Kinsale Capital Group, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Kinsale's second quarter 2022 earnings call. 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 their 2021 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 a press release announcing its second quarter results. Kin Sales 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. Welcome to our second quarter conference call. Brian Petrucelli, Kinsale's Chief Financial Officer, and Brian Heaney, Kinsale's Chief Operating Officer, are with me on the call this morning. As usual, we will each make a few comments and then move on to any questions you may have. Kinsale's operating earnings for the second quarter 2022 increased by 51% over the second quarter 2021. and gross rate and premium was up 43% for the quarter. The company posted a 77% combined ratio for the quarter and an annualized operating return on equity of 24.6% for the first six months of the year. This quarter's performance is similar to our experience over the last couple of years, where we have been able to raise rates to our customers above lost cost trends and at the same time grow our premium volume at a remarkable level. This multi-year combination of profit margin expansion with outsized premium growth is extraordinary. It's allowing us to deliver better returns while continuing to build a strong balance sheet, especially with regard to lost reserves. Although there is much uncertainty in the economy today, especially with inflation, Consale stockholders should be confident that our reserves are conservatively positioned and more likely to develop favorably than unfavorably in the years ahead. We attribute this combination of higher insurance rates and rapid growth to two powerful drivers. First, a dislocated PNC marketplace wherein weaker competitors continue to struggle with deficient loss reserves, inadequate margins, high costs, legacy software, work-from-home business models, general inflation, et cetera. And secondly, our own unique business model wherein we target the small account E&S market, maintain absolute control over our underwriting and claim handling, and operate with a technology-enabled expense advantage over high-cost competitors. We continue to have an optimistic outlook toward growth in 2022 and 2023, but we also continue to expect the broad P&C marketplace to gradually return to a normal level of competition beyond that, a consequence of which would be an expected Kinsale growth rate in the low double digit range in lieu of the 43% we saw this past quarter. Given the competitive advantages of the Kinsale model, especially our expense advantage, we do expect to continue to grow and take market share from competitors for the foreseeable future in both hard and soft markets and to deliver best-in-class margins at the same time. As we have said many times over the years, disciplined underwriting and low cost is an endgame winner every time. I'll now turn the call over to Brian Petruccelli.

Thanks, Mike. Again, just another really strong quarter from an operating income perspective with a 43% increase in gross written premiums and a 51% increase in operating earnings for all the reasons that Mike just mentioned, including higher rates and our superior business model. We reported net income of $27.1 million for the second quarter of 2022, down from $35.6 million last year as a result of unrealized losses on equity securities, driven by the drawdown in the equity markets during the quarter. As mentioned, net operating earnings, which excludes the impact from fluctuations in equity values, did increase by approximately 51%, up to $44.4 million from $29.4 million in the second quarter of last year. The company generated underwriting income of $44 million in a combined ratio of slightly less than 77% for the quarter, compared to $29 million and 79% last year. The combined ratio for the second quarter of 2022 included five points from net favorable prior year loss reserve development compared to 6.6 points last year. CAT losses were negligible this quarter compared to 2.1 points last year. And our operating return on equity was approximately 25% for the year, and again, ahead of our mid-teens guidance. Book value did decrease by 4.7% in the quarter, primarily as a result of unrealized losses on our fixed income securities, resulting from higher interest rates. The company continues to generate strong, positive operating cash flows, which gives us the ability to hold these securities to maturity, and a higher interest rate environment allows us to invest new money at better yields. Just as a point of reference, clarity there. The new money yields averaged about 3.84% during the quarter. Net investment income increased by 43% over the second quarter last year, up to $10.6 million from $7.4 million last year as a result of continued growth in the investment portfolio. Annualized gross investment returns, excluding cash and cash equivalents, were 2.6% for both this year and last, Diluted operating earnings per share was $1.92 per share for the quarter compared to $1.28 per share last year. And lastly, I just wanted to comment briefly on the debt transaction that closed last week. We entered into a 12-year, $125 million, 5.15% fixed rate note, which we used to primarily fund surplus at the insurance company level. and pay down the balance on our revolving credit agreement. Concurrently, we amended our existing revolving credit agreement to extend the maturity date and to increase the limit from $50 million to $100 million. With that, I'll pass it over to Brian Haney.