Kinsale Capital Group, Inc.

Good morning, ladies and gentlemen, and welcome to the first quarter 2021 Kinsale Capital Group, Inc. earnings conference call. At this time, all the participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star, then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. Before we get started, Let me remind everyone that through the course of the teleconference, Kinsale'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 2020 Annual Report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8K with the Securities and Exchange Commission that contains the press release announcing its first 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 will now turn the conference over to Kinsale's President and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Thank you, Operator, and good morning, everyone, and thank you for joining us on the call today. Brian Petrucelli, Kinsale's Chief Financial Officer, and Brian Haney, Kinsale's Chief Operating Officer, are on the call with me. Each of us will make a few comments in turn, after which we will take any questions. Last night, Kinsale reported operating earnings of $1.11 per diluted share for the first quarter of 2021. an increase of over 48% from the first quarter of 2020. Gross written premium was up over 36% for the quarter. The company posted an 80% combined ratio and a 17.6% annualized operating return on equity for the quarter, well ahead of our guidance of a mid-80s combined ratio and a mid-teens operating return on equity. A quick recap of the Kinsale strategy is appropriate given that it is the principal driver of our results. We focus on small to medium-sized accounts in the E&S market. We control our own underwriting, unlike almost all of our competitors, which at least in part contract out underwriting to outside parties. And we operate at a significant and technology-driven expense advantage over most competitors. The disciplined underwriting and low costs is a powerful combination. Concealed results are also benefiting from continued dislocation in the market. We are still seeing some carriers working through the process of correcting problems within their books of business. Some programs are being canceled, capacity withdrawn, or standard business being pushed into the non-standard market, et cetera. This process has been going on for the last two years or so. and we expect it to continue for the duration of 2021 and possibly longer. For Consale, the dislocation is allowing us to grow rapidly and expand margins at the same time. Brian Haney will provide some additional color on this topic here in a moment. As we have said in the past, when this period of dislocation abates, possibly in 2022 or 2023, Consale will continue to grow and take market share, given the power of our business model, but we'll do so more slowly, likely in the low double-digit range. From an operations standpoint, we moved our employees back to the office early in the fourth quarter, and we continue to benefit from that step, especially in terms of providing our brokers superior customer service and better training to new employees that we've been hiring to accommodate the strong premium growth, rolling out new technology innovations, et cetera. Speaking of technology, we continue to invest in improving our core enterprise system by rolling out new features and functions that improve productivity, customer service, accuracy, and data collection. Owning our core enterprise system, not having legacy systems to maintain, is a competitive advantage that we are working hard to exploit. One measure of our commitment to this initiative is that we now have eight agile development teams at work up from seven last year and five two years ago. A little over 20% of our employees work in IT-related positions, and none of them work on maintaining legacy systems from the 1990s or 1980s and prior because we don't have any. Now I'll turn the call over to Brian Petruccelli.

Thanks, Mike. The results for the first quarter continue to be strong. and driven by solid premium growth, favorable loss experience, and disciplined expense management. We reported net income of $32.1 million for the first quarter of 2021, representing an increase of 531% when compared to $5.1 million last year, due primarily to a $10 million increase in underwriting income and a $35 million increase in investment returns, driven by favorable equity market value movements in 2021 compared to 2020, where we saw significant unfavorable equity market movements resulting from a reaction to the pandemic. Net operating earnings, which excludes the volatility from equity investment gains and losses, increased by 48 percent, up to $26 million from $17 million in the first quarter of last year. The company generated underwriting income of $24.6 million and a combined ratio of 80 percent for the quarter, compared to $14.4 million and 83.9% last year, with improvements to both the loss and expense ratios. The combined ratio for the first quarter of 2021 included 5.7 points from net favorable prior year loss reserve development, compared to 3.3 points last year, and with negligible CAT losses in either period. We continue to see a slower pace of reported losses from limited operating capacity in the courts and other judicial inefficiencies related to COVID-19. As a result, we continue to take a conservative approach and are reserving in this area. We believe there's likely some permanent benefit there. However, we believe it's prudent to take a wait-and-see approach as the courts open and normalize operations before recognizing any related redundancy. Additionally, our current accident-year loss ratio decreased slightly in recognition of ongoing favorable pricing trends. resulting from the market dislocation that Mike previously touched on. The expense ratio benefited from economies of scales related to our premium growth and from a slightly lower relative net commissions as a result of shifting a mix of business and lines that are subject to reinsurance and where we received ceding commissions. Annualized operating return on equity was 17.6% for the quarter, and again, ahead of our mid-teens guidance. Gross written premiums were approximately $170 million for the quarter, representing a 36% increase over last year due to the market dislocation that Mike mentioned and our superb period of service standards. On the investment side, net investment income increased by 16.5% over the first quarter last year, up to $6.9 million from $5.9 million last year. Annualized gross investment returns, excluding cash and cash equivalents, was 2.6% compared to 2.9% in 2020. And diluted operating earnings per share was $1.11 per share for the quarter compared to $0.76 per share last year. With that, I'll pass it over to Brian Haney. Thanks, Brian.