Kinsale Capital Group, Inc.

of 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 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 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 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 on the call this morning. In the second quarter, 2025, Kinsale's operating earnings per share increased by 27.5%. and gross written premium grew by 4.9% over the second quarter of 2024. For the quarter, the company posted a combined ratio of 75.8% and a six-month operating return on equity of 24.7%. Our book value per share increased by 16% since the year end 2024. In both hard markets and soft, Can sales differentiated strategy and execution allow us to drive both profit and growth? We focus on small E&S accounts. We maintain absolute control over our underwriting. We provide exceptional customer service and offer the broadest risk appetite in the business. We have advanced technology and no legacy software, a strong emphasis on data and analytics, and by far we have the lowest costs in the industry. This strategy and the skill and experience of our almost 700 full-time employees give us confidence in our prospects for both profitability and growth in the years ahead in all types of market environments. The E&S market in the second quarter was consistent with the first quarter. Overall, it is a competitive market with the level of competition varying quite a bit from one industry segment to another. Our commercial property division saw premium drop by 16.8% in the second quarter due to high levels of competition and rate declines. Absent this division, Kinsale's premium grew by 14.3% in the second quarter. Brian Haney will offer some more in-depth commentary on the market here in a moment. We renewed our reinsurance program on June 1st. Given the strong returns we have generated for our reinsurers over many years, the overall program was slightly more favorable for consale upon renewal. Some of the modest changes in the program include a $3 million retention on our casualty treaty, up from a $2.5 million retention on the expiring. On our property quota share, Contract, the seating commission we received from reinsurers increased slightly, reflecting favorable historical results, and our retention increased to 60% from 50% on the expiring program. On the catastrophe excess of loss treaty, we increased our retention from $60 million to 75 and purchased some additional limit at the top of the tower. As we have stated many times over the years, we endeavor to post loss reserves with some measure of conservatism so that they are more likely to develop favorably than unfavorably over time. Our 16-year track record bears out our commitment to cautious reserving and building a strong balance sheet. At a time when there are substantial questions around the reserve adequacy of the broader P&C industry, it's important for investors in Kinsale to know that our loss reserves have never been more conservatively stated than they are right now. And with that, I'll turn the call over to Brian Petruccelli.

Thanks, Mike. Again, just another strong quarter with net income and net operating earnings increasing by 44.9% and 27.4% respectively. The 75.8% combined ratio for the quarter included 3.9 points from net favorable prior year loss reserve development compared to 2.8 points last year, with less than a point in CAT losses this year compared to one point in Q2 of 2024. As Mike mentioned, we continue to take a cautious approach to releasing reserves. We produced a 20.7% expense ratio in the second quarter compared to 21.1% last year. The expense ratio continues to benefit from seeding commissions generated on the company's casualty and commercial property quota share reinsurance agreements, and from the company's intense focus on managing expenses on a daily basis. On the investment side, net investment income increased by 29.6% in the second quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows. Kin sales float, mostly unpaid losses and unearned premium, grew to $2.9 billion at June 30 of this year, up from $2.5 billion at the end of 2024. Annualized gross return was 4.3% for the first half of the year and consistent with last year. Other than the modest increase in the allocation to common stock that we mentioned last quarter, we haven't made any significant changes to our investment strategy and continue to monitor inflation, interest rates, and related Fed policy commentary and will adjust as circumstances change. New money yields are averaging in the low to mid 5% range with an average duration of 3.1 years. And lastly, diluted operating earnings per share continues to improve and was $4.78 per share for the quarter compared to $3.75 per share for the second quarter of 2024. And with that, I'll pass it over to Brian Hanning.

Thanks, Brian. The E&S market remains competitive, though the intensity varies by division. We're seeing robust premium growth in small business property, high-value homeowners, commercial auto, entertainment, and general casualty. Meanwhile, commercial property, construction, life sciences, and management liability are facing tougher competition and, in some cases, declining premiums. The market is clearly more competitive than a year ago. However, much of the aggressive pricing is coming from MGAs and fronting companies. While there are some highly regarded MGAs out there with long track records of success, the model as a whole is challenged by a misalignment of interests. Some fronting companies are posting unsustainable gross loss ratios of 100% or higher, signaling capital destruction. Notably, our largest reserve line, other liability occurrence. The top six E&S fronting carriers are projecting 2024 gross loss ratios well below ours, despite consistently worse experience in older accident years and consistently worse loss development. Either they, as a group, have experienced a miraculous turnaround or they are under-reserving. Eventually, loss reserves turn into paid claims and posting inadequate reserves only pushes the problem down the road for a time. The situation is reminiscent on a smaller scale of the mortgage crisis of 2008, where you had a misalignment of interest between the originators and bearers of risk, which resulted in a fundamental mispricing of that risk. Given the size of the problem, this will not be as significant for the economy as the mortgage crisis, but it will be very significant for the insurance industry and for some players in it in particular. And it's encouraging to us because ultimately under-reserving is a self-correcting problem. We continue expanding our product suite to capture market opportunity. In Q2, we broadened our agribusiness vertical to include property coverage and launched a new homeowner's product in Texas, Louisiana, Colorado, and California, with more states on the way. Submission growth was 9% for the quarter, which is down slightly from the 10% in the first quarter. Our commercial property division experienced a decline in submissions, which depressed the company's overall submission growth rate. Without that, the submission growth rate would have been in the low double digits. Pricing trends aligned with the AMOINS index, which reported a 2.4% overall decrease. Commercial property, especially in southeastern wind zones, was down 20%. Casualty pricing was mixed, but modestly positive. Some professional and management liability lines were slightly negative. Finally, we continue to be cautious around lost cost trends. Headline inflation is above the Fed's 2% target, and with various governmental policy changes, it's not clear where things go from here, which is even more reason to be cautious and conservative with our reserves. Overall, we remain optimistic. Our loss results are good. Our growth prospects are good. And as the low-cost provider in our space, we have a durable, competitive advantage. And with that, I'll hand it back over to Mike.

Thanks, Brian. Operator, we're ready for Q&A.

Thank you. As a reminder to ask a question, please press star followed by the number one on your telephone keypad. Our first question comes from Andrew Kliegerman from TD Cowan. Please go ahead. Your line is open.

Thank you. Andrew, this is Mike.

We've got a very poor connection, so we weren't able to understand your question.

Do you want to try one more time?

Operator, let's drop that call and let's go to the next one.

Certainly. Our next question comes from Michael Dremski from BMO Capital Markets. Please go ahead. Your line is open.

Hey, morning. It's Dan on for Mike. Maybe first, just on your longer-term growth target, one of your peers recently lowered their near-term growth target due to the heightened price environment competition with two quarters below 10 to 20 that you've guided to. Is there any thought to recalibrating the near-term number, or is there still belief in that 10 to 20 number?

Yeah. We don't offer a growth prospect because ultimately we don't really know what that number is going to be. I think 10% to 20% over the course of the cycle is a good faith estimate, and it's actually, I think, a conservative one. I think one of the challenges of estimating the near-term growth is that There is going to be a fair amount of variability over the years. Right now, we're in a period of heightened competition. That's most pronounced in our commercial property division, especially some of that business that's concentrated in larger southeastern wind accounts. That's where we're seeing kind of a big market correction. You know, we did report the fact that if you take the commercial property division out of it, you know, we grew in the mid-teens. You know, we think that's a really healthy number that showcases the competitiveness of our model, the accuracy of our underwriting, the market segment we focus on, the fact that we operate at an enormous expense advantage over our competitors. So, you know, we're quite optimistic but we're also realistic that near term you know we've got some headwinds with competition and maybe the last comment i'd make is that um you know the year-over-year comparison in our commercial property division will be a little bit easier the second half of the year than it was the first because we wrote a disproportionate amount of that business uh in the first half of you know last year so we'll get a little bit of a you know, less of a headwind, if you will, on the, I don't know what you call it, correction in the commercial property division.

That's helpful. Thank you. And then switching gears to the underlying margin, just with rates being negative in the first half of 25 and, you know, higher casualty mix, could you tell us the source of the underlying margin improvement year over year?

Well, I mean, there's, um, we, we lay it all out in the, in the release, right? It's the current accident year. Um, I think the cat losses were down.

Maybe, um, I just met the, the underlying current accident here.

Yeah. Uh, the current accident year is a composite of a variety of lines of business. Um, You know, I think, you know, kind of the general movement within that number would be we continue to be very cautious around long tail casualty. You know, Brian Haney mentioned the fact that inflation is still higher than the Fed's target. I think longer tail casualty lines are a little bit more exposed to that. So we're being conservative on the longer tail casualty and to the extent that we're Over-performing, it's probably disproportionately due to our shorter tail lines like property, where the experience has been really quite compelling.

Our next question comes from Pablo Singzon from JP Morgan. Please go ahead. Your line is open.

Hi. Good morning. First question I have is about the commercial property business. I was curious to get your sense of the positive gap between expected profitability and technical pricing today, or put another way, right? How much further do you think prices can drop before, you know, the market sort of throws up in hands and says, you know, this is as far as we'll go? Any sort of sense you have around that?

Yeah, Pablo, this is Mike. I would just remind you that we write property coverage in a whole variety of different areas. underwriting divisions or verticals within our company. The commercial property division specifically is where we're seeing the most intense competition. And it's not just rates dropping, although that's happening. It's also terms and conditions, line sizes, and the like. So it's a whole mix of things. We also have a small property division. We write in the marine coverage. We write high-value homeowners. We have a regular homeowner's book. So the other areas are much more attractive to us than, in particular, the larger southeastern wind accounts. So it's a mix. But in terms of where the market goes from here, we don't really have any kind of special insight into that.

OK. And then just switching to, I guess, capital, right, and capital return. So with premium growth flowing from recent levels, right, I think even if you assume some pickup from the recent trend, your RE will just naturally decline, right? You're just going off, like, pretty high growth years, and you're going to accumulate capital. Is there some RE level where you might consider leaning more into capital return here?

Thanks. Yes. You know... I think we expect our ROEs in the low to mid-20s are better. The returns are always a function of the pricing we get. It's lost cost trends. It's the amount of conservatism in our IV&R that drifts out over time. So there's a lot of things that goes into the returns. In terms of... You know, returning capital, it's something we look at every year and we'll continue to adjust. But, you know, we want to maintain a healthy capital position, but we don't ever want to hold an excessive amount of redundant capital either. So, you know, right now we address that in a very small way through the dividend and the share buybacks, and we'll continue to evaluate that on a go-forward basis.

Thank you.

Our next question comes from Michael Phillips from Oppenheimer. Please go ahead. Your line is open.

Yeah, thanks. Good morning. I wanted to get a little more color on, I think it was Brian's comments on the pricing and the casualty side. I think you said mixed, but positive. Can you provide a little more color on where you're seeing the mixed, what you meant by that, and then maybe specifically if you could drill down into the excess casualty book and specifically what you're seeing in pricing there? Thank you.

Yeah, I think some of all, you look at the casualty line, some of the higher return lower growing lines like let's say products liability would be experiencing you know rate increases on the lower end or rate decreases and then some of the more um longer tail lines let's say like construction or excess casualty would be at the higher end oh okay and then i guess sticking with construction it's not the first time you've mentioned um some adjustments actual adjustments on the reserves for construction defect and liability um i guess can you can

say what you're seeing for trends there, loss trends there, and any certain geographies that are more conducive to kind of those adjustments you made?

I think a lot of the – California used to be a very big state for us in construction, and we've kind of pivoted away from that. So I would say to the extent that we were seeing, you know, abnormally high loss development that required some sort of adjustment, that's where we were seeing it. When we adjusted the lost development patterns, we also adjusted our rates, and it resulted in us growing outside of California, which was good.

Okay, so your adjustments you made were because of the California book?

I was just giving you some color detail about what was going on within the construction book. Generally speaking, it was worse in California where we were a little over-concentrated. Okay. And are no longer over-concentrated.

Okay. Thank you.

Our next question comes from Bob Huang from Morgan Stanley. Please go ahead. Your line is open.

Good morning. My question is on growth and specifically new business. Not sure if you touched this already, so apologies. Just curious how much of the premium growth for the quarter was driven by new business growth? broadly speaking, understand that we're facing challenges in property, but is there a way to think about the new business and the renewal business dynamics going forward? Are there lines of business that are more exciting than others? Just curious to hear your view on that.

I don't think we have the stats in front of us to kind of bifurcate the growth between the renewal book and the new business book, but I would say generally it would probably be driven mostly by new business because the pricing environment we're in today, we're not seeing dramatic changes. And then what was the second part of the question was?

Oh, yeah, just in terms of like if we think about just the growth going forward, is there any specific line of business where you think new business would be more exciting?

Well, Brian Haney mentioned a whole series of underwriting divisions where we're still still seeing very robust top line growth. You know, and that typically correlates to a better pricing environment and, you know, maybe a little more dislocation within the industry, et cetera. So, you know, entertainment, high-value homeowners. We're rolling out a new homeowners product in a variety of states. Our small business property unit is still growing at a really good clip. I think the pricing there is favorable. You know, there's... You know, we have a, you know, we're a, you know, I guess we're still a boutique insurance company, but we've got a relatively broad product line, and we participate in, you know, a whole range of different industry segments. And it's just a good reminder. They don't all move in tandem. And, you know, in general, we feel generally positive about the market.

Okay. I really appreciate that. Thank you. Maybe just like one follow-up on that comment. specifically homeowner, right? 2.7% of your total premium year to date is homeowner. You talked about the excitement of that going forward. Is that purely just driven by what's going on in California that's resulting in homeowner now growing? I'm guessing that business should be growing exponentially from here. Does that change your 70-30 split on casualty and property going forward? How should I think about the growth trajectory there?

Yeah, look, homeowners is a volatile line of business where the broader P&C industry has, I think, underwritten that business to a loss for like five or seven years in a row. Historically, it's been mostly standard markets. I think there's now a shift where more of that business is coming into the E&S market, and so Kinsale is working hard to address the opportunity there. It's partly California, but it's partly in the southeastern states, Texas around to the Mid-Atlantic, driven by coastal wind. But as Brian, I think, mentioned earlier in his comments, we've also rolled out a new homeowner's product in Colorado, for instance. So, yeah, I think we see that as a growing opportunity for the company. in a whole range of different states, and I wouldn't expect any kind of near-term shift in the 70-30 split between casualty and property, but depending on how successful we are over the years ahead, you know, it could shift a little bit.

Great. Really appreciate the color. Thank you very much.

Our next question comes from Andrew Anderson from Jefferies. Please go ahead. Your line is open.

Hey, good morning. Just looking at the OPEX ratio, it looks like it's been about 8% year to date. And I think you were doing some technology investments that I think have ended. So is that 8% kind of a good run rate for the near term?

Yeah, I think that is.

Okay. And, you know, if we look at the session ratio, it came in this quarter and And if we go back a few years, it was kind of in a mid-teens territory. Now, that was before you were writing more property business, so perhaps it's not going to go back towards the mid-teens, but should we be thinking about 17% kind of near term?

I mean, it's going to, Andrew, this is Mike, it's going to depend on the mix of business, of course. You know, when we renewed our reinsurance program, we took a little bit bigger net on the casualty and on the property. a little bit bigger cap retention, so the reinsurance program will result in a little bit of a shift to a lower seating ratio, and then the rest of it's going to be mix of business over time. So to be honest, I don't have a number to give you, but you can just judgmentally expect it to maybe go down a bit.

Thank you.

Our next question comes from Joe Tamio from Bank of America. Please go ahead. Your line is open.

Hey, good morning, everyone, and thanks for taking my questions. My first question is regarding the buy and submit ratio. I believe historically this has ranged from like 9% to 11%, 12%. So I was just curious to see where we are on that today. And generally this year, has that ratio remained relatively steady for most decisions, excluding commercial property?

Yes, it's been relatively stable.

Okay. All right, great. Thank you. And then the other question kind of just Kind of further on the conversation regarding the competition, it seems like some of your competitors have also joined that competition. Even 1 mentioning being approached by acquisitions. I'm kind of curious to see where you guys think we are in the cycle with given kind of the loss ratios and the history they've been putting up. Like, is this something that we kind of expect coming to a head? In the near term, I know it's really no way to predict it, but just kind of curious in your thoughts on this.

Joe, this is Mike. We don't really have an opinion on that. You know, you guys are in the business of analyzing companies and prognosticating, so we'll leave that in your capable hands.

Okay, great. Thanks for the talk.

Our next question comes from Mark Hughes from Truist. Please go ahead. Your line is open.

Yeah, thanks. Good morning. The commercial property pricing, how would you describe it sequentially? I think last quarter and this quarter you said down 20. Does that mean stable sequentially? Yeah, I would say that's fair. Very good. How about the current accident year trajectory? I think historically you've Started out the year, I think being a little more conservative, a little higher current accident year loss picks. Anything that you have seen through the six months that might interfere with that historical pattern of improvement in the back half?

No, I don't think so. You know, I mentioned earlier that, you know, we're obviously we evaluate and analyze our loss development every quarter. And, um, know it was a in response to a prior question mark uh you know we we continue to be cautious around the long tail casualty and uh to the extent that um you know there's any uh shift in the good news coming out it's largely driven by the short tail business like property like any uh

more thoughts on this dynamic in florida where it seems like more business is going into the ens market even as the pricing is softening up um why that would be you know how long that might last is that something you've seen in prior cycles uh you know i don't think we know uh we don't have anything definitive to offer i would just uh maybe comment that um

ENS is reaching all-time highs, not just in Florida, but all over the country in terms of its share of the overall premium dollar being placed. And so I think as people become more comfortable with ENS markets, I think the acceptance of the ENS paper has just increased. And It's just becoming more and more common. It's a healthier way to manage an insurance company, especially when we have as dynamic a tort system as we do in the United States. Certainly Florida has seen a lot of shifts in tort law over the years. And then of course on the property side with reacting to natural catastrophes, there's been a significant uptick in cat activity the last five or seven years. And ENS companies with freedom of writing form can react to that much more quickly than the standard companies can. So it just seems like it's a positive trend all the way around.

Very good. And then one more, if I can. Brian Petrucelli, the cash flow is up a little bit through six months. What kind of top-line growth do you need in order to keep the cash flow in place? Well, it's obviously in positive territory, but increasing year over year, if you get 5% growth, will cash from operations still move up, or is there some point at which just payout and losses starts to dampen that? Any general thoughts would be helpful.

I think that's a fair assumption, Mark.

And I think one thing that's probably depressed it a little bit is paying out all the cat losses from the Palisades wildfire. But these are short-term, short-tail claims that get resolved quickly, especially when you have a limits loss. So I think that's probably depressed the growth rate there on a temporary basis.

So as long as the top line is moving up, then cash from operations should likewise move up?

Yeah, but it's always a function of your loss experience. And again, I think we're good underwriters. We're establishing very conservative loss reserves, so... I'd be optimistic. Thank you very much. Thanks, Mark.

Our next question comes from Andrew Kliegerman from TD Cowan. Please go ahead. Your line is open.

Hi. Can you hear me this time? So sorry for the bad line before. You're crystal clear. Oh, good. Thank you. And again, so I've been hearing so much about a lot of these startups in kind of small, mid, E&S. What are you seeing in terms of that competition? Are you seeing a big pickup and how is that affecting pricing?

I would say that the small startup balance sheet business are not having a lot of effect just because they're dwarfed by what the MGAs are doing. Those six E&S fronting companies I mentioned write something like $6 billion in gross written premium. So, you know, it would take a long time for the newer balance sheet businesses to make a dent in that.

Interesting. And then following up on an earlier question about sessions and, you know, seeding off, I think the number is like 17%. And this quarter, I noticed that, you know, gross written was up five, but net written was up close to seven. So over time, like let's look out maybe five, 10 years from now, do you see that session declining to as low as 10%? Do you need to seed that much over time?

We seed more premium on the property side where we have significant natural catastrophe exposure. and where the limits are higher. So what the seating ratio looks like down the road is really gonna be a function of the mix of business more than anything. I think on a homeowner's policy, the seating ratio would be modest. If it's a hotel on the beach in Florida, it's gonna be more significant.

Thanks a lot.

Our next question comes from Pablo Singzong from JP Morgan. Please go ahead. Your line is open.

Hi. Thanks for taking my follow-up. So you go through this in the 10-Q, but I was wondering if you could provide more commentary on the reserve releases you booked this quarter. I think in the 10-Q, you mentioned accident years 2020 to 2024, but I was more curious about the balance of releases between casualty and property. I think in 1-Q, you highlighted property more. I'm wondering if that's still the case or if there's any material changes this quarter. Thank you.

Wait, Pablo, you're asking for some commentary on the reserve movements in 2020 through 2024?

No, no, no, no. What you booked this quarter, right? I think it was from accident years 2020 to 2024. But I was just curious about any color on the lines of business where you released the reserves, right? I think in one cue, you highlighted property a bit more, you know, But anyway, any sort of commentary on the release of the book this quarter? Thank you.

Yeah, I would say this, that we have, I think it's about a dozen statutory lines of business we write. This is our 16th year in business. I don't think we have any open claims for the first couple years we were in business, but in general, there is a lot going on in our reserves every quarter. And so I don't think we want to get into any kind of granularity on a conference call because it's just too technical. But in broad strokes, I think it's important for the investors to understand, one, that we're being very conservative in setting aside reserves today to pay claims in the future, especially in an era of heightened inflation, et cetera. And then the second thing is... In terms of broad movement in our reserves, we're being more conservative, so slower to release on the long-tail casualty lines where we think there's the greatest degree of uncertainty. And then to the extent that there's good news coming out of our results, it's disproportionately on the short-tail business, which is property for us. 30% of our business is property. Those claims tend to be reported. and resolved relatively quickly compared to the casualty business. So, again, it's just kind of reinforcing we're trying to be cautious in building a rock-solid balance sheet.

Okay, Mike. Thank you.

Our last question comes from Andrew Anderson from Jefferies. Please go ahead. Your line is open.

Thanks. Just wanted to go back to the pricing commentary on casualty and the modestly positive. I guess that sounds a little low. It could be partly that you're in small commercial, but it could also be interpreted that you're just competing more to win business. So I guess, is that the case? And do you feel that you're more competitive pricing between the competition and the spread there is growing in your favor?

Andrew, I think we said we saw in our book something similar to the AMWINS index, which I think was pricing rate and exposure down about 2.4%. Our large commercial property deals, southeastern wind accounts were down about 20. Everything else is a little bit of a mix, up or down slightly.

I would say getting back to my comment about the MGA fronting business, I think it's true that our casualty Experience has been better than the industry, and so I think there's more of an opportunity for us or there's less of a need for us to increase rates than there is for the industry.

Thank you.

We have no further questions at this time. I'd like to turn the call back to Michael Kehoe for any closing remarks.

OK, well thank you everybody for listening and we look forward to speaking with you again down the road a little bit.

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