Kinsale Capital Group, Inc. Q3 FY2024 earnings call

Financial Performance

• Operating earnings per share up 27%, gross written premium up 19%.
• Combined ratio 75.7%, nine-month annualized operating return on equity 28.2%.

Business Strategy

• Control underwriting, best customer service, broad risk appetite, expense advantage, technology-driven approach.

Market Conditions

• E&S market steady with increased competition; Kinsale's growth slowed slightly due to competition but most divisions still growing.

Catastrophe Losses

• Modest losses in Q3; estimated after-tax Hurricane Milton losses under $10M.

Share Buyback

• $100M share buyback program authorized, viewed as part of capital allocation strategy with routine modest buybacks.

Investments

• Net investment income up 46.4% in Q3 due to growth in portfolio and higher rates; annualized gross return 4.3% YTD.

Divisions

• Commercial property growth mixed, casualty steady with potential for market tightening, transportation growing, personal lines (high value homeowners) growing.

In the third quarter of 2024, Kinsale's operating earnings per share increased 27%, and gross written premium grew by 19% compared to Q3 2023. The company posted a combined ratio of 75.7% and a nine-month annualized operating return on equity of 28.2%. Net income and net operating earnings increased by 50.1% and 26.8% respectively. The expense ratio was 19.6% in Q3, down from 20.9% last year. Net investment income rose 46.4% in Q3 due to growth in the investment portfolio and higher interest rates. Premium growth was 19%, with divisions like commercial property, casualty (general and excess), small business property, transportation (commercial auto), and personal line (high value homeowners) showing growth, though some divisions faced increased competition.

Share Buyback

• Routine modest buybacks each quarter, opportunistic larger purchases; no plans for M&A or extraordinary dividends.

Growth Expectations

• Long-term growth target 10%-20%, driven by excess capital from profitability.

• Increased competition in some divisions (commercial property, professional liability) affecting growth.
• Perceived reserve deficiencies in casualty lines industry-wide, which could impact competitors.
• Potential impact of cat losses on property growth and market competition.

Q: Clarification on share repurchase program magnitude A: $100M authorization is modest, routine modest buybacks to minimize dilution, with opportunistic larger purchases.

Q: Pricing trend and lines affected A: Some divisions have double-digit rate increases, others single-digit but above loss cost trend; some divisions cutting rates below trend.

Q: Catastrophe exposure to Milton and business mix A: Milton may be top ten historical loss; property business mix varies by division, with smaller property still growing.

Q: Competition trajectory and bind rate A: Competition varies by line of business; mix of business affects growth rate more than hit ratios.

Q: Loss ratio improvement and lines A: Actual loss activity below expectations; property business profitable, casualty booked conservatively.

Q: Expense ratio sustainability and high-value homeowners A: Expense ratio around 20.5% YTD; high-value homeowners growing rapidly, managed with strict controls.

Q: Casualty reserve insufficiency areas A: Excess casualty and commercial auto are areas with perceived reserve weaknesses in the industry.

Q: Growth expectations and retention A: Long-term growth target 10%-20%; retention around two-thirds of policies year-over-year.

Q: Reserve reviews and share buybacks A: Reserves reviewed quarterly with conservatism; share buybacks chosen over dividends due to stock valuation and long-term confidence.