Kinsale Capital Group, Inc.: Form 10-Q for the period ended Mar 31, 2025

The discussion and analysis below include certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk Factors" in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2024. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.

The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2025, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2024.

References to the "Company," "Kinsale," "we," "us," and "our" are to Kinsale Capital Group, Inc. and its subsidiaries, unless the context otherwise requires.

Overview

Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses exclusively on the excess and surplus lines ("E&S") market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place small business risks and personal lines risks. We market these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, primarily through a network of independent insurance brokers.

We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers property and casualty ("P&C") insurance products through the E&S market. For the first three months of 2025, the percentage breakdown of our gross written premiums was 72.5% casualty and 27.5% property. Our commercial underwriting divisions include Commercial Property, Excess Casualty, Small Business Casualty, General Casualty, Construction, Allied Health, Small Business Property, Products Liability, Entertainment, Commercial Auto, Energy, Excess Professional, Life Sciences, Professional Liability, Environmental, Inland Marine, Health Care, Management Liability, Public Entity, Aviation, Agribusiness, Product Recall, Ocean Marine, and Railroad. We also write homeowners' coverage in the personal lines market, which in aggregate represented 2.8% of our gross written premiums in the first three months of 2025.

Components of Our Results of Operations

Gross written premiums

Gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by:

• New business submissions;
• Conversion of new business submissions into policies;
• Renewals of existing policies; and
• Average size and premium rate of bound policies.

We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year. Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements.

Ceded written premiums

Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premiums is impacted by the level of our gross written premiums, any decision we make to increase or decrease retention levels and reinstatement premiums, if any.

Fee income

Fee income includes policy fees charged to insureds and is recognized in earnings when the related premium is written. Policy fees are a flat charge to insureds and fee income is impacted primarily by the volume of business we write.

Losses and loss adjustment expenses

Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage. In general, our losses and loss adjustment expenses are affected by:

• Frequency of claims associated with the particular types of insurance contracts that we write;
• Trends in the average size of losses incurred on a particular type of business;
• Mix of business written by us;
• Changes in the legal or regulatory environment related to the business we write;
• Trends in legal defense costs;
• Wage inflation
• Social inflation;
• Inflation in material costs, and
• Inflation in medical costs.

Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Losses and loss adjustment expenses may be paid out over a period of years.

Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally composed of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs also include underwriting expenses that are directly related to the successful acquisition of those policies which are deferred. The amortization of policy acquisition costs is charged to expense in proportion to premium earned over the policy life.

Other underwriting expenses represent the general and administrative expenses of our insurance business such as employment costs, telecommunication and technology costs, and legal and auditing fees.

Net investment income

Net investment income is an important component of our results of operations. We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily composed of fixed-maturity securities, and may also include cash equivalents, equity securities and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value), the size of our investment portfolio is mainly a function of our invested equity capital combined with premiums we receive from our insureds less payments on policyholder claims. Net investment income also includes rental income and depreciation expense from our real estate investment property, if any.

Change in fair value of equity securities

Change in fair value of equity securities represents the increase or decrease in the fair value of equity securities held during the period.

Net realized investment gains (losses)

Net realized investment gains (losses) are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost.

Income tax expense

Currently, substantially all of our income tax expense relates to federal income taxes. Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes, but have not generated any material taxable income to date. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.

Key metrics

We discuss certain key metrics, described below, which we believe provide useful information about our business and the operational factors underlying our financial performance.

Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other income, other expenses and income tax expense. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

Net operating earnings is a non-GAAP financial measure. We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes and change in allowance for credit losses on investments, after taxes. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to the sum of net earned premiums and fee income.

Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to the sum of net earned premiums and fee income.

Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

Return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period.

Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

Net retention ratio is the ratio of net written premiums to gross written premiums.

Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending book values of those investments during the period.

Results of Operations

Three months ended March 31, 2025 compared to three months ended March 31, 2024

The following table summarizes our results of operations for the three months ended March 31, 2025 and 2024:

($ in thousands)

NM - Percentage change not meaningful.

(1) Underwriting income is a non-GAAP financial measure. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

(2) Net operating earnings and annualized operating return on equity are non-GAAP financial measures. Net operating earnings is defined as net income excluding the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and change in allowance for credit losses on investments, after taxes. Annualized operating return on equity is defined as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

(3) The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding.

Overview

Net income was $89.2 million for the three months ended March 31, 2025 compared to $98.9 million for the three months ended March 31, 2024, a decrease of 9.8%. The decrease in net income for the first three months of 2025 over the same period last year was primarily due to a combination of higher catastrophe losses incurred during the period and lower unrealized gains on equity investments offset in part by continued profitable growth and an increase in net investment income.

Underwriting income was $67.5 million for the three months ended March 31, 2025 compared to $65.1 million for the three months ended March 31, 2024, an increase of 3.7%. The corresponding combined ratios were 82.1% for the three months ended March 31, 2025 compared to 79.5% for the three months ended March 31, 2024. The increase in underwriting income for the first three months of 2025 compared to the same period last year was primarily due to continued growth in the business offset in part by higher catastrophe losses incurred.

Premiums

Gross written premiums were $484.3 million for the three months ended March 31, 2025 compared to $448.6 million for the three months ended March 31, 2024, an increase of $35.6 million, or 7.9%. Gross written premiums in our Commercial Property Division, our largest division, decreased 18.4% relative to the prior year period due to rate declines and an increasingly competitive environment including from standard carriers. Excluding our Commercial Property Division, gross written premiums grew 16.7%. The average premium per policy written was $14,200 in the first three months of 2025 compared to $15,300 in the first three months of 2024. Excluding our personal insurance division, which has a relatively low premium per policy written, the average premium per policy written was $14,700 for the first three months of 2025 and $16,000 for the first three months of 2024. The decrease in average premium per policy for the first three months of 2025 over the same period last year was due primarily to a decrease in gross written premiums in our Commercial Property Division.

Net written premiums increased by $30.7 million, or 8.7%, to $381.7 million for the three months ended March 31, 2025 from $351.1 million for the three months ended March 31, 2024. The increase in net written premiums for the first three months of 2025 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 78.8% for the three months ended March 31, 2025 compared to 78.2% for the same period last year. The increase in the net retention ratio was primarily due to an increase in our retention on our casualty treaty effective with the June 2024 renewal and change in the mix of business.

Net earned premiums increased by $56.3 million, or 18.2%, to $365.8 million for the three months ended March 31, 2025 from $309.5 million for the three months ended March 31, 2024 due to growth in gross written premiums.

Loss ratio

The following table summarizes the loss ratios for the three months ended March 31, 2025 and 2024:

($ in thousands)

The loss ratio was 62.1% for the three months ended March 31, 2025 compared to 58.8% for the three months ended March 31, 2024. The increase in the loss ratio for the first three months of 2025 compared to the first three months of 2024 was due primarily to higher catastrophe losses incurred in the period. This increase was offset in part by a lower current accident year loss ratio and higher relative net favorable development of prior-year loss reserves both of which were the result of lower-than-expected reported losses particularly in our property lines of business. Net catastrophe losses incurred during the three months ended March 31, 2025 were primarily related to the Palisades Fire.

During the three months ended March 31, 2025, prior accident years developed favorably by $14.6 million, of which $16.7 million was attributable to the 2021 through 2024 accident years due to lower emergence of reported losses than expected across most lines of business. This favorable development was offset in part by adverse development primarily from the 2017 through 2019 accident years and more conservative actuarial assumptions in the 2021 through 2023 accident years for lines of business exposed to construction liability.

During the three months ended March 31, 2024, prior accident years developed favorably by $8.4 million, of which $16.3 million was attributable to the 2021 through 2023 accident years due to lower emergence of reported losses than expected across most lines of business. This favorable development was offset in part by adverse development primarily from the 2018 and 2019 accident years due to construction defect claims and from the 2020 accident year due to a large property claim.

Expense ratio

The following table summarizes the components of the expense ratio for the three months ended March 31, 2025 and 2024:

($ in thousands)

The expense ratio was 20.0% for the three months ended March 31, 2025 compared to 20.7% for the three months ended March 31, 2024. The decrease in the expense ratio was primarily due to lower relative net commissions due to higher ceding commissions earned under the commercial property quota share treaty as a result of an increase to the ceding commission rate effective with the June 2024 renewal. Direct commissions paid as a percentage of gross written premiums was 14.8% and 14.7% for the three months ended March 31, 2025 and 2024, respectively.

Investing results

The following table summarizes net investment income, change in the fair value of equity securities and net realized investment gains for the three months ended March 31, 2025 and 2024:

($ in thousands)

Net investment income increased by 33.1% to $43.8 million for the three months ended March 31, 2025 from $32.9 million for the three months ended March 31, 2024. The increase in the first three months of 2025 compared to the same period last year was primarily due to growth in our investment portfolio largely generated from the investment of strong operating cash flows. Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 4.3% for both the three months ended March 31, 2025 and 2024.

During the first three months of 2025, the change in fair value of equity securities of $3.0 million reflected primarily unrealized gains arising during the period on our common stock holdings of $9.4 million offset in part by a decline in the fair value of our exchange traded funds ("ETFs") of $(6.5) million.

During the first quarter of 2024, the change in fair value of equity securities of $18.1 million included changes in unrealized gains related to ETFs and common stocks of $16.6 million and changes in unrealized gains related to non-redeemable preferred stock of $1.5 million. The change in the fair value of ETFs and common stocks during the first three months of 2024 primarily reflected higher valuations in the broader U.S. stock market.

Net realized investment gains were $0.5 million and $3.9 million for the three months ended March 31, 2025 and 2024, respectively and were primarily related to sales of common stocks and ETFs due to opportunistic repositioning of our equity portfolio.

We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss. Based on our review, we recorded credit loss expense of less than $0.1 million for the three months ended March 31, 2025. See Note 2 of the notes to the consolidated financial statements for further information regarding credit losses.

Income tax expense

Our effective tax rate was 20.6% for the three months ended March 31, 2025 compared to 14.6% for the three months ended March 31, 2024. The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation, including stock options exercised, and from tax-exempt investment income. The effective tax rate was higher for the three months ended March 31, 2025 compared to the same period in 2024 due primarily to a lower volume of stock option exercises.

Return on equity

Our annualized return on equity was 23.3% for the three months ended March 31, 2025 compared to 35.1% for the three months ended March 31, 2024. Our annualized operating return on equity was 22.5% for the three months ended March 31, 2025 compared to 28.9% for the three months ended March 31, 2024. The decrease in annualized operating return on equity for the three months ended March 31, 2025 compared to the prior period was due primarily to higher average stockholders' equity and higher net catastrophe losses primarily related to the Palisades Fire. Average stockholder's equity increased as a result of profitable growth and an increase in the fair value of our fixed income portfolio.

Liquidity and Capital Resources

Sources and uses of funds

We are organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary, Kinsale Insurance Company, which is domiciled in Arkansas. Accordingly, we primarily receive cash through (1) loans from banks and other third parties, (2) issuance of equity and debt securities, (3) corporate service fees from our insurance subsidiary, (4) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions, and (5) dividends from our insurance subsidiary. We may use the proceeds from these sources to contribute funds to Kinsale Insurance in order to support premium growth, reduce our reliance on reinsurance, pay dividends and taxes, repurchase shares and for other business purposes.

We receive corporate service fees from Kinsale Insurance Company to reimburse us for most of the operating expenses that we incur. Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs.

Shelf registration

In August 2022, we filed a universal shelf registration statement with the SEC that expires in 2025. We can use this shelf registration to issue an unspecified amount of common stock, preferred stock, depositary shares and warrants. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.

Share repurchase program

In October 2024, the Company's Board of Directors authorized a share repurchase program authorizing the repurchase of up to $100.0 million of the Company's common stock. The shares may be repurchased from time to time in open market purchases, privately-negotiated transactions, block purchases, accelerated share repurchase agreements or a combination of methods and pursuant to safe harbors provided by Rule 10b-18 and Rule 10b5-1 under the Securities Exchange Act of 1934. The timing, manner, price and amount of any repurchases under the share repurchase program will be determined by the Company in its discretion. The stock repurchase program does not require the Company to repurchase any specific number of shares, and may be modified, suspended or terminated at any time. At March 31, 2025, the Company had $80.0 million of capacity remaining under its share repurchase program.

Debt

In July 2022, we entered into a Note Purchase and Private Shelf Agreement (the "Note Purchase Agreement"), which provides for the issuance of senior promissory notes with an aggregate principal amount of up to $150.0 million. In September 2023, we amended the Note Purchase Agreement, which increased the authorized aggregate principal amount of senior promissory notes that may be issued thereunder to $200.0 million.

Pursuant to the Note Purchase Agreement, on July 22, 2022 we issued $125.0 million aggregate principal amount of 5.15% senior promissory notes (the “Series A Notes”) and on September 18, 2023 we issued a $50.0 million aggregate principal amount 6.21% senior promissory note (the "Series B Note"), the proceeds of which were used to fund surplus at Kinsale Insurance Company, refinance indebtedness and for general corporate purposes. See Note 13 for further information regarding the Note Purchase Agreement.

In July 2022, we entered into an Amended and Restated Credit Agreement, which extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to certain conditions. Borrowings under the Amended and Restated Credit Agreement may be used for general corporate purposes (which may include, without limitation, to fund future growth, to finance working capital needs, to fund capital expenditures, and to refinance, redeem or repay indebtedness). See Note 13 for further information regarding the Amended and Restated Credit Agreement.

In connection with the share repurchase authorization, in October 2024, the covenants limiting restricted payments under the Note Purchase Agreement and Amended and Restated Credit Agreement were amended. The amendments allow the Company to make restricted payments so long as the aggregate amount of all such restricted payments does not exceed the greater of $300.0 million and 6.5% of the total assets of the Company and its subsidiaries at the end of the most recently completed fiscal quarter.

Management believes that the Company has sufficient liquidity available both in Kinsale and in its insurance subsidiary, Kinsale Insurance Company, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

Cash flows

Our most significant source of cash is from premiums received from our insureds, which we generally receive at the beginning of the coverage period. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in investment securities that earn interest and dividends. We also use cash to pay commissions to insurance brokers, as well as to pay operating expenses such as salaries, consulting services and taxes. As described under "—Reinsurance" below, we use reinsurance to help manage the risk that we take related to the issuance of our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.

The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, so their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the three months ended March 31, 2025 and 2024 were:

(in thousands)

Net cash provided by operating activities was approximately $229.8 million for the three months ended March 31, 2025 compared to $210.4 million for the same period in 2024. This increase was largely driven by higher premium volume and the timing of claim payments and reinsurance recoveries.

Net cash used in investing activities was $181.0 million for the three months ended March 31, 2025 compared to $192.5 million for the three months ended March 31, 2024. Net cash used in investing activities during the first three months of 2025 included purchases of fixed-maturity securities of $369.5 million, which included primarily corporate bonds and asset- and mortgage-backed securities. During the first three months of 2025, we received proceeds of $107.0 million from sales of fixed-maturity securities, largely corporate bonds, asset-backed securities and, to a lesser extent, municipal securities and $144.7 million from redemptions and maturities of asset- and mortgage-backed securities and corporate bonds. For the three months ended March 31, 2025, purchases of equity securities of $42.7 million consisted primarily of common stocks. During the first three months of 2025, we received proceeds of $11.6 million from sales of common stocks. Cash used in investing activities was partially offset by unsettled purchases of cash equivalents totaling $15.0 million as of March 31, 2025.

Net cash used in investing activities of $192.5 million during the first three months of 2024 included purchases of fixed-maturity securities of $297.4 million, which included primarily corporate bonds, asset- and mortgage-backed securities, and to a lesser extent, U.S. Treasuries and municipal securities. During the first three months of 2024, we received proceeds of $67.8 million from sales of fixed-maturity securities, largely corporate bonds, municipal securities, U.S. Treasuries and government agency bonds and $80.5 million from redemptions and maturities of asset- and mortgage-backed securities and corporate bonds. For the three months ended March 31, 2024, purchases of equity securities of $49.8 million consisted of common stocks and ETFs. During the first three months of 2024, we received proceeds of $10.1 million from sales of ETFs.

During the first three months of 2025, cash used in financing activities reflected dividends paid of $0.17 per common share, or $4.0 million in aggregate, share repurchases of $10.0 million and payroll taxes withheld and remitted on restricted stock awards of $6.2 million, offset in part by proceeds received from our equity compensation plans of $0.2 million.

During the first three months of 2024, cash used in financing reflected dividends paid of $0.15 per common share, or $3.5 million in aggregate. In addition, for the three months ended March 31, 2024, payroll taxes withheld and remitted on restricted stock awards were $5.8 million, offset in part by proceeds received from our equity compensation plans of $0.9 million.

Reinsurance

We enter into reinsurance contracts primarily to limit our exposure to potential large losses. Reinsurance involves an insurance company transferring ("ceding") a portion of its exposure on a risk to another insurer, the reinsurer. The reinsurer assumes the exposure in return for a portion of the premium. Our reinsurance is primarily contracted under quota share reinsurance treaties and excess of loss treaties. In quota share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company's losses, in excess of a specified amount. Under excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses.

We renew our reinsurance treaties annually. During each renewal cycle, there are a number of factors we consider when determining our reinsurance coverage, including (1) plans to change the underlying insurance coverage we offer, (2) trends in loss activity, (3) the level of our capital and surplus, (4) changes in our risk appetite and (5) the cost and availability of reinsurance coverage.

To manage our natural catastrophe exposure, we use stochastic models to analyze the risk of severe losses. We measure exposure to these losses in terms of probable maximum loss ("PML"), which is an estimate of the amount of loss we would expect to meet or exceed once in a given number of years (referred to as the return period). When managing our catastrophe exposure, we generally focus on the 100-year and the 250-year return periods.

The following is a summary of our significant reinsurance programs as of March 31, 2025:

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(1) Our property quota share reinsurance reduces the financial impact of property losses on our commercial property, small business property, high value homeowners and inland marine policies up to a loss recovery of $189.9 million for an event. This reinsurance is not applicable to any individual policy with a limit of $2.0 million or less.

(2) Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders. Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage. Including the reinstatement of coverage, the maximum aggregate loss recovery limit is $350.0 million. This coverage applies after the coverage provided by the commercial property quota share treaty.

(3) This reinsurance is not applicable to any individual policy with a per-occurrence limit of $2.0 million or less.

(4) For excess casualty policies with a per-occurrence limit higher than $2.5 million, the ceding percentage varies such that the retention is always $2.5 million or less. For example, for a $5.0 million limit excess policy, our retention would be 50%, whereas for a $10.0 million limit excess policy, our retention would be 25%. For policies for which we also write an underlying primary limit, the combined retention on the primary and excess policies would not exceed $2.5 million. This reinsurance is not applicable to any individual policy with a per-occurrence limit of $2.5 million or less.

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligation could result in losses to us, and therefore, we established an allowance for credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer regularly. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At March 31, 2025, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better. As of March 31, 2025, we recorded an allowance for credit losses of $0.9 million related to our reinsurance balances.

Ratings

Kinsale Insurance Company has a financial strength rating of "A" (Excellent) with a stable outlook from A.M. Best. A.M. Best assigns ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer's ability to meet its obligation to policyholders and is not an evaluation directed at investors.

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A" (Excellent) rating obtained by Kinsale Insurance Company is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.

Financial Condition

Stockholders' equity

At March 31, 2025, total stockholders' equity and tangible stockholders' equity were $1.6 billion compared to total stockholders' equity and tangible stockholders' equity of $1.5 billion at December 31, 2024. The increases in both total and tangible stockholders' equity over the prior year-end balances were due to profits generated during the period and an increase in the fair value of our fixed-maturity investments offset in part by share repurchases, payment of dividends and net activity related to our share-based compensation plan. Tangible stockholders’ equity is a non-GAAP financial measure. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity.

Investment portfolio

At March 31, 2025, our cash and invested assets of $4.3 billion consisted of fixed-maturity securities, equity securities, short-term investments, cash and cash equivalents and real estate investments. At March 31, 2025, the majority of the investment portfolio was composed of fixed-maturity securities of $3.7 billion that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. At March 31, 2025, we also held $433.1 million of equity securities, which included common stocks, ETFs and non-redeemable preferred stock, $38.8 million of short-term investments, $142.0 million of cash and cash equivalents and $15.0 million of real estate investments.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 3.0 years at both March 31, 2025 and December 31, 2024 and an average rating of "AA-" at both March 31, 2025 and December 31, 2024.

At March 31, 2025 and December 31, 2024, the amortized cost and estimated fair value on fixed-maturity securities were as follows:

($ in thousands)

40

The table below summarizes the credit quality of our fixed-maturity securities at March 31, 2025 and December 31, 2024, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):

($ in thousands)

The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of March 31, 2025 and December 31, 2024, were as follows:

($ in thousands)

Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Restricted investments

In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of high-grade securities. The fair value of our restricted assets was $3.9 million and $3.7 million at March 31, 2025 and December 31, 2024, respectively.

Reconciliation of Non-GAAP Financial Measures

Reconciliation of underwriting income

Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income. Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other expenses, other income and income tax expense. We use underwriting income as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations and our underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.

Net income for the three months ended March 31, 2025 and 2024, reconciles to underwriting income as follows:

($ in thousands)

(1) Other expenses includes primarily corporate expenses not allocated to our insurance operations.

Reconciliation of net operating earnings

Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and the change in allowance for credit losses on investments, after taxes. We believe the exclusion of these items provides a useful comparison of our underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.

Net income for the three months ended March 31, 2025 and 2024, reconciles to net operating earnings as follows:

($ in thousands)

(1) Income taxes on adjustments to reconcile net income to net operating earnings use an effective tax rate of 21%.

(2) Average stockholders' equity is computed by adding the total stockholders' equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two.

(3) Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

(4) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

Reconciliation of tangible stockholders' equity

Tangible stockholders’ equity is defined as total stockholders’ equity less intangible assets, net of deferred taxes. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders' equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.

Stockholders' equity at March 31, 2025 and December 31, 2024, reconciles to tangible stockholders' equity as follows:

($ in thousands)

Critical Accounting Estimates

We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities, if any. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2024.

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. Our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. We do not have any material exposure to foreign currency exchange rate risk or commodity risk.

There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2024.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of that date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the first quarter of 2025 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider

the risks and uncertainties described under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 (our "2024 Form 10-K"), as updated and supplemented by the below risk factor. The below risk factor updates the risk factor captioned "Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability." in our 2024 Form 10-K. These risks and uncertainties are not the only ones facing us. There may be additional risks and uncertainties of which we are currently unaware or currently believe to be immaterial. The occurrence of any of these risks could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.

Adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity could result in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, which, in turn, could affect our growth and profitability.

Factors, such as business revenue, economic conditions, the volatility and strength of the capital markets and inflation can affect the business and economic environment. These same factors affect our ability to generate revenue and profits. It is possible that, among other things, changes in international trade regulation, including tariffs, could lead to higher than anticipated inflation. In an economic downturn that is characterized by higher unemployment, declining spending and reduced corporate revenues, the demand for insurance products is generally adversely affected, which directly affects our premium levels and profitability. Negative economic factors may also affect our ability to receive the appropriate rate for the risk we insure with our policyholders and may adversely affect the number of policies we can write, including with respect to our opportunities to underwrite profitable business. In an economic downturn, our customers may have less need for insurance coverage, cancel existing insurance policies, modify their coverage or not renew the policies they hold with us. Existing policyholders may exaggerate or even falsify claims to obtain higher claims payments. These outcomes would reduce our underwriting profit to the extent these factors are not reflected in the rates we charge.

We underwrite a significant portion of our insurance in California, Florida and Texas. Any economic downturn in any such state could have an adverse effect on our business, financial condition and results of operations.