What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-25 compared with 2020-03-02 · 499 added, 330 removed, 808 unchanged (51% of the section changed)

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and financial statement schedules I, II and V (collectively, the consolidated financial statements), and our report dated March 2, 2020 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income and comprehensive income, changes in stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement schedules I, II, and V (collectively, the consolidated financial statements), and our report dated February 25, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying

Management's Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Richmond, Virginia

March 2, 2020

February 25, 2021

Report of Independent Registered Public Accounting Firm

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Notes 1 and 14 to the consolidated financial statements, the Company changed its method of accounting for recognizing changes in unrealized gains and losses in fair value of equity investments in 2018 due to the adoption of Accounting Standards Update 2016-01, Financial Instruments - Overall:

Recognition and Measurement of Financial Assets and Financial Liabilities.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Assessment of the estimation of reserves for unpaid losses and loss adjustment expenses

As described Notes 1 and 7 to the consolidated financial statements, the Company records reserves for unpaid losses and loss adjustment expenses (loss reserves), which represent the Company’s best estimate of ultimate unpaid cost of all reported and unreported losses and loss adjustment expenses incurred prior to the financial statement date.

This estimate is based on an actuarial method that uses the Company’s expected loss ratios, expected reporting patterns for losses based on industry data, and the Company’s actual reported losses and loss adjustment expenses.

All estimates are regularly reviewed and, as experience develops and new information becomes known, the loss reserves are adjusted as necessary.

Reserves for unpaid losses and loss adjustment expenses

As described in Notes 1 and 7 to the consolidated financial statements, the Company records reserves for unpaid losses and loss adjustment expenses (reserves), which represent the Company’s best estimate of ultimate unpaid cost of all reported and unreported losses and loss adjustment expenses incurred prior to the financial statement date.

This estimate is based on an actuarial method that uses the Company’s initial expected loss ratios, expected reporting patterns for losses based on historical Company and industry data, and the Company’s actual reported losses and loss adjustment expenses.

All estimates are regularly reviewed and, as experience develops and new information becomes known, the reserves are adjusted as necessary.

As of December 31, 2020, the Company recorded $636.0 million of reserves for unpaid losses and loss adjustment expenses.

We identified the assessment of the estimation of loss reserves as a critical audit matter.

The process of evaluating the Company’s best estimate of loss reserves involved significant auditor judgment due to the inherent uncertainty in the ultimate amount and timing of claim payments.

The evaluation of the ultimate amount and timing of claims payments required specialized skills and knowledge.

In addition, the evaluation of the ultimate expected loss assumptions required subjective auditor judgment due to the Company’s limited historical loss data and, therefore, also involved a consideration of industry data.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s reserving process, including controls over the actuarial method, and certain assumptions used to derive the Company’s best estimate of loss reserves and the comparison of the Company’s best estimate to the annual independent actuarial reserve estimate performed by an external consulting actuary.

We involved actuarial professionals with specialized skills and knowledge, who assisted in:

Assessing the actuarial methodology used by the Company for consistency with generally accepted actuarial standards and practices;

Comparing certain assumptions about future claim reporting amounts and payment patterns to historical Company data and industry data, such as loss development trends of similar insurance products;

Performing independent estimates of loss reserves for all product lines, using a combination of the Company’s underlying historical claims data and industry data;

Developing an independent range of loss reserves using both Company and industry data with respect to future claim reporting amounts and payment patterns and prior year independent selected loss rates;

Assessing the position of the Company’s recorded loss reserves within this independent range in the current year and comparing its relative position in the prior year.

We identified the evaluation of the estimation of reserves as a critical audit matter.

The evaluation of the Company’s best estimate of reserves required complex auditor judgment due to the inherent uncertainty in the ultimate amount and timing of claim payments and required specialized actuarial skills and knowledge.

In addition, the evaluation of

the ultimate expected loss assumptions required subjective auditor judgment due to the Company’s limited historical claims data and, therefore, also involved a consideration of industry data.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s reserving process.

These included internal controls over the actuarial method and certain assumptions used to derive the Company’s best estimate of reserves and the comparison of the Company’s best estimate to the annual independent actuarial reserve estimate performed by an external consulting actuary.

We also involved actuarial professionals with specialized skills and knowledge, who assisted in:

• comparing the actuarial methodology the Company used to determine the reserves to generally accepted actuarial standards and practices

• comparing certain assumptions about future claim reporting amounts and payment patterns to the Company’s underlying historical claims data and industry data, such as loss development trends of similar insurance products

• assessing the Company’s internal actuarial analysis for all lines of business by reviewing the assumptions and actuarial method used, which included the selection of loss development factors and the actuarial method, considering internal and external factors

• performing independent estimates of reserves for each line of business, using a combination of the Company’s underlying historical claims data and industry data

• developing an independent range of reserves using both the Company’s underlying historical claims data and industry data with respect to future claim reporting amounts and payment patterns and prior year independent selected loss rates

• assessing the position of the Company’s recorded reserves within this independent range in the current year and comparing to its relative position in the prior year.

We have served as the Company’s auditor since 2009.

Richmond, Virginia

March 2, 2020

February 25, 2021

KINSALE CAPITAL GROUP, INC.

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Fixed-maturity securities available-for-sale, at fair value (amortized cost:

$714,817 in 2019;

$514,237 in 2018)

$1,031,817 at 2020;

$714,817 at 2019) $ 1,081,800 $ 729,532

Equity securities, at fair value (cost:

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Deferred income tax asset, net — 3,374

Other assets 50,133 23,922

Total assets $ 1,546,896 $ 1,090,550

Liabilities and Stockholders' Equity

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Credit facility 42,570 16,744

Deferred income tax liability, net 4,648 —

Other liabilities 118 977

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Stockholders’ equity:

Common stock, $0.01 par value, 400,000,000 shares authorized, 22,205,665 shares issued and outstanding as of December 31, 2019;

21,241,504 shares issued and outstanding as of December 31, 2018

Common stock, $0.01 par value, 400,000,000 shares authorized, 22,757,251 shares issued and outstanding at December 31, 2020;

22,205,665 shares issued and outstanding at December 31, 2019 228 222

Additional paid-in capital 291,315 229,229

Retained earnings 243,315 162,911

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 41,380 13,518

Stockholders’ equity 576,238 405,880

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Year Ended December 31,

2020 2019 2018

(in thousands, except per share data)

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Change in fair value of equity securities

16,855 12,389 ( 6,555 )

Net realized investment gains

3,533 359 281

Other income 634 26 12

Total revenues 459,886 315,888 222,114

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Income tax expense 11,994 12,735 6,693

Net income 88,419 63,316 33,787

Other comprehensive income (loss):

Change in unrealized gains (losses) on available-for-sale investments, net of taxes of $3,927 in 2019, $(1,453) in 2018, and $3,047 in 2017

Change in unrealized gains (losses) on available-for-sale investments, net of taxes 27,862 14,774 ( 5,469 )

Total comprehensive income $ 116,281 $ 78,090 $ 28,318

Earnings per share:

Basic $ 3.96 $ 2.94 $ 1.60

Diluted $ 3.87 $ 2.86 $ 1.56

Weighted-average shares outstanding:

Basic 22,319 21,528 21,090

Diluted 22,852 22,136 21,685

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Changes in Stockholders' Equity

Shares of Common Stock

Additional Paid-in Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

( in thousands)

Balance at December 31, 2016

Issuance of common stock under stock-based compensation plan

Stock-based compensation expense

Dividends declared

Other comprehensive income, net of income taxes

Shares of Common Stock Common Stock Additional Paid-in Capital Retained Earnings Accumu-

Income (Loss) Total Stockholders' Equity

( in thousands, except for per share data)

Balance at December 31, 2017 21,036 $ 210 $ 155,082 $ 73,502 $ 9,395 $ 238,189

Cumulative effect adjustment - unrealized gains on equity securities, net of tax

— — — 6,490 ( 6,490 ) —

Balance at December 31, 2017, as adjusted

21,036 210 155,082 79,992 2,905 238,189

Reclassification of tax effect of TCJA

— — — ( 1,308 ) 1,308 —

Issuance of common stock under stock-based compensation plan

206 2 1,806 — — 1,808

Stock-based compensation expense — — 1,597 — — 1,597

Dividends declared

Dividends declared ($0.28 per share) — — — ( 5,926 ) — ( 5,926 )

Other comprehensive loss, net of income taxes

— — — — ( 5,469 ) ( 5,469 )

Net income — — — 33,787 — 33,787

Balance at December 31, 2018 21,242 212 158,485 106,545 ( 1,256 ) 263,986

Issuance of common stock, net of issuance costs

742 8 65,871 — — 65,879

Issuance of common stock under stock-based compensation plan

229 2 2,748 — — 2,750

Stock-based compensation expense — — 2,742 — — 2,742

Restricted shares withheld for taxes ( 7 ) — ( 617 ) — — ( 617 )

Dividends declared

Dividends declared ($0.32 per share) — — — ( 6,950 ) — ( 6,950 )

Other comprehensive income, net of income taxes

— — — — 14,774 14,774

Net income — — — 63,316 — 63,316

Balance at December 31, 2019 22,206 222 229,229 162,911 13,518 405,880

Adoption of new accounting standard for credit losses, net

— — — 78 — 78

Issuance of common stock, net of issuance costs

311 3 56,695 — — 56,698

Issuance of common stock under stock-based compensation plan

252 3 3,619 — — 3,622

Stock-based compensation expense — — 3,575 — — 3,575

Restricted shares withheld for taxes ( 12 ) — ( 1,803 ) — — ( 1,803 )

Dividends declared ($0.36 per share) — — — ( 8,093 ) — ( 8,093 )

Other comprehensive income, net of income taxes

— — — — 27,862 27,862

Net income — — — 88,419 — 88,419

Balance at December 31, 2020 22,757 $ 228 $ 291,315 $ 243,315 $ 41,380 $ 576,238

See accompanying notes to consolidated financial statements.

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Year Ended December 31,

2020 2019 2018

(in thousands)

Operating activities:

Net income $ 88,419 $ 63,316 $ 33,787

Adjustments to reconcile net income to net cash provided by operating activities:

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Net realized investment gains ( 3,533 ) ( 359 ) ( 281 )

Deferred tax (benefit) expense

Deferred tax expense (benefit) 616 ( 125 ) ( 3,230 )

Depreciation and amortization 1,574 682 631

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Reinsurance balances, net ( 23,267 ) ( 13,246 ) ( 8,070 )

Funds held for reinsurers

Deferred policy acquisition costs ( 8,348 ) ( 8,763 ) ( 3,026 )

Income taxes payable

Income taxes (recoverable) payable ( 1,611 ) 1,221 18

Accounts payable and accrued expenses 3,087 2,972 464

Other 2,802 3,466 2,132

Net cash provided by operating activities 279,974 178,357 103,980

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Purchase of property and equipment ( 32,875 ) ( 19,622 ) ( 1,273 )

Sale of property and equipment 5,077 — —

Purchases – fixed-maturity securities ( 530,732 ) ( 306,203 ) ( 194,989 )

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Dividends paid ( 8,073 ) ( 6,929 ) ( 5,906 )

Payments on capital lease

Net cash provided by (used in) financing activities 76,144 77,755 ( 4,098 )

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Description of business

Kinsale Capital Group, Inc., an insurance holding company, is a Delaware corporation that was formed in 2009 and conducts its operations through its wholly-owned subsidiaries.

Kinsale Capital Group, Inc., an insurance holding company, is a Delaware corporation that was formed in 2009 and conducts its operations through its wholly-owned subsidiaries ("KCGI" and together with its subsidiaries, the "Company").

Kinsale Capital Group, Inc.

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Management periodically reviews its estimates and assumptions.

These reviews include evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, allowance for doubtful accounts and uncollectible reinsurance, fair value of investments, as well as evaluating the investment portfolio for other-than-temporary declines in fair value.

Cash and cash equivalents

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Fixed-maturity securities are classified as available-for-sale and reported at fair value.

Unrealized gains and losses on these securities are excluded from net earnings but are recorded as a separate component of comprehensive income and stockholders’ equity, net of deferred income taxes.

Unrealized gains and losses on these securities are excluded from net earnings but are recorded as a separate component of other comprehensive income and stockholders' equity, net of deferred income taxes.

Equity securities are reported at fair value.

Prior to the adoption of new accounting guidance effective January 1, 2018, equity securities were classified as available-for-sale and, similar to fixed-maturity securities, unrealized gains and losses were recorded as a separate component of comprehensive income and stockholders’ equity, net of deferred income taxes.

In accordance with new accounting guidance, the available-for-sale classification was eliminated for equity securities and changes in unrealized gains and losses in fair value of these investments are recognized in net income.

The Company regularly evaluates its available-for-sale securities using both quantitative and qualitative criteria to determine impairment losses for other-than-temporary declines in the fair value of the investments.

See Note 2 for further discussion of other-than-temporary impairments ("OTTI").

Changes in unrealized gains and losses in fair value of these investments are recognized in net income.

The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss.

See Note 2 for further discussion of credit losses.

Interest on fixed-maturity securities is credited to earnings as it accrues.

Premiums and discounts are amortized or accreted over the lives of the related fixed maturities, or to the earliest call date.

Premiums and discounts are amortized or accreted using the effective interest method over the lives of the related fixed maturities, or to the earliest call date for securities purchased at a premium.

Dividends on equity securities are included in earnings on the ex-dividend date.

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Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets.

The estimated useful lives range from 7 to 10 years for furniture and equipment, 3 to 7 years for electronic data processing hardware and software, and from 2 to 6 years for leasehold improvements, which is the shorter of the estimated useful life or the lease term.

The estimated useful lives range from 39 years for the parking deck and building, 15 to 20 years for land improvements, 7 to 10 years for furniture and equipment, 3 to 7 years for electronic data processing hardware and software, and from 2 to 5 years for leasehold improvements, which is the shorter of the estimated useful life or the lease term.

Property and equipment are included in "other assets" in the accompanying consolidated balance sheets and consists of the following:

(in thousands)

Building $ 31,675 $ —

Parking deck 5,072 —

Equipment 2,770 2,353

Software 4,815 2,356

Furniture and fixtures 1,731 1,025

Leasehold improvements — 984

Land improvements 317 —

Construction in progress - corporate headquarters — 19,789

49,448 26,507

Accumulated depreciation ( 3,262 ) ( 3,873 )

Total property and equipment, net $ 46,186 $ 22,634

In January 2019, the Company purchased land for $ 2.5 million in Henrico County, Virginia for the development of its new corporate headquarters and is currently targeting a third quarter 2020 completion date.

The project is estimated to cost approximately $ 50 million to $ 55 million , which will be funded through a combination of existing cash flows from operations and draw down on the credit facility.

See Note 11 for further discussion.

At December 31, 2019, construction in progress includes the purchased land and capitalized expenses related to the construction of the new corporate headquarters' building and parking deck.

During 2020, the construction of the headquarters and parking deck was substantially completed and the related fixed assets were placed into service.

During 2020, the Company sold a portion of both the land and parking deck for approximately $ 6.5 million to a real estate developer for the development of an apartment building.

At December 31, 2020, the Company received $ 5.0 million of the proceeds from the sale and is expected to receive the remaining $ 1.5 million upon completion of the apartment building.

This receivable is included in "other assets" on the accompanying consolidated balance sheet.

Intangible assets

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Furthermore, management may determine that recorded reserves are more than adequate to cover expected losses which will result in a reduction to the reserves.

The Company believes that the reserves for unpaid losses and loss adjustment expenses at December 31, 2019 and 2018 are adequate and represent a reasonable estimate of the Company's future obligations.

Company believes that the reserves for unpaid losses and loss adjustment expenses at December 31, 2020 and 2019 are adequate and represent a reasonable estimate of the Company's future obligations.

See Note 7 for a further discussion of reserves for unpaid losses and loss adjustment expenses.

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The following was considered in the estimation of fair value for each class of financial instruments for which it was practicable to estimate that value.

The Company’s investment manager uses independent pricing vendors to estimate the fair value of fixed-maturity securities and the Company’s management reviews these prices for reasonableness.

The Company’s investment accounting vendor uses independent pricing vendors to estimate the fair value of fixed-maturity securities and the Company’s management reviews these prices for reasonableness.

Treasury securities that have quoted prices in active markets are included in the amounts disclosed as Level 1.

For other fixed-maturity securities, the pricing vendors use a pricing methodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or securities with similar characteristics to establish a valuation.

The estimates of fair value of these fixed-maturity investments are included in the amounts disclosed as Level 2.

For those bonds where significant inputs are unobservable, Level 3 inputs, the Company's investment manager obtains valuations from pricing vendors using the market approach and income approach valuation techniques.

For equity securities, the Company’s investment manager uses prices from independent pricing vendors to estimate fair value.

The fair value estimates of exchange traded funds are based on quoted prices in an active market and are disclosed as Level 1.

The estimates of fair value of these fixed-maturity securities are included in the amounts disclosed as Level 2.

For those fixed-maturity securities where significant inputs are unobservable, Level 3 inputs, the Company's investment accounting vendor obtains valuations from pricing vendors using the market approach and income approach valuation techniques.

For equity securities, the Company’s investment accounting vendor uses prices from independent pricing vendors to estimate fair value.

The fair value estimates of exchange traded funds are based on quoted prices in an active market and

are disclosed as Level 1.

The fair value estimates of preferred stock are based on observable market data and, as a result, are disclosed as Level 2.

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Compensation cost for awards of equity instruments to employees is measured based on the grant-date fair value of those awards and compensation expense is recognized over the service period that the awards vest.

Forfeitures of stock-based compensation

awards are recognized as they occur.

Forfeitures of stock-based compensation awards are recognized as they occur.

See Note 9 for further discussion and related disclosures regarding stock-based compensation.

Recently adopted accounting pronouncements

ASU 2016-02, Leases (Topic 842)

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)" to improve the financial reporting of leasing transactions.

Under this ASU, lessees will recognize a right-of-use ("ROU") asset and corresponding liability on the balance sheet for all leases, except for leases covering a period of 12 months or less.

The lessee’s income statement treatment for leases will vary depending on the nature and classification of the lease.

Effective January 1, 2019, the Company adopted this ASU and recorded a ROU asset and corresponding lease liability of approximately $ 0.9 million .

The ROU and operating lease liability are included in "other assets" and "other liabilities," respectively, in the accompanying consolidated balance sheet.

The Company elected the package of practical expedients permitted under the adoption of the new standard, which allowed the Company to account for existing leases under their current classification, as well as omit any new costs classified as initial direct costs, under the new standard.

This election kept the existing agreements as operating leases.

The Company also elected the practical expedient allowing an accounting policy election by class of underlying asset, to account for separate lease and nonlease components as a single lease component.

In addition, the Company has implemented the necessary internal controls relating to the adoption of the standard.

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period of the premium for certain callable debt securities, from the contractual maturity date to the earliest call date.

Effective January 1, 2019, the Company adopted ASU 2017-08 using a modified retrospective approach.

The adoption of ASU 2017-08 did not have a material impact on the Company's financial statements.

Prospective accounting pronouncements

ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)

On June 16, 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326)" to provide more useful information about the expected credit losses on financial instruments.

Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred.

The update will require a financial asset measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income.

Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses.

However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost.

The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.

The FASB has issued an additional ASUs on Topic 326 that do not change the core principle of the guidance in ASU 2016-13 but clarify or certain aspects of it.

This ASU and the additional ASUs on Topic 326 are effective for annual and interim reporting periods beginning after December 15, 2019.

Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period presented.

The adoption of this ASU is not expected to have a material impact on the Company's financial statements.

Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326)

On June 16, 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)" to provide more useful information about the expected credit losses on financial instruments.

The update requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income.

Credit losses relating to available-for-sale fixed-maturity securities must also be recorded through an allowance for credit losses.

However, the amendments limit the amount of the allowance to the amount by which fair value is below amortized cost.

The measurement of credit losses on available-for-sale securities is similar under previous U.S.

GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.

The FASB has issued additional ASUs on Topic 326 that do not change the core principle of the guidance in ASU 2016-13 but clarify certain aspects of it.

Effective January 1, 2020, the Company adopted this ASU using the modified-retrospective approach and recorded a cumulative effect adjustment to beginning retained earnings.

The adoption of this ASU resulted in the recognition of an allowance for credit loss related to the Company’s reinsurance recoverables.

However, since the Company enters into contracts with reinsurers that have A.M.

Best ratings of “A” (Excellent) or better, the allowance was not material to the Company’s consolidated financial statements.

ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract

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The new guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement.

This guidance is

effective for reporting periods beginning after December 15, 2019.

The adoption of the guidance is not expected to have a material effect on the Company’s financial statements.

Effective January 1, 2020, the Company adopted ASU 2018-15 using a modified-retrospective approach.

The adoption of ASU 2018-15 did not have a material impact on the Company's consolidated financial statements.

Prospective accounting pronouncements

ASU 2019-12, Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued updated guidance for the accounting for income taxes.

The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters.

The updated guidance is effective for annual reporting periods beginning after December 15, 2020.

Early adoption is permitted.

The adoption of the guidance will not have a material effect on the Company’s consolidated financial statements.

There are no other prospective accounting standards which, upon their effective date, would have a material impact on the Company's consolidated financial statements.

Available-for-sale investments

The following tables summarize the Company’s available-for-sale investments:

The following tables summarize the Company’s available-for-sale investments at December 31, 2020 and 2019:

December 31, 2020

Amortized Cost

Gross Unrealized Holding Gains

Gross Unrealized Holding Losses

Estimated Fair Value

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

(in thousands)

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

Obligations of states, municipalities and political subdivisions

$ 216,181 $ 14,792 $ ( 67 ) $ 230,906

Corporate and other securities 294,854 21,840 ( 86 ) 316,608

Commercial mortgage and asset-backed securities

Asset-backed securities 236,813 4,230 ( 382 ) 240,661

Commercial mortgage-backed securities 66,110 4,886 ( 27 ) 70,969

Residential mortgage-backed securities

Total available-for-sale investments

217,859 4,938 ( 141 ) 222,656

Total fixed-maturity investments $ 1,031,817 $ 50,686 $ ( 703 ) $ 1,081,800

December 31, 2019

Amortized Cost

Gross Unrealized Holding Gains

Gross Unrealized Holding Losses

Estimated Fair Value

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

(in thousands)

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government agencies

$ 110 $ 2 $ — $ 112

Obligations of states, municipalities and political subdivisions

166,312 7,542 ( 961 ) 172,893

Corporate and other securities 180,287 4,736 ( 255 ) 184,768

Commercial mortgage and asset-backed securities

Asset-backed securities 141,123 1,272 ( 471 ) 141,924

Commercial mortgage-backed securities 54,627 1,658 ( 239 ) 56,046

Residential mortgage-backed securities

Total available-for-sale investments

172,358 1,819 ( 388 ) 173,789

Total fixed-maturity investments $ 714,817 $ 17,029 $ ( 2,314 ) $ 729,532

Available-for-sale investments in a loss position

The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the declines in the securities’ fair value are deemed to be an other-than-temporary impairment ("OTTI").

The Company considers a number of factors in completing its OTTI review, including the length of time and the extent to which a security's fair value has been below cost and the financial condition of an issuer.

The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss.

The Company considers a number of factors in completing its review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition of an issuer.

In addition to specific issuer information, the Company also evaluates the current market and interest rate environment.

Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute an OTTI, but rather a temporary decline in fair value.

For fixed-maturity securities, the Company also considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery and the ability to recover all amounts outstanding

when contractually due.

Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute a credit loss.

When assessing whether it intends to sell a fixed-maturity security or if it is likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

For fixed-maturity securities where a decline in fair value is considered to be other-than-temporary and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security.

If the decline in fair value of a fixed-maturity security below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security.

The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the OTTI, which is recognized in net income, resulting in a new cost basis for the security.

Any remaining decline in fair value represents the noncredit portion of the OTTI, which is recognized in other comprehensive income

The following tables summarize gross unrealized losses and fair value for available-for-sale securities by length of time that the securities have continuously been in an unrealized loss position:

For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its

amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment.

For fixed-maturity securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before recovery of its amortized cost, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security.

The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses.

Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income.

Beginning on January 1, 2020, credit losses are recognized through an allowance account.

See Note 1 - Recently adopted accounting pronouncements - ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) for additional information.

The Company reports investment income due and accrued separately from fixed-maturity securities, available for sale, and has elected not to measure an allowance for credit losses for investment income due and accrued.

Investment income due and accrued is written off through net realized gains (losses) on investments at the time the issuer of the bond defaults or is expected to default on payments.

The following tables summarize gross unrealized losses and estimated fair value for available-for-sale investments by length of time that the securities have continuously been in an unrealized loss position:

December 31, 2020

Less than 12 Months

12 Months or Longer

Estimated Fair Value

Gross Unrealized Holding Losses

Estimated Fair Value

Gross Unrealized Holding Losses

Estimated Fair Value

Gross Unrealized Holding Losses

Less than 12 Months 12 Months or Longer Total

Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses

(in thousands)

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

Obligations of states, municipalities and political subdivisions

$ 6,412 $ ( 67 ) $ — $ — $ 6,412 $ ( 67 )

Corporate and other securities 3,829 ( 86 ) — — 3,829 ( 86 )

Commercial mortgage and asset-backed securities

Asset-backed securities 57,750 ( 149 ) 23,825 ( 233 ) 81,575 ( 382 )

Commercial mortgage-backed securities 4,971 ( 27 ) — — 4,971 ( 27 )

Residential mortgage-backed securities

Total available-for-sale investments

46,869 ( 129 ) 266 ( 12 ) 47,135 ( 141 )

Total fixed-maturity investments $ 119,831 $ ( 458 ) $ 24,091 $ ( 245 ) $ 143,922 $ ( 703 )

At December 31, 2020, the Company held 60 fixed-maturity securities with a total estimated fair value of $ 143.9 million and gross unrealized losses of $ 0.7 million.

Of those securities, 12 were in a continuous unrealized loss position for greater than one year.

Unrealized losses were caused by interest rate changes or other market factors and were not credit specific issues.

As discussed above, the Company regularly reviews all fixed-maturity securities within its investment portfolio to determine whether a credit loss has occurred.

Based on the Company's review as of December 31, 2020, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues.

At December 31, 2020, 81.6 % of the Company’s fixed-maturity securities were rated "A-" or better and all of Company's fixed-maturity securities made expected coupon payments under the contractual terms of the securities.

Based on its review, the Company concluded that there were no other-than-temporary impairments from fixed-maturity securities with unrealized losses for the year ended December 31, 2019 .

Based on its review, the Company concluded that there were no credit losses from fixed-maturity securities with unrealized losses for the year ended December 31, 2020.

December 31, 2019

Less than 12 Months

12 Months or Longer

Estimated Fair Value

Gross Unrealized Holding Losses

Estimated Fair Value

Gross Unrealized Holding Losses

Estimated Fair Value

Gross Unrealized Holding Losses

Less than 12 Months 12 Months or Longer Total

Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses

(in thousands)

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

Obligations of states, municipalities and political subdivisions

$ 28,997 $ ( 961 ) $ 254 $ — $ 29,251 $ ( 961 )

Corporate and other securities 22,409 ( 251 ) 1,509 ( 4 ) 23,918 ( 255 )

Commercial mortgage and asset-backed securities

Asset-backed securities 21,371 ( 79 ) 44,115 ( 392 ) 65,486 ( 471 )

Commercial mortgage-backed securities 16,352 ( 224 ) 2,508 ( 15 ) 18,860 ( 239 )

Residential mortgage-backed securities

Total available-for-sale investments

At December 31, 2018 , the Company held 317 fixed-maturity securities with a total estimated fair value of $ 350.9 million and gross unrealized losses of $ 6.9 million .

Of these securities, 158 were in a continuous unrealized loss position for greater than one year.

Unrealized losses were caused by interest rate changes or other market factors and were not credit specific issues.

At December 31, 2018 , 86.4 % of the Company’s fixed-maturity securities were rated "A-" or better and all of Company's fixed-maturity securities made expected coupon payments under the contractual terms of the securities.

Based on its review, the Company concluded that there were no other-than-temporary impairments from the fixed-maturity or equity securities with unrealized losses at December 31, 2018 .

36,986 ( 148 ) 24,815 ( 240 ) 61,801 ( 388 )

Total fixed-maturity investments $ 126,115 $ ( 1,663 ) $ 73,201 $ ( 651 ) $ 199,316 $ ( 2,314 )

Contractual maturities of available-for-sale fixed-maturity securities

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at December 31, 2020 are summarized, by contractual maturity, as follows:

Amortized Estimated

Cost Fair Value

(in thousands)

3 unchanged sentences

Due after ten years 231,382 246,631

Commercial mortgage and asset-backed securities

Asset-backed securities 236,813 240,661

Commercial mortgage-backed securities 66,110 70,969

Residential mortgage-backed securities 217,859 222,656

4 unchanged sentences

Year Ended December 31,

2020 2019 2018

(in thousands)

2 unchanged sentences

Cash equivalents and short-term investments

262 842 1,017

Dividends on equity securities 3,512 2,136 2,014

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(in thousands)

6 unchanged sentences

Realized losses ( 119 ) ( 688 ) ( 22 )

Net realized gains (losses) from equity securities

Short-term securities - realized gain

Net realized (losses) gains from equity securities ( 119 ) ( 132 ) 35

Short-term securities - realized gains 13 3 —

Net realized investment gains $ 3,533 $ 359 $ 281

Change in net unrealized gains (losses) on investments

The change in net unrealized gains for fixed-maturity securities was $ 18.7 million for the year ended December 31, 2019 .

The change in net unrealized gains for fixed-maturity securities was $ 35.3 million and $ 18.7 million for the years ended December 31, 2020 and 2019, respectively.

The change in net unrealized losses for fixed-maturity securities was $ 6.9 million for the year ended December 31, 2018.

The change in net unrealized gains for fixed-maturity securities was $ 5.2 million for the year ended December 31, 2017 .

For the year ended December 31, 2017 , the change in net unrealized gains for equity securities was $ 4.2 million .

Insurance – statutory deposits

The Company had invested assets with a carrying value of $ 6.9 million and $ 6.9 million on deposit with state regulatory authorities at December 31, 2019 and 2018 , respectively.

The Company had invested assets with a carrying value of $ 6.9 million on deposit with state regulatory authorities at both December 31, 2020 and 2019.

Fair value measurements

Fair value is estimated for each class of financial instrument for which it was practical to estimate fair value.

Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date.

Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress.

Fair value is defined as the price in the principal market that would be received for an asset or paid to transfer a liability to facilitate an orderly transaction between market participants on the measurement date.

Market participants are assumed to be

independent, knowledgeable, able and willing to transact an exchange and not acting under duress.

Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value.

5 unchanged sentences

Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement.

Fair values of the Company's investment portfolio are estimated using unadjusted prices obtained by its investment manager from nationally recognized third-party pricing services, where available.

For securities where the Company is unable to obtain fair values from a pricing service or broker, fair values are estimated using information obtained from the Company's investment manager.

Management performs several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2019 and 2018, including 1) obtaining and reviewing internal control reports from the Company's investment manager that assess fair values from third party pricing services, 2) discussing with the Company's investment manager its process for reviewing and validating pricing obtained from third party pricing services and 3) reviewing the security pricing received from the Company's investment manager and monitoring changes in unrealized gains and losses at the individual security level.

Fair values of the Company's investment portfolio are estimated using unadjusted prices obtained by its investment accounting vendor from nationally recognized third-party pricing services, where available.

Values for U.S.

Treasury and exchange traded funds are generally based on Level 1 inputs which use quoted prices in active markets for identical assets.

For other fixed-maturity securities and preferred stock, the pricing vendors use a pricing methodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or securities with similar characteristics to establish a valuation.

The estimates of fair value of these investments are included in the amounts disclosed as Level 2.

For those investments where significant inputs are unobservable, the Company's investment accounting vendor obtains valuations from pricing vendors or brokers using the market approach and income approach valuation techniques and are disclosed as Level 3.

Management performs several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2020 and 2019, including 1) obtaining and reviewing internal control reports from the Company's investment accounting vendor that assess fair values from third party pricing services, 2) discussing with the Company's investment accounting vendor its process for reviewing and validating pricing obtained from third party pricing services and 3) reviewing the security pricing received from the Company's investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level.

The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs.

1 unchanged sentence

December 31, 2020

Level 1 Level 2 Level 3 Total

(in thousands)

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

Obligations of states, municipalities and political subdivisions

$ — $ 230,906 $ — $ 230,906

Corporate and other securities — 316,608 — 316,608

Commercial mortgage and asset-backed securities

Asset-backed securities — 240,661 — 240,661

Commercial mortgage-backed securities — 70,969 — 70,969

Residential mortgage-backed securities — 222,656 — 222,656

4 unchanged sentences

Total equity securities 98,050 31,612 — 129,662

Total $ 98,050 $ 1,113,412 $ — $ 1,211,462

December 31, 2019

Level 1 Level 2 Level 3 Total

(in thousands)

2 unchanged sentences

government agencies

$ 112 $ — $ — $ 112

Obligations of states, municipalities and political subdivisions

— 172,893 — 172,893

Corporate and other securities — 184,768 — 184,768

Commercial mortgage and asset-backed securities

Asset-backed securities — 141,924 — 141,924

Commercial mortgage-backed securities — 56,046 — 56,046

Residential mortgage-backed securities — 173,789 — 173,789

4 unchanged sentences

Total equity securities 54,463 23,831 — 78,294

There were no transfers into or out of Level 1 and Level 2 during the years ended December 31, 2019 or 2018 .

Total $ 54,575 $ 753,251 $ — $ 807,826

There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2020 or 2019.

The carrying value of cash equivalents approximates its fair value at December 31, 2019, due to the short-term maturities of these assets.

In addition, the estimated fair value of the Credit Facility approximated its carrying value as of December 31, 2019.

The carrying value of cash equivalents approximates its fair value at December 31, 2020 and 2019, due to the short-term maturities of these assets.

In addition, the estimated fair value of the Credit Facility approximated its carrying value as of December 31, 2020 and 2019.

See Note 11 for further information regarding the Credit Facility.

2 unchanged sentences

Year Ended December 31,

2020 2019 2018

(in thousands)

2 unchanged sentences

Direct commissions

80,682 56,841 40,546

Ceding commissions ( 18,879 ) ( 12,373 ) ( 11,239 )

7 unchanged sentences

Year Ended December 31,

2020 2019 2018

(in thousands)

3 unchanged sentences

Other operating expenses 40,519 34,182 26,988

Total $ 94,296 $ 70,217 $ 53,425

Other operating expenses within underwriting, acquisition and insurance expenses included salaries, employee benefits and bonus expense of $ 35.9 million, $ 27.8 million and $ 19.7 million, for the years ended December 31, 2020, 2019 and 2018, respectively.

3 unchanged sentences

The Company is no longer subject to income tax examination by tax authorities for the years ended before January 1, 2017.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020.

The purpose of the CARES Act is to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic.

The CARES Act builds on and clarifies a number of changes in corporate tax law implemented by the Tax Cuts and Jobs Act.

The CARES Act will not have a significant impact on the Company's consolidated financial statements.

Income tax expense includes the following components for the years ending December 31, 2020, 2019 and 2018:

Year Ended December 31,

2020 2019 2018

(in thousands)

3 unchanged sentences

The Company paid $ 13.0 million, $ 11.6 million and $ 9.9 million in federal income taxes during the years ended December 31, 2020, 2019 and 2018, respectively.

Current income taxes recoverable was $ 1.2 million at December 31, 2020, and included in "other assets" in the accompanying consolidated balance sheets.

Current income taxes payable was $ 0.4 million at December 31, 2019, and included in "other liabilities" in the accompanying consolidated balance sheets.

Current income taxes receivable was $ 0.8 million at December 31, 2018, and included in "other assets" in the accompanying consolidated balance sheets.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act of 2017 (the "TCJA").

The legislation significantly changed U.S.

tax law by, among other things, lowering corporate income tax rates from 35 % to 21 % , effective January 1, 2018.

GAAP requires companies to recognize the effect of tax law changes in the period of enactment.

Accordingly, the Company remeasured its deferred tax assets and liabilities using enacted tax rates applicable in the years in which the temporary differences were expected to be recovered or paid, which resulted in a $ 1.9 million increase in income tax expense and a corresponding decrease in net deferred tax assets as of the enactment date.

In addition, the TCJA modified the manner in which property and casualty insurance loss reserves were computed for federal income tax purposes.

In computing its taxable income, the Company records a deduction for unpaid losses and loss adjustment expenses, which is discounted using interest rates and loss payment patterns prescribed by the U.S.

The TCJA changed the prescribed interest rates, which are now based on corporate bond yield curves, and extended the applicable time periods for the loss payment pattern period for long-tailed lines of business.

The changes were effective for tax years beginning after 2017 with a transition rule that spread the adjustments related to pre-effective-date losses and loss adjustment expenses over the next eight years beginning in 2018.

The prevailing federal income tax rate was 21 % in 2019 and 2018 and 35 % in 2017.

The prevailing federal income tax rate was 21 % in 2020, 2019 and 2018.

The Company’s effective income tax rate on income before income taxes differs from the prevailing federal income tax rate and is summarized as follows:

Year ended December 31,

2020 2019 2018

(in thousands)

Income tax expense at federal income tax rate

$ 21,087 $ 15,971 $ 8,501

Stock options exercised ( 7,634 ) ( 2,411 ) ( 918 )

Tax-exempt investment income ( 565 ) ( 577 ) ( 672 )

Effect of tax rate change

The significant components of the net deferred tax asset are summarized as follows:

Restricted stock award vesting ( 658 ) ( 153 ) —

Other ( 236 ) ( 95 ) ( 218 )

Total $ 11,994 $ 12,735 $ 6,693

The significant components of the net deferred tax (liability) asset are summarized as follows:

(in thousands)

6 unchanged sentences

Allowance for doubtful accounts 649 570

Unrealized losses on fixed-maturity securities

Other 126 256

Deferred tax assets before allowance 27,279 18,642

5 unchanged sentences

Deferred policy acquisition costs, net of ceding commissions 6,701 4,949

Property and equipment 2,433 10

Intangible assets 743 743

Transition adjustment for loss reserve discount 1,281 1,537

Other 229 352

Total deferred tax liabilities 28,436 13,676

Net deferred tax asset

At December 31, 2019 and 2018 , the Company had state net operating loss carryforwards ("NOLS") of $ 31.6 million and $ 19.5 million , respectively.

Net deferred tax (liability) asset $ ( 4,648 ) $ 3,374

At December 31, 2020 and 2019, the Company had state net operating losses ("NOLs") of $ 80.9 million and $ 31.6 million, respectively.

The state NOLs are available to offset future taxable income or reduce taxes payable and begin expiring in 2029.

2 unchanged sentences

No other valuation allowances were established against the Company’s deferred tax assets at December 31, 2020 and 2019, as the Company believes that it is more likely than not that the remaining deferred tax assets will be realized given the carry back availability, reversal of existing temporary differences and future taxable income.

The Company did not have any uncertain tax positions in 2019 or 2018.

The Company did not have any material uncertain tax positions in 2020 or 2019.

Management is not aware of any events that would give rise to any uncertain tax positions.

The Company recognized its entire uncertain tax position of $ 1.0 million in 2017 due to lapse of the statute of limitations.

The recognition of the uncertain tax position had no impact on the effective tax rate as it resulted in a decrease of current taxes and an offsetting increase to deferred taxes.

Reserves for unpaid losses and loss adjustment expenses

13 unchanged sentences

The following table presents a reconciliation of consolidated beginning and ending reserves for unpaid losses and loss adjustment expenses:

2020 2019 2018

(in thousands)

Gross reserves for unpaid losses and loss adjustment expenses, beginning of year

$ 460,058 $ 369,152 $ 315,717

reinsurance recoverable on unpaid losses

69,792 55,389 48,224

Adoption of new accounting standard for credit losses

Net reserves for unpaid losses and loss adjustment expenses, beginning of year

Commutation of MLQS

Adjusted net reserves for losses and loss adjustment expenses

390,548 313,763 267,493

Incurred losses and loss adjustment expenses:

Current year 277,140 178,986 135,078

Prior year ( 13,338 ) ( 9,423 ) ( 7,037 )

Total net losses and loss adjustment expenses incurred 263,802 169,563 128,041

Current year 27,664 19,054 14,118

Prior year 74,403 74,006 67,653

Total payments 102,067 93,060 81,771

Net reserves for unpaid losses and loss adjustment expenses, end of year

Reinsurance recoverable on unpaid losses

552,283 390,266 313,763

Reinsurance recoverable on unpaid losses, net of allowance 83,730 69,792 55,389

Gross reserves for unpaid losses and loss adjustment expenses, end of year

$ 636,013 $ 460,058 $ 369,152

During the year ended December 31, 2020, our net incurred losses for accident years 2019 and prior developed favorably by $ 13.3 million.

This favorable development included $ 10.5 million for the 2019 accident year and $ 1.8 million for accident year 2018.

This favorable development was primarily due to reported losses emerging at a lower level than expected, largely across the

other liability and excess lines of business.

Current year incurred losses and loss adjustment expenses for the year ended December 31, 2020 included $ 23.2 million of catastrophe losses primarily related to Hurricane Laura, Hurricane Sally and the California wildfires.

During the year ended December 31, 2019, our net incurred losses for accident years 2018 and prior developed favorably by $ 9.4 million.

This favorable development included $ 13.0 million for the 2018 accident year and $ 1.6 million for the 2017 accident year.

This favorable development was primarily due to reported losses emerging at a lower level than expected, on the other liability and products liability lines of business.

The favorable development was offset by adverse development of $ 5.2 million for the 2011 through 2015 accident years.

The unfavorable development was primarily attributable to the other liability occurrence line of

The unfavorable development was primarily attributable to the other liability occurrence line of business.

This adverse development largely resulted from management’s decision to lengthen the actuarial loss development factors to provide for emergence of reported losses over a longer period of time based on trends observed in loss experience, which added a modest amount of conservatism to the Company’s IBNR reserves.

4 unchanged sentences

The unfavorable development was primarily attributable to the other liability occurrence line of business.

During the year ended December 31, 2017, our net incurred losses for accident years 2016 and prior developed favorably by $ 11.3 million .

This favorable development included $ 9.4 million for the 2016 accident year and $ 6.0 million of favorable development for accident years 2015 and 2014.

The favorable development was primarily due to reported losses emerging at a lower level than expected, across most lines of business.

The favorable development was offset in part by adverse development of $ 4.1 million for the 2011 through 2013 accident years.

The unfavorable development was primarily attributable to the other liability occurrence line of business.

Prior to 2017, the Company participated in a multi-line quota share treaty ("MLQS") that transferred a portion of its risk related to certain lines of business to reinsurers that received a portion of the direct written premiums on that business.

Effective January 1, 2017, the Company commuted the remaining outstanding MLQS covering the period January 1, 2015 to December 31, 2015, which reduced reinsurance recoverables on unpaid losses by approximately $ 27.9 million .

The commutation did not have any effect on the Company's results of operations or cash flows for the applicable period.

Incurred and Paid Claims Development

The following is information about incurred and paid claims development as of December 31, 2020, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts.

The development and claims duration tables below exclude commuted MLQS contracts, which would distort development patterns related to those transactions.

The development and claims duration tables below exclude commuted multi-line quota-share reinsurance treaty ("MLQS") contracts, which would distort development patterns related to those transactions.

Cumulative number of reported claims is reported on a per claim basis.

1 unchanged sentence

Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance

For the Years Ended December 31,

As of December 31, 2019

For the Years Ended December 31, As of December 31, 2020

Accident Year 2016

Total of IBNR Liabilities Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

Unaudited 2017

Unaudited 2018

Unaudited 2019

Unaudited 2020 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims

($ in thousands)

2016 $ 4,177 $ 3,392 $ 3,301 $ 3,278 $ 3,270 $ — 286

2017 12,473 11,705 11,676 11,631 19 1,041

2018 11,559 12,004 12,698 88 649

2019 14,914 13,909 430 636

2020 40,612 7,139 2,189

Total $ 82,120

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

1 unchanged sentence

Accident Year 2016

Unaudited 2017

Unaudited 2018

Unaudited 2019

Unaudited 2020

($ in thousands)

2016 $ 1,867 $ 3,257 $ 3,265 $ 3,265 $ 3,270

2017 9,938 11,233 11,602 11,608

2018 9,132 11,646 12,599

2019 9,852 12,581

All outstanding liabilities before 2016, net of reinsurance —

3 unchanged sentences

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Years 1 2 3 4 5

Property 66.9 % 23.3 % 3.6 % — % 0.2 %

Casualty - Claims Made

Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance

For the Years Ended December 31,

As of December 31, 2019

For the Years Ended December 31, As of December 31, 2020

Accident Year 2011

Unaudited 2012

Total of IBNR Liabilities Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

($ in thousands)

Unaudited 2013

Unaudited 2014 Unaudited 2015

Unaudited 2016

Unaudited 2017

Unaudited 2018

Unaudited 2019 Unaudited 2020 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims

2011 $ 4,246 $ 3,844 $ 3,646 $ 3,609 $ 3,560 $ 3,374 $ 3,261 $ 3,225 $ 3,206 $ 3,177 $ 73 76

2012 7,913 5,749 4,205 3,102 2,845 2,477 2,314 2,207 2,136 190 138

2013 15,238 11,639 9,113 7,917 7,002 6,463 6,128 6,087 465 228

2014 18,847 14,289 11,748 11,217 10,948 10,988 10,620 824 273

2015 18,883 16,777 14,896 13,583 13,942 13,548 1,378 258

2016 19,170 14,693 14,675 14,322 13,583 2,116 310

2017 18,116 17,097 16,120 15,794 3,703 369

2018 22,429 20,234 18,612 7,275 458

2019 34,693 29,056 17,500 538

2020 55,630 48,966 738

Total $ 168,243

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

1 unchanged sentence

Accident Year 2011

($ in thousands)

Unaudited 2012

Unaudited 2013

Unaudited 2014

Unaudited 2015

Unaudited 2016

Unaudited 2017

Unaudited 2018

Unaudited 2019

Unaudited 2020

2011 $ 139 $ 1,037 $ 1,392 $ 2,116 $ 3,044 $ 3,042 $ 3,042 $ 3,065 $ 3,104 $ 3,104

2012 153 475 877 1,024 1,090 1,882 1,946 1,946 1,946

2013 499 1,915 4,436 5,070 5,320 5,439 5,482 5,612

2014 435 1,865 5,039 6,385 8,290 9,415 9,491

2015 217 4,496 7,563 9,238 11,372 11,522

2016 1,158 3,015 6,907 9,839 11,381

2017 340 4,897 8,252 10,484

2018 507 5,030 8,931

2019 2,487 6,005

All outstanding liabilities before 2011, net of reinsurance 9

Liabilities for claims and claim adjustment expenses, net of reinsurance $ 98,774

1 unchanged sentence

Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance

For the Years Ended December 31,

As of December 31, 2019

For the Years Ended December 31, As of December 31, 2020

Accident Year 2011

Total of IBNR Liabilities Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

($ in thousands)

Unaudited 2012

Unaudited 2013

Unaudited 2014

Unaudited 2015

Unaudited 2016

Unaudited 2017

Unaudited 2018

Unaudited 2019

Unaudited 2020 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims

2011 $ 5,839 $ 5,940 $ 5,757 $ 7,340 $ 7,613 $ 8,142 $ 8,375 $ 9,023 $ 9,379 $ 9,318 $ 360 227

2012 16,977 17,436 18,803 20,401 20,579 22,001 22,401 23,223 23,197 1,288 586

2013 30,616 28,771 28,037 29,039 31,731 33,248 33,973 33,128 2,978 856

2014 47,805 40,668 38,049 36,678 39,313 41,859 42,434 5,843 1,196

2015 59,717 51,739 49,122 52,100 54,697 54,090 9,323 1,496

2016 61,440 55,680 53,549 55,534 57,401 13,928 1,434

2017 71,126 67,151 68,985 70,641 24,096 1,632

2018 86,157 78,331 78,386 44,307 1,606

2019 112,266 109,994 81,322 1,644

2020 154,619 146,945 1,076

Total $ 633,208

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

1 unchanged sentence

Accident Year 2011

($ in thousands)

Unaudited 2012

Unaudited 2013

Unaudited 2014

Unaudited 2015

Unaudited 2016

Unaudited 2017

Unaudited 2018

Unaudited 2019

Unaudited 2020

2011 $ 207 $ 1,596 $ 2,519 $ 3,788 $ 4,575 $ 6,363 $ 6,868 $ 8,510 $ 8,693 $ 8,745

2012 757 4,441 7,850 11,238 14,382 16,474 19,383 20,707 21,408

2013 1,099 4,469 7,957 14,890 21,348 26,715 28,248 29,610

2014 698 3,081 8,489 17,576 23,771 31,026 34,338

2015 941 3,161 12,685 28,385 37,690 41,724

2016 1,099 6,015 17,225 28,924 34,437

2017 1,581 9,352 22,407 37,736

2018 2,638 10,995 22,860

2019 3,944 16,687

Total 249,945

All outstanding liabilities before 2011, net of reinsurance 46

Liabilities for claims and claim adjustment expenses, net of reinsurance $ 383,309

2 unchanged sentences

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Years 1 2 3 4 5 6 7 8 9 10

Casualty - claims made 4.9 % 21.2 % 24.3 % 14.4 % 13.6 % 10.1 % 1.1 % 1.0 % 0.6 % — %

1 unchanged sentence

Reconciliation of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows:

(in thousands)

December 31, 2019

The reconciliation of the net incurred and paid claims development tables to the liability for unpaid claims and claim adjustment expenses in the consolidated statement of financial position is as follows:

(in thousands) December 31, 2020

Net outstanding liabilities

Property $ 22,165

Casualty - claims made 98,774

2 unchanged sentences

Reinsurance recoverable on unpaid claims

Property 10,800

Casualty - claims made 61,100

4 unchanged sentences

The Company purchases reinsurance from other insurance companies ("reinsurers") in order to limit its exposure to large losses and enable it to underwrite policies with sufficient limits to meet policyholder needs.

In a reinsurance transaction, an insurance

company transfers, or cedes, part or all of its exposure to the reinsurer that receives a portion of the premium.

In a reinsurance transaction, an insurance company transfers, or cedes, part or all of its exposure to the reinsurer that receives a portion of the premium.

The ceding of insurance does not legally discharge the Company from its primary liability for the full amount of the policy coverage, and therefore the Company will be required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance agreement.

1 unchanged sentence

Year Ended December 31,

2020 2019 2018

(in thousands)

Direct $ 552,814 $ 389,569 $ 275,538

Assumed — 125 —

Ceded ( 74,595 ) ( 47,633 ) ( 39,924 )

Net written $ 478,219 $ 342,061 $ 235,614

Direct $ 479,181 $ 330,464 $ 250,397

Assumed 21 104 —

Ceded ( 66,448 ) ( 47,587 ) ( 37,709 )

Net earned $ 412,754 $ 282,981 $ 212,688

Incurred losses and loss adjustment expenses were net of reinsurance recoverables (ceded incurred losses and loss adjustment expenses) of $ 42.0 million, $ 27.2 million and $ 25.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Reinsurance balances

The following table presents reinsurance recoverables on paid and unpaid losses as of December 31, 2020 and 2019:

December 31, 2020 December 31, 2019

(in thousands)

Reinsurance recoverables on paid losses $ 9,485 $ 2,782

Reinsurance recoverables on unpaid losses 83,730 69,792

Reinsurance recoverables $ 93,215 $ 72,574

Credit risk exists with reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements.

Reinsurance recoverables for unpaid losses were $ 69.8 million and $ 55.4 million , at December 31, 2019 and 2018 , respectively.

Reinsurance recoverables for paid losses were $ 2.8 million and $ 1.4 million at December 31, 2019 and 2018 , respectively.

Ceded unearned premiums related to reinsurance were $ 16.1 million and $ 16.1 million , at December 31, 2019 and 2018 , respectively.

Allowances are established for amounts deemed uncollectible.

4 unchanged sentences

state insurance regulations.

The Company has not recorded an allowance for doubtful accounts related to its reinsurance balances at December 31, 2019 and 2018 and believes this to be appropriate after consideration of all currently available information;

After adoption of ASU 2016-13, the Company recorded an allowance for doubtful accounts of $ 0.3 million related to its reinsurance balances at December 31, 2020;

however, the deterioration in the credit quality of existing reinsurers or disputes over reinsurance agreements could result in future charges.

At December 31, 2019 , the net reinsurance receivable, defined as the sum of paid and unpaid reinsurance recoverables and ceded unearned premiums less reinsurance payables, from five reinsurers represented 88.8 % of the total balance.

See Note 1 - Recently adopted accounting pronouncements - ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) for additional information.

The Company did not record an allowance for doubtful accounts related to its reinsurance balances at December 31, 2019 and believed this was appropriate after consideration of all currently available information.

At December 31, 2020, reinsurance recoverables on paid and unpaid losses from the Company’s five largest reinsurers were $ 26.3 million, $ 19.7 million, $ 11.9 million, $ 8.6 million and $ 6.5 million, representing 78.4 % of the total balance.

At December 31, 2020, prepaid reinsurance premiums ceded to five reinsurers were $ 6.1 million, $ 4.0 million, $ 2.7 million, $ 2.4 million and $ 2.3 million, representing 71.8 % of the total balance.

Stockholders’ equity

1 unchanged sentence

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $ 0.01 per share, and 100,000,000 shares of preferred stock, par value $ 0.01 per share.

There were no shares of preferred stock issued or outstanding at December 31, 2019 or December 31, 2018.

Public Offering

On August 12, 2019, the Company completed an underwritten public offering of 741,750 shares of its common stock at a price of $ 93.00 per share, which included 96,750 shares sold to the underwriters pursuant to the underwriter’s option to purchase additional shares.

After underwriter discounts and commissions and offering expenses, the Company received net proceeds from the offering of approximately $ 65.9 million .

Dividend Declaration

On February 14, 2019 , the Company’s Board of Directors declared a cash dividend of $ 0.08 per share of common stock.

This dividend was paid on March 14, 2019 to all stockholders of record on February 28, 2019 .

On May 23, 2019 , the Company’s Board of Directors declared a cash dividend of $ 0.08 per share of common stock.

This dividend was paid on June 13, 2019 to all stockholders of record on June 3, 2019 .

On August 15, 2019 , the Company’s Board of Directors declared a cash dividend of $ 0.08 per share of common stock.

This dividend was paid on September 12, 2019 to all stockholders of record on August 29, 2019 .

On November 13, 2019 , the Company’s Board of Directors declared a cash dividend of $ 0.08 per share of common stock.

This dividend was paid on December 12, 2019 to all stockholders of record on November 29, 2019 .

On February 13, 2020 , the Company’s Board of Directors declared a cash dividend of $ 0.09 per share of common stock.

This dividend is payable on March 12, 2020 to all stockholders of record on February 28, 2020 .

There were no shares of preferred stock issued or outstanding at December 31, 2020 or 2019.

Public Offerings

On August 7, 2020, the Company completed an underwritten public offering and sold and issued 310,500 shares of its common stock at a price of $ 190.00 per share.

After deducting underwriting discounts and commissions and offering expenses, the Company received net proceeds of $ 56.7 million.

The proceeds from the public offering were used for general corporate purposes, including to fund organic growth.

On August 12, 2019, the Company completed an underwritten public offering and sold and issued 741,750 shares of its common stock at a price of $ 93.00 per share.

After deducting underwriter discounts and commissions and offering expenses, the Company received net proceeds from the offering of approximately $ 65.9 million.

Equity-based Compensation

6 unchanged sentences

On July 27, 2016, the Board of Directors approved, and the Company granted, 1,036,916 stock options with an exercise price equal to the initial public offering price of $ 16.00 per share.

The options have a maximum contractual term of 10 years and vest in 4 equal annual installments following the date of the grant.

The options have a maximum contractual term of 10 years and vested in 4 equal annual installments following the date of the grant.

The weighted average grant date fair value of options granted during 2016 was $ 2.71 per share.

6 unchanged sentences

(2) Expected life was calculated using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period, as the Company did not have sufficient historical data for determining the expected term of our stock option awards.

A summary of option activity under the employee share option plan as of December 31, 2019 , and changes during the year then ended is presented below:

Number of Shares

Weighted-average exercise price

Weighted-average remaining years of contractual life

Aggregate intrinsic value (in thousands)

A summary of option activity as of December 31, 2020, and changes during the year then ended is presented below:

Number of Shares Weighted-average exercise price Weighted-average remaining years of contractual life Aggregate intrinsic value (in thousands)

Outstanding at December 31, 2019 614,345 $ 16.00

Forfeited ( 234 ) 16.00

Exercised ( 226,373 ) 16.00

Outstanding at December 31, 2020 387,738 $ 16.00 5.6 $ 71,394

1 unchanged sentence

The total intrinsic value of options exercised was $ 37.0 million during the year ended December 31, 2020 and $ 11.9 million during the year ended December 31, 2019.

As of December 31, 2019 , the Company had $ 0.3 million of unrecognized share-based compensation expense expected to be charged to earnings over a weighted-average period of 0.6 years.

Restricted Stock Awards

During 2020, the Board of Directors approved, and the Company granted, restricted stock awards under the 2016 Incentive Plan.

The restricted stock awards were valued on the date of grant and will vest over a period of one year to four years corresponding to the anniversary date of the grants.

The fair value of restricted stock awards was determined based on the closing trading price of the Company’s shares on the grant date or, if no shares were traded on the grant date, the last preceding date for which there was a sale of shares.

The restricted stock awards were valued on the date of grant and will vest over a period of 1 to 4 years corresponding to the anniversary date of the grants.

The fair value of restricted stock awards was determined based on the closing trading price of the Company’s common stock on the grant date or, if no common stock was traded on the grant date, the last preceding date for which there was a sale of common stock.

Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive cash dividends.

Unvested shares of restricted stock awards and accrued dividends, if any, are forfeited upon the termination of service to or employment with the Company.

A summary of all restricted stock activity under the equity compensation plans for the year ended is as follows:

Unvested restricted stock awards and accrued dividends, if any, are forfeited upon the termination of service to or employment with the Company.

A summary of restricted stock activity under the equity compensation plans for the year ended is as follows:

December 31, 2020

Number of Shares

Weighted Average Grant Date Fair Value per Share

Number of Shares Weighted Average Grant Date Fair Value per Share

Nonvested outstanding at the beginning of the period 122,723 $ 67.01

Granted 42,694 $ 147.45

Vested ( 41,010 ) $ 63.86

Forfeited ( 16,015 ) $ 83.79

Nonvested outstanding at the end of the period 108,392 $ 97.40

Employees have the option to surrender shares to pay for withholding tax obligations resulting from any vesting of restricted stock awards.

During the year ended December 31, 2019 , restricted shares withheld for taxes in connection with the vesting of restricted stock awards totaled 7,365 .

Employees surrender restricted stock awards to pay for withholding tax obligations resulting from any vesting of those awards.

During the year ended December 31, 2020, restricted stock awards withheld for taxes in connection with the vesting of those awards totaled 11,966 .

The weighted average grant-date fair value of the Company's restricted stock awards granted during the years ended December 31, 2020, 2019, and 2018 was $ 147.45 , $ 80.59 and $ 52.99 , respectively.

There were no restricted stock awards granted during the year ended December 31, 2017.

The fair value of restricted stock awards that vested during the year ended December 31, 2019 was $ 2.1 million .There were no restricted stock awards that vested during the years ended December 31, 2018 or 2017.

The fair value of restricted stock awards that vested during the year ended December 31, 2020 and 2019 was $ 5.8 million and $ 2.1 million, respectively.

There were no restricted stock awards that vested during the year ended December 31, 2018.

As of December 31, 2020, the Company had $ 8.3 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 2.8 years.

Subsequent Event

The Board of Directors granted 4,428 shares of restricted stock on January 1, 2020 under the 2016 Incentive Plan to the Company’s non-employee directors.

The restricted stock had a fair value on the date of grant of $ 101.66 per share and will vest on a straight-line basis over a one year period.

Subsequent Events

The Board of Directors granted 3,200 restricted stock awards on January 1, 2021 under the 2016 Incentive Plan to the Company’s non-employee directors.

The restricted stock awards had a fair value on the date of grant of $ 200.13 per share and will vest on a straight-line basis over a 1 year period.

On February 11, 2021 , the Company’s Board of Directors declared a cash dividend of $ 0.11 per share of common stock.

This dividend is payable on March 12, 2021 to all stockholders of record on February 26, 2021 .

Earnings per share

1 unchanged sentence

Year ended December 31,

2020 2019 2018

(in thousands, except per share data)

Net income $ 88,419 $ 63,316 $ 33,787

Weighted average common shares outstanding - basic 22,319 21,528 21,090

5 unchanged sentences

Earnings per common share:

There were approximately 54 thousand and approximately 86 thousand anti-dilutive stock awards for the years ended December 31, 2019 and 2018, respectively.

There were no anti-dilutive stock awards for the year ended December 31, 2017.

Basic $ 3.96 $ 2.94 $ 1.60

Diluted $ 3.87 $ 2.86 $ 1.56

There were 35 thousand, 54 thousand and 86 thousand anti-dilutive stock awards for the years ended December 31, 2020, 2019 and 2018, respectively.

Basic earnings per share was computed by dividing the earnings attributable to the common stockholders by the weighted average number of shares of common stock outstanding during the period.

Diluted earnings per share was computed by dividing earnings attributable to common stockholders by the weighted average shares outstanding of common stock outstanding during the period, including potentially dilutive shares of common stock for the period determined using the treasury stock method.

Diluted earnings per share was computed by dividing earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period, including potentially dilutive shares of common stock for the period determined using the treasury stock method.

Credit agreement

1 unchanged sentence

The Credit Facility has a maturity of May 28, 2024 .

Borrowings under the Credit Facility will be used to fund construction of the Company’s new headquarters and may also be used for working capital and general corporate purposes.

Borrowings under the Credit Facility were used to fund construction of the Company’s new headquarters but may also be used for working capital and general corporate purposes.

Loans under the Credit Facility may be subject to varying rates of interest depending on whether the loan is a Eurodollar loan or an alternate base rate (ABR) loan, at the Company's election.

Eurodollar loans bear an interest rate per annum equal to adjusted LIBOR for the applicable interest period plus a margin of 1.75%.

ABR loans bear an interest rate per annum equal to the higher of the prime rate, the New York Federal Reserve Board Rate or the one-month adjusted LIBOR, plus the applicable margin of 0.75% to 1.75%, depending on which interest option was applicable for the particular ABR loan.

ABR loans bear an interest rate per annum equal to the higher of the prime rate, the New York Federal Reserve Board Rate or the one-month adjusted LIBOR, plus the applicable margin of

0.75% to 1.75%, depending on which interest option was applicable for the particular ABR loan.

During the year ended December 31, 2020, the Company drew down $ 25.7 million on its Credit Facility.

As of December 31, 2020, there was $ 42.6 million outstanding under the Credit Facility, net of debt issuance cost of $ 0.4 million, with a weighted average interest rate of 1.98 %.

interest expense under the Credit Facility was $ 0.2 million for the year ended December 31, 2019 and was capitalized as part of the real estate project under construction.

For the year ended December 31, 2020, total interest expense under the Credit Facility was $ 1.0 million, of which $ 0.8 million was capitalized as part of the real estate project under construction.

See Note 1 for further details.

Interest paid was $ 0.1 million for the year ending December 31, 2019.

There were no credit agreements outstanding at December 31, 2018 or December 31, 2017.

Interest paid was $ 0.8 million and $ 0.1 million for the years ended December 31, 2020 and 2019, respectively.

There were no credit agreements outstanding at December 31, 2018.

The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default.

9 unchanged sentences

Year Ending December 31,

2020 2019 2018

(in thousands)

Unrealized gains (losses) arising during the period, before income taxes:

Fixed-maturity securities

Equity securities (1)

Total unrealized gains (losses) arising during the period, before income taxes

Unrealized gains (losses) on fixed-maturity securities arising during the period, before income taxes:

$ 37,387 $ 19,190 $ ( 6,664 )

Income tax (expense) benefit ( 7,851 ) ( 4,029 ) 1,399

Unrealized gains (losses) arising during the period, net of income taxes

29,536 15,161 ( 5,265 )

Less reclassification adjustment:

Net realized investment gains on available-for-sale investments

2,119 489 258

Income tax benefit ( 445 ) ( 102 ) ( 54 )

Reclassification adjustment included in net income 1,674 387 204

Other comprehensive income (loss) $ 27,862 $ 14,774 $ ( 5,469 )

(1) Adoption of ASU 2016-01, "Financial Instruments – Overall:

Recognition and Measurement of Financial Assets and Financial Liabilities," which was effective January 1, 2018, eliminated the available-for-sale classification for equity investments and required changes in the fair value of equity securities to be recognized in net income.

The sale of an available-for-sale security results in amounts being reclassified from accumulated other comprehensive income to realized gains or losses in current period earnings.

5 unchanged sentences

Year Ended December 31,

2020 2019 2018

(in thousands)

Construction $ 87,206 $ 71,035 $ 50,879

Small business 83,289 63,181 44,368

3 unchanged sentences

Allied health 37,562 23,962 16,815

Life sciences 31,027 17,821 14,505

General casualty 29,205 23,279 17,625

Professional liability 27,051 20,029 16,717

Life sciences

Management liability 24,061 14,820 8,161

Energy 16,985 15,371 15,586

Environmental 8,568 5,179 2,205

Health care 7,666 5,963 5,725

Inland marine 6,910 3,467 2,046

Commercial insurance

Public entity 3,007 580 1,193

Commercial insurance 1,757 1,674 1,096

Total commercial 531,104 373,034 263,534

Personal insurance 21,710 16,660 12,004

Total personal

Total $ 552,814 $ 389,694 $ 275,538

Construction underwrites commercial general liability coverage on contractors focusing on new residential construction, residential remodeling and renovation and commercial construction.

Small business underwrites commercial general liability on smaller risks with an emphasis on artisan contractors and premises related exposures.

Excess casualty underwrites excess liability over risks that would fit within the general casualty, construction, products liability and small business divisions above.

Coverage is written over our primary liability policies as well as those of other insurers.

Excess casualty underwrites excess liability over risks that would fit within the general casualty, construction, products liability and small business divisions.

Coverage is written over the Company's primary liability policies as well as those of other insurers.

This division also writes excess liability over primary commercial auto liability policies written by other carriers.

During 2019, certain business previously underwritten by the Energy and Environmental divisions is now underwritten by this division and prior year amounts have been reclassified to conform to the current year's presentation.

Commercial property underwrites catastrophe-exposed risks including manufacturing facilities, government and municipal buildings, professional buildings, offices and general commercial properties, vacant properties, as well as entertainment and retail facilities.

Commercial property underwrites first-party coverage on manufacturing facilities, government and municipal buildings, professional buildings, offices and general commercial properties, vacant properties, as well as entertainment and retail facilities.

Products liability underwrites commercial general liability on manufacturers, distributors and importers of a wide array of consumer, commercial and industrial products.

Allied health underwrites commercial general liability, professional liability and excess liability on allied health and social service risks including assisted living facilities, home health care agencies and outpatient medical facilities.

Life sciences underwrites general liability, products liability and professional liability coverage for manufacturers, distributors and developers of dietary supplements, medical devices, pharmaceuticals, biologics, health and beauty products, durable medical equipment and clinical trials.

General casualty underwrites general liability and liquor liability on hospitality, habitational and retail risks, among others, with similar premises liability loss exposures.

Professional liability underwrites small-to-medium sized non-medical professional liability risks.

The classes of risks we cover include accountants, architects and engineers, financial planners, insurance agents, lawyers, realtors, and certain other professions.

Energy underwrites commercial general liability, pollution liability, professional liability and excess liability on enterprises engaged in the business of energy production or distribution or mining including drillers, lease operators, contractors and product manufacturers.

As previously discussed, during 2019, certain business previously underwritten by this division is now underwritten by the Excess Casualty division and prior year amounts have been reclassified to conform to the current year's presentation.

The classes of risks include accountants, architects and engineers, financial planners, insurance agents, lawyers, realtors, and certain other professions.

Management liability underwrites directors and officers liability, employment practices liability and fiduciary liability coverage on a variety of commercial and government risks.

Environmental underwrites commercial general liability, pollution liability and professional liability on a wide range of commercial risks where environmental exposures exist that are operational in nature or related to the premises.

Health care underwrites medical professional liability for physicians, surgeons, dentists, chiropractors and podiatrists.

Policies cover both individuals and small practice groups.

Inland marine underwrites a variety of inland marine coverages including builders risk, contractors' equipment, transportation risks and mobile equipment.

Commercial insurance underwrites commercial general liability on small accounts, through our wholly-owned broker, Aspera.

Public entity underwrites law enforcement professional liability and school board liability.

Commercial insurance underwrites commercial general liability on small accounts, through the Company's wholly-owned broker, Aspera.

Personal insurance writes homeowners coverage on manufactured homes with a catastrophe exposure due to coastal location.

The Company does business with two unaffiliated insurance brokers that generated $ 47.2 million and $ 41.1 million of gross written premiums for the year ended December 31, 2019, representing 12.1 % and 10.5 % of gross written premiums, respectively.

The Company does business with three unaffiliated insurance brokers that generated $ 72.1 million, $ 63.8 million and $ 56.5 million of gross written premiums for the year ended December 31, 2020, representing 13.0 %, 11.5 % and 10.2 % of gross written premiums, respectively.

No other broker generated 10.0% or more of the gross written premiums for the year ended December 31, 2020.

Statutory financial information

Kinsale Insurance maintains its accounts in conformity with accounting practices prescribed or permitted by state regulatory authorities that vary in certain respects from GAAP.

In converting from statutory accounting principles to GAAP, typical adjustments include deferral of policy acquisition costs, the inclusion of statutory nonadmitted assets and the inclusion of net unrealized gains or losses relating to fixed maturities in stockholders’ equity.

Kinsale Insurance maintains its accounts in conformity with accounting practices prescribed or permitted by state regulatory authorities that vary in certain respects from U.S.

In converting from statutory accounting principles to U.S.

GAAP, typical adjustments include deferral of policy acquisition costs, the inclusion of statutory nonadmitted assets and the inclusion of net unrealized gains or losses relating to fixed maturities in stockholders’ equity.

The Company does not use any permitted practices that are different from prescribed statutory accounting practices.

1 unchanged sentence

Year ended December 31,

2020 2019 2018

(in thousands)

2 unchanged sentences

Kinsale Insurance is subject to risk-based capital ("RBC") requirements.

RBC is a method developed by the NAIC to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile.

RBC is a method developed by the National Association of Insurance Commissioners ("NAIC") to determine the minimum amount of statutory capital appropriate for an insurance company to support its overall business operations in consideration of its size and risk profile.

The formula for determining the amount of RBC is calculated using various factors, weighted based on the perceived degree of risk, which are applied to certain financial balances and financial activity.

8 unchanged sentences

The following is a summary of the unaudited quarterly results of operations:

(in thousands, except per share data)

(in thousands, except per share data) First Second Third Fourth

Gross written premiums $ 124,036 $ 134,091 $ 144,777 $ 149,910

Total revenues 80,346 117,707 122,501 139,332

Comprehensive income

Net income 5,086 30,262 14,890 38,181

Comprehensive (loss) income ( 4,137 ) 57,270 21,444 41,704

Earnings per share - basic $ 0.23 $ 1.37 $ 0.66 $ 1.69

Earnings per share - diluted $ 0.22 $ 1.33 $ 0.65 $ 1.65

(in thousands, except per share data)

(in thousands, except per share data) First Second Third Fourth

Gross written premiums $ 84,626 $ 94,947 $ 97,984 $ 112,137

Total revenues 72,185 72,572 78,327 92,804

Net income 18,720 13,767 12,976 17,853

Comprehensive income 25,500 20,322 16,218 16,050

5 unchanged sentences

Summary of Investments—Other than Investments in Related Parties

Type of Investment

Amortized Cost

Amount at which shown on Balance Sheet

Type of Investment Cost or Amortized Cost Fair Value Amount at which shown on Balance Sheet

(in thousands)

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

Obligations of states, municipalities and political subdivisions

$ 216,181 $ 230,906 $ 230,906

Corporate and other securities 294,854 316,608 316,608

Commercial mortgage and asset-backed securities

Asset-backed securities 236,813 240,661 240,661

Commercial mortgage-backed securities 66,110 70,969 70,969

Residential mortgage-backed securities

217,859 222,656 222,656

Total fixed maturities 1,031,817 1,081,800 1,081,800

Equity securities:

Common stock-exchange traded funds

Exchange traded funds 68,032 98,050 98,050

Nonredeemable preferred stock 30,726 31,612 31,612

5 unchanged sentences

Condensed Financial Information of Registrant

Balance Sheets

Balance Sheets (Parent Company Only)

(in thousands)

2 unchanged sentences

Investment in subsidiaries 600,931 391,071

Deferred tax assets

Deferred income tax asset, net 587 519

Income taxes recoverable 1,177 —

Other assets 290 208

Total assets $ 619,172 $ 423,360

Liabilities and Stockholders' Equity

5 unchanged sentences

Stockholders’ equity:

Common stock 228 222

Additional paid-in capital 291,315 229,229

Retained earnings 243,315 162,911

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income 41,380 13,518

Stockholders’ equity 576,238 405,880

Total liabilities and stockholders’ equity $ 619,172 $ 423,360

See accompanying notes.

See accompanying notes to condensed financial information.

See accompanying Report of Independent Registered Public Accounting Firm.

2 unchanged sentences

Condensed Financial Information of Registrant

Statements of Income and Comprehensive Income

Statements of Income and Comprehensive Income (Parent Company Only)

Years Ended December 31,

2020 2019 2018

(in thousands)

5 unchanged sentences

Loss before income taxes

( 2,247 ) ( 713 ) ( 840 )

Income tax benefit ( 8,779 ) ( 2,714 ) ( 1,158 )

Income (loss) before equity in net income of subsidiaries

Income before equity in net income of subsidiaries 6,532 2,001 318

Equity in net income of subsidiaries 81,887 61,315 33,469

Net income 88,419 63,316 33,787

Other comprehensive income (loss):

Equity in other comprehensive earnings (losses) of subsidiaries

27,862 14,774 ( 5,469 )

Total comprehensive income $ 116,281 $ 78,090 $ 28,318

See accompanying notes.

See accompanying notes to condensed financial information.

See accompanying Report of Independent Registered Public Accounting Firm.

2 unchanged sentences

Condensed Financial Information of Registrant

Statements of Cash Flows

Statements of Cash Flows (Parent Company Only)

Years Ended December 31,

2020 2019 2018

(in thousands)

Operating activities

Adjustments to reconcile net income to net cash used in operating activities:

Deferred tax (benefit) expense

Net income $ 88,419 $ 63,316 $ 33,787

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Deferred tax benefit ( 68 ) ( 150 ) ( 170 )

Stock compensation expense 3,575 2,742 1,597

2 unchanged sentences

Dividends received from subsidiary — 5,000 11,500

Net cash (used in) provided by operating activities

Net cash provided by (used in) operating activities 17,559 ( 4,654 ) 12,612

Investing activities

1 unchanged sentence

Net cash used in investing activities

( 100,034 ) ( 68,391 ) —

Financing activities

6 unchanged sentences

Net cash provided by (used in) financing activities

76,144 77,755 ( 4,098 )

Net change in cash and cash equivalents ( 6,331 ) 4,710 8,514

Cash and cash equivalents at beginning of year

14,726 10,016 1,502

Cash and cash equivalents at end of year $ 8,395 $ 14,726 $ 10,016

See accompanying notes.

See accompanying notes to condensed financial information.

See accompanying Report of Independent Registered Public Accounting Firm.

2 unchanged sentences

Notes to Condensed Financial Information

(Parent Company Only)

Accounting policies

Kinsale Capital Group, Inc., a Delaware domiciled insurance holding company, was formed on June 3, 2009 for the purpose of acquiring and managing insurance entities.

Kinsale Capital Group, Inc.

(the "Company"), a Delaware domiciled insurance holding company, was formed on June 3, 2009 for the purpose of acquiring and managing insurance entities.

Basis of presentation

4 unchanged sentences

Estimates and assumptions

Preparation of the condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying disclosures.

Preparation of the condensed financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying disclosures.

Those estimates are inherently subject to change, and actual results may ultimately differ from those estimates.

2 unchanged sentences

The Credit Facility has a maturity of May 28, 2024 .

Borrowings under the Credit Facility will be used to fund construction of the Company’s new headquarters and may also be used for working capital and general corporate purposes.

Borrowings under the Credit Facility were used to fund construction of the Company’s new headquarters but may also be used for working capital and general corporate purposes.

Loans under the Credit Facility may be subject to varying rates of interest depending on whether the loan is a Eurodollar loan or an alternate base rate (ABR) loan, at the Company's election.

1 unchanged sentence

During the year ended December 31, 2020, the Company drew down $ 25.7 million on its Credit Facility.

As of December 31, 2020, there was $ 42.6 million outstanding under the Credit Facility, net of debt issuance cost of $ 0.4 million, with a weighted average interest rate of 1.98 %.

Total interest expense under the Credit Facility was $ 0.2 million for the year ended December 31, 2019 and was capitalized as part of the real estate project under construction.

See Note 1 for further details.

Interest paid was $ 0.1 million for the year ending December 31, 2019.

There were no credit agreements outstanding at December 31, 2018 or December 31, 2017.

For the year ended December 31, 2020, total interest expense under the Credit Facility was $ 1.0 million, of which $ 0.8 million was capitalized as part of the real estate project under construction.

Interest paid was $ 0.8 million and $ 0.1 million for the years ending December 31, 2020 and 2019, respectively.

There were no credit agreements outstanding at December 31, 2018.

The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default.

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Cash dividends paid to Kinsale Capital Group, Inc.

by its wholly-owned subsidiary, Kinsale Insurance Company, were $ 5.0 million for the year ended December 31, 2019, $ 11.5 million for the year ended December 31, 2018, and $ 4.5 million for the year ended December 31, 2017.

by its wholly-owned subsidiary, Kinsale Insurance Company, were $ 5.0 million for the year ended December 31, 2019, and $ 11.5 million for the year ended December 31, 2018.

There were no cash dividends paid by the insurance subsidiary for the year ended December 31, 2020.

Commitments and contingencies

Liabilities for loss contingencies, arising from noninsurance policy claims, assessments, litigation, fines, and penalties and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

Legal costs incurred in connection with loss contingencies are expensed as incurred.

KINSALE CAPITAL GROUP, INC.

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Valuation and Qualifying Accounts

(in thousands)

Written Off or Disposals

Additions Deductions

(in thousands) Balance

of Period (1)

Expense Amounts

Written Off or Disposals Balance

Year Ended December 31, 2020:

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Valuation allowance for deferred tax assets 1,592 1,899 — 3,491

Allowance for reinsurance recoverables 282 — — 282

Year Ended December 31, 2019:

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See accompanying Report of Independent Registered Public Accounting Firm.

(1) For the year ended December 31, 2020, the balance at the beginning of period included a reduction of $ 0.4 million to the allowance for premiums receivable and the establishment of an allowance for reinsurance recoverables of $ 0.3 million, each of which related to the adoption of the new accounting standard for credit losses.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data