Kinsale Capital Group, Inc.

listed in the company's various SEC filings, including the 2024 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 first 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 websites. at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale's Chairman and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. Brian Petrucelli, our CFO, and Brian Haney, our President and COO, are both joining me this morning for the call. We will each make a few comments and then take any questions you may have. In the first quarter of 2025, Kinsale's operating earnings per share increased by 6% and gross written premium grew by 8% over the first quarter of 2024. For the quarter, the company posted a combined ratio of 82% and an annualized operating return on equity of 22.5%. These results reflect strong profitability in our business generated from our disciplined underwriting and low-cost model, even with a significant catastrophe event occurring in the quarter. The Palisades wildfire loss that we estimated in February at 45 million is now estimated to be about 41 million gross and 22 million net of reinsurance. All these numbers are pre-tax. As a reminder, Kinsale has a considerable presence in the natural catastrophe market, but we operate with a conservative risk management approach to balance the margin in the business with its inherent volatility. We use a disciplined underwriting model, a robust reinsurance program, regular CAD modeling, and strict limits on concentration of business to limit the volatility of our financial results. We view the outcome of the Palisades wildfire as consistent with this strategy. Growth in premium in the quarter was 8%, slightly below our expectations of 10% to 20% across the cycle. This growth rate was mostly driven by the 18% decrease in our commercial property division, which was our largest underwriting unit last year. Note this underwriting division grew 20-fold over the prior five years. and has produced compelling profits, but now we are seeing more intense competition, including from some standard companies, and rate declines from the peak of about 20%. The margins in this business are still strong, but we do expect to write less premium compared to the prior year for the near term. If you exclude the commercial property division from the calculation, can sales direct written premium for the quarter group by 16.7%. Also, since the commercial property division premium in 2024 is disproportionately concentrated in the first half of the calendar year, we expect this to be a headwind to overall growth in the second quarter as well, but less so in the second half of 2025. It's also worth mentioning that our personal lines and small commercial property teams continue to grow at double digit rates. Overall, the ENS market in the first quarter remained steady, but with a continued increase in competition. And with that, I'm going to turn the call over to Brian Petrucelli.

Thanks, Mike. Another nice quarter with net operating earnings increasing by 6%, even with the impact of the California wildfires. The 82.1% combined ratio for the quarter included 3.9 points from net favorable prior year loss reserve development, compared to 2.7 points last year, with six points in CAT losses this year, primarily again from the California wildfires, compared to less than a half point in the first quarter last year. We produced a 20% expense ratio in the first quarter, and comparable to the 20.7% last year. As we've noted in previous quarters, the expense ratio will fluctuate from quarter to quarter, and we'll just continue to point you to the full year expense ratio as a good measure. On the investment side, net investment income increased by 33.1% this quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows. The annualized gross return was 4.3% and consistent with last year. New money yields continue to average in the low 5% range with book yields around 4.5%, so we should see some continued investment income benefit from these higher rates as we move forward. Diluted operating earnings per share continues to improve and was $3.71 per share for the quarter, compared to $3.50 per share for the first quarter of 2024. As respects to capital management, we repurchased $10 million in shares during the first quarter. I would expect similar modest levels of repurchases each quarter on a routine basis with larger purchases made opportunistically from time to time. With that, I'll pass it over to Brian Haney.

Thanks, Brian. First quarter saw growth in our gross written premium of 8%. Our property-related divisions as a whole shrank by 8% while the rest of the company grew 15%. The decrease in the property premiums was driven entirely by our commercial property division. All the other property divisions were up for the quarter, as Mike mentioned. The rates in commercial property in this space reached all-time highs, and the margins have become very significant, which is bringing in competition, including from MGAs and admitted companies. That market is now normalizing after a period of crisis pricing conditions in past years. Casualty is still seeing growth overall, particularly commercial auto and general casualty. Professional lines remain competitive with management liability and are not medical professional under pressure, but our professional lines group as a whole still grew for the quarter and we are seeing positive signs in the allied health and excess professional areas. We're also seeing growth opportunities in our personal line space, whether it be through our high value homeowners division or our manufactured homes or in traditional site-built homes, which are all products we are looking to expand and should provide a nice growth opportunity going forward. New business submission growth was 11% for the quarter, down from 17 in the fourth quarter. This number is subject to some variability, but in general we view submissions as a leading indicator of growth, and so we see the submission growth rate as a positive signal. Overall rates for the quarter were down 1%. As mentioned earlier, our commercial property division is seeing rates down about 20%, but our other property lines are still seeing modest rate increases. Casualty rates overall were up modestly, driven by construction and general casualty. and there were modest rate declines in professional and some specialty casualty lines where profitability has been exceptional. We are believers in the model of discipline underwriting and technology-driven low cost, and over the long term, our business model has and will continue to have, continue to drive business. Our advantages, particularly in lower cost and greater efficiency, are tough to replicate, and we feel these give us a durable moat. Beyond that, though, There's some recent data points that give us additional calls for optimism. A lot of the more aggressive competition we are facing, and that is producing some headwinds at the moment, comes from funding companies. If you look at the gross incurred loss ratios for some of these funding companies, you see a lot of older accident years where the loss ratios are 90% or 100% or higher and continuing to develop adversely. No risk bearer is making money at 100% loss ratio, period. And while the fronting companies themselves don't bear those loss ratios because they're ceding away the premium, someone is bearing those loss ratios. And that someone can't keep doing that for long. Kinsale couldn't make money at 100% loss ratio even with our expense ratio advantage. So you know a risk bearer that has an expense ratio of 35 or 40 or higher can't. It's just not sustainable. And beyond that, some of the same fronting companies show current accident-year gross loss ratios in the low 60s. That is a remarkable, you might say, incredible improvement. It seems difficult to believe a business that was producing 90 or 100% loss ratios with persistent and significant adverse development as recently as 2022 could be in the low 60s in 2024. All this data is public, by the way, so I invite the listeners to look it up for themselves. It's eye-opening. And so for all these reasons, we were made optimistic. Our results are good. Our growth prospects are good. And as the low-cost provider in our space, We have a durable competitive advantage that should allow us to continually, gradually take market share from our higher expense competitors while delivering strong results and build wealth for our investors. And with that, I'll hand it back over.

Thanks, Brian. Operator, we're ready for any questions in the queue.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. Our first question comes from the line of Michael Zaremski from BMO Capital Markets. Your line is open.

Hey, good morning. It's Dan on for Mike. First, I can just start with the 11% submission rate that you gave us. Could you maybe parse out how that's trending between property and casualty lines for us?

The commercial property is experiencing the biggest decline in growth rate. And then I would say the rest of properties, submission growth continues to be strong.

Consistent with casualty?

Yeah.

Okay, thanks. So small properties in line with casualty and the large account is materially declining, correct? Yep. Okay, thanks. And then on more back to the property slowdown this quarter, you're mentioning the increasingly competitive environment. Does that comment mean, you know, E&S businesses falling back to the standard market or those standard line carriers writing more business on an E&S basis?

I think it's, in general, a lot more competition in the large property account space, including standard companies, MGAs, E&S companies, et cetera. The returns there have been dramatically good. And it makes sense, right? It's attracting a lot more capital. And, you know, as a consequence, the opportunity is slightly more limited.

Thank you. Your next question comes from a line of Bill Koresh from Wolf Research. Your line is open.

Thank you. Good morning. Your stock is down over 10% pre-market. It seems largely on a continuation of the decelerating top line growth theme, which feels like it's been under scrutiny for a long time. But it looks like the top line growth comparisons are going to get easier as we progress through the year, as you pointed out, and that should help mitigate the growth headwinds. But what I think is notable that many investors have called attention to is your ability to more than offset top-line weakness with a lower combined ratio. Can you give a little bit more color on your confidence level and being able to sustain that kind of underwriting performance? There's been some concern that potential degradation and underwriting quality would exacerbate the sort of top-line deceleration concerns, and it would be just helpful to get your thoughts.

Yeah, Bill, this is Mike. We're very confident in in our business model, as Brian was just commenting on in his prepared remarks. Kinsale focuses on a high margin segment, small ENS accounts. We control our own underwriting. We don't outsource that to other parties. We think that drives meaningfully better accuracy. We are the low cost leader in our space. Insurance is a a good or a service where our customers care intensely about the price. I think we have built a very conservative balance sheet. I think our reserves, we are very confident, are conservatively stated, so they're much more likely to develop favorably than unfavorably. So we're bullish on the future. I think we've got advantages that are... are compelling and dramatic. That being said, we always prioritize profitability over growth. And so when you have a period of time where there's intense price competition, Brian just detailed where there's a number of companies writing business below the burn cost. Okay, we're not gonna do that. But the market ebbs and flows and I think we're very confident we're gonna continue to grow take market share, and deliver best-in-class returns.

Thanks, Mike. That's helpful. Separately, Kinsale has established a strong track record since the time of your founding, but you haven't faced a severe macro downturn outside of COVID-19. Could you speak to what Kinsale's playbook is if, say, Terra Policy were to push the U.S. economy into recession? Any color on maybe where you'd expect to adjust, what you'd expect to stay the same, where you'd expect to see the greatest opportunities?

Insurance is a compulsory product in a modern economy. If the economy were to contract, the PNC industry might contract along with it. That tends to be you know, a couple percentage points, I think we would continue to grow right through that. You know, we're operating with a 20% expense ratio. Most of our competitors that like us focus on the small account space tend to be well into the 30s or even above 40. I think we're well positioned to continue to grow and take market share in all markets. I just think in a competitive market, hey, it's going to be a little bit more slowly than in a less competitive market.

Thanks, Mike. If I may squeeze in one last one, sort of against the backdrop that you've laid out, where you expect to write less premium, it seems like, and to the extent that we do see volatility in your stock under pressure, maybe if you could just speak to what it takes for you to consider more aggressively you know, increasing repurchases and, you know, perhaps even above that modest amount that you've mentioned, you know, particularly if the growth environment, you know, remained weak and volatility intensified? Thanks.

Yeah, we expect to have incremental purchases. You know, we always leave the door open to do things opportunistically. But in general, we kind of view the incremental repurchase as the best strategy for us. And it's consistent, if you will, in the fact that we pay a small dividend as well. And we've incrementally increased that a little bit each year. You know, that's the way we kind of view it, at least at this time.

Thanks, Mike. I appreciate it. I appreciate you taking my questions. Thanks, Bill.

Your next question comes from a line of Andrew Anderson from Jefferies. Your line is open.

Hey, good morning. The 60.0 underlying loss ratio is pretty strong in the quarter. I think you called out some better results on property, but was there any change in loss trend on either the property or the casualty lines?

Andrew, I think it was basically a decrease in reported losses And then a little bit of it is driven by the mix of business. The property, obviously, is short-tail business. So, you know, those losses are resolved much more quickly than our long-tail casualty bought. So it's basically those two things.

Okay. And then maybe just kind of back on macro, I guess I typically think of Kent Sale as writing a lot in the small commercial end of the market. You know, if we are to get into a tougher macro backdrop, Is there an intention to move more into middle market, or do you still find the small commercial runway pretty plentiful?

We like the small space. Our average premium since we launched the company back in 2010 has been in that mid-teen space. We're always willing to consider larger deals. There's nothing inherently wrong with them. It's just that they... tend to be priced much more aggressively from the perspective of the risk bearer. I think the margins are not quite as good. But, no, I think we're very comfortable with where we have been, and that's where we expect to be. In fact, as Brian Haney mentioned, you know, we're expanding our personal lines book, you know, in effect going lower, not higher.

Thank you.

Your next question comes from the line of Michael Phillips from Oppenheimer. Your line is open.

Thank you. Good morning. I wanted to touch on your comments on the more conservative actual assumptions for construction liability. The question is, what are you seeing for severity there? Has that changed from, say, the last quarter? And then maybe, was that what you did there, was that a result of what you're actually seeing in the data, or is that more of a proactive approach? dense given the impact tariffs may have on construction defect wins.

Thanks. Yeah, this is Mike again. We have seen a, we've seen development on the long tail casualty business, in particular the construction, in certain accident years where it's developed a little bit higher and a little bit later than we originally anticipated. And so we've pushed the book loss ratios for construction specifically, but probably picks up some other long tail lines as well, you know, up over the last several years. And we've done a lot of things to drive better margins going forward, higher prices. We've adjusted the mix of coverage that we offer, et cetera. But we've also, just as a precaution, booked the 2020, 21, 22, 23, 24 construction lines in the mid-80s as well. So we're very conservatively positioned there, but it has nothing to do with tariffs. It really just has to do with the fact that that's long-tail business, and it can be a very litigious line. And I think there was a significant impact from the spike in inflation a few years ago, but it really has nothing to do with tariffs.

Robert Marlayson, Okay yeah thanks so it's more of what you're seeing them proactive on tariffs. Robert Marlayson, Okay, thank you um I guess the second question on your casualty trees, I think, comes up in June, I think it's a big piece of your seat at premium. Robert Marlayson, Anything we can share that we would expect on changes in retention levels or anything else that might affect that the growth that may also help top line.

Look, we've adjusted the retentions, you know, many, many times over the years. So that would not be unprecedented that we would take a little bit more net. You know, you're always balancing profitability with the business with volatility. And as we've gotten larger, we've continued to take a larger net. So that, you know, that might be a safe assumption.

Okay, and if I could speak in, any chance you'd share the commercial property combined ratio this quarter versus last quarter?

No, but I mean, no, we're probably not going to get into that. It gets very complex when you start to disaggregate losses between reported case reserves paid and then by accident year. I'm not sure that would be productive, but I would just tell you that As you can tell from the 82% combined, the business is very profitable. And that profitability is even in the face of a very conservative approach to reserving for future claims. And it's one of the benefits, I think, of our underwriting model is driving a very positive result and combining that with a low-cost approach to the business. Again, we think it gives us a very interesting advantage long-term.

Okay. Thank you, Mike. Appreciate it.

Your next question comes from a line of Pablo Singson from JP Morgan. Your line is open.

Hi. Good morning. First question is about the large commercial property. I'm curious to find out if the price declines there have reached a point where your appetite is reduced or are the lower premiums you referenced purely a function of lower prices, right? So it sounds like you're getting less emissions, but

know was curious if for those submissions that you come in uh if you're still actively uh engaging and writing those cases um yeah i think part of it we are we haven't changed our our appetite our our idea is that there's a price for everything and um it's our job to know like the right price in terms that are going to give us our best chance of making money but It's mostly a function of rates are down and submissions are down.

Okay. And then you provided qualitative commentary about competition in large commercial. I was wondering, well, I suppose in the context that price declines there are not, you're right, they didn't happen just this quarter. So therefore, I was curious if the price declines there are stable, continue to accelerate, slowing from peak pricing? I just want to get a sense of the shape of pricing and how that's developing.

Well, we said they're down 20% on average, right? We're looking at thousands of transactions, so there's a range of what's going on with those individual transactions. But for the three-month period, that's what we saw. The results have been Very positive. You know, we saw property cat pricing in particular go up year after year after year. I think we're kind of we're at about a 20 year high. And so, you know, that kind of high pricing combined with positive results, it's attracted a lot more capital. And so I think the business is still very high margin. It's just, you know, incrementally lower than it was this time a year ago.

Yep, yep, understood. And then last for me, just shifting to the casualty side, curious if you're seeing, I guess, more positive signals there, right? Like if you go by what other companies are saying, especially in excess. I know you had called out a decline in the nominal rate, but I suspect a lot of that has to do with large property commercial. So sort of, you know, if you could provide more context of what's happening on the casualty side, that'd be helpful.

Thank you. I think casualty is still favorable for us. So I think, you know, I think excess casualty looks good. And I think the MGAs we were talking about earlier seem to write a lot of that business. And so I don't expect that business to get like – it would not shock me if and when there's a correction in the fronting world that you would see further positive movement in the casualty market.

Thank you.

Again, if you'd like to ask a question, press star one in your telephone keypad. Your next question comes from the line of Bob Huang from Morgan Stanley. Your line is open.

Hi, good morning. Maybe just like a follow-up and some clarification side. In terms of competition, you've talked about several times on this call that there are funding companies that have high loss ratios and that what they're doing is unsustainable. But If we can just think from their perspective, how long do you think they can sustain an elevated loss environment, kind of erode the competitive environment, so to speak? Do you think this is more of a next 12-month thing, or do you think they can last a lot longer than that? Just curious to your side.

Yeah, we don't know. I mean, it's tough. It would be tough for us to know. All we do know is that it will change.

The math is brutal.

Yeah, the math doesn't work out. Okay, no, that's fair. The second question, if we think about your core loss ratio, which is incredibly strong, it actually improved year on year, right? If I remember correctly, in the past, you've mentioned that you're willing to sacrifice some of this margin for growth. Just given the strong core loss ratio today, how much and how willing are you to sacrifice that margin for additional growth, given that it sounds like the broader market is a lot riskier than the previous time that you mentioned this.

Bob, maybe a better way to describe it is we're always managing profitability at a granular level. Can sale collects a tremendous amount of statistical information at the transaction level? It's another consequence of having very modern, up-to-date systems. And we pour through that data on a regular basis to analyze profitability, not just by product line, but by class of business within the product line, by state, by territory, by account size, all sorts of different ways. And we're adjusting the pricing in order to make sure we're generating revenue you know, low 20s ROEs are better, okay? So that's just a normal part of managing an insurance company. I wouldn't really look into that as anything extraordinary. We're always managing profitability. Profit comes first, growth second, but given our model, we think even in a competitive market, we can deliver the best-in-class returns, but at the same time, we can take share away from less efficient competitors.

Got it. No, that's incredibly helpful. Thank you very much for that.

Your next question comes from a line of Mark Hughes from Truist Securities. Your line is open.

Yeah, thanks. Good morning.

Morning, Mark.

How do we think about the competition in the property, the commercial property? Kind of is it progressed through the quarter? You talked about 2Q, which has a lot, you know, seasonally strong in terms of property renewals. And so we ought to consider that and thinking about the growth rates. Is that property market more competitive now than it was at the start of the first quarter? And so maybe you see a little bit of incremental pressure, or would you describe it as relatively steady compared to what you experienced in, you know, throughout the first quarter?

I think it's steady. You know, it's hard to put too fine a point on it, Mark, right? I mean, again, we're looking at, you know, I think we wrote about $450 million of premium in that division last year. So it's a big division. There are thousands and thousands of transactions. You know, some of it's fire-exposed business. Some of it's wind. We write a little bit of quake out west. There's a lot going on there. But in general... You know, the results, certainly for Kinsale, have been incredible. I think they've been quite positive for the industry, and it's attracted a lot more capital.

Yeah, I would agree with that. I think it's tough to, as Mike said, put too fine a point on it, but I would say it's pretty stable.

So when you think about hit rates, that sort of thing, you're at some sort of equilibrium. Is that fair?

Yeah, actually, that's a good way of looking at it. The hit rates haven't changed much.

Okay. And then when you look at your mix of property versus casualty, you're a lot heavier in property now than you were two years ago, four years ago. Is there some reason to think there's a normal equilibrium? If you think about the long-term E&S market. How much should be property? How much should be casualty? Are there any rules of thumb? Do you have any sense of, or is there any reason to think it normally would return to a certain mix between the two? That's a big question, but I wonder if you have any thoughts on it.

I think the E&S market is one-third, two-thirds mark. So that's probably a good benchmark you know, Brian indicated, you know, we're doing a lot of work to expand into the homeowner's business. That's been a sore point for the industry, you know, with some of the volatility in that line over the last five years. So we see an opportunity as an E&S company to build a more meaningfully sized homeowner's book. And of course, that's, you know, predominantly, it's a multi-parallel line, but it's predominantly property. So, you know, that could That could drive it up a little bit, but in general, I think one-third, two-thirds.

Thank you. Your next question comes from a line of Pablo Singson from J.P. Morgan. Your line is open.

Hi. Thanks for the follow-up. Mike, you had mentioned that large commercial property tends to be concentrated in the first half. I was wondering if you could provide some sense of the split there, right, between the first half and second half. Is it like 60-40, 70-30?

Yeah, I think it was 60-40. 60-40. And I think it was 35% in the second quarter.

All right. Thank you. Thank you.

All right, Pablo. Your next question comes from a line of Casey Alexander from Compass Point. Your line is open.

Hi. Good morning. And forgive me if these seem a little naive. But first of all, it seems like California, despite the fact that you have the – loss in California this quarter has started to exhibit a lot of the characteristics of what Florida had when you made, you know, a concerted move to grow in that market with a lack of capacity and carriers leaving the market. Is there a similar opportunity building in California? Is it too early to look at it? Or how do you see that market as an opportunity to um, shift the property book and, and continue to grow it.

I think you're absolutely right. I think the biggest opportunity there is going to be in personal, but, um, but probably some on the smaller commercial, but we are taking advantage of that. I mean, uh, high value homes division, we're growing, we're growing nicely in that. And a lot of it is in California and there is a huge opportunity.

Okay, great. Thank you. Secondly, um, You know, if the tariffs do create, one of the areas that we kind of see vulnerability in tariffs is that it could significantly increase the building materials cost. Would that have, if that were to take place, would that have some impact on your ability to release reserves, particularly against construction, things like that?

Casey, it's Mike. I would say this. I agree, you know, tariffs... I mean, look, that's a work in progress, right? Nobody really knows where that policy ends up. But assuming the worst, assuming the worst, it could drive up the cost of building supplies. And, you know, certainly that would flow through to an insurance company. What I would say is can sales margins are really, really strong. We're in a great spot. Very conservative reserves, very low cost operating model. very strict controls over our underwriting. And so I think we're very well positioned to absorb any kind of incremental movement in prices, you know, whether it's building supplies or whether it's medical inflation or anything else. I think we're in a great spot to handle that. I wouldn't really see that as being a material exposure for us.

Okay, great. And then lastly, I was impressed by the fact that you were able to squeeze out a profit from the equity portfolio during a quarter where there was a pretty decent negative return for the overall market. Is there some unique characteristic to the equity portfolio that permitted it to outperform the general market by such an extent?

Well, our equity portfolio is a third passively managed through indexes that are very close to the S&P. And two-thirds active. You know, the active portfolio is very much a value orientation. You know, larger cap, dividend paying, kind of buy and hold. So you could either, you know, I think that's essentially it. I mean, we're underweight tech.

Yeah, great. All right. Thank you for taking my questions. I appreciate it. Thanks, Casey.

And we've reached the end of our question and answer session. I will now turn the call back over to Mike for closing remarks.

Okay. Well, thank you, everybody, for joining us, and we look forward to speaking with you again here in three short months. Have a great day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.