Kinsale Capital Group, Inc.

Good morning and welcome to the Q2 2023 Kinsale Capital Group, Inc. Earnings Conference Call. Before we get started, let me remind everyone that through the course of this 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 2022 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 second 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, and good morning, everyone. Brian Petrucelli, our CFO, and Brian Haney, our COO, are both on the call this morning as well. Each of us will make a few comments, and then we'll move on to any questions you may have. In the second quarter, 2023, Kinsale's operating earnings per share increased by 50%. and gross written premium grew by 58.2% over the second quarter of 2022. For the quarter, the company posted a combined ratio of 76.7% and an operating ROE return on equity of 30.6% for the six months. These results follow from the company's strategy of both disciplined E&S underwriting and technology-enabled low costs. which allows us to generate attractive returns and to take market share from competitors at the same time. The favorable market conditions in the overall E&S market further boosted the consale numbers, especially as respects the quarterly growth of 58%. 2023 may be the sixth calendar year in a row with double-digit industry-wide E&S premium growth. The commercial property market continues to be an area of opportunity for ConSale with both rapid growth in premium and strong rate increases. As we've discussed previously, we are balancing the market opportunity and the goal of limiting volatility in our quarterly earnings. Even with the recent growth in property premium, our expected losses relative to operating income have not materially changed. We have stressed the importance of establishing reserves for future claims in a conservative fashion. And in fact, on an inception-to-date basis for the last 10 years, all of our prior accident years have developed favorably. Given the rate increases we have achieved over the last several years, we believe our total reserves are more conservatively positioned now than at any time in the history of our company. even with the impact of elevated inflation in the last several years. That being said, however, inflation has reduced the level of conservatism in our 2016 through 2018 accident years. And if inflation is hitting select consale reserves, we suspect it is hitting our competitors as well. And to the extent that inflation is impacting casualty reserve adequacy for the industry, it may be bullish for continued strong rate increases in growth for the near term, perhaps through 2024 or beyond. As we've noted many times, longer term, we see levels of competition normalizing and our growth rate dropping into the teens, while our business model of discipline underwriting and low cost allows us to continue to deliver best in class returns. A final comment from me on the real estate investment we made in December of 2022. As you recall, we purchased two office buildings and vacant land adjacent to our existing headquarters for $77.5 million. One of those buildings is under a long-term lease and is now under a contract to be sold for $63 million. And we expect that sale to close in the third quarter. We also expect to begin renovations on the remaining building that is largely vacant later this year. or early next year and to occupy it beginning in 2025. And with that, I'll turn the call over to Brian Petrucelli.

Thanks, Mike. Again, just another really strong quarter with 58% growth in written premium and net income and operating income increasing by 169% and 51% respectively. The 76.7% combined ratio for the quarter included 3.9 points for net favorable prior year loss reserve development compared to 4.9 points last year, with less than a point coming from CAT losses in either period. In the second quarter of this year, we made an immaterial accounting policy change and reclassified policy fees from an offset to underwriting expense to fee income. This change was driven by the increase in policy fees relative to operating expenses. In connection with this reclass, we've modified the expense and loss ratio calculations to add the fees to premium and the denominator of each one of those ratios. For comparison purposes, we've reclassified prior periods to conform with the current period's presentation. We believe the current presentation provides better clarity and transparency to the users of our financial statements. This change had a slight impact on the previously recorded ratios, However, no impact on the company's operating results. Most of the improvement in the modified quarterly expense ratio of 21% compared to 22.5% in the second quarter of last year related to seating commissions from the company's casualty and commercial property proportional reinsurance agreements as a result of growth in both of those lines of business. With respect to reinsurance, we successfully renewed our commercial property quota share property CAT, and casualty variable quota share treaties on June 1st. Pricing was consistent with previous years on the two quota share treaties. However, we did increase the seating percentage on our commercial property quota share from 42.5% to 50%. We saw an approximately 20% increase in our CAT treaty pricing on a risk-adjusted basis. As a result, we increased our retention to 47.5 million and at the same time bought more limit on the top layer to account for increased exposure. Lastly, we did not renew our personal insurance quota share treaty due to the dramatic decrease in concentration from actions we took after Hurricane Ian last year. On the investment side, net investment income increased by 128% over the second quarter of last year as a result of continued growth in the investment portfolio and higher interest rates, with gross returns of 3.8% for the year compared to 2.6% last year. We're continuing to invest new money in shorter duration securities with new money yields averaging a little higher than 5% during the quarter and duration decreasing slightly to 3.1 years down from three and a half years at the end of last year. And lastly, diluted operating earnings per share continues to improve and was $2.88 per share for the quarter compared to $1.92 per share last year. With that, I'll pass it over to Brian Haney.