Kinsale Capital Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2020 Kinsale Capital Group, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and after the speaker's remarks, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone keypad. If you require operator assistance, please press star 0. Before we get started, let me... let me remind everyone that through the course of the teleconference, Kin Sales 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 2020 quarterly reports on Form 10Q and the 2019 report annual report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its fourth quarter results. Kinsale'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.kinsalecapitalgroup.com. I'll now turn the conference over to Kinsale's President and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Thank you, Operator. Good morning, everyone, and thank you for joining us on our call today. With me are Brian Petrucelli, Kinsale's CFO, and Brian Haney, Kinsale's COO. We will follow our usual format this morning. I'll handle an introduction, and then Brian Petrucelli will follow with a financial report, and then Brian Haney with an operating report, after which we'll take questions. Last night, Kinsale reported operating earnings of $1.14 per diluted share for the fourth quarter of 2020, up over 83% of the fourth quarter 2019. Gross written premiums were up almost 34% for the quarter. The company posted an 86.7% combined ratio and a 14.7% annualized operating return on equity for the full year of 2020, consistent with our guidance of a mid-80s combined ratio and mid-teens operating return, and notwithstanding the heightened CAT activity in the third quarter. Kinsale is performing at a high level due to its unique business model. To recap briefly... Kinsale controls its own underwriting in lieu of contracting it out to third parties. It focuses on the E&S market, and it operates with a significant technology-enabled expense advantage. The combination of disciplined underwriting with low costs is a winner every time. The ongoing dislocation within the broad P&C market and the E&S market specifically is is adding a tailwind to our efforts for the time being, allowing us to raise rates by double digits and grow the top line by 42% for the full year 2020. Once the market normalizes, perhaps sometime in the next year or so, Kinsale remains well positioned to continue to generate strong returns and to take market share. The only significant change we expect will be a slower growth rate, perhaps in the low double-digit range. For both the fourth quarter and for much of 2020, Kinsale saw a lower level of reported losses than we anticipated. We believe this slowdown in loss activity is largely due to the slowdown or the shutdown of courts around the country due to the pandemic. As we stated on our third quarter conference call, We continue to reserve as though this slowdown in losses is temporary and that there will be a catch-up period in the future. Should the slowdown in losses be at least in part permanent, we would expect a benefit in the future in the form of additional reserve redundancy. From an operational standpoint, 95% of our employees successfully moved back to our one office here in Richmond, Virginia early in the fourth quarter. For our business, this arrangement is superior to remote working. It allows us to maintain better communication, to onboard and train new employees, to maintain a high level of productivity, and to continue to provide superior customer service to our brokers around the country. In sum, we are positive about the results from the fourth quarter and are optimistic about our opportunity for 2021 and beyond. And I'll now turn the call over to Brian Petrucelli.

Thanks, Mike. The results for the fourth quarter were strong and driven by continued solid premium growth, favorable loss experience, and disciplined expense management. We reported net income of $38.2 million for the fourth quarter of 2020, representing an increase of almost 114% when compared to $17.9 million last year. and due primarily to approximately $10 million increase in underwriting income and $11.5 million increase in investment returns. Net operating earnings, which excludes the volatility from equity investment gains and losses, increased by 84% to $26 million, up from $14 million in the fourth quarter of 2019. The company generated underwriting income of $21.6 million and a combined ratio of 81.6% for the quarter, compared to $11.5 million and 86.1% last year. The combined ratio for the fourth quarter of 2020 included 3.1 points from net favorable prior year loss reserve development, compared to 1.3 points last year. Our effective income tax rate for the full year of 2020 was 11.9%, compared to 16.7% last year, and lower primarily to larger discrete tax benefits related to stock options exercised during the year. Annualized operating return on equity was 19% for the quarter and a little less than 15% for the year, and as Mike mentioned, in line with our mid-teens guidance. Gross written premiums were approximately $150 million for the quarter, representing a 34% increase over last year, due primarily to continued market dislocation and the superior service standards that Mike touched on previously. Brian Haney will cover some specifics relative to market conditions here in a bit. On the investment side, net investment income increased by 17% over the fourth quarter last year, up to $6.5 million from $5.5 million as a result of continued growth in the investment portfolios. Annualized gross investment returns excluded in cash and cash equivalents was 2.9% for the year compared to 3.1% in 2019. Diluted operating earnings per share was $1.14 per share for the quarter compared to $0.63 per share last year. And with that, I'll pass it over to Brian Haney. Thanks, Brian.