;
The models may not accurately represent loss potential to insurance or reinsurance contract coverage limits, terms and conditions; and
The models may not accurately reflect the impact on the economy of the area affected or the financial, judicial, political, or regulatory impact on insurance claim payments during or following a catastrophe event.
Our PMLs are reviewed by management after the assessment of outputs from multiple third party vendor models and other qualitative and quantitative assessments, including exposures not typically modeled in vendor models. Our methodology for estimating PMLs may differ from methods used by other companies and external parties given the various assumptions and judgments required to estimate a PML.
As a result of these factors and contingencies, our reliance on assumptions and data used to evaluate our entire reinsurance portfolio and specifically to estimate a PML is subject to a high degree of uncertainty that could result in actual losses that are materially different from our PML estimates and our financial results could be adversely affected.
Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.
Factors, such as business revenue, economic conditions, the volatility and strength of the capital markets and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability. Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, including with respect to our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew the policies they hold with us. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.
We underwrite a significant portion of our insurance in California, Texas and Florida. Any economic downturn in any such state could have an adverse effect on our financial condition and results of operations.
A decline in our financial strength rating may adversely affect the amount of business we write.
Participants in the insurance industry use ratings from independent ratings agencies, such as A.M. Best Company, Inc. (“A.M. Best”), as an important means of assessing the financial strength and quality of

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insurers. In setting its ratings, A.M. Best uses a quantitative and qualitative analysis of a company’s balance sheet strength, operating performance and business profile. This analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best financial strength ratings range from “A++” (Superior) to “F” for insurance companies that have been publicly placed in liquidation. As of the date of this prospectus, A.M. Best has assigned a financial strength rating of “A-” (Excellent) to our operating subsidiary, Kinsale Insurance. A.M. Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and such ratings are not evaluations directed to investors and are not a recommendation to buy, sell or hold our common stock or any other securities we may issue. A.M. Best periodically reviews our financial strength rating and may revise it downward or revoke it at its sole discretion based primarily on its analysis of our balance sheet strength (including capital adequacy and loss adjustment expense reserve adequacy), operating performance and business profile. Factors that could affect such analysis include but are not limited to:
if we change our business practices from our organizational business plan in a manner that no longer supports A.M. Best’s rating;
if unfavorable financial, regulatory or market trends affect us, including excess market capacity;
if our losses exceed our loss reserves;
if we have unresolved issues with government regulators;
if we are unable to retain our senior management or other key personnel;
if our investment portfolio incurs significant losses; or
if A.M. Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating.
These and other factors could result in a downgrade of our financial strength rating. A downgrade or withdrawal of our rating could result in any of the following consequences, among others:
causing our current and future brokers and insureds to choose other, more highly-rated competitors;
increasing the cost or reducing the availability of reinsurance to us;
severely limiting or preventing us from writing new and renewal insurance contracts; or
giving our lenders the right to accelerate or call on our debt.
In addition, in view of the earnings and capital pressures recently experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, will increase the frequency and scope of their credit reviews, will request additional information from the companies that they rate or will increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels. We can offer no assurance that our rating will remain at its current level. It is possible that such reviews of us may result in adverse ratings consequences, which could have a material adverse effect on our financial condition and results of operations.
We could be adversely affected by the loss of one or more key executives or by an inability to attract and retain qualified personnel.
We depend on our ability to attract and retain experienced personnel and seasoned key executives who are knowledgeable about our business. The pool of talent from which we actively recruit is limited and may fluctuate based on market dynamics specific to our industry and independent of overall economic conditions. As such, higher demand for employees having the desired skills and expertise could lead to increased compensation expectations for existing and prospective personnel, making it difficult for us to

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retain and recruit key personnel and/or or maintain labor costs at desired levels. Only our Chief Executive Officer has an employment agreement with us and is subject to a non-compete agreement. Should any of our key executives terminate their employment with us, or if we are unable to retain and attract talented personnel, we may be unable to maintain our current competitive position in the specialized markets in which we operate, which could adversely affect our results of operations.
We rely on a select group of brokers, and such relationships may not continue.
We distribute the majority of our products through a select group of brokers. Approximately 46.3% of our 2015 gross written premiums, or $81.9 million in gross written premiums, were distributed through 5 of our approximately 149 brokers.
Our relationship with any of these brokers may be discontinued at any time. Even if the relationships do continue, they may not be on terms that are profitable for us. The termination of a relationship with one or more significant brokers could result in lower gross written premiums and could have a material adverse effect on our results of operations or business prospects.
Because our business is dependent on insurance brokers, we are exposed to certain risks arising out of our reliance on these distribution channels that could cause our results to be adversely affected.
Certain premiums from policyholders, where the business is produced by brokers, are collected directly by the brokers and forwarded to our insurance subsidiary. In certain jurisdictions, when the insured pays its policy premium to its broker for payment on behalf of our insurance subsidiary, the premium might be considered to have been paid under applicable insurance laws and regulations. Accordingly, the insured would no longer be liable to us for those amounts, whether or not we have actually received the premium from that broker. Consequently, we assume a degree of credit risk associated with the brokers with whom we work. Where necessary, we review the financial condition of potential new brokers before we agree to transact business with them. Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the absence of related premiums being paid to us.
Because the possibility of these events occurring depends in large part upon the financial condition and internal operations of our brokers, we monitor broker behavior and review financial information on an as-needed basis. If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected.
The failure of any of the loss limitations or exclusions we employ, or changes in other claims or coverage issues, could have a material adverse effect on our financial condition or results of operations.
Although we seek to mitigate our loss exposure through a variety of methods, the future is inherently unpredictable. It is difficult to predict the timing, frequency and severity of losses with statistical certainty. It is not possible to completely eliminate our exposure to unforecasted or unpredictable events and, to the extent that losses from such risks occur, our financial condition and results of operations could be materially adversely affected.
For instance, various provisions of our policies, such as limitations or exclusions from coverage or choice of forum, which have been negotiated to limit our risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of endorsements to our policies that limit exposure to known risks. As industry practices and legal, judicial, social and other conditions change, unexpected and unintended issues related to claims and coverage may emerge.
In addition, we design our policy terms to manage our exposure to expanding theories of legal liability like those which have given rise to claims for lead paint, asbestos, mold, construction defects and environmental matters. Many of the policies we issue also include conditions requiring the prompt

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reporting of claims to us and entitle us to decline coverage in the event of a violation of those conditions. Also, many of our policies limit the period during which a policyholder may bring a claim under the policy, which in many cases is shorter than the statutory period under which such claims can be brought against our policyholders. While these exclusions and limitations help us assess and reduce our loss exposure and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or legislation could be enacted modifying or barring the use of such endorsements and limitations. These types of governmental actions could result in higher than anticipated losses and loss adjustment expenses, which could have a material adverse effect on our financial condition or results of operations.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. Three examples of unanticipated risks that have affected the insurance industry are:
Asbestos liability applied to manufacturers of products and contractors who installed those products.
Apportionment of liability arising from subsidence claims assigned to subcontractors who may have been involved in mundane tasks (such as installing sheetrock in a home).
Court decisions, such as the 1995 Montrose decision in California, that read policy exclusions narrowly so as to expand coverage, thereby requiring insurers to create and write new exclusions.
These issues may adversely affect our business by either broadening coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after we have issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued.
Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a diversified portfolio of investments that is managed by professional investment advisory management firms in accordance with our investment policy and routinely reviewed by our Investment Committee. However, our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.
Our primary market risk exposures are to changes in interest rates and equity prices. See "Management's discussion and analysis of financial condition and results of operation — Quantitative and qualitative disclosures about market risk." In recent years, interest rates have been at or near historic lows. A protracted low interest rate environment would continue to place pressure on our net investment income, particularly as it relates to fixed income securities and short-term investments, which, in turn, may adversely affect our operating results. Future increases in interest rates could cause the values of our fixed income securities portfolios to decline, with the magnitude of the decline depending on the duration of securities included in our portfolio and the amount by which interest rates increase. Some fixed income securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed income securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not pre-pay as quickly as expected.
The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Downgrades in the credit ratings of fixed maturities also have a significant negative effect on the market valuation of such securities.

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Such factors could reduce our net investment income and result in realized investment losses. Our investment portfolio is subject to increased valuation uncertainties when investment markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur.
We also invest in marketable equity securities. These securities are carried on the balance sheet at fair market value and are subject to potential losses and declines in market value. Our equity invested assets totaled $14.2 million as of December 31, 2015.
Risks for all types of securities are managed through the application of our investment policy, which establishes investment parameters that include (but are not limited to) maximum percentages of investment in certain types of securities and minimum levels of credit quality, which we believe are within guidelines established by the National Association of Insurance Commissioners ("NAIC") and the Arkansas State Insurance Department, as applicable.
Although we seek to preserve our capital, we cannot be certain that our investment objectives will be achieved, and results may vary substantially over time. In addition, although we seek to employ investment strategies that are not correlated with our insurance and reinsurance exposures, losses in our investment portfolio may occur at the same time as underwriting losses and, therefore, exacerbate the adverse effect of the losses on us.
Our E&S insurance operations are subject to increased risk from changing market conditions. In addition, our business is cyclical in nature, which may affect our financial performance.
E&S insurance covers risks that are typically more complex and unusual than standard risks and require a high degree of specialized underwriting. As a result, E&S risks do not often fit the underwriting criteria of standard insurance carriers, and are generally considered higher risk than those covered in the standard market. If our underwriting staff inadequately judges and prices the risks associated with the business underwritten in the E&S market, our financial results could be adversely impacted.
Historically, the financial performance of the P&C insurance industry has tended to fluctuate in cyclical periods of price competition and excess capacity (known as a soft market) followed by periods of high premium rates and shortages of underwriting capacity (known as a hard market). Soft markets occur when the supply of insurance capital in a given market or territory is greater than the amount of insurance coverage demanded by all potential insureds in that market. When this occurs, insurance prices tend to decline and policy terms and conditions become more favorable to the insureds. Conversely, hard markets occur when there is not enough insurance capital capacity in the market to meet the needs of potential insureds, causing insurance prices to generally rise and policy terms and conditions to become more favorable to the insurers.
Although an individual insurance company's financial performance is dependent on its own specific business characteristics, the profitability of most P&C insurance companies tends to follow this cyclical market pattern. Further, this cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market. When the standard insurance market hardens, the E&S market hardens, and growth in the E&S market can be significantly more rapid than growth in the standard insurance market. Similarly, when conditions begin to soften, many customers that were previously driven into the E&S market may return to the admitted market, exacerbating the effects of rate decreases. We cannot predict the timing or duration of changes in the market cycle because the cyclicality is due in large part to the actions of our competitors and general economic factors. These cyclical patterns cause our revenues and net income to fluctuate, which may cause the price of our common stock to be volatile.

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We are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives. In addition, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations.
Our insurance subsidiary, Kinsale Insurance, is subject to extensive regulation in Arkansas, its state of domicile, and to a lesser degree, the other states in which it operates. Most insurance regulations are designed to protect the interests of insurance policyholders, as opposed to the interests of investors or stockholders. These regulations generally are administered by a department of insurance in each state and relate to, among other things, authorizations to write E&S lines of business, capital and surplus requirements, investment and underwriting limitations, affiliate transactions, dividend limitations, changes in control, solvency and a variety of other financial and non-financial aspects of our business. Significant changes in these laws and regulations could further limit our discretion or make it more expensive to conduct our business. State insurance regulators also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may impose timing and expense constraints that could adversely affect our ability to achieve some or all of our business objectives.
In addition, state insurance regulators have broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, where there is uncertainty as to applicability, we follow practices based on our interpretations of regulations or practices that we believe generally to be followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend us from carrying on some or all of our activities or could otherwise penalize us. This could adversely affect our ability to operate our business. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.
The NAIC has adopted a system to test the adequacy of statutory capital of insurance companies, known as "risk-based capital." This system establishes the minimum amount of risk-based capital necessary for a company to support its overall business operations. It identifies P&C insurers that may be inadequately capitalized by looking at certain inherent risks of each insurer's assets and liabilities and its mix of net written premiums. Insurers falling below a calculated threshold may be subject to varying degrees of regulatory action, including supervision, rehabilitation or liquidation. Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business. See also "Regulation — Required licensing."
We may become subject to additional government or market regulation which may have a material adverse impact on our business.
Our business could be adversely affected by changes in state laws, including those relating to asset and reserve valuation requirements, surplus requirements, limitations on investments and dividends, enterprise risk and risk-based capital requirements and, at the federal level, by laws and regulations that may affect certain aspects of the insurance industry, including proposals for preemptive federal regulation. The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may affect the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) also established the Federal Insurance Office (the “FIO”) and vested the FIO with the authority to monitor all

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aspects of the insurance sector, including to monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products. In addition, the FIO has the ability to recommend to the Financial Stability Oversight Council the designation of an insurer as "systemically significant" and therefore subject to regulation by the Federal Reserve as a bank holding company. In December 2013, the FIO issued a report on alternatives to modernize and improve the system of insurance regulation in the United States (the “Modernization Report”), including increasing national uniformity through either a federal charter or effective action by the states. Any additional regulations established as a result of the Dodd-Frank Act or actions in response to the Modernization Report could increase our costs of compliance or lead to disciplinary action. In addition, legislation has been introduced from time to time that, if enacted, could result in the federal government assuming a more direct role in the regulation of the insurance industry, including federal licensing in addition to or in lieu of state licensing and requiring reinsurance for natural catastrophes. We are unable to predict whether any legislation will be enacted or any regulations will be adopted, or the effect any such developments could have on our business, financial condition or results of operations.
Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends and service our debt obligations depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary.
We intend to declare and pay dividends on shares of our common stock, in an amount and on such dates as may be determined by our Board of Directors and depending on a variety of factors. See "Dividend policy." Because we are a holding company with no business operations of our own, our ability to pay dividends to stockholders and meet our debt payment obligations is largely dependent on dividends and other distributions from our insurance subsidiary, Kinsale Insurance. State insurance laws, including the laws of Arkansas, restrict the ability of our insurance subsidiary to declare stockholder dividends. State insurance regulators require insurance companies to maintain specified levels of statutory capital and surplus. Consequently, the maximum dividend distribution is limited by Arkansas law to the greater of 10% of policyholder surplus as of December 31 of the previous year or net income, not including realized capital gains, for the previous calendar year. Dividend payments are further limited to that part of available policyholder surplus which is derived from net profits on our business. The maximum amount of dividends Kinsale Insurance could pay us during 2016 without regulatory approval is $21.9 million. State insurance regulators have broad powers to prevent the reduction of statutory surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted. Moreover, state insurance regulators that have jurisdiction over the payment of dividends by our insurance subsidiary may in the future adopt statutory provisions more restrictive than those currently in effect.
Our operating results have in the past varied from quarter to quarter and may not be indicative of our long-term prospects.
Our operating results are subject to fluctuation and have historically varied from quarter to quarter. We expect our quarterly results to continue to fluctuate in the future due to a number of factors, including the general economic conditions in the markets where we operate, the frequency of occurrence or severity of catastrophic or other insured events, fluctuating interest rates, claims exceeding our loss reserves, competition in our industry, deviations from expected renewal rates of our existing policies and contracts, adverse investment performance and the cost of reinsurance coverage.
In particular, we seek to underwrite products and make investments to achieve favorable returns on tangible stockholders' equity over the long term. In addition, our opportunistic nature and focus on long-term growth in tangible equity may result in fluctuations in total written premiums from period to period as we concentrate on underwriting contracts that we believe will generate better long-term, rather than short-term, results. Accordingly, our short-term results of operations may not be indicative of our long-term prospects.

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We could be forced to sell investments to meet our liquidity requirements.
We invest the premiums we receive from our insureds until they are needed to pay policyholder claims. Consequently, we seek to manage the duration of our investment portfolio based on the duration of our loss and loss adjustment expense reserves to ensure sufficient liquidity and avoid having to liquidate investments to fund claims. Risks such as inadequate loss and loss adjustment reserves or unfavorable trends in litigation could potentially result in the need to sell investments to fund these liabilities. We may not be able to sell our investments at favorable prices or at all. Sales could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities.
We may be unable to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us.
We use reinsurance to help manage our exposure to insurance risks. Reinsurance is a practice whereby one insurer, called the reinsurer, agrees to indemnify another insurer, called the ceding insurer, for all or part of the potential liability arising from one or more insurance policies issued by the ceding insurer. The availability and cost of reinsurance are subject to prevailing market conditions, both in terms of price and available capacity, which can affect our business volume and profitability. In addition, reinsurance programs are generally subject to renewal on an annual basis. We may not be able to obtain reinsurance on acceptable terms or from entities with satisfactory creditworthiness. If we are unable to obtain new reinsurance facilities or to renew expiring facilities, our net exposures would increase. In such event, if we are unwilling to bear an increase in our net exposure, we would have to reduce the level of our underwriting commitments, which would reduce our revenues.
Many reinsurance companies have begun to exclude certain coverages from, or alter terms in, the reinsurance contracts we enter into with them. Some exclusions are with respect to risks that we cannot exclude in policies we write due to business or regulatory constraints. In addition, reinsurers are imposing terms, such as lower per occurrence and aggregate limits, on direct insurers that do not wholly cover the risks written by these direct insurers. As a result, we, like other direct insurance companies, write insurance policies which to some extent do not have the benefit of reinsurance protection. These gaps in reinsurance protection expose us to greater risk and greater potential losses. For example, certain reinsurers have excluded coverage for terrorist acts or priced such coverage at unreasonably high rates. Many direct insurers, including us, have written policies without terrorist act exclusions and in many cases we cannot exclude terrorist acts because of regulatory constraints. We may, therefore, be exposed to potential losses as a result of terrorist acts. See also “Business — Reinsurance.”
We are subject to reinsurance counterparty credit risk.
Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, it does not relieve us (the ceding insurer) of our primary liability to our policyholders. Our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. For example, reinsurers may default in their financial obligations to us as the result of insolvency, lack of liquidity, operational failure, fraud, asserted defenses based on agreement wordings or the principle of utmost good faith, asserted deficiencies in the documentation of agreements or other reasons. Any disputes with reinsurers regarding coverage under reinsurance contracts could be time consuming, costly and uncertain of success. We evaluate each reinsurance claim based on the facts of the case, historical experience with the reinsurer on similar claims and existing case law and include any amounts deemed uncollectible from the reinsurer in our reserve for uncollectible reinsurance. As of December 31, 2015, we had $146.9 million of aggregate reinsurance balances on paid and unpaid losses, ceded unearned premiums and other reinsurance receivables. These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition.

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We may act based on inaccurate or incomplete information regarding the accounts we underwrite.
We rely on information provided by insureds or their representatives when underwriting insurance policies. While we may make inquiries to validate or supplement the information provided, we may make underwriting decisions based on incorrect or incomplete information. It is possible that we will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that we insure because of our reliance on inadequate or inaccurate information.
Our employees could take excessive risks, which could negatively affect our financial condition and business.
As an insurance enterprise, we are in the business of binding certain risks. The employees who conduct our business, including executive officers and other members of management, underwriters, product managers, and other employees, do so in part by making decisions and choices that involve exposing us to risk. These include decisions such as setting underwriting guidelines and standards, product design and pricing, determining which business opportunities to pursue and other decisions. We endeavor, in the design and implementation of our compensation programs and practices, to avoid giving our employees incentives to take excessive risks. Employees may, however, take such risks regardless of the structure of our compensation programs and practices. Similarly, although we employ controls and procedures designed to monitor employees’ business decisions and prevent them from taking excessive risks, these controls and procedures may not be effective. If our employees take excessive risks, the impact of those risks could have a material adverse effect on our financial condition and business operations.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that the funds generated by this offering are insufficient to fund future operating requirements and/or cover claim losses, we may need to raise additional funds through financings or curtail our growth. Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, and the availability of reinsurance, market disruptions and other unforeseeable developments. If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result. In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business. In any case, such securities may have rights, preferences and privileges that are senior to those of the shares of common stock offered hereby. If we cannot obtain adequate capital on favorable terms or at all, we may not have sufficient funds to implement our operating plans and our business, financial condition or results of operations could be materially adversely affected.
The failure of our information technology and telecommunications systems could adversely affect our business.
Our business is highly dependent upon our information technology and telecommunications systems, including our browser-based underwriting system. Among other things, we rely on these systems to interact with brokers and insureds, to underwrite business, to prepare policies and process premiums, to perform actuarial and other modeling functions, to process claims and make claims payments and to prepare internal and external financial statements and information. In addition, some of these systems may include or rely upon third-party systems not located on our premises or under our control. Events such as natural catastrophes, terrorist attacks, industrial accidents, or computer viruses may cause our systems to fail or be inaccessible for extended periods of time. While we have implemented business contingency plans and other reasonable plans to protect our systems, sustained or repeated system failures or service denials could severely limit our ability to write and process new and renewal business,

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provide customer service, pay claims in a timely manner or otherwise operate in the ordinary course of business.
Our operations depend on the reliable and secure processing, storage and transmission of confidential and other data and information in our computer systems and networks. Computer viruses, hackers, employee misconduct and other external hazards could expose our systems to security breaches, cyber-attacks or other disruptions. In addition, we routinely transmit and receive personal, confidential and proprietary data and information by electronic means and are subject to numerous data privacy laws and regulations enacted in the jurisdictions in which we do business.
We have implemented security measures designed to protect against breaches of security and other interference with our systems and networks. Despite these measures, our systems and networks may be subject to breaches or interference. Any such event may result in operational disruptions as well as unauthorized access to or the disclosure or loss of our proprietary information or our customers’ data and information, which in turn may result in legal claims, regulatory scrutiny and liability, reputational damage, the incurrence of costs to eliminate or mitigate further exposure, the loss of customers or affiliated advisors, reputational harm or other damage to our business. In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized. We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business.
Any failure to protect our intellectual property rights could impair our ability to protect our intellectual property, proprietary technology platform and brand, or we may be sued by third parties for alleged infringement of their proprietary rights.
Our success and ability to compete depend in part upon our intellectual property, which include our rights in our proprietary technology platform and our brand. We primarily rely on copyright, trade secret and trademark laws, and confidentiality or license agreements with our employees, customers, service providers, partners and others to protect our intellectual property rights. However, the steps we take to protect our intellectual property may be inadequate. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Additionally, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.
Our success depends also in part on our not infringing on the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry. In the future third parties may claim that we are infringing on their intellectual property rights, and we may be found to be infringing on such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our services, or require that we comply with other unfavorable terms. Even if we were to prevail in such a dispute, any litigation could be costly and time-consuming and divert the attention of our management and key personnel from our business operations.

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We employ third-party and open source licensed software for use in our business, and the inability to maintain these licenses, errors in the software we license or the terms of open source licenses could result in increased costs, or reduced service levels, which would adversely affect our business.
Our business relies on certain third-party software obtained under licenses from other companies. We anticipate that we will continue to rely on such third-party software in the future. Although we believe that there are commercially reasonable alternatives to the third-party software we currently license, this may not always be the case, or it may be difficult or costly to replace. In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all. Many of the risks associated with the use of third party software cannot be eliminated, and these risks could negatively affect our business.
Additionally, the software powering our technology systems incorporates software covered by open source licenses. The terms of many open source licenses have not been interpreted by U.S. courts and there is a risk that the licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to operate our systems. In the event that portions of our proprietary software are determined to be subject to an open source license, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our technology systems, each of which could reduce or eliminate the value of our technology system. Such risk could be difficult or impossible to eliminate and could adversely affect our business, financial condition and results of operations.
Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us.
Our business is exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as severe winter weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms and fires, and other events such as explosions, terrorist attacks and riots. The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable. The extent of losses from catastrophes is a function of the total amount of losses incurred, the number of insureds affected, the frequency and severity of the events, the effectiveness of our catastrophe risk management program and the adequacy of our reinsurance coverage. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. Severe weather conditions and catastrophes can cause losses in our property lines and generally result in both an increase in the number of claims incurred and an increase in the dollar amount of each claim asserted, which might require us to increase our reserves, causing our liquidity and financial condition to deteriorate. In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operation.
We may not be able to manage our growth effectively.
We intend to grow our business in the future, which could require additional capital, systems development and skilled personnel. However, we must be able to meet our capital needs, expand our systems and our internal controls effectively, allocate our human resources optimally, identify and hire qualified employees or effectively incorporate the components of any businesses we may acquire in our effort to achieve growth. The failure to manage our growth effectively could have a material adverse effect on our business, financial condition and results of operations.
Competition for business in our industry is intense.
We face competition from other specialty insurance companies, standard insurance companies and underwriting agencies, as well as from diversified financial services companies that are larger than we

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are and that have greater financial, marketing and other resources than we do. Some of these competitors also have longer experience and more market recognition than we do in certain lines of business. In addition, it may be difficult or prohibitively expensive for us to implement technology systems and processes that are competitive with the systems and processes of these larger companies.
In particular, competition in the insurance industry is based on many factors, including price of coverage, the general reputation and perceived financial strength of the company, relationships with brokers, terms and conditions of products offered, ratings assigned by independent rating agencies, speed of claims payment and reputation, and the experience and reputation of the members of our underwriting team in the particular lines of insurance and reinsurance we seek to underwrite. See “Business — Competition.” In recent years, the insurance industry has undergone increasing consolidation, which may further increase competition.
A number of new, proposed or potential legislative or industry developments could further increase competition in our industry. These developments include:
An increase in capital-raising by companies in our lines of business, which could result in new entrants to our markets and an excess of capital in the industry;
The deregulation of commercial insurance lines in certain states and the possibility of federal regulatory reform of the insurance industry, which could increase competition from standard carriers; and
Changing practices caused by the internet, including shifts in the way in which E&S insurance is purchased. We currently depend largely on the wholesale distribution model. If the wholesale distribution model were to be significantly altered by changes in the way E&S insurance were marketed, including, without limitation, through use of the Internet, it could have a material adverse effect on our premiums, underwriting results and profits.
We may not be able to continue to compete successfully in the insurance markets. Increased competition in these markets could result in a change in the supply and/or demand for insurance, affect our ability to price our products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition so limits our ability to transact business, our operating results could be adversely affected.
If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be adversely affected.
In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known. Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses and other underwriting costs and to earn a profit. If we do not accurately assess the risks that we assume, we may not charge adequate premiums to cover our losses and expenses, which would adversely affect our results of operations and our profitability. Alternatively, we could set our premiums too high, which could reduce our competitiveness and lead to lower revenues.
Pricing involves the acquisition and analysis of historical loss data and the projection of future trends, loss costs and expenses, and inflation trends, among other factors, for each of our products in multiple risk tiers and many different markets. In order to accurately price our policies, we must:
collect and properly analyze a substantial volume of data from our insureds;
develop, test and apply appropriate actuarial projections and ratings formulas;
closely monitor and timely recognize changes in trends; and

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project both frequency and severity of our insureds’ losses with reasonable accuracy.
We seek to implement our pricing accurately in accordance with our assumptions. Our ability to undertake these efforts successfully and, as a result, accurately price our policies, is subject to a number of risks and uncertainties, including:
insufficient or unreliable data;
incorrect or incomplete analysis of available data;
uncertainties generally inherent in estimates and assumptions;
our failure to implement appropriate actuarial projections and ratings formulas or other pricing methodologies;
regulatory constraints on rate increases;
our failure to accurately estimate investment yields and the duration of our liability for loss and loss adjustment expenses; and
unanticipated court decisions, legislation or regulatory action.
If actual renewals of our existing contracts do not meet expectations, our written premiums in future years and our future results of operations could be materially adversely affected.
Many of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts. The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price. If actual renewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our written premiums in future years and our future operations would be materially adversely affected.
We may change our underwriting guidelines or our strategy without stockholder approval.
Our management has the authority to change our underwriting guidelines or our strategy without notice to our stockholders and without stockholder approval. As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section titled "Business" or elsewhere in this prospectus.
The effects of litigation on our business are uncertain and could have an adverse effect on our business.
As is typical in our industry, we continually face risks associated with litigation of various types, including disputes relating to insurance claims under our policies as well as other general commercial and corporate litigation. Although we are not currently involved in any material litigation with our customers, other members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable. This litigation is based on a variety of issues, including insurance and claim settlement practices. We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business.
Changes in accounting practices and future pronouncements may materially affect our reported financial results.
Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, stockholders’ equity and other relevant financial statement line items.

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Our insurance subsidiary, Kinsale Insurance, is required to comply with statutory accounting principles (“SAP”). SAP and various components of SAP are subject to constant review by the NAIC and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. We cannot predict whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us.
Our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations and prospects.
We must accurately and timely evaluate and pay claims that are made under our policies. Many factors affect our ability to pay claims accurately and timely, including the training and experience of our claims representatives, our claims organization’s culture and the effectiveness of our management, our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors. Our failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially and adversely affect our business, financial condition, results of operations and prospects.
In addition, if we do not train new claims employees effectively or if we lose a significant number of experienced claims employees, our claims department’s ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work which, in turn, could lower our operating margins.
We rely on the use of credit scoring in pricing and underwriting certain of our insurance policies and any legal or regulatory requirements that restrict our ability to access credit score information could decrease the accuracy of our pricing and underwriting process and thus decrease our ability to be profitable.
We use credit scoring as a factor in pricing and underwriting decisions where allowed by state law. Consumer groups and regulators have questioned whether the use of credit scoring unfairly discriminates against some groups of people and are calling for laws and regulations to prohibit or restrict the use of credit scoring in underwriting and pricing. Laws or regulations that significantly curtail or regulate the use of credit scoring, if enacted in a large number of states in which we operate, could impact the integrity of our pricing and underwriting processes, which could, in turn, materially and adversely affect our business, financial condition, results of operations and prospects, and make it harder for us to be profitable over time.
Global climate change may have an adverse effect on our financial results.
Although uncertainty remains as to the nature and effect of future efforts to curb greenhouse gas (“GHG”) emissions and thereby mitigate their potential long-term effects on the climate, a broad spectrum of scientific evidence suggests that manmade production of GHG has had an adverse effect on the global climate. Our insurance policies are generally written for one year and repriced annually to reflect changing exposures. However, assessing the risk of loss and damage associated with the adverse effects of climate change and the range of approaches to address loss and damage associated with the adverse effects of climate change, including impacts related to extreme weather events and slow onset events, remains a challenge and might adversely impact our business, results of operations, and/or financial condition.

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Risks related to this offering and ownership of our common stock
There is no public market for our common stock and a market may never develop.
Before this offering, there has not been a public trading market for our common stock. We intend to apply to list our common stock on the under the symbol "KNSL." However, an active and liquid trading market for our common stock may not develop or be sustained after this offering. If an active and liquid trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. The initial public offering price for our common stock sold in this offering has been determined by negotiations between us and the representatives of the underwriters. This price may not be indicative of the price at which our common stock will trade after this offering. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your common stock at or above the price you paid in this offering, or at all.
Our stock price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our common stock could be subject to significant fluctuations after this offering in response to the factors described in this "Risk Factors" section and other factors, many of which are beyond our control. Among the factors that could affect our stock price are:
actual or anticipated variations in our quarterly and annual operating results or those of other companies in our industry;
changes in market valuations of companies perceived to be similar to us;
publication of research reports or news stories about us, our competitors or our industry, or positive or negative recommendations or withdrawal of research coverage by securities analysts;
the public’s response to our or our competitors’ filings with the SEC, press releases or other announcements regarding acquisitions, restructurings, litigation, regulation or other strategic actions and significant matters;
changes in our Board of Directors, senior management or other key personnel;
sales of our common stock, including by our directors, executive officers and principal stockholder;
short sales, hedging and other derivative transactions in our common stock;
any indebtedness we may incur or securities we may issue in the future;
actions by stockholders;
the occurrence of severe weather conditions and other catastrophes that affect or are perceived by investors as affecting us or our industry;
exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources;
changes in our credit ratings; and
the actual or anticipated passage of legislation or other regulatory developments affecting us or our industry.
The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general market, economic and political conditions, such as

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recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our common stock.
If any of the foregoing occurs, it could cause our stock price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.
If securities analysts do not publish research or reports about our business or our industry or if they issue unfavorable commentary or issue negative recommendations with respect to our common stock, the price of our common stock could decline.
The trading market for our common stock will be influenced by the research and reports that equity research and other securities analysts publish about us, our business and our industry. We do not have control over these analysts and we may be unable or slow to attract research coverage. One or more analysts could issue negative recommendations with respect to our common stock or publish other unfavorable commentary or cease publishing reports about us, our business or our industry. If one or more of these analysts cease coverage of us, we could lose visibility in the market. As a result of one or more of these factors, the market price of our common stock price could decline rapidly and our common stock trading volume could be adversely affected.
Provisions in our charter documents and Delaware law could discourage, delay or prevent a change in control of our company and may adversely affect the trading price of our common stock.
Provisions of our amended and restated certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider advantageous, including transactions in which you would otherwise receive a premium for your shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include those which:
authorize the issuance of “blank check” preferred stock, which our Board of Directors could issue to discourage a takeover attempt;
deny the ability of our stockholders to call special meetings of stockholders;
provide that certain litigation against us can only be brought in Delaware;
provide that the Board of Directors, without the assent or vote of our stockholders, is expressly authorized to make, alter or repeal our bylaws; and
establish advance notice requirements for nominations for election to the Board of Directors or for proposing matters that can be acted on at stockholder meetings.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
In addition, we will be subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. This provision of the Delaware General Corporation Law could delay or prevent a change of control of our company, which could adversely affect the price of our common stock.
Future sales, or the perception of future sales, of our common stock may depress the market price of our common stock.
Upon completion of this offering, we will have outstanding an aggregate of approximately          shares of our common stock (or         shares if the underwriters exercise their option to

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purchase additional shares in full). Of these shares,          shares to be sold in this offering, or          shares if the underwriters exercise their option to purchase additional shares in full, will be freely tradable without restriction or further registration under the Securities Act, unless such shares are held by our directors, executive officers or any of our affiliates, as that term is defined in Rule 144 under the Securities Act. All remaining shares of common stock outstanding following this offering will be “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We will grant registration rights to our principal stockholder and certain other stockholders with respect to shares of our common stock. Any shares registered pursuant to the registration rights agreement described in "Certain relationships and related party transactions" will be freely tradable in the public market following a 180-day lock-up period as described below. Sales of our common stock in the public market after this offering, or the perception that these sales could occur, could cause the market price of our common stock to decline and may make it more difficult for us to sell equity or equity-linked securities in the future at a time and at a price that we deem necessary or appropriate.
In connection with this offering, our directors, executive officers and substantially all of our other existing stockholders have each agreed to enter into “lock-up” agreements with the underwriters and thereby be subject to a lock-up period, meaning that they and their permitted transferees will not be permitted to sell any shares of our common stock for 180 days after the date of this prospectus, subject to certain exceptions without the prior consent of the representatives of the underwriters. Although we have been advised that there is no present intention to do so, the representatives may, in their sole discretion, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. See “Underwriting.” Possible sales of these shares in the market following the expiration of such agreements could exert significant downward pressure on our stock price.
We expect that upon the consummation of this offering, our Board of Directors and our stockholders will have approved the 2016 Incentive Plan which will permit us to issue, among other things, stock options, restricted stock units and restricted stock to eligible employees (including our named executive officers), directors and advisors, as determined by the compensation committee of the Board of Directors. We intend to file a registration statement under the Securities Act, as soon as practicable after the consummation of this offering, to cover the issuance of shares upon the exercise of awards granted, and of shares granted, under the 2016 Incentive Plan. As a result, any shares issued under the 2016 Incentive Plan after the consummation of this offering also will be freely tradable in the public market. If equity securities are granted under the 2016 Incentive Plan and it is perceived that they will be sold in the public market, then the price of our common stock could decline.
Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of shares of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding shares of our common stock.
The Moelis Funds will be able to exert significant influence over us and our corporate decisions.
For as long as the Moelis Funds continue to beneficially own shares of our common stock representing more than 50% of the voting power of our common stock, the Moelis Funds will be able to direct the election of all of the members of our Board of Directors and control the outcome of all other matters requiring stockholder approval, including amending our charter, regardless of whether others believe that their actions are in our best interests. The Moelis Funds may act in a manner that advances its best interests and not necessarily those of other stockholders, including investors in this offering, by, among other things:
delaying, preventing or deterring a change in control of us;
entrenching our management or our Board of Directors; or

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causing us to enter into transactions or agreements that are not in the best interests of all stockholders.
In connection with this offering, we will enter into a director nomination agreement that will grant the Moelis Funds the right to nominate individuals to our Board of Directors provided certain ownership requirements are met. See "Certain relationships and related party transactions — Director nomination agreement."
So long as the Moelis Funds continue to own a significant amount of our outstanding common stock, even if such amount is less than 50%, they will continue to be able to strongly influence our decisions. Such a concentration of ownership could deprive stockholders of an opportunity to receive a premium for their shares of our common stock as part of a sale of our company and may ultimately affect the market price of our common stock.
Our amended and restated certificate of incorporation will provide that the Moelis Funds have no obligation to offer us corporate opportunities.
The Moelis Funds and the members of our board of directors who are affiliated with the Moelis Funds, by the terms of our amended and restated certificate of incorporation to be in effect upon consummation of this offering, will not be required to offer us any corporate opportunity of which they become aware and could take any such opportunity for themselves or offer it to other companies in which they have an investment, unless such opportunity is expressly offered to them solely in their capacity as our directors. Kinsale, by the terms of our amended and restated certificate of incorporation, expressly renounces any interest in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we would reasonably be deemed to have pursued if given the opportunity to do so. Our amended and restated certificate of incorporation cannot be amended to eliminate our renunciation of any such corporate opportunity arising prior to the date of any such amendment. The Moelis Funds are in the business of making investments in portfolio companies and may from time to time acquire and hold interests in businesses that compete with us, and the Moelis Funds have no obligation to refrain from acquiring competing businesses. Any competition could intensify if an affiliate or subsidiary of the Moelis Funds were to enter into or acquire a business similar to ours. These potential conflicts of interest could have a material adverse effect on our business, financial condition, results of operations or prospects if attractive corporate opportunities are allocated by the Moelis Funds to itself, its portfolio companies or its other affiliates instead of to us.
Although we do not currently intend to rely on “controlled company” exemptions from certain corporate governance requirements under rules, if we use these exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.
For so long as the Moelis Funds control a majority of the voting power of our outstanding common stock, we will qualify as a “controlled company” within the meaning of the corporate governance standards of the . Under these rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:
the requirement that a majority of the board of directors consist of "independent directors" as defined under the rules;
the requirement that the listed company have independent directors or a committee of independent directors oversee decisions regarding executive compensation and director nominations.
Although we do not currently intend to take advantage of any of these exemptions following this offering, to the extent we still qualify as a "controlled company," we may choose to do so in the future. As a result, in the future, we may not have a majority of independent directors and we may not have

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independent director oversight of decisions regarding executive compensation and director nominations.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. After completion of this offering, we will be subject to the reporting requirements of the Exchange Act, which will require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business and financial condition and therefore we will need to have the ability to prepare financial statements that are compliant with all SEC reporting requirements on a timely basis. In addition, we will be subject to other reporting and corporate governance requirements, including certain requirements of and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.
The Sarbanes-Oxley Act and the Dodd-Frank Act, as well as new rules subsequently implemented by the SEC and        , have increased regulation of, and imposed enhanced disclosure and corporate governance requirements on, public companies. Our efforts to comply with these evolving laws, regulations and standards will increase our operating costs and divert management’s time and attention from revenue-generating activities.
These changes will also place significant additional demands on our finance and accounting staff and on our financial accounting and information systems. We may in the future hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors’ fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to:
prepare and file periodic reports and distribute other stockholder communications, in compliance with the federal securities laws and requirements of         ;
define and expand the roles and the duties of our Board of Directors and its committees;
institute more comprehensive compliance and investor relations functions; and
evaluate and maintain our system of internal control over financial reporting, and report on management’s assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board.
We may not be successful in implementing these requirements, and implementing them could materially adversely affect our business. The increased costs will decrease our net income or increase our consolidated net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, our board committees or as executive officers.
In addition, if we fail to implement the required controls with respect to our internal accounting and audit functions, our ability to report our results of operations on a timely and accurate basis could be impaired. If we do not implement the required controls in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or        . Any such action could harm our reputation and the confidence of investors in, and

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clients of, our company and could negatively affect our business and cause the price of our shares of common stock to decline.
You will incur immediate dilution as a result of this offering.
The initial public offering price is substantially higher than the net stockholders' tangible equity per share of our common stock based on the total value of our tangible assets less our total liabilities divided by our shares of common stock outstanding immediately following this offering. Therefore, if you purchase common stock in this offering, you will experience immediate and substantial dilution in net tangible stockholders' equity per share value after consummation of this offering. You may experience additional dilution upon future equity issuances. See “Dilution” for a more detailed description regarding dilution.
We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls. If we are unable to achieve and maintain effective internal controls, our operating results and financial condition could be harmed.
As a public company with SEC reporting obligations, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404(b) of the Sarbanes-Oxley Act, which will require annual assessments by management of the effectiveness of our internal control over financial reporting. We are an emerging growth company, and thus we are exempt from the auditor attestation requirement of Section 404(b) of Sarbanes-Oxley until such time as we no longer qualify as an emerging growth company. See also "—We are eligible to be treated as an 'emerging growth company,' as defined in the JOBS Act, and are availing ourselves of the reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors." Regardless of whether we qualify as an emerging growth company, we will still need to implement substantial internal control systems and procedures in order to satisfy the reporting requirements under the Exchange Act and applicable requirements, among other items.
During the course of our assessment, we may identify deficiencies that we are unable to remediate in a timely manner. Testing and maintaining our internal control over financial reporting may also divert management’s attention from other matters that are important to the operation of our business. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404(b) of Sarbanes-Oxley. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. Moreover, any material weaknesses or other deficiencies in our internal control over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information or our common stock listing on the          to be suspended or terminated, which could have a negative effect on the trading price of our common stock.
We are eligible to be treated as an “emerging growth company,” as defined in the JOBS Act, and are availing ourselves of the reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including (1) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (2) reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements and (3) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

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We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds from this offering, including for any of the purposes described in the section entitled "Use of proceeds," and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, their ultimate use may vary substantially from their currently intended use. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. The failure by our management to apply these funds effectively could harm our business. If we do not invest or apply the net proceeds from this offering in ways that enhance stockholder value, we may fail to achieve expected financial results, which could cause our stock price to decline.
Applicable insurance laws may make it difficult to effect a change of control.
Under applicable Arkansas insurance laws and regulations, no person may acquire control of a domestic insurer until written approval is obtained from the state insurance commissioner following a public hearing on the proposed acquisition. Such approval would be contingent upon the state insurance commissioner's consideration of a number of factors including, among others, the financial strength of the proposed acquiror, the acquiror’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. Arkansas insurance laws and regulations pertaining to changes of control apply to both the direct and indirect acquisition of ten percent or more of the voting stock of an Arkansas-domiciled insurer. Accordingly, the acquisition of ten percent or more of our common stock would be considered an indirect change of control of Kinsale Insurance and would trigger the applicable change of control filing requirements under Arkansas insurance laws and regulations, absent a disclaimer of control filing and its acceptance by the Arkansas Insurance Department. These requirements may discourage potential acquisition proposals and may delay, deter or prevent a change of control of Kinsale, including through transactions that some or all of the stockholders of Kinsale might consider to be desirable. See also "Regulation — Changes of control."

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Forward-looking statements
This prospectus contains forward-looking statements. These statements can be identified by the fact that they do not relate strictly to historical or current facts. You can identify forward-looking statements in this prospectus by the use of words such as “anticipates,” “estimates,” “expects,” “intends,” “plans” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could.” These forward-looking statements include, among others, statements relating to our future financial performance, our business prospects and strategy, anticipated financial position, liquidity and capital needs and other similar matters. These forward-looking statements are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict.
Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements included in this prospectus as a result of various factors, including, among others:
the possibility that incurred losses may be greater than our loss and loss adjustment expense reserves;
the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;
the potential loss of one or more key executives or an inability to attract and retain qualified personnel, adversely affecting our ability to implement our business strategies;
adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability;
a decline in our financial strength rating may adversely affect the amount of business we write;
reliance on a select group of brokers for a significant portion of our business and the impact of our potential failure to maintain such relationships;
existing or new regulations that may inhibit our ability to achieve our objectives or subject us to penalties or suspensions for non-compliance or cause us to incur substantial compliance costs;
a failure of any of the loss limitations or exclusions we employ;
exposure to credit risk and interest rate risk in our investment portfolio;
losses in our investment portfolio or forced sales of investments to meet our liquidity needs;
the cyclical nature of our business, resulting in periods during which we may experience excess underwriting capacity and unfavorable premium rates;
our ability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;
our underwriters and other associates could take excessive risks;
the potential impact of natural catastrophes, terrorist attacks, industrial accidents, computer viruses and other external hazards on our information technology and telecommunications systems;
our ability to manage our growth effectively;
competition within the P&C industry;
adverse outcome in a legal action that we are or may become subject to in the course of our insurance operations;

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failure to maintain effective internal controls in accordance with Sarbanes-Oxley;
the continued ownership of a significant amount of our outstanding common stock by the Moelis Funds and their resulting ability to strongly influence our decisions in a manner that could conflict with the interests of other stockholders;
changes in our financial condition, regulations or other factors that may restrict our ability to pay dividends; and
other risks and uncertainties discussed in “Risk factors” and elsewhere in this prospectus.
Accordingly, you should read this prospectus completely and with the understanding that our actual future results may be materially different from what we expect.
Forward-looking statements speak only as of the date of this prospectus. Except as expressly required under federal securities laws and the rules and regulations of the SEC, we do not have any obligation, and do not undertake, to update any forward-looking statements to reflect events or circumstances arising after the date of this prospectus, whether as a result of new information or future events or otherwise. You should not place undue reliance on the forward-looking statements included in this prospectus or that may be made elsewhere from time to time by us, or on our behalf. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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Use of proceeds
We estimate the net proceeds from this offering will be approximately $ million, based on an assumed initial public offering price of $ per share of common stock (the mid-point of the estimated range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and our estimated offering expenses of $ million. If the underwriters exercise their option to purchase additional shares in full, we estimate our net proceeds will be approximately $ million.
A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the net proceeds to us from this offering by approximately $     million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from our sale of shares of common stock in this offering to make contributions to the capital of our insurance subsidiary and for other general corporate purposes. We anticipate that we will contribute $ to $ million of the net proceeds to the capital of our insurance subsidiary in 2016.
This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering and our existing cash and cash equivalents.

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Dividend policy
We intend to declare and pay quarterly dividends on our common stock, which will be our only class of common stock outstanding immediately following this offering. The declaration, payment and amount of future dividends will be subject to the discretion of our Board of Directors. Our Board of Directors will give consideration to various risks and uncertainties, including those discussed under the headings “Risk factors” and “Management’s discussion and analysis of financial condition and results of operations” and elsewhere in this prospectus when determining whether to declare and pay dividends, as well as the amount thereof. Our Board of Directors may take into account a variety of factors when determining whether to declare any future dividends, including (1) our financial condition, liquidity, results of operations (including our ability to generate cash flow in excess of expenses and our expected or actual net income), retained earnings and collateral and capital requirements, (2) general business conditions, (3) legal, tax and regulatory limitations, (4) contractual prohibitions and other restrictions, (5) the effect of a dividend or dividends upon our financial strength ratings and (6) any other factors that our Board of Directors deem relevant.
Our status as a holding company and a legal entity separate and distinct from our subsidiaries affects our ability to pay dividends and make other payments. As a holding company without significant operations of our own, the principal sources of our funds are dividends and other payments from our subsidiaries. The ability of our insurance subsidiary to pay dividends to us is subject to limits under insurance laws of the state in which our insurance subsidiary is domiciled. Furthermore, dividends from our subsidiary are limited by minimum capital requirements in state regulations. See "Management's discussion and analysis of financial condition and results of operations — Liquidity and capital resources" and "Regulation."

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Capitalization
The following table summarizes our consolidated capitalization as of December 31, 2015:
on an actual basis;
on a pro forma basis to reflect the exchange of all of the outstanding shares of Class A Common Stock and Class B Common Stock into shares of our common stock immediately prior to the effectiveness of this offering, including shares representing accrued but unpaid dividends as of , 2016; and
on a pro forma basis to further give effect to the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the mid-point of the range set forth on the cover page of this prospectus), after the deduction of the estimated underwriting discounts and commissions and our estimated offering expenses.
Our capitalization following the closing of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at pricing. You should read this table in conjunction with the sections of this prospectus entitled "Selected consolidated financial and other data" and "Management's discussion and analysis of financial condition and results of operations" and our audited consolidated financial statements and accompanying notes included elsewhere in this prospectus.
 
 
As of December 31, 2015
 
 
Actual
 
Pro Forma
 
Pro Forma As Adjusted
 
 
(in thousands, except share and per share data)
 
 
 
 
 
 
 
Note payable
 
$
30,000

 
$
 
$
Stockholders' equity:
 
 
 
 
 
 
Class A common stock, $0.0001 par value per share, 15,000,000 shares authorized, 13,803,183 issued and outstanding; no shares outstanding – pro forma
 
1

 
 
 
 
Class B common stock, $0.0001 par value per share, 3,333,333 shares authorized, 1,513,592 issued and outstanding; no shares outstanding – pro forma
 

 
 
 
 
Common stock $ par value, no shares authorized, issued and outstanding; shares authorized, issued and outstanding - pro forma, as adjusted
 

 
 
 
 
Additional paid-in capital
 
80,229

 
 
 
 
Retained earnings
 
3,651

 
 
 
 
Accumulated other comprehensive income
 
29,570

 
 
 
 
Total stockholders' equity
 
113,451

 
 
 
 
Total capitalization
 
$
143,451

 
$
 
$
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, would increase (decrease) the pro forma as adjusted amount of each of cash and cash equivalents, additional paid-in-full capital, total stockholders' equity and total capitalizations by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. The table above does not include shares that may be issued pursuant to the underwriters' option to purchase additional shares.

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Dilution
If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible stockholders' equity per share of our common stock after this offering. Our historical net tangible stockholders' equity as of December 31, 2015 was $         million, or $         per share of common stock. Our historical net tangible stockholders' equity is the amount of our total tangible assets less our total liabilities. Our historical net tangible stockholders' equity per share is our net tangible book value divided by the number of shares of common stock outstanding as of December 31, 2015.
Our pro forma net tangible book value as of December 31, 2015 was $ million, or $ per share of common stock. Pro forma net tangible stockholders' equity represents total tangible assets less total liabilities. Pro forma net tangible stockholders' equity per share represents pro forma net tangible stockholders' equity divided by the total number of shares of common stock outstanding as of December 31, 2015.
Pro forma as adjusted net tangible stockholders' equity is our pro forma net tangible stockholders' equity, plus the effect of the sale by us of          shares of our common stock in this offering at an assumed initial public offering price of $         per share the mid-point of the range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, and after giving effect to the application of the net proceeds received from this offering as described under "Use of proceeds." Our pro forma as adjusted net tangible book value as of December 31, 2015 would have been $ million, or approximately $ per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing stockholders, and an immediate dilution of $         per share to new investors participating in this offering. We determine dilution per share to new investors by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors.
The following table illustrates the per share dilution:
Assumed initial public offering price per share
 
$
Pro forma net tangible stockholders' equity per share as of December 31, 2015
 
 
Increase per share attributable to new investors
 
 
Adjusted pro forma net tangible stockholders' equity per share after this offering
 
$

Dilution per share to new investors
 
$

A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, would increase (decrease) the pro forma as adjusted net tangible book value per share after this offering by approximately $                 , and dilution in pro forma net tangible book value per share to new investors by approximately $                 , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters exercise their option to purchase additional shares of our common stock in full in this offering, the pro forma as adjusted net tangible book value after the offering would be $      per share, the increase in pro

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forma net tangible book value per share to existing stockholders would be $                    and the dilution per share to new investors would be $                      per share, in each case assuming an initial public offering price of $        per share, the midpoint of the range listed on the cover page of this prospectus.
The following table summarizes, as of December 31, 2015, on a pro forma as adjusted basis as described above, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by investors purchasing shares of common stock in this offering. The calculation below is based on an assumed initial public offering price of $         per share, the mid-point of the range set forth on the cover of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
Shares Purchased
 
Total Consideration
 
Average Price
Per Share
 
 
Number
 
Percent
 
Amount
 
Percent
 
Existing stockholders
 
 
 
 
 
 
 
 
 
 
New investors
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
100
%
 
 
 
100
%
 
 
If the underwriters' option to purchase additional shares of our common stock is exercised in full, the number of shares held by new investors will increase to         , or         % of the total number of shares of common stock outstanding after this offering and the number of shares held by existing stockholders will decrease to , or % of the total number of shares of common stock outstanding after this offering.
To the extent that any options or other equity incentive grants are issued in the future with an exercise price or purchase price below the initial public offering price, new investors will experience further dilution.

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Selected consolidated financial and other data
The following tables present our selected consolidated financial and other data, at the dates and for the periods indicated. The selected consolidated financial and other data set forth below as of and for the years ended December 31, 2015, 2014 and 2013 have been derived from our audited consolidated financial statements, included elsewhere in this prospectus.
These historical results are not necessarily indicative of the results that may be expected for any future period. The following information is only a summary and should be read in conjunction with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.
 
 
Year Ended
 
 
December 31,
 
 
2015
 
2014
 
2013
 
 
(in thousands)
Revenues:
 
 
 
 
 
 
Gross written premiums
 
$
177,009

 
$
158,523

 
$
125,267

Ceded written premiums
 
(92,991
)
 
(97,012
)
 
(80,870
)
Net written premiums
 
$
84,018

 
$
61,511

 
$
44,397

 
 
 
 
 
 
 
Net earned premiums
 
$
74,322

 
$
58,996

 
$
45,122

Net investment income
 
5,643

 
4,070

 
3,344

Net investment gains
 
59

 
201

 
8

Other income
 
572

 
409

 
10

Total revenues
 
80,596

 
63,676

 
48,484

 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
Losses and loss adjustment expenses
 
42,238

 
41,108

 
28,890

Underwriting, acquisition and insurance expenses
 
2,809

 
1,451

 
6,894

Other expenses
 
1,992

 
1,644

 
597

Total expenses
 
47,039

 
44,203

 
36,381

Income before income taxes
 
33,557

 
19,473

 
12,103

 
 
 
 
 
 
 
Income tax expense (benefit)
 
11,284

 
6,500

 
(164
)
Net income
 
$
22,273

 
$
12,973

 
$
12,267

Underwriting income (1)
 
$
29,275

 
$
16,437

 
$
9,338



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At December 31,
 
 
2015
 
2014
 
 
(in thousands)
Balance sheet data:
 
 
 
 
Cash and invested assets
 
$
368,685

 
$
292,285

Premiums receivable, net
 
15,550

 
14,226

Reinsurance recoverables
 
95,670

 
70,348

Ceded unearned premiums
 
39,329

 
42,565

Intangible assets
 
3,538

 
3,538

Total assets
 
545,675

 
438,120

 
 
 
 
 
Reserves for unpaid losses and loss adjustment expenses
 
219,629

 
162,210

Unearned premiums
 
81,713

 
75,253

Funds held for reinsurers
 
87,206

 
63,932

Note payable
 
30,000

 
28,000

Total liabilities
 
432,224

 
345,534

Total stockholders' equity
 
113,451

 
92,586

 
 
 
 
 
Underwriting ratios:
 
 
 
 
Loss ratio (2)
 
56.8
%
 
69.7
%
Expense ratio (3)
 
3.8
%
 
2.4
%
Combined ratio (4)
 
60.6
%
 
72.1
%
 
 
 
 
 
Adjusted loss ratio (5)
 
51.5
%
 
59.4
%
Adjusted expense ratio (5)
 
26.0
%
 
24.7
%
Adjusted combined ratio (5)
 
77.5
%
 
84.1
%
 
 
 
 
 
Other data:
 
 
 
 
Return on equity (6)
 
21.6
%
 
15.3
%
Tangible stockholders' equity (7)
 
$
111,151

 
$
90,286

Debt to total capitalization ratio (8)
 
21.0
%
 
23.4
%
Statutory capital and surplus (9)
 
$
127,675

 
$
104,101

                                                   
 
 
 
 
(1)
Underwriting income is a non-GAAP financial measure. See "Management’s discussion and analysis of financial condition and results of operations — Reconciliation of non-GAAP financial measures" for a reconciliation of underwriting income to net income in accordance with GAAP.
(2)
The loss ratio is the ratio, expressed as a percentage, of losses and loss adjustment expenses to net earned premiums, net of the effects of reinsurance.
(3)
The expense ratio is the ratio, expressed as a percentage, of underwriting, acquisition and insurance expenses to net earned premiums.

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(4)
The combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
(5)
The adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are a non-GAAP financial measure. See "Management's discussion and analysis of financial condition and results of operations — Factors affecting our results of operations — The MLQS."
(6)
Return on equity represents net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.
(7)
Tangible stockholders’ equity is a non-GAAP financial measure. See "Management’s discussion and analysis of financial condition and results of operations — Liquidity and capital resources — Financial condition" for a reconciliation of tangible stockholders’ equity to stockholders’ equity.
(8)
The ratio, expressed as a percentage, of total indebtedness for borrowed money, including capitalized lease obligations, to the sum of total indebtedness for borrowed money, including capitalized lease obligations, and stockholders’ equity.
(9)
For our insurance subsidiary, the excess of assets over liabilities as determined in accordance with statutory accounting principles as determined by the NAIC.

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Management's discussion and analysis of financial condition and results of operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk factors" beginning on page 13 and elsewhere in this prospectus that could cause actual results to differ materially from those expressed in, or implied by, those forward-looking statements. See "Forward-looking statements."

Overview
Founded in 2009, we are an established and growing specialty insurance company. We focus exclusively on the E&S market in the U.S., where we can use our underwriting expertise to write coverages for hard-to-place small business risks. We market and sell these insurance products in all 50 states and the District of Columbia through a network of independent insurance brokers. We have an experienced and cohesive management team, who have an average of 20 years of experience in the E&S market. Many of our employees and members of our management team have also worked together for decades at other E&S insurance companies.
We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers P&C insurance products through the E&S market. In 2015, the percentage breakdown of our gross written premiums was 94.4% casualty and 5.6% property. Our commercial lines offerings include construction, small business, general casualty, energy, excess casualty, professional liability, life sciences, product liability, allied health, health care, commercial property, environmental, management liability and inland marine. We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2.2% of our gross written premiums in 2015.
Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns. We seek to accomplish this by generating consistent and attractive underwriting profits while managing our capital prudently. We have built a company that is entrepreneurial and highly efficient, using our proprietary technology platform and leveraging the expertise of our highly experienced employees in our daily operations. We believe our systems and technology are at the digital forefront of the insurance industry, allowing us to quickly collect and analyze data, thereby improving our ability to manage our business and reducing response times for our customers. We believe that we have differentiated ourselves from our competitors by effectively leveraging technology, vigilantly controlling expenses and maintaining control over our underwriting and claims management.
Factors affecting our results of operations
The MLQS
Historically, a significant amount of our business has been reinsured through our MLQS with third-party reinsurers. This agreement allows us to cede a portion of the risk related to certain of the insurance that we underwrite in exchange for a portion of our direct written premiums on that business, less a ceding commission. The MLQS is subject to annual renewal; however, we can adjust the amount of business we

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cede on a quarterly basis in accordance with the terms of the MLQS. We continually monitor the ceding percentage under the MLQS and adjust this percentage based on our projected direct written premiums.
We entered into the MLQS in the middle of 2012. Effective January 1, 2013, the MLQS had a ceding percentage of 45% and a provisional ceding commission rate of 35%. Effective January 1, 2014, we increased the ceding percentage under the MLQS from 45% to 50% and the provisional ceding commission rate from 35% to 40%. Effective January 1, 2015, the MLQS maintained a ceding percentage of 50% and the provisional ceding commission rate increased slightly to 41%.The ceding percentage remained at 50% until October 1, 2015, at which time we decreased the percentage to 40%, while the ceding commission rate remained at 41%. A lower ceding percentage generally results in higher net earned premiums and a reduction in ceding commissions in future periods. Effective January 1, 2016, we further reduced the ceding percentage from 40% to 15% while maintaining the provisional ceding commission rate at 41%. We may adjust the ceding percentage under the MLQS for future periods depending on future business conditions in our industry.
The impact of the MLQS on our results of operations is primarily reflected in our ceded written premiums, losses and loss adjustment expenses, as well as our underwriting, acquisition and insurance expenses. The following table summarizes the effect of the MLQS on our underwriting income for the years ended December 31, 2015, 2014 and 2013:
 
 
Year Ended December 31, 2015
 
Year Ended December 31, 2014
 
Year Ended December 31, 2013
($ in thousands)
 
Including
Quota Share
 
Effect of
Quota Share
 
Excluding Quota Share
 
Including
Quota Share
 
Effect of
Quota Share
 
Excluding Quota Share
 
Including
Quota Share
 
Effect of
Quota Share
 
Excluding Quota Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross written premiums
 
$
177,009

 
$

 
$
177,009

 
$
158,523

 
$

 
$
158,523

 
$
125,267

 
$

 
$
125,267

Ceded written premiums
 
(92,991
)
 
(63,991
)
 
(29,000
)
 
(97,012
)
 
(68,755
)
 
(28,257
)
 
(80,870
)
 
(58,241
)
 
(22,629
)
Net written premiums
 
$
84,018

 
$
(63,991
)
 
$
148,009

 
$
61,511

 
$
(68,755
)
 
$
130,266

 
$
44,397

 
$
(58,241
)
 
$
102,638

Net retention (1)
 
47.5
%
 
 
 
83.6
%
 
38.8
%
 
 
 
82.2
%
 
35.4
%
 
 
 
81.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net earned premiums
 
$
74,322

 
$
(67,950
)
 
$
142,272

 
$
58,996

 
$
(60,838
)
 
$
119,834

 
$
45,122

 
$
(38,310
)
 
$
83,432

Losses and loss adjustment expenses
 
(42,238
)
 
30,978

 
(73,216
)
 
(41,108
)
 
30,093

 
(71,201
)
 
(28,890
)
 
19,904

 
(48,794
)
Underwriting, acquisition and insurance expenses

 
(2,809
)
 
34,254

 
(37,063
)
 
(1,451
)
 
28,160

 
(29,611
)
 
(6,894
)
 
15,533

 
(22,427
)
Underwriting income (2)
 
$
29,275

 
$
(2,718
)
 
$
31,993

 
$
16,437

 
$
(2,585
)
 
$
19,022

 
$
9,338

 
$
(2,873
)
 
$
12,211

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss ratio
 
56.8
%
 
45.6
%
 

 
69.7
%
 
49.5
%
 

 
64.0
%
 
52.0
%
 

Expense ratio
 
3.8
%
 
50.4
%
 

 
2.4
%
 
46.3
%
 

 
15.3
%
 
40.5
%
 

Combined ratio
 
60.6
%
 
96.0
%
 

 
72.1
%
 
95.8
%
 

 
79.3
%
 
92.5
%
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted loss ratio (3)
 

 

 
51.5
%
 

 

 
59.4
%
 

 

 
58.5
%
Adjusted expense ratio (3)
 

 

 
26.0
%
 

 

 
24.7
%
 

 

 
26.9
%
Adjusted combined ratio (3)
 

 

 
77.5
%
 

 

 
84.1
%
 

 

 
85.4
%
(1) The ratio of net written premiums to gross written premiums.
(2) Underwriting income is a non-GAAP financial measure. See "— Reconciliation of non-GAAP financial measures" for a reconciliation of underwriting income to net income in accordance with GAAP.
(3) Our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures. We define our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio as each of

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our loss ratio, expense ratio and combined ratio, respectively, excluding the effects of the MLQS. We use these adjusted ratios as an internal performance measure in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance. Our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss ratio, expense ratio and combined ratio, respectively, which are presented in accordance with GAAP.
Our results of operations may be difficult to compare from year to year as we may make periodic adjustments to the amount of business we cede under the terms of the MLQS, may change the negotiated terms of the MLQS upon renewal, and may increase or decrease the ceding commission under the MLQS based on the loss experience of the business ceded. In light of the impact of the MLQS on our results of operations, we internally evaluate our financial performance both including and excluding the effect of the MLQS.
Components of our results of operations
Gross written premiums
Gross written premiums are the amount received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period are generally influenced by:
New business submissions;
Binding of new business submissions into policies;
Renewals of existing policies; and
Average size and premium rate of new and existing policies.
We earn insurance premiums on a pro rata basis over the term of a policy. Our insurance policies generally have a term of one year. Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements.
Ceded written premiums
Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses as well as to provide additional capacity for growth. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to increase or decrease retention levels. Since we reduced the ceding percentage under the MLQS from 40% to 15% effective January 1, 2016, we anticipate that our ceded written premiums will decline significantly relative to our gross written premiums in future periods.
Net investment income
Net investment income is an important component of our results of operations. We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of fixed maturity securities, but also include cash and cash equivalents, equity securities and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair market value, such as from changes in interest rates), the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims.

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Net investment gains
Net investment gains are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost, as well as any "other-than-temporary" impairments recognized in earnings.
Other income
Other income primarily consists of the commissions retained by our affiliate broker, Aspera.
Losses and loss adjustment expenses
Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage. In general, our losses and loss adjustment expenses are affected by:
Frequency of claims associated with the particular types of insurance contracts that we write;
Trends in the average size of losses incurred on a particular type of business;
Mix of business written by us;
Changes in the legal or regulatory environment related to the business we write;
Trends in legal defense costs;
Wage inflation; and
Inflation in medical costs.
Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Losses and loss adjustment expenses may be paid out over a period of years.
Underwriting, acquisition and insurance expenses
Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs that are directly related to the successful acquisition of those policies are deferred. The amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life. Other underwriting expenses represent the general and administrative expenses of our insurance business including employment costs, telecommunication and technology costs, the costs of our lease, and legal and auditing fees. As we have reduced the ceding percentage under the MLQS from 40% to 15% effective January 1, 2016, we expect to receive lower ceding commissions and therefore anticipate that our underwriting, acquisition and insurance expenses will increase significantly during 2016.
Other expenses
Other expenses are comprised principally of interest expense related to our credit facility and expenses relating to Aspera, our affiliate broker.
Income tax expense (benefit)
Currently all of our income tax expense relates to federal income taxes. Kinsale Insurance is generally not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes. The amount of income tax expense or benefit recorded in future periods will be dependent on the jurisdictions in which we operate and the tax laws and regulations in effect.

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Key metrics
We discuss certain key metrics, described below, which provide useful information about our business and the operational factors underlying our financial performance.
Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net investment gains and losses, and other income and expenses. See "— Reconciliation of non-GAAP financial measures" for a reconciliation of underwriting income to net income in accordance with GAAP.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to net earned premiums, net of the effects of reinsurance.
Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net earned premiums.
Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% generally indicates an underwriting profit. A combined ratio over 100% generally indicates an underwriting loss.
Adjusted loss ratio is a non-GAAP financial measure. We define adjusted loss ratio as the loss ratio, excluding the effects of the MLQS. For additional detail on the impact of the MLQS on our results of operations, see "— Factors affecting our results of operations—The MLQS."
Adjusted expense ratio is a non-GAAP financial measure. We define adjusted expense ratio as the expense ratio, excluding the effects of the MLQS. For additional detail on the impact of the MLQS on our results of operations, see "— Factors affecting our results of operations—The MLQS."
Adjusted combined ratio is a non-GAAP financial measure. We define adjusted combined ratio as the loss ratio, excluding the effects of the MLQS. For additional detail on the impact of the MLQS on our results of operations, see "— Factors affecting our results of operations—The MLQS."
Return on equity is our net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. Our overall financial goal is to produce a return on equity of at least 15% over the long-term.

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Results of operations
Year ended December 31, 2015 compared to year ended December 31, 2014
The following table summarizes our results of operations for the years ended December 31, 2015 and 2014:
 
 
Year Ended December 31,
($ in thousands)
 
2015
 
2014
 
Change
 
 
 
 
 
 
 
Gross written premiums
 
$
177,009

 
$
158,523

 
$
18,486

Ceded written premiums
 
(92,991
)
 
(97,012
)
 
4,021

Net written premiums
 
$
84,018

 
$
61,511

 
$
22,507

 
 
 
 
 
 
 
Net earned premiums
 
$
74,322

 
$
58,996

 
$
15,326

Losses and loss adjustment expenses
 
42,238

 
41,108

 
1,130

Underwriting, acquisition and insurance expenses

 
2,809

 
1,451

 
1,358

Underwriting income (1)
 
29,275

 
16,437

 
12,838

Other expenses, net
 
(1,420
)
 
(1,235
)
 
(185
)
Net investment income
 
5,643

 
4,070

 
1,573

Net investment gains
 
59

 
201

 
(142
)
Income before taxes
 
33,557

 
19,473

 
14,084

Income tax expense
 
11,284

 
6,500

 
4,784

Net income
 
$
22,273

 
$
12,973

 
$
9,300

 
 
 
 
 
 
 
Return on equity
 
21.6
%
 
15.3
%
 
 
 
 
 
 
 
 
 
Loss ratio
 
56.8
%
 
69.7
%
 
 
Expense ratio
 
3.8
%
 
2.4
%
 
 
Combined ratio
 
60.6
%
 
72.1
%
 
 
(1) Underwriting income is a non-GAAP financial measure. See "— Reconciliation of non-GAAP financial measures" for a reconciliation of underwriting income to net income in accordance with GAAP.
Our net income was $22.3 million for the year ended December 31, 2015 compared to $13.0 million for the year ended December 31, 2014, an increase of $9.3 million, or 71.7%. Our underwriting income increased by $12.8 million, or 78.1%, to $29.3 million for the year ended December 31, 2015 compared to $16.4 million for the year ended December 31, 2014. The increase in our underwriting income in the period was primarily the result of higher premium volume in 2015 combined with an improvement in the loss ratio to 56.8% for the year ended December 31, 2015, from 69.7% for the year ended December 31, 2014.
Effective January 1, 2014, we increased both the ceding percentage on the MLQS from 45% to 50%, which resulted in a net retention ratio of 38.8%, and the provisional ceding commission rate from 35% to 40%. Effective October 1, 2015, we decreased the ceding percentage on the MLQS to 40%,

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which resulted in a net retention ratio of 47.5%, while the ceding commission rate increased slightly to 41%. Excluding the effect of the MLQS, our net retention ratio was 83.6% for the year ended December 31, 2015 compared to 82.2% for the year ended December 31, 2014.
In addition, excluding the effect of the MLQS, our underwriting income was $32.0 million for the year ended December 31, 2015 compared to $19.0 million for the year ended December 31, 2014, an increase of $13.0 million, or 68.2%. The corresponding adjusted combined ratio was 77.5% for the year ended December 31, 2015 compared to 84.1% for the year ended December 31, 2014. The adjusted combined ratio reflected a 7.9 point decease in the adjusted loss ratio in 2015 offset in part by a slight increase in the adjusted expense ratio of 1.3 points.
Premiums
Our gross written premiums were $177.0 million for the year ended December 31, 2015 compared to $158.5 million for the year ended December 31, 2014, an increase of $18.5 million, or 11.7%. Premium growth in 2015 was due to an increase in the number of policies written, offset in part by a decrease in the average premium per policy. The average premium paid on a policy written by us in 2015 was $10,424 compared to $11,020 in 2014. The increase in gross written premiums was most notable in the following lines of business:

Small business, which represented approximately 12.1% of our gross written premiums in 2015, increased by $7.0 million (or 48.4%) for the year ended December 31, 2015 over the prior year;
Construction, which represented approximately 20.9% of our gross written premiums in 2015, increased by $5.2 million (or 16.6%) for the year ended December 31, 2015 over the prior year;
Energy, which represented approximately 10.7% of our gross written premiums in 2015, increased by $1.6 million (or 9.4%) for the year ended December 31, 2015 over the prior year; and
Life sciences, which represented approximately 6.7% of our gross written premiums in 2015, increased by $1.5 million (or 14.1%) for the year ended December 31, 2015 over the prior year.
Net written premiums increased by $22.5 million, or 36.6%, to $84.0 million for the year ended December 31, 2015 from $61.5 million for the year ended December 31, 2014. This increase in net written premiums was primarily due to the higher gross written premiums in 2015 and increased retention. Net retention was 47.5% for the year ended December 31, 2015 compared to 38.8% for the year ended December 31, 2014. Effective October 1, 2015, we decreased the ceding percentage on the MLQS from 50% to 40%, which increased the net retention relative to gross written premiums.
Net earned premiums increased by $15.3 million, or 26.0%, to $74.3 million for the year ended December 31, 2015 from $59.0 million for the year ended December 31, 2014 due to higher net written premiums in 2015 compared to 2014. Excluding the effect of the MLQS, net earned premiums increased by$22.4 million, or 18.7%, to $142.3 million for the year ended December 31, 2015 from $119.8 million for the year ended December 31, 2014.
Loss ratio
Our loss ratio was 56.8% for the year ended December 31, 2015 compared to 69.7% for the year ended December 31, 2014, or a decrease of 12.9 points. This decrease in the loss ratio for 2015 was

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due primarily to the favorable development of prior accident years, particularly on our general casualty line of business.
The following tables summarize the effect of the factors indicated above on the loss ratio for the years ended December 31, 2015 and 2014:
 
 
Year Ended December 31,
 
 
2015
 
2014
($ in thousands)
 
Losses and loss adjustment expenses

 
% of Earned Premiums
 
Losses and loss adjustment expenses

 
% of Earned Premiums
 
 
 
 
 
 
 
 
 
Loss ratio:
 
 
 
 
 
 
 
 
Current accident year
 
$
51,434

 
69.2
 %
 
$
42,620

 
72.2
 %
Effect of prior year development
 
(9,196
)
 
(12.4
)
 
(1,512
)
 
(2.5
)
 
 
$
42,238

 
56.8
 %
 
$
41,108

 
69.7
 %
 
 
Year Ended December 31,
 
 
2015
 
2014
($ in thousands)
 
Losses and loss adjustment expenses

 
% of Earned Premiums
 
Losses and loss adjustment expenses

 
% of Earned Premiums
 
 
 
 
 
 
 
 
 
Adjusted loss ratio:
 
 
 
 
 
 
 
 
Current accident year
 
$
88,229

 
62.0
 %
 
$
75,288

 
62.8
 %
Effect of prior year development
 
(15,013
)
 
(10.5
)
 
(4,087
)
 
(3.4
)
 
 
$
73,216

 
51.5
 %
 
$
71,201

 
59.4
 %
Expense ratio
Our expense ratio was 3.8% for the year ended December 31, 2015 compared to 2.4% for the year ended December 31, 2014. As a result of the MLQS, our expense ratio in these periods was unusually low from ceding commissions we received under the MLQS and certain other reinsurance contracts.

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The following table summarizes the effect of the factors indicated above on the expense ratio for the years ended December 31, 2015 and 2014:
 
 
Year Ended December 31,
 
 
2015
 
2014
($ in thousands)
 
Underwriting Expenses
 
% of Earned Premiums
 
Underwriting Expenses
 
% of Earned Premiums
 
 
 
 
 
 
 
 
 
Commissions incurred:
 
 
 
 
 
 
 
 
Direct
 
$
25,241

 
34.0
 %
 
$
21,617

 
36.6
 %
Ceding - MLQS
 
(34,254
)
 
(46.1
)%
 
(28,160
)
 
(47.7
)%
Ceding - other
 
(7,827
)
 
(10.5
)%
 
(6,529
)
 
(11.1
)%
Net commissions incurred
 
(16,840
)
 
(22.6
)%
 
(13,072
)
 
(22.2
)%
Other underwriting expenses
 
19,649

 
26.4
 %
 
14,523

 
24.6
 %
Underwriting, acquisition, and insurance expenses
 
$
2,809

 
3.8
 %
 
$
1,451

 
2.4
 %
The increase in the expense ratio of 1.4 points in 2015 was due primarily to higher other underwriting expenses for the year ended December 31, 2015 compared to December 31, 2014. Other underwriting expenses were $19.6 million for the year ended December 31, 2015 compared to $14.5 million for the year ended December 31, 2014, an increase of $5.1 million, or 35.3%. This increase was primarily due to higher compensation costs associated with an increase in our overall number of employees in 2015, as well as increased employee incentive compensation. Direct commissions as a percent of gross written premiums was 14.8% for each of the years ended December 31, 2015 and 2014.
Excluding the effect of the MLQS, the adjusted expense ratio was 26.0% for the year ended December 31, 2015 compared to 24.7% for the year ended December 31, 2014.
Combined ratio
Our combined ratio was 60.6% for the year ended December 31, 2015 compared to 72.1% for the year ended December 31, 2014. Excluding the effects of the MLQS, the adjusted combined ratio was 77.5% for the year ended December 31, 2015 compared to 84.1% for the year ended December 31, 2014.
Investing results
Our net investment income increased by 38.6% to $5.6 million for the year ended December 31, 2015 from $4.1 million for the year ended December 31, 2014, primarily due to the increase in our investment portfolio from additional premiums collected in 2015. We achieved this increase despite the unfavorable interest rate environment.

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The following table summarizes the components of net investment income and net investment gains for the years ended December 31, 2015 and 2014:
 
 
Year Ended December 31,
 
 
($ in thousands)
 
2015
 
2014
 
Change
 
 
 
 
 
 
 
Net investment income
 
$
5,643

 
$
4,070

 
$
1,573

 
 
 
 
 
 
 
Net capital gains
 
59

 
323

 
(264
)
Other-than temporary losses
 

 
(122
)
 
122

Net investment gains
 
59

 
201

 
(142
)
Total
 
$
5,702

 
$
4,271

 
$
1,431

The weighted average duration of our fixed income portfolio was 3.2 years at December 31, 2015 and December 31, 2014. Our fixed income portfolio had a book yield of 2.08% at December 31, 2015, compared to 1.99% at December 31, 2014.