Kinsale Capital Group, Inc. (NYSE: KNSL) reported net income of $103.4 million, $4.43 per diluted share, for the fourth quarter of 2023 compared to $67.2 million, $2.90 per diluted share, for the fourth quarter of 2022. Net income was $308.1 million, $13.22 per diluted share, for the year ended December 31, 2023 compared to $159.1 million, $6.88 per diluted share, for the year ended December 31, 2022. For both the fourth quarters of 2023 and 2022, the impact on net income related to catastrophes was negligible. For the years ended December 31, 2023 and 2022, net income included after-tax catastrophe losses of $3.6 million and $21.0 million, respectively.
Net operating earnings(1) were $90.3 million, $3.87 per diluted share, for the fourth quarter of 2023 compared to $60.3 million, $2.60 per diluted share, for the fourth quarter of 2022. Net operating earnings(1) were $291.4 million, $12.50 per diluted share, for the year ended December 31, 2023 compared to $180.4 million, $7.80 per diluted share, for the year ended December 31, 2022.
Highlights for the fourth quarter of 2023 included:
- Net income increased by 53.7% compared to the fourth quarter of 2022
- Net operating earnings(1) of $90.3 million increased by 49.6% compared to the fourth quarter of 2022
- Gross written premiums increased by 33.8% to $395.2 million compared to the fourth quarter of 2022
- Net investment income increased by 71.2% to $30.4 million compared to the fourth quarter of 2022
- Underwriting income(2) was $84.8 million in the fourth quarter of 2023, resulting in a combined ratio(5) of 72.1%
Highlights for the full year of 2023 included:
- Net income increased by 93.6% compared to the full year of 2022
- Net operating earnings(1) of $291.4 million increased by 61.6% compared to the full year of 2022
- Gross written premiums increased by 42.3% to $1.6 billion compared to the full year of 2022
- Net investment income increased by 99.6% to $102.3 million compared to the full year of 2022
- Underwriting income(2) was $270.4 million for the year ended December 31, 2023, resulting in a combined(5) ratio of 75.4%
- Operating return on equity(7) was 31.8% for the year ended December 31, 2023
“We generated record growth and profitability in 2023 by executing our business plan and capitalizing on favorable E&S market conditions. These results demonstrate our ability to deliver exceptional shareholder returns as we continue to focus on disciplined underwriting and technology-enabled expense management. We are confident that the execution of our differentiated strategy provides an enduring competitive advantage,” said Chief Executive Officer, Michael P. Kehoe.
Results of Operations
Underwriting Results
Gross written premiums were $395.2 million for the fourth quarter of 2023 compared to $295.5 million for the fourth quarter of 2022, an increase of 33.8%. Gross written premiums were $1.6 billion for the year ended December 31, 2023 compared to $1.1 billion for the year ended December 31, 2022, an increase of 42.3%. Growth in gross written premiums during the fourth quarter and year ended December 31, 2023 over the same periods last year reflected strong submission flow from brokers and a favorable pricing environment.
Underwriting income(2) was $84.8 million, resulting in a combined ratio of 72.1%, for the fourth quarter of 2023, compared to $59.5 million, and a combined ratio of 73.1% for the same period last year. The increase in underwriting income(2) for the fourth quarter of 2023 was due to a combination of premium growth, rate increases, favorable loss experience, lower net commissions and scale. Loss(3) and expense(4) ratios were 52.2% and 19.9%, respectively, for the fourth quarter of 2023 compared to 51.3% and 21.8% for the fourth quarter of 2022. Favorable development of reserves from prior accident years was $7.2 million, or 2.3 points, for the fourth quarter of 2023, and $7.0 million, or 3.2 points, for the fourth quarter of 2022.
Underwriting income(2) was $270.4 million, resulting in a combined ratio of 75.4%, for the year ended December 31, 2023, compared to $175.5 million, and a combined ratio of 78.5% for the prior year. The increase in underwriting income(2) for the year ended December 31, 2023 was due to a combination of premium growth, rate increases, favorable loss experience and lower net commissions. Loss(3) and expense(4) ratios were 54.6% and 20.8%, respectively, for the year ended December 31, 2023 compared to 56.3% and 22.2%, respectively, for the year ended December 31, 2022. The loss ratios included current accident year catastrophe losses of $4.6 million, or 0.4 points, for the year ended December 31, 2023 and $26.6 million, or 3.3 points, for the year ended December 31, 2022. Favorable development of reserves from prior accident years was $35.8 million, or 3.2 points, for the year ended December 31, 2023 and $35.9 million, or 4.4 points, for the year ended December 31, 2022.
Summary of Operating Results
The Company’s operating results for the three months and year ended December 31, 2023 and 2022 are summarized as follows:
| Three Months EndedDecember 31, | Year EndedDecember 31, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| ($ in thousands) | |||||||||||||||
| Gross written premiums | $ | 395,216 | $ | 295,467 | $ | 1,568,815 | $ | 1,102,092 | |||||||
| Ceded written premiums | (88,937 | ) | (53,397 | ) | (304,185 | ) | (165,282 | ) | |||||||
| Net written premiums | $ | 306,279 | $ | 242,070 | $ | 1,264,630 | $ | 936,810 | |||||||
| Net earned premiums | $ | 296,831 | $ | 216,140 | $ | 1,072,537 | $ | 794,119 | |||||||
| Fee income | 6,998 | 5,241 | 27,026 | 19,604 | |||||||||||
| Losses and loss adjustment expenses | 158,591 | 113,580 | 600,219 | 457,913 | |||||||||||
| Underwriting, acquisition and insurance expenses | 60,403 | 48,297 | 228,970 | 180,322 | |||||||||||
| Underwriting income(2) | $ | 84,835 | $ | 59,504 | $ | 270,374 | $ | 175,488 | |||||||
| Loss ratio(3) | 52.2 | % | 51.3 | % | 54.6 | % | 56.3 | % | |||||||
| Expense ratio(4) | 19.9 | % | 21.8 | % | 20.8 | % | 22.2 | % | |||||||
| Combined ratio(5) | 72.1 | % | 73.1 | % | 75.4 | % | 78.5 | % | |||||||
| Annualized return on equity(6) | 41.1 | % | 39.4 | % | 33.6 | % | 22.0 | % | |||||||
| Annualized operating return on equity(7) | 35.9 | % | 35.4 | % | 31.8 | % | 25.0 | % | |||||||
| (1) | Net operating earnings is a non-GAAP financial measure. See discussion of “Non-GAAP Financial Measures” below. | |
| (2) | Underwriting income is a non-GAAP financial measure. See discussion of “Non-GAAP Financial Measures” below. | |
| (3) | Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to the sum of net earned premiums and fee income. Prior periods have been revised to conform to the current period’s presentation. | |
| (4) | Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to the sum of net earned premiums and fee income. Prior periods have been revised to conform to the current period’s presentation. | |
| (5) | The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding. Prior periods have been revised to conform to the current period’s presentation. | |
| (6) | 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. | |
| (7) | 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. |
The following tables summarize losses incurred for the current accident year and the development of prior accident years for the three months and year ended December 31, 2023 and 2022:
| Three Months EndedDecember 31, 2023 | Three Months EndedDecember 31, 2022 | ||||||||||||
| Losses andLossAdjustmentExpenses | % of Sum ofEarnedPremiums andFee Income | Losses andLossAdjustmentExpenses | % of Sum ofEarnedPremiums andFee Income | ||||||||||
| Loss ratio: | ($ in thousands) | ||||||||||||
| Current accident year | $ | 165,351 | 54.4 | % | $ | 120,212 | 54.3 | % | |||||
| Current accident year – catastrophe losses | 407 | 0.1 | % | 405 | 0.2 | % | |||||||
| Effect of prior accident year development | (7,167 | ) | (2.3 | )% | (7,037 | ) | (3.2 | )% | |||||
| Total | $ | 158,591 | 52.2 | % | $ | 113,580 | 51.3 | % | |||||
| Year EndedDecember 31, 2023 | Year EndedDecember 31, 2022 | ||||||||||||
| Losses andLossAdjustmentExpenses | % of Sum ofEarnedPremiums andFee Income | Losses andLossAdjustmentExpenses | % of Sum ofEarnedPremiums andFee Income | ||||||||||
| Loss ratio: | ($ in thousands) | ||||||||||||
| Current accident year | $ | 631,407 | 57.4 | % | $ | 467,182 | 57.4 | % | |||||
| Current accident year – catastrophe losses | 4,586 | 0.4 | % | 26,618 | 3.3 | % | |||||||
| Effect of prior accident year development | (35,774 | ) | (3.2 | )% | (35,887 | ) | (4.4 | )% | |||||
| Total | $ | 600,219 | 54.6 | % | $ | 457,913 | 56.3 | % | |||||
Investment Results
Net investment income was $30.4 million in the fourth quarter of 2023 compared to $17.7 million in the fourth quarter of 2022, an increase of 71.2%. Net investment income was $102.3 million for the full year of 2023 compared to $51.3 million for the full year of 2022, and increase of 99.6%. These increases were driven by growth in the Company’s investment portfolio generated primarily from the investment of strong operating cash flows since December 31, 2022 and higher interest rates relative to the prior year periods. Net operating cash flows were $859.8 million for the full year of 2023 compared to $557.8 million for the full year of 2022, an increase of 54.1%. The Company’s investment portfolio, excluding cash and cash equivalents, had a gross investment return(8) of 4.0% for the year ended December 31, 2023 compared to 3.0% for the year ended December 31, 2022. Funds are generally invested conservatively in high quality securities, including government agency, asset- and mortgage-backed securities, and 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 2.8 years and 3.5 years at December 31, 2023 and 2022, respectively. Cash and invested assets totaled $3.1 billion at December 31, 2023 compared to $2.2 billion at December 31, 2022.
| (8) | Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), before any deductions for fees and expenses, expressed as a percentage of average beginning and ending book values of those investments during the period. |
Other
The effective tax rate for the year ended December 31, 2023 was 19.8%. The effective tax rate was lower than the federal statutory rate primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.
Stockholders’ equity was $1.1 billion at December 31, 2023, compared to $745.4 million at December 31, 2022. Book value per share was $46.88 at December 31, 2023 compared to $32.28 at December 31, 2022. Operating return on equity was 31.8% for the full year of 2023, an increase from 25.0% for the full year of 2022. This increase was primarily due to continued profitable growth from favorable E&S market conditions and rate increases.
Beginning in the second quarter of 2023, the Company reclassified policy fees to fee income and modified the definition of the loss and expense ratios to include fee income in the denominator of each ratio. Historically, these fees were presented as a reduction to underwriting, acquisition and insurance expenses. The Company has reclassified prior periods’ results to conform to the current period’s presentation.
