Kinsale Capital Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 Kinsdale Capital Group, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. Now, before we get started, let me remind everyone that through the course of the teleconference, Kinsdale's management may make comments that reflect their intentions, beliefs, and expectations for the future. As always, these forward-looking statements are subject to certain risk factors which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the first quarter 2020 quarterly report on Form 10Q and the 2019 annual report on Form 10K, which should be reviewed carefully. The company has furnished a Form 8K with the Securities and Exchange Commission that contains a press release announcing its first quarter results. Kinzale's management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website at www.KinzaleCapitalGroup.com. I will now turn the conference over to Kinsale's President and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Thank you very much, Operator, and good morning, and welcome to our call. We hope everyone participating on the call is staying well, and we want to especially commend all the Kinsale employees for their hard work and flexibility during this crisis in adapting so quickly to our remote work arrangement and in continuing to deliver best-in-class service to our brokers around the country. Their efforts in particular have helped to distinguish Kinsale and to drive the superior performance we reported last night. Joining me on today's call are Brian Petrucelli, Kinsale's CFO, and Brian Haney, Kinsale's COO. Last night, we reported a 19% increase in operating earnings per share compared to the first quarter of 2019, a 47 percent increase in written premium and a combined ratio of about 84 percent. Our annualized operating ROE was 17 percent for the first quarter. Brian Petrucelli will provide some additional detail and color on our financial performance here in a moment. Can sales strategy of focusing on the E&S market, controlling our underwriting and claim handling operations absolutely? and using technology to improve customer service and reduce costs served us well this quarter. When the virus hit and we needed to shift to a work from home model, we were able to do so quickly and with no loss in productivity or drop off in service levels. As of now, 90% of our employees are working remotely and our business is firing on all cylinders. There has been a considerable amount of commentary about the coronavirus and its impact on the P&C industry. This is an evolving topic and subject to some element of uncertainty. However, given what we know at this point, we do not believe the coronavirus will have a material impact on ConSale's profitability or growth. Specifically, ConSale does not write any of the following lines of business that may have a heightened exposure to virus-related losses, event cancellation, work comp, surety, trade credit, mortgage insurance, or reinsurance. Areas where we could be exposed to losses include commercial property, premises liability, management liability, and allied healthcare liability. I'll start with the commercial property. ConSale's property book focuses on industrial-type exposures in general. processing facilities, recyclers, warehouses, vacant properties, et cetera. We generally avoid occupancies like restaurants, gyms, theaters, et cetera, that may be more exposed to government shutdown orders. We believe the overwhelming majority of our policyholders are still operating during this crisis. All of our policies require direct physical damage to trigger coverage, all include virus exclusions, and all include an authorities exclusion, which specifically precludes coverage for claims arising from government shutdown orders. To date, we have received 17 commercial property claims. Eight of these involve policies that either do not have business income coverage at all or policies where the BI limit is below the attachment point of Kinsale's excess policy. So, in effect, You know, those policies, there's zero exposure to our coverage. The remaining nine policies could possibly present exposure to loss subject to a complete investigation, subject to the terms and conditions of the policy, and subject to a BI calculation that exceeds Kinsale's attachment point, as these are mostly excess policies. We have not received any claims to date in the management liability, premises liability, or the allied healthcare liability areas related to coronavirus. Again, we anticipate policy terms and conditions would preclude coverage for most claims. Specifically, the allied healthcare coverage excludes communicable disease on every policy. Our premises liability accounts, both primary and excess, exclude viruses, and our DNO book excludes bodily injury on every policy. Of course, upon receipt of any claim, we will conduct a thorough investigation and proceed appropriately given the coverage in place, the allegations, and the circumstances. Regarding the impact on growth, a few thoughts. Kinsale grew 41% last year and 47% in the first quarter, principally due to dislocation within the broader P&C industry. After a long period of intense industry competition, many companies, standard and nonstandard, are restructuring their books of business, running off underperforming lines, reducing capacity, raising prices, and canceling programs. As a disciplined underwriting company that didn't lose its way during the soft period of the insurance cycle, Kinsale is not canceling or running off anything. We're working very hard to grow the business and expand our margins. Any slowdown in the PNC industry, and specifically the ENS market, due to an economic contraction, we expect to be offset by the continuing market dislocation. We expect this dislocation to continue for the remainder of 2020, and perhaps even into 2021. It's possible the coronavirus even adds to this level of dislocation. Time will tell. I'll now turn the call over to Brian Petruccelli.

Thanks, Mike. And as Mike mentioned, we had another strong quarter and are encouraged by the premium growth and the profitability that we've been able to achieve, particularly given the impact of COVID-19 on overall economic conditions. Our goal is to consistently produce mid-80s combined ratios and mid-teens operating returns on equity. On our first quarter, 84% combined ratio and 17% annualized operating ROE are right in line with that guidance. The volatility in the financial markets towards the end of the quarter did have a negative impact on net income and comprehensive income. However, the markets have rebounded in April, and we've recovered approximately three-quarters of the unrealized investment losses that were incurred during the first quarter. We reported net income of $5.1 million for the first quarter of 2020, a decrease of 72.8 percent when compared to last year. And again, 2020 included $16 million or so in pre-tax unrealized losses on our equity investments. Net operating earnings increased by 24.5% up to $17.2 million compared to $13.8 million in the first quarter of last year. The company generated underwriting income of $14.4 million and a combined ratio of 83.9% compared to $12 million and 80.3% last year. Combined ratio for the first quarter of 2020 included 3.4 points from net favorable prior year loss reserve development compared to 10.4 points last year. As Mike mentioned, we've not received many claims directly related to COVID-19. However, we have experienced a slowdown in reported losses, which appears to be related to courts operating at limited capacity and other legal system inefficiencies related to COVID-19. We added some conservative some conservatism into our reserves and recorded approximately $5.4 million in additional IBNR in Q1 to account for any uncertainties related to COVID-19. Our effective income tax rate was a negative 1.1% for the quarter compared to 17.9% last year. The negative rate being driven by the discrete tax benefits recognized from the exercise of stock options during the quarter and the impact of unrealized losses related to our equity investments on quarterly taxable income. Gross written premiums were $124 million, representing a 47% increase over last year, for all the reasons that Mike previously mentioned, including continued market dislocation and sustained service levels. On the investment side, net investment income increased by 32% or so over last year, up to $6 million from $4.5 million last year. as a result of continued growth in the investment portfolio. Annual gross investment returns, excluding cash and cash equivalents, did decrease, however, to 2.9% from 3.2% last year, just given the lower interest rate environment here in the first quarter. Diluted earnings per share was 76 cents per share for the quarter compared to 64 cents per share last year. If you normalized our effective tax rate, the $0.76 would have been lowered by about $0.03 or so. With that, I'll pass it over to Brian Haney.