AP NEWS

Kinsale Capital Group, Inc. Reports 2018 Second Quarter Results

August 6, 2018

RICHMOND, Va., Aug. 06, 2018 (GLOBE NEWSWIRE) -- Kinsale Capital Group, Inc. (NASDAQ:KNSL) reported net income of $10.1 million, $0.47 per diluted share, for the second quarter of 2018 compared to $8.5 million, $0.40 per diluted share, for the second quarter of 2017. Net income was $17.4 million, $0.80 per diluted share, for the first half of 2018 compared to $14.8 million, $0.69 per diluted share, for the first half of 2017.

Net operating earnings(1) were $9.9 million, $0.46 per diluted share, for the second quarter of 2018 compared to $8.5 million, $0.40 per diluted share, for the second quarter of 2017. Net operating earnings(1) were $18.1 million, $0.83 per diluted share, for the first half of 2018 compared to $14.8 million, $0.69 per diluted share, for the first half of 2017.

Highlights for the second quarter and first half of 2018 included:

• Net income increased by 19.0% compared to the second quarter of 2017

• Net operating earnings(1) increased by 16.8% compared to the second quarter of 2017

• 21.2% growth in gross written premiums to $70.0 million compared to the second quarter of 2017

• 55.5% increase in net investment income to $3.8 million compared to the second quarter of 2017

• Underwriting income(1) of $8.4 million in the second quarter of 2018, resulting in a combined ratio of 83.5%

• 14.9% annualized operating return on equity(1) for the six months ended June 30, 2018

(1) See discussion of “Non-GAAP Financial Measures” below.

“We are encouraged by the 21.2% growth in premiums in the second quarter and are cautiously optimistic that top-line growth will remain strong during the latter half of the year. We achieved an annualized operating return on equity of 14.9% for the first half of 2018, and a combined ratio of 83.5% and underwriting income of $8.4 million for the quarter. We believe these results are a testament to our disciplined underwriting and claims handling, our technology and our low cost model,” said President and Chief Executive Officer, Michael P. Kehoe.

Results of Operations

Underwriting Results

Gross written premiums were $70.0 million for the three months ended June 30, 2018 compared to $57.8 million for the three months ended June 30, 2017, an increase of 21.2%. Gross written premiums were $133.8 million for the six months ended June 30, 2018 compared to $110.6 million for the six months ended June 30, 2017, an increase of 21.0%. The increase in gross written premiums during the second quarter and the first half of 2018 over the same periods last year was due to growth across most lines of business.

Underwriting income(2) was $8.4 million resulting in a combined ratio of 83.5% for the three months ended June 30, 2018, compared to $10.7 million resulting in a combined ratio of 75.2% for same period last year. The decrease in underwriting income (2) in the second quarter of 2018 compared to the second quarter of 2017 was principally due to both lower net favorable prior accident year loss reserve development and a higher current accident year loss ratio, offset in part by higher net earned premiums. Net favorable development of loss reserves on prior accident years was $2.2 million in the second quarter of 2018, compared to $3.8 million in the second quarter of 2017. Loss and expense ratios were 58.9% and 24.6%, respectively, for the three months ended June 30, 2018 compared to 50.8% and 24.4% for the three months ended June 30, 2017.

Underwriting income(2) was $15.2 million for the six months ended June 30, 2018, resulting in a combined ratio of 84.7% compared to $17.7 million resulting in a combined ratio of 78.8% for same period last year. Loss and expense ratios were 59.5% and 25.2%, respectively, for the six months ended June 30, 2018 compared to 52.7% and 26.1%, respectively, for the six months ended June 30, 2017. The decrease in underwriting income(2) was principally the result of lower net favorable prior accident year loss reserve development during the first half of 2018 compared to the first half of 2017, offset in part by higher net earned premiums.

Summary of Underwriting Results

The Company’s underwriting results for the three and six months ended June 30, 2018 and 2017 are summarized as follows:

Three Months Ended Six Months Ended June June 30, 30, 2018 2017 2018 2017 ---------- ---------- ----------- ----------- ($ in thousands) Gross written premiums $ 69,981 $ 57,753 $ 133,828 $ 110,615 Ceded written premiums (9,090 ) (7,980 ) (17,846 ) (16,680 ) -------- - -------- - --------- - --------- - Net written premiums $ 60,891 $ 49,773 $ 115,982 $ 93,935 - ------ - - ------ - - ------- - - ------- - Net earned premiums $ 50,893 $ 43,052 $ 98,954 $ 83,485 Losses and loss adjustment expenses 29,967 21,859 58,866 43,966 Underwriting, acquisition and insurance expenses 12,519 10,492 24,917 21,786 -------- - -------- - --------- - --------- - Underwriting income (2) $ 8,407 $ 10,701 $ 15,171 $ 17,733 - ------ - - ------ - - ------- - - ------- - Loss ratio 58.9 % 50.8 % 59.5 % 52.7 % Expense ratio 24.6 % 24.4 % 25.2 % 26.1 % Combined ratio 83.5 % 75.2 % 84.7 % 78.8 % Annualized return on equity (3) 16.6 % 15.4 % 14.3 % 13.5 % Annualized operating return on equity (4) 16.2 % 15.3 % 14.9 % 13.5 %

(2) Underwriting income is a non-GAAP financial measure. See discussion of “Non-GAAP Financial Measures” below.

(3) Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

(4) Annualized operating return on equity is net operating earnings, a non-GAAP financial measure, expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period. See discussion of “Non-GAAP Financial Measures” below.

The following tables summarize losses incurred for the current accident year and the development of prior accident years for the three and six months ended June 30, 2018 and 2017:

Three Months Ended Three Months Ended June 30, 2018 June 30, 2017 Losses and Losses and % of % of Loss Earned Loss Earned Adjustment Premiums Adjustment Premiums Expenses Expenses ---------- ------- ---------- ------- Loss ratio: ($ in thousands) Current accident year $ 32,050 63.0 % $ 25,651 59.6 % Current accident year - catastrophe losses 156 0.3 % 40 0.1 % Effect of prior accident year development (2,239 ) (4.4 )% (3,832 ) (8.9 )% -------- - ---- -- -------- - ---- -- Total $ 29,967 58.9 % $ 21,859 50.8 % - ------ - ---- -- - ------ - ---- --

Six Months Ended Six Months Ended June 30, 2018 June 30, 2017 Losses and Losses and % of % of Loss Earned Loss Earned Adjustment Premiums Adjustment Premiums Expenses Expenses ---------- ------- ---------- -------- Loss ratio: ($ in thousands) Current accident year $ 62,233 62.9 % $ 52,788 63.3 % Current accident year - catastrophe losses 156 0.2 % 114 0.1 % Effect of prior accident year development (3,523 ) (3.6 )% (8,936 ) (10.7 )% -------- - ---- -- -------- - ----- -- Total $ 58,866 59.5 % $ 43,966 52.7 % - ------ - ---- -- - ------ - ----- --

Investment Results

The Company’s net investment income was $3.8 million in the second quarter of 2018 compared to $2.4 million in the second quarter of 2017, an increase of 55.5%. Net investment income was $7.0 million in the first half of 2018 compared to $4.7 million in the first half of 2017. The Company’s investment portfolio, excluding cash and cash equivalents, had an annualized gross investment return of 2.9% for the six months ended June 30, 2018 compared to 2.3% for the six months ended June 30, 2017. Funds are generally invested conservatively in high quality securities, including government agency, asset and mortgage-backed securities, municipal and corporate bonds with an average credit quality of “AA.” The weighted average duration of the fixed-maturity investment portfolio, including cash equivalents, was 4.0 years at June 30, 2018 and 3.9 years at December 31, 2017. Cash and invested assets totaled $605.8 million at June 30, 2018 compared to $561.1 million at December 31, 2017.

Effective January 1, 2018, the Company adopted a new accounting standard, which prescribed several changes, including eliminating the available-for-sale classification of equity investments and requiring changes in unrealized gains and losses in the fair value of equity investments to be recognized in net income. For the first half of 2018, the Company recognized $0.9 million of unrealized losses, net of taxes, related to its equity portfolio in the consolidated statement of income.

Other

The effective tax rates for the six months ended June 30, 2018 and 2017 were 18.2% and 33.0%, respectively. The decrease in the effective tax rate for the six months ended June 30, 2018 compared to the prior-year period was attributable to the effect of the Tax Cuts and Jobs Act of 2017, which lowered the federal corporate tax rate from 35% to 21%, and the recognition of tax benefits from stock options exercised during the first half of 2018.

Total comprehensive income, which includes the change in after-tax unrealized gains and losses from the Company’s available-for-sale securities, was $9.1 million for the second quarter of 2018 compared to $10.7 million for the same period in 2017. Total comprehensive income was $11.5 million for the first half of 2018 compared to $18.0 million for the first half of 2017. The decline in total comprehensive income was principally due to an increase in unrealized losses during the second quarter and first half of 2018 related to lower fair values of Company’s fixed-maturity investments, which was mostly attributable to a higher interest rate environment.

Stockholders’ equity was $247.9 million at June 30, 2018, compared to $238.2 million at December 31, 2017. Annualized return on equity was 14.3% for the first six months of 2018, an increase from 13.5% for the first six months of 2017. The increase was principally due to the lower income tax rate resulting from the Tax Cuts and Jobs Act of 2017 and higher overall returns on the investment portfolio.

Non-GAAP Financial Measures

Net Operating Earnings

Net operating earnings excludes the impact of realized investment gains and losses and unrealized gains and losses on equity securities. Management believes the exclusion of these items provides a more useful comparison of the Company’s underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.

For the three and six months ended June 30, 2018 and 2017, net income and diluted earnings per share reconcile to net operating earnings and diluted operating earnings per share as follows:

Three Months Ended Six Months Ended June 30, June 30, 2018 2017 2018 2017 ----------- ----------- ----------- ----------- ($ in thousands) Net operating earnings: Net income $ 10,112 $ 8,495 $ 17,399 $ 14,776 Net unrealized (gains) losses on equity securities, after (74 ) — 936 — taxes Net realized (gains) losses on investments, after taxes (137 ) (16 ) (226 ) 5 --------- - --------- - --------- - --------- - Net operating earnings $ 9,901 $ 8,479 $ 18,109 $ 14,781 - ------- - - ------- - - ------- - - ------- - Diluted operating earnings per share: Diluted earnings per share $ 0.47 $ 0.40 $ 0.80 $ 0.69 Net unrealized losses on equity securities, after taxes, — — 0.04 — per share Net realized (gains) losses on investments, after taxes, (0.01 ) — (0.01 ) — per share --------- - --------- - --------- - --------- - Diluted operating earnings per share $ 0.46 $ 0.40 $ 0.83 $ 0.69 - ------- - - ------- - - ------- - - ------- - Operating return on equity: Average equity (1) $ 243,898 $ 221,258 $ 243,067 $ 218,130 Annualized return on equity (2) 16.6 % 15.4 % 14.3 % 13.5 % Annualized operating return on equity (3) 16.2 % 15.3 % 14.9 % 13.5 %

(1) Computed by adding the total equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two.

(2) Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

(3) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Underwriting Income

Underwriting income is a non-GAAP financial measure that is useful in evaluating the Company’s underwriting performance without regard to investment income. Underwriting income represents the pre-tax profitability of the Company’s insurance operations and is derived by subtracting losses and loss adjustment expenses and underwriting, acquisition and insurance expenses from net earned premiums. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company’s financial information useful insight into the Company’s results of operations and underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.

For the three and six months ended June 30, 2018 and 2017, net income reconciles to underwriting income as follows:

Three Months Ended Six Months Ended June June 30, 30, 2018 2017 2018 2017 ---------- ---------- ---------- ---------- (in thousands) Net income $ 10,112 $ 8,495 $ 17,399 $ 14,776 Income tax expense 2,349 4,260 3,877 7,265 -------- - -------- - -------- - -------- - Income before income taxes 12,461 12,755 21,276 22,041 Other expenses — 402 14 402 Net investment income (3,782 ) (2,432 ) (7,011 ) (4,718 ) Net unrealized (gains) losses on equity securities (94 ) — 1,185 — Net realized (gains) losses on investments (174 ) (24 ) (286 ) 8 Other income (4 ) — (7 ) — -------- - -------- - -------- - -------- - Underwriting income $ 8,407 $ 10,701 $ 15,171 $ 17,733 - ------ - - ------ - - ------ - - ------ -

Conference Call

Kinsale Capital Group will hold a conference call to discuss this press release on Tuesday, August 7, 2018, at 9:00 a.m. (Eastern Time). Members of the public may access the conference call by dialing (844) 239-5282, conference ID# 9999625, or via the Internet by going to www.kinsalecapitalgroup.com and clicking on the “Investor Relations” link. A replay of the call will be available on the website until the close of business on October 5, 2018.

Forward-Looking Statements

This press release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In some cases, such forward-looking statements may be identified by terms such as “believe,” “expect,” “seek,” “may,” “will,” “intend,” “project,” “plan,” “estimate” or similar words. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Although it is not possible to identify all of these risks and factors, they include, among others, the following: inadequate loss reserves to cover the Company’s actual losses; adverse economic factors; inherent uncertainty of models resulting in actual losses that are materially different than the Company’s estimates; a decline in the Company’s financial strength rating; loss of one or more key executives; loss of a group of brokers that generate significant portions of the Company’s business; failure of any of the loss limitations or exclusions the Company employs, or change in other claims or coverage issues; adverse performance of the Company’s investment portfolio; adverse market conditions that affect its excess and surplus lines insurance operations; and other risks described in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements speak only as of the date of this release and the Company does not undertake any obligation to update or revise any forward-looking information to reflect changes in assumptions, the occurrence of unanticipated events, or otherwise.

About Kinsale Capital Group, Inc.

Kinsale Capital Group, Inc. is a specialty insurance group headquartered in Richmond, Virginia, focusing on the excess and surplus lines market.

Contact

Kinsale Capital Group, Inc.Bryan PetrucelliSenior Vice President, Chief Financial Officer and Treasurer804-289-1272 ir@kinsalecapitalgroup.com

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Unaudited Consolidated Statements of Income and Comprehensive Income Three Months Ended Six Months Ended June June 30, 30, 2018 2017 2018 2017 ---------- ---------- ----------- ----------- (in thousands, except per share data) Revenues Gross written premiums $ 69,981 $ 57,753 $ 133,828 $ 110,615 Ceded written premiums (9,090 ) (7,980 ) (17,846 ) (16,680 ) -------- - -------- - --------- - --------- - Net written premiums 60,891 49,773 115,982 93,935 Change in unearned premiums (9,998 ) (6,721 ) (17,028 ) (10,450 ) -------- - -------- - --------- - --------- - Net earned premiums 50,893 43,052 98,954 83,485 Net investment income 3,782 2,432 7,011 4,718 Net unrealized gains (losses) on equity securities 94 — (1,185 ) — Net realized gains (losses) on investments 174 24 286 (8 ) Other income 4 — 7 — -------- - -------- - --------- - --------- - Total revenues 54,947 45,508 105,073 88,195 -------- - -------- - --------- - --------- - Expenses Losses and loss adjustment expenses 29,967 21,859 58,866 43,966 Underwriting, acquisition and insurance expenses 12,519 10,492 24,917 21,786 Other expenses — 402 14 402 -------- - -------- - --------- - --------- - Total expenses 42,486 32,753 83,797 66,154 -------- - -------- - --------- - --------- - Income before income taxes 12,461 12,755 21,276 22,041 Total income tax expense 2,349 4,260 3,877 7,265 -------- - -------- - --------- - --------- - Net income 10,112 8,495 17,399 14,776 Other comprehensive income Change in unrealized (losses) gains on available-for-sale (1,016 ) 2,174 (5,872 ) 3,247 securities, net of taxes -------- - -------- - --------- - --------- - Total comprehensive income $ 9,096 $ 10,669 $ 11,527 $ 18,023 - ------ - - ------ - - ------- - - ------- - Earnings per share - basic $ 0.48 $ 0.41 $ 0.83 $ 0.70 Earnings per share - diluted $ 0.47 $ 0.40 $ 0.80 $ 0.69 Weighted-average shares outstanding - basic 21,070 20,969 21,058 20,969 Weighted-average shares outstanding - diluted 21,666 21,457 21,648 21,425

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets June 30, 2018 December 31, 2017 ------------- ----------------- Assets (in thousands) Investments: Fixed-maturity securities at fair value $ 467,922 $ 425,191 Equity securities at fair value 58,219 54,132 --------- --- --------- ------- Total investments 526,141 479,323 Cash and cash equivalents 79,670 81,747 Investment income due and accrued 3,343 3,077 Premiums receivable, net 24,023 19,787 Reinsurance recoverable 54,436 49,593 Ceded unearned premiums 14,463 13,858 Deferred policy acquisition costs, net of ceding commissions 14,123 11,775 Intangible assets 3,538 3,538 Deferred income tax asset, net 5,073 2,492 Other assets 4,093 2,659 --------- --- --------- ------- Total assets $ 728,903 $ 667,849 - ------- --- - ------- ------- Liabilities & Stockholders’ Equity Liabilities: Reserves for unpaid losses and loss adjustment expenses $ 344,565 $ 315,717 Unearned premiums 120,742 103,110 Payable to reinsurers 3,711 3,226 Accounts payable and accrued expenses 4,230 6,519 Other 7,710 1,088 --------- --- --------- ------- Total liabilities 480,958 429,660 Stockholders’ equity 247,945 238,189 --------- --- --------- ------- Total liabilities and stockholders’ equity $ 728,903 $ 667,849 - ------- --- - ------- -------

AP RADIO
Update hourly