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 2020 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 third 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 call over to Kinsale's, President and CEO, Michael Kehoe. Please go ahead, sir..

Thank you, operator. And good morning, everyone. We appreciate your joining us on the call today.

We will follow our usual format with a brief introduction from me, then Bryan Petrucelli, Kinsale's, Chief Financial Officer; and Brian Haney, Kinsale's Chief Operating Officer, will each provide some additional commentary and then we'll move on to any questions from any of you.

Kinsale's operating earnings for the third quarter 2021 were $1.59 per diluted share, a significant increase from the third quarter of 2020. Gross written premium rather was up 36.5% for the quarter. The company posted a 75.7% combined ratio for the quarter and 78.1% combined ratio for the nine months.

Our operating return on equity for nine months was 19.8%. Multiple years of significant rate increases combined with our disciplined underwriting and low cost model is allowing for meaningful margin expansion over our long-term guidance of a 15% operating return on equity. And we expect to continue to run well ahead of that 15% goal.

Our catastrophe loss from Hurricane Ida was $4.6 million net of tax. This relatively modest loss in light of the severity of the storm is consistent with our cat experience over the last 10 years.

We do rate cat exposed property is next to our personal lines in our commercial property books and we think the margins in that business are compelling, while we also seek to limit the volatility of the business to a combination of good underwriting strict limits on the concentration of business and a comprehensive reinsurance program.

The relatively higher cat loss figure from the third quarter of 2020 compared to the third quarter of 2021 is mostly due to the occurrence of multiple events last year. We continue to be optimistic about market trends and prospects for our business. But our own numbers remain strong and our reserves are considerably stated.

In contrast, there was lots of commentary at our recent industry conference about casualty reserve issues among some weaker competitors and the lack of returns on property business moving to the whole P&C industry over the last three to five years.

Both of these examples were stated as reasons among other things for the robust pricing cycle to continue. Brian Haney will provide some additional commentary on our own experience here in a moment. As we mentioned last quarter, we expect to consider borrowing some additional money next year in 2022 should we need any capital to fund our growth.

Our debt to total capital ratio is about 6% today and the longer term goal is for that to approach 20%. Additional financial leverage should be helpful to our returns. I'll now turn the call over to Bryan Petrucelli.

Bryan?.

Thanks, Mike. Just another nice quarter with strong operating results continuing to be driven a solid premium growth, favorable loss experience, and disciplined expense management.

We reported net income of $36.6 million for the third quarter of 2021, representing an increase of a 146% when compared to $14.9 million last year due primarily to higher-end premium, lower cat losses and net favorable loss reserve development.

Net operating earnings increased by 282% up to $36.7 million from $9.6 million in the third quarter of last year. The company generated underwriting income of $38.1 million and the combined ratio was 75.7% for the quarter compared to $2.9 million and 97.3% last year with improvements to both the loss and expense ratios.

The combined ratio for the third quarter of 2021 included 5.9 points from that favorable prior year loss reserve development and 3.8 points from cat losses primarily from Hurricane Ida compared to 2.8 points of favorable loss reserve development and 15.4 points of cat losses last year.

Our current accident year loss ratio exclusive of cat losses, decreased in recognition of ongoing price favorable pricing trends that Mike previously touched on.

The 20% expense ratio for this quarter continues to benefit from some economies of scale, give that our earned premiums are growing faster than our operating expenses and from slightly lower relative net commissions as a result of a shift in the business, shift in the mix of business to lines that are subject to reinsurance and were we receive ceding commissions.

Although it is possible that we'll continue to achieve a modest level of additional economies of scale, with some variability from quarter-to-quarter, we believe in an expense ratio in the low-to-mid 20s to be sustainable over time.

Our effective income tax rate for the first nine months at 2021 was 18.9% compared to 12 point at 8% last year and higher primarily resulted lower tax benefits from stock compensation activity this year. Annualized operating return on equity was 19.8% for the first nine months of the year.

And again as Mike mentioned the book ahead of our mid-teens guidance. Gross written premiums were approximately a $198 million for the quarter, representing a 36.5% increase over the last year, due to the continuing favorable market conditions and our superior service standards.

On the investment side, net investment income increased by 15.5% over the third quarter last year up to $8.1 million from $7 million last year. Annualized gross investment returns excluding cash and cash equivalents was 2.5% for the year so far compared to 3% last year.

Diluted operating earnings per share was a $1.59 per share for the quarter compared to $0.42 per share last year. And with that, I'll pass it over to Brian Haney..

Thanks, Bryan. As mentioned earlier, premium grew 36.5% in the third quarter down from 45%in the second quarter was roughly consistent with the growth rates in the first quarter and the fourth quarter of last year. The increase is generally driven by increasing submissions, rate increases, as well as economic growth which drives up exposure basis.

Every one of our divisions was up for the quarter led by our general casualty division which had been particularly hard hit by the lockdowns in 2020. Reopening of the economy and the robust economic growth is still providing us a significant boost. Submission growth was in the low teens in the third quarter.

As for rates, we continue to push them up in response to market conditions. As a reminder, we have a very heterogeneous book of business which complicates reducing all the rate movements to one single number.

But that all being said, we see rates being up in the low teens in the aggregate during the third quarter generally consistent with the past several quarters. The conditions that have driven the market hardenings still exist, so we do not expect a change to the market in near term.

We are paying close attention to inflation, at this point we feel that the rate increases we are achieving on excess of loss cost trend and therefore we should be building additional margin.

Now, at our recent Investor Conference, a test on several advantages Kinsale has over its competitors, our sole focus on E&S, our superior technology and our meaningful expense ratio advantage. Another advantage has emerged during COVID.

We are one of the few, maybe the only, surplus lines ensure that that it's been pulling the office in person five days a week. We came back to the office in person last October. We have to hire and then train a lot of people to keep up with the growth and then find that teaching learning is as better in person.

Also, we feel like you can only absorb the company culture if you actually see your coworkers face-to-face. Our competitors are now going on their second year of attempting to recruit and train people by them, it's just not a good way to train people. People don’t learn as well remotely and they don’t pick up the company culture remotely.

By being in person, they'd avoided the learning loss that you're seeing in academics and business that goes hand-in-hand with product line. This is a significant advantage for us in terms of our ability to train new staff and execute our plan. In summary, we continue to be optimistic.

We're producing truly extraordinary results and the market conditions continue to favor us. Our business model works well in any market, harder, softer, and between, but the current market conditions are really excellent; we are working hard to make the most of them. And with that, I'll turn it back over to Mike..

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

Thank you. [Operator Instructions] First we have a question with Jeff Schmitt with William Blair. Your line is open..

Hi, good morning..

Good morning..

Growth was obviously really strong in the quarter.

And I was curious of what you're seeing how much of that is exposure growth across the book just with inflation and supply constraints worsening and kind of how much is that I guess offset by tightening terms and conditions?.

We don’t know exactly to bring up but if I'd to break and I would say that the effects increased submissions, increased rates, and increased exposure are all roughly equal. So, let's call a third of the growth is increase in exposure but that's a guess..

Okay.

And what roughly was that added at this stage, I presume it's been moving up?.

Well, just say a third of the 36%..

Okay, I got you. Right, okay.

And then, underlying loss ratio obviously moved down quite a bit to 58% and can you maybe speak to that, I mean with that large of a drop and what drove that?.

Yes Jeff, this is Mike. Well, number one, we had an extraordinary quarter, right. So, just very good loss activity for the months. But the bigger driver is we've been getting fairly significant rate increases from almost three years now, well above loss cost trend.

We have over the years added to the conservatism in our loss reserves but clearly that some of that pricing improvement is now showing up in terms of margin expansion. So, that's it in a nutshell..

Got it, okay. Thanks for the answers..

Thanks, Jeff..

Thank you. Next we have Mark Hughes with Truist. Your line is open..

Yes, thank you. Good morning. The earned was quite strong in the quarter relative to what I've might have expected given the written.

Was there any audit premium or other adjustments, the timing issues that helped earned in the quarter?.

Good morning, Mark. This is Mike. I can't speak to that at the top of my head. Clearly the big driver is we're writing more premium and that's showing through in the earned.

We do audit most of our policies and so that there's always going to be a little bit of variability on that, there's also different retentions based on the mix of business that that can have a little bit of impact quarter-to-quarter. But the big driver is you're just seeing the growth in the business.

Again, with we attribute to our model and to the general market conditions being as favorable as they are..

Yes. And then, Bryan, the expense ratio essentially 20% you say low-to-mid 20s. Assuming your optimism around the market conditions holds then you're going to be growing in the topline or one might assume so.

Is there some reason why the expense ratio should go back up from here or is this more some of the proforma guidance but is that just a more of a long-term guide you're giving us?.

Yes. I would just say, Mark, it has sort of varied from quarter-to-quarter. I would point you to the nine months ratio of the 21.4 is probably the best guide at this point..

Okay, very good.

And then the reserve gains in the quarter, the accident years that you do from there, was that largely a 2020?.

Yes. We kind of write that up a little bit in the queue. I think it's yes I think it's largely from 2020. Again, I would the point I'd make for investors with respect to reserves is it they should have a lot of confidence in the integrity of our balance sheet.

We purposefully set up reserves that we think are conservatively stated where they're more likely to develop favorably than unfavorably and we see that as a real strength for our company. And long-term, I think it moves to everybody's benefit..

And then just one more question. You talked about potentially raising capital next year with debt.

The underwriting leverage, refresh me on where you see your underwriting leverage now and what's your kind of an operational ceiling would be?.

I think net premium to cap equity is about 1:1. Our A invest rating is predicated on net premium to statutory surplus which lags cap equity by a significant amount. The general point is that we don’t expect to raise any additional equity cap you know that we want to inject a little bit more financial leverage into the business.

And we think that'll be pretty helpful in terms of driving superior returns going forward..

Thank you, very much..

Thanks, Mark..

Thank you. Next we have Mark Dwelle with RBC Capital Markets..

Yes, good morning. Just a couple of questions. You commented on the growth in submissions.

Are there any particular lines of business that you're seeing higher rate queue of submissions? And kind of in parallel with that, are you continuing to see good group migration of business from the standard lines towards the E&S lines?.

Mark, this is Brian Haney. So, the general cat we're seeing increase in submission is because it led a lot of premises related business and last year during the lockdowns that this have been severely impacted. So, that's one area where is up.

I'm not sure if the areas where it's down because in for environmental business and our life sciences business in that place had a huge increase inflations last year because of COVID.

And then yes, we're also seeing not necessarily -- we are seeing movement from the standard lines to our space, we're also seeing movement from programs to our space as it progress --..

The same question I want to ask about was, you had commented about getting more of the business, getting higher ceding commissions based on it was more of the business that you're writing, it's subject to reinsurance.

Is that primarily in excess, I know you're not writing significantly more property which is while we insured, is it mainly casualty excess?.

Yes. It's in two areas, it'd be the casualty excess, Mark, and also in our personal lines of Homeowners product, we have a quota share agreement there that’s that has the ceding commission involved, yes..

Okay. And then, just in general in terms of maybe a pricing comment overall. Obviously you guys have been seeing quite good rate increases.

Are there any still areas of the market that you that are generally viewed as not well-priced or not adequately priced at this point? I would think after better part of three years that those are becoming pretty scarce..

Hey Mark, this is Mike. I think it's for the industry, yes, pricings better today that it was a couple of years ago. But I think it’s a reminder too that the E&S market takes a very different view of risk and pricing in the standard market. So, if a risk is moving from standard to nonstandard, there will be a significant rate increase.

And I think just as a follow-on to Brian's answer a minute ago, a fact that a lot of delegated underwriting authorities are being adjusted in the last couple of years, that continues. And likewise there is some times a very different pricing approach to that business.

So, I think that in Brian's comments he said we're getting low double digit rate increases, low-teens rate increases across our portfolio. That's very significant increases especially in light of the fact that we got similar increases the prior year and similar the prior year to that.

So, it really I think speaks to the margin improvement that is starting to show up on the bottom line. So, it gets to the extent that our customer is moving from say a standard policy to an E&S policy. You might be getting a 10% increase but the customer might be getting a 30% to 40% increase. Their drag, yes..

Yes, okay. That's helpful, thank you. That's all my questions, thanks Mike..

Thank you. Next we have Pablo Singzon with JPMorgan..

Hi, good morning. So, just a quick follow-up on the accident year loss ratio. Obviously, this was pretty good. If you look year-to-date, I think they're running at about 61, a little below 61 which they did on last year.

Is that a good level to think of when considering what might happen in the next couple of years sort of like 61'ish?.

I think that's its good as any, Pablo. I think that's a good it's a good starting point. I mean, clearly the pricing trends are quite favourable, clearly we're trying to set reserves that we think are likely to develop favourably over time. Alright.

So, there's always some conservatism in how we set those loss picks but I think that's a good starting point..

Okay. And then, Mike, just on your -- just to follow-up onto the reserve conservatism comment. So, I think if you back up the reserve releases from accident year 2020 year-to-date, right. And assuming when that is correct, it seems like you overbooked that 2020 loss ratio by about five to six points.

Was there anything unique about 2020, maybe you were more conservative because of COVID or is that five to six point gap trip emblematic of a normal conservatism you have in your loss picks on an ongoing business. But that is a pretty sizeable or not, want a good perspective on that..

Yes. I don’t have the specifics in front of me to speak to the 5% or 6% but I can tell you that the overarching trend for 2020 was a material reduction in reported losses relative to what we would have expected.

Clearly, that had a lot to do with the pandemic; business is being closed down; business operations shifting in all sorts of different ways to accommodate government regulation; and the like.

And so, yes, we did set up additional loss reserves to offset that reduction in reported losses just to make sure that hey if there is a catch up in loss activity in the future as the economy reopens and the court systems reopen and the like, that they were well-positioned to cover that. So, that was kind of the big driver for 2020, just a --..

Got it..

The reported loss is coming in well..

Got it.

And then just to follow-up on that, would it be safe to assume that you probably won't unwind all of the conservatism from 2020 just in one year or in other words like would it be reasonable to assume that if things go as they've been going, there should be further tailwinds in 2022?.

Yes. I think that's yes absolutely. We would not unwind all of our conservatism in one year; we drift down little-by-little over the years ahead..

Okay. And then last from me, you had some comments about inflation. So, I'm not sure to what extent can talk actual numbers but I presume you've increased you're all trying to function because of inflation, if you could sort of speak to that and I guess to what extent has that eaten away as the gap between pricing and your loss trend assumptions.

Thanks..

Yes. The loss trend assumptions are ticking up, right, with all the headlines we're seeing. But I think that the important point for investors is Bryan's comment which is hey we're getting rate increases across our portfolio in the low teen. So, whether though I think historically we view the loss cost trend maybe like 3% or 4%..

Yes..

I think its a few points higher than that currently but we’re well north of even that..

Thank you..

Thanks, Pablo..

Thank you. We have no further questions. Please continue, President..

Okay. Well, I just want to thank everybody for listening in. and I want to congratulate all the Kinsale employees that helped make this happen. And we look forward to speaking with you again here in a few months. Have a great day..

This concludes today's conference call. Thank you all, for participating. You may now disconnect..