What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-02-25 compared with 2021-02-25 · 159 added, 195 removed, 460 unchanged (43% of the section changed)

5 unchanged sentences

For a comparison of years ended December 31, 2020 and December 2019, see “Part II, Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2019, which was filed with the SEC on March 2, 2020.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on February 25, 2021.

Founded in 2009, we are an established and growing specialty insurance company.

6 unchanged sentences

In 2021, the percentage breakdown of our gross written premiums was 85.1% casualty and 14.9% property.

Our commercial lines offerings include construction, small business, excess casualty, commercial property, product liability, allied health, life sciences, general casualty, professional liability, management liability, energy, environmental, health care, inland marine, public entity and commercial insurance.

Our commercial lines offerings include small business, excess casualty, construction, commercial property, allied health, product liability, life sciences, general casualty, professional liability, management liability, energy, environmental, entertainment, health care, inland marine, public entity, and commercial insurance.

We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 3.5% of our gross written premiums in 2021.

4 unchanged sentences

We believe that we have differentiated ourselves from our competitors by effectively leveraging technology, vigilantly controlling expenses and maintaining control over our underwriting and claims management.

We are closely monitoring the impact of the COVID-19 pandemic and related economic effects on all aspects of our business, including how it will impact premium volume, losses and the fair value of our investment portfolio.

To date, management has not seen a significant decrease in the growth rate of its gross written premiums since the beginning of the COVID-19 pandemic and related economic downturn.

Over the past year, including a time period

preceding COVID-19, the E&S segment of the P&C market has been experiencing rapid growth due to dislocation in the overall property and casualty market.

With respect to reported claims, Kinsale does not write lines of business with heightened exposure to COVID-19 related claims.

Specifically, Kinsale does not write event cancellation, mortgage insurance, trade credit or surety, workers compensation or reinsurance business.

Lines of business written by Kinsale that could be subject to COVID-19 related claims include general liability, management liability, healthcare-related professional liability and commercial property.

We have been closely monitoring the impact of the COVID-19 pandemic and related economic effects on all aspects of our business, including its impact on premium volume, losses and the fair value of our investment portfolio.

To date, we have not seen a significant decrease in the growth rate of our gross written premiums since the beginning of the COVID-19 pandemic and the related pressure in certain sectors of the U.S.

Over the past few years, including the time period preceding COVID-19, the E&S segment of the P&C market has been experiencing rapid growth due to dislocation in the overall property and casualty market.

With respect to reported claims, we do not write lines of business with heightened exposure to COVID-19 related claims.

Specifically, we do not write event cancellation, mortgage insurance, trade credit or surety, workers' compensation or reinsurance business.

Lines of business written by us that could be subject to COVID-19 related claims include general liability, management liability, healthcare-related professional liability and commercial property.

In each case, policy terms and conditions would be expected to preclude coverage for virus-related claims.

Although management cannot definitively determine the ultimate impact of COVID-19 and related economic conditions at this time, management does not currently expect a material adverse effect on Kinsale’s loss ratios due to COVID-19 related claims.

Although we cannot definitively determine the ultimate impact of COVID-19 and related economic conditions at this time, we have not currently experienced any material adverse effect on our loss ratios due to COVID-19 related claims.

With respect to our investment portfolio, we seek to hold a high-quality, diversified portfolio of investments.

2 unchanged sentences

However, during economic downturns, certain investments may default or become impaired due to deterioration in the financial condition or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments.

Given the conservative nature of our investment portfolio, we do not expect a material adverse impact on the value of our investment portfolio or a long-term negative impact on our financial condition, results of operations or cash flows as it relates to COVID-19.

Components of Our Results of Operations

3 unchanged sentences

• New business submissions;

• Binding of new business submissions into policies;

• Conversion of new business submissions into policies;

• Renewals of existing policies;

5 unchanged sentences

Ceded written premiums are the amount of gross written premiums ceded to reinsurers.

We enter into reinsurance contracts to limit our exposure to potential large losses as well as to provide additional capacity for growth.

We enter into reinsurance contracts to limit our exposure to potential large losses.

Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered.

15 unchanged sentences

Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts.

Policy acquisition costs that are directly related to the successful acquisition of those policies are deferred.

Policy acquisition costs also include deferred underwriting expenses that are directly related to the successful acquisition of policies.

The amortization of such policy acquisition costs is charged to expense in proportion to premium earned over the policy life.

Other underwriting expenses represent the general and administrative expenses of our insurance business including but not limited to employment costs, telecommunication and technology costs, and legal and auditing fees.

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

Net investment income

1 unchanged sentence

We earn investment income on our portfolio of cash and invested assets.

Our cash and invested assets are primarily comprised of fixed-maturity securities, and may also include cash and cash equivalents, equity securities and short-term investments.

Our cash and invested assets are primarily comprised of fixed-maturity securities, and may also include cash equivalents, equity securities and short-term investments.

The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio.

As measured by amortized cost (which excludes changes in fair value, such as changes in interest rates), the size of our investment portfolio is mainly a function of our invested equity capital along with premiums we receive from our insureds less payments on policyholder claims.

As measured by amortized cost (which excludes changes in fair value), the size of our investment portfolio is mainly a function of our invested equity capital combined with premiums we receive from our insureds less payments on policyholder claims.

Change in fair value of equity securities

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

Net realized investment gains (losses) on investments

Net realized gains (losses) on investments are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost, as well as any allowances for credit losses recognized in earnings, if any.

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

Net realized investment gains

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

Income tax expense

Currently all of our income tax expense relates to federal income taxes.

Kinsale Insurance is generally not subject to income taxes in the states in which it operates;

however, our non-insurance subsidiaries are subject to state income taxes.

Currently, substantially all of our income tax expense is comprised of federal income taxes.

Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates;

however, our non-insurance subsidiaries are subject to state income taxes but have not generated any material taxable income

The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.

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

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

Underwriting income is a non-GAAP financial measure.

We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized gains and losses on investments, other income, other expenses and income tax expense.

We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized investment gains and losses, other income, other expenses and income tax expense.

See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

Net operating earnings is a non-GAAP financial measure.

We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, and net realized gains and losses on investments, after taxes.

We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, and net realized investment gains and losses, after taxes.

See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

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

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

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

Combined ratio is the sum of the loss ratio and the expense ratio.

A combined ratio under 100% generally indicates an underwriting profit.

A combined ratio over 100% generally indicates an underwriting loss.

A combined ratio under 100% indicates an underwriting profit.

A combined ratio over 100% indicates an underwriting loss.

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

3 unchanged sentences

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

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

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

Results of Operations

2 unchanged sentences

Year Ended December 31,

($ in thousands) 2020 2019 Change Percent

($ in thousands) 2021 2020 Change % Change

Gross written premiums $ 764,373 $ 552,814 $ 211,559 38.3 %

9 unchanged sentences

Change in fair value of equity securities 22,812 16,855 5,957 NM

Net realized gains on investments 3,533 359 3,174 NM

Net realized investment gains 2,828 3,533 (705) NM

Income before taxes 188,801 100,413 88,388 88.0 %

13 unchanged sentences

(2) Net operating earnings and operating return on equity are non-GAAP financial measures.

Operating return on equity is defined as net operating earnings expressed as a percentage of average beginning and ending stockholders’ equity during the period.

Net operating earnings is defined as net income excluding the net change in the fair value of equity securities, after taxes, and net realized investment gains and losses, after taxes.

Operating return on equity is defined as net operating earnings expressed as a percentage of average beginning and ending total stockholders’ equity during the period.

See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

Net income was $152.7 million for the year ended December 31, 2021 compared to $88.4 million for the year ended December 31, 2020, an increase of $64.2 million, or 72.7%.

The increase in net income in 2020 over 2019 was primarily due to higher earned premiums, resulting from favorable E&S market conditions and strong growth in

broker submissions, and higher returns on our investment portfolio.

In addition, the increase in net income was also attributable to a lower effective tax rate generated from the tax benefits related to stock-based compensation activity and higher favorable development of loss reserves from prior accident years.

These increases were offset in part by higher catastrophe losses incurred in 2020 compared to the prior year.

The increase in net income in 2021 over 2020 was primarily due to higher underwriting income reflecting favorable E&S market conditions, which resulted in higher

rates on bound accounts and strong growth in broker submissions.

In addition, higher net favorable development of loss reserves from prior accident years, lower catastrophe activity and a higher total return on our investment portfolio, both in terms of an increase in the fair value of equity securities and investment income, contributed to the strong results for the year.

Our underwriting income was $133.6 million for the year ended December 31, 2021 compared to $54.7 million for the year ended December 31, 2020, an increase of $78.9 million, or 144.4%.

The increase in our underwriting income was attributable to a combination of growth in the business and higher net favorable development of loss reserves for prior accident years, offset in part by higher catastrophe losses incurred during the year.

The increase in our underwriting income was largely due to premium growth and continued rate increases from a strong underwriting environment, higher net favorable development of loss reserves from prior accident years and lower catastrophe activity.

The corresponding combined ratios were 77.1% for the year ended December 31, 2021 compared to 86.7% for the year ended December 31, 2020.

Gross written premiums were $764.4 million for the year ended December 31, 2021 compared to $552.8 million for the year ended December 31, 2020, an increase of $211.6 million, or 38.3%.

The increase in gross written premiums for the for the year ended December 31, 2020 over the prior year was due to higher submission activity from brokers across most lines of business and higher rates on bound accounts, resulting from continued favorable market conditions.

The increase in gross written premiums for the year ended December 31, 2021 over the prior year was due to higher submission activity from brokers and higher rates on bound accounts, resulting from favorable market conditions.

The average premium per policy written by us was $10,400 in 2021 compared to $9,100 in 2020.

Excluding our personal lines insurance, which has relatively low premiums per policy written, the average premium per policy written was approximately $11,800 in 2020 compared to $10,800 in 2019.

Excluding our personal lines insurance, which has relatively low premiums per policy written, the average premium per policy written was $12,900 in 2021 compared to $11,800 in 2020.

The increase in the average premium per policy written was due to changes in the mix of business and higher rates on bound accounts during 2021 compared to the prior year.

The changes in gross written premiums were most notable in the following lines of business:

Gross written premiums increased across substantially all of our lines of business for the year ended December 31, 2020 and were most notable in the following lines of business:

• Excess Casualty, which represented approximately 14.3% of our gross written premiums in 2021, increased by $32.7 million, or 42.7%, for the year ended December 31, 2021 over the prior year;

• Small Business, which represented approximately 14.7% of our gross written premiums in 2021, increased by $28.9 million, or 34.6%, for the year ended December 31, 2021 over the prior year;

• Commercial Property, which represented approximately 10.3% of our gross written premiums in 2021, increased by $26.9 million, or 52.0%, for the year ended December 31, 2021 over the prior year;

• Small business, which represented approximately 15.1% of our gross written premiums in 2020, increased by $20.1 million, or 31.8%, for the year ended December 31, 2020 over the prior year, and

• Construction, which represented approximately 15.8% of our gross written premiums in 2020, increased by $16.2 million, or 22.8%, for the year ended December 31, 2020 over the prior year.

• Allied Health, which represented approximately 7.7% of our gross written premiums in 2021, increased by $21.6 million, or 57.6%, for the year ended December 31, 2021 over the prior year, and

• Products Liability, which represented approximately 7.2% of our gross written premiums in 2021, increased by $16.8 million, or 43.8%, for the year ended December 31, 2021 over the prior year.

Net written premiums increased by $182.0 million, or 38.1%, to $660.2 million for the year ended December 31, 2021 from $478.2 million for the year ended December 31, 2020.

5 unchanged sentences

Our loss ratio was 55.7% for the year ended December 31, 2021 compared to 63.9% for the year ended December 31, 2020.

The increase in the loss ratio for the year ended December 31, 2020 was primarily due to higher

catastrophe losses incurred in 2020 compared to 2019.

Catastrophe losses incurred during the current accident year in 2020 were largely related to Hurricanes Laura, Sally and Zeta and the California wildfires.

For each year of 2020 and 2019, the overall favorable development of loss reserves for prior accident years was primarily due to reported losses emerging at lower levels than expected for certain accident years.

During the year ended December 31, 2020, prior accident years developed favorably by $13.3 million, of which $12.3 million was attributable to accident years 2019 and 2018.

During the year ended December 31, 2019, loss reserves for prior accident years developed favorably by $9.4 million, which was largely attributable to accident years 2018 and 2017 of $14.6 million.

This favorable development was offset in part by adverse development in the accident years 2011 through 2015 of $5.2 million, which resulted from higher IBNR reserves to provide for emergence of reported losses over a longer period of time based on observed trends.

The decrease in the loss ratio for the year ended December 31, 2021 was due primarily to lower catastrophe activity, higher favorable development on loss reserves from prior accident years and slightly lower loss selections for the current accident year.

The loss selections in the current accident year were slightly lower relative to the prior year due to favorable market conditions and continued rate increases that exceeded loss cost trends.

During the year ended December 31, 2021, net catastrophe losses incurred in the current accident year were primarily attributable to Hurricane Ida and winter storms in Texas.

During the year ended December 31, 2020, net catastrophe losses incurred were primarily due to Hurricanes Laura and Sally and the California wildfires.

During the year ended December 31, 2021, prior accident years developed favorably by $32.0 million, of which $33.7 million was attributable to the 2020 accident year and was related to a lower-than-expected level of reported losses.

Although we did not have any significant direct COVID-19 exposure, the related disruption in the court system and the general economy created additional uncertainty in estimating loss reserves in 2020.

As a result, 2020 accident year actuarial assumptions were adjusted in 2020 to increase IBNR to account for this additional uncertainty.

Our current outlook is more favorable than in the prior year and, based on observed trends, we reevaluated and adjusted certain assumptions for accident year 2020 in 2021 to reflect the favorable experience.

In addition, $3.8 million of favorable development was attributable to accident year 2019 due to reported losses emerging at lower levels than expected.

This favorable development was offset in part by adverse development, mostly attributable to the 2016 and 2018 accident years due to modest adjustments in actuarial assumptions.

During the year ended December 31, 2020, loss reserves for prior accident years developed favorably by $13.3 million, of which $12.3 million was attributable to accident years 2019 and 2018, primarily due to reported losses emerging at lower levels than expected.

On an inception-to-date basis as of December 31, 2021, all accident years have developed favorably, with the exception of the 2011 accident year.

The following tables summarize the effect of the factors indicated above on the loss ratios for the years ended December 31, 2020 and 2019:

The following table summarizes the effect of the factors indicated above on the loss ratios for the years ended December 31, 2021 and 2020:

Year Ended December 31,

20 unchanged sentences

The expense ratio was 21.4% for the year ended December 31, 2021 compared to 22.8% for the year ended December 31, 2020.

The decrease in the expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses as a result of management's focus on controlling costs.

The decrease in the expense ratio was due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums.

The decrease in the other underwriting expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses, as a result of management's focus on controlling costs.

The decrease in the net commissions incurred ratio was mostly due to higher ceding commissions resulting from growth in the excess casualty and personal insurance lines of business and a change in the mix of business.

Direct commissions paid as a percent of gross written premiums was 14.6% for the years ended December 31, 2021 and 2020.

Investing results

Our net investment income increased by 29.7% to $26.1 million for the year ended December 31, 2020 from $20.1 million for the year ended December 31, 2019, primarily due to growth in our investment portfolio balance generated from excess operating funds and to a lesser degree, proceeds from our equity offerings.

The following table summarizes the components of net investment income and net investment gains for the years ended December 31, 2020 and 2019:

Our net investment income increased by 18.9% to $31.0 million for the year ended December 31, 2021 from $26.1 million for the year ended December 31, 2020, primarily due to growth in our investment portfolio balance generated from the investment of positive cash flow since December 31, 2021.

The following table summarizes the components of net investment income and net unrealized and realized investment gains for the years ended December 31, 2021 and 2020:

Year Ended December 31,

7 unchanged sentences

Change in the fair value of equity securities 22,812 16,855 5,957

Net capital gains 3,533 359 3,174

Net investment gains 20,388 12,748 7,640

Net realized investment gains 2,828 3,533 (705)

Net unrealized and realized investment gains 25,640 20,388 5,252

Total $ 56,688 $ 46,498 $ 10,190

The weighted average duration of our fixed-maturity portfolio, including cash equivalents, was 4.3 years at December 31, 2021 and 2020.

Our investment portfolio had a gross return of 2.9% as of December 31, 2020, compared to 3.1% as of December 31, 2019.

During the year ended December 31, 2020, we recognized unrealized gains related to our equity portfolio of $16.9 million, of which $16.4 million was related to our ETFs.

Our ETF portfolio is generally reflective of the performance in the broader domestic stock markets.

Our fixed-maturity investment portfolio, excluding cash equivalents and unrealized gains and losses, had a gross investment return of 2.5% as of December 31, 2021, compared to 2.9% as of December 31, 2020 and the decrease was due to a lower interest rate environment.

During the year ended December 31, 2021, the change in fair value of equity securities of $22.8 million was comprised of unrealized gains related to ETF securities of $23.2 million and unrealized losses related to non-redeemable preferred stock of $0.4 million.

The change in the fair value of our ETF portfolio largely reflects the performance in the broader domestic stock markets.

During the year ended December 31, 2020, the change in fair value of equity securities of $16.9 million was comprised of unrealized gains related to ETF securities of $16.4 million and non-redeemable preferred stock of $0.5 million.

The change in the fair value of our ETFs was reflective of the gains in the broader stock markets during the period.

During the first quarter of 2020, the fair values our ETFs declined by $13.1 million, driven by the disruption in the financial markets associated with the COVID-19 pandemic.

The fair value of these funds rebounded sharply during the second quarter of 2020, gaining back a substantial portion of the decline in value, and fair values continued to increase during the latter half of 2020 on an improving outlook.

For the year ended December 31, 2019, we recognized unrealized gains related to our equity portfolio of $12.4 million and was reflective of gains in the broader stock markets during this period.

Net capital gains were $3.5 million for the year ended December 31, 2020, primarily due to the sale of corporate bonds to realize favorable investment valuations.

We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss.

Management concluded that there were no credit losses (previously known as other-than-temporary impairments) from available-for-sale investments for the year ended December 31, 2020 or 2019.

Management concluded that there were no credit losses from available-for-sale investments for the year ended December 31, 2021 or 2020.

Income tax expense

1 unchanged sentence

The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income.

The effective tax rate was higher for the year ended December 31, 2021 compared to the year ended December 31, 2020 as a result of fewer stock options exercised in 2021 relative to the prior year.

Return on equity

Our return on equity was 23.9% for the year ended December 31, 2021 compared to 18.0% for the year ended December 31, 2020.

Operating return on equity was 14.7% for the full year of 2020, a decrease from 15.9% for the full year of 2019.

The decrease in the operating return on equity was due largely to the proceeds received from our equity offering in the third quarter of 2020 and catastrophe losses incurred during the year, offset in part by higher net income.

Operating return on equity was 20.8% for 2021, an increase from 14.7% for 2020.

The increase in the operating return on equity was attributable primarily to growth in the business from continuing favorable market conditions and rate increases, lower catastrophe activity and higher net favorable development of loss reserves from prior accident years.

Liquidity and Capital Resources

13 unchanged sentences

In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by Kinsale Insurance may adopt statutory provisions more restrictive than those currently in effect.

Kinsale Insurance did not pay dividends to us during 2020.

Kinsale Insurance paid $8.0 million of dividends to us during 2021.

See also "Risk Factors — Risks Related to Our Business and Our Industry — Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary."

As of December 31, 2021, our holding company had $14.6 million in cash and investments, compared to $8.4 million as of December 31, 2020.

Management believes there is sufficient liquidity available at the holding company and in its insurance subsidiary, Kinsale Insurance, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

Credit agreement

10 unchanged sentences

Financial Conduct Authority announced that, after the end of 2021, it would no longer persuade or compel contributing banks to make rate submissions to the ICE Benchmark Administration (together with any successor to the ICE Benchmark Administrator, the “IBA”) for purposes of the IBA setting the London interbank offered rate.

On November 30, 2020, the IBA announced a consultation on its intention to 1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021, and 2) cease the publication of all other tenors of USD LIBOR after June 30, 2023, including the three-month USD LIBOR rate.

The IBA closed the consultations for feedback at the end of January 2021.

On March 5, 2021 the IBA announced that it will 1) cease the publication of the one-week and two-month USD LIBOR after December 31, 2021, and 2) cease the publication of all other tenors of USD LIBOR after June 30, 2023, including the three-month USD LIBOR rate.

The Credit Agreement provides procedures for determining a replacement or alternative base rate in the event that LIBOR is discontinued.

However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR.

The Company intends to monitor the developments with respect to the potential phasing out of LIBOR and work with its lenders to seek to ensure any transition away from LIBOR will have minimal impact on its financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.

The Company has been monitoring the developments with respect to the phasing out of LIBOR and will work with its lenders to seek to ensure the transition away from LIBOR will have minimal impact on its financial condition.

Shelf registration

25 unchanged sentences

Cash flows from operations were used to fund investing activities and to pay dividends to our stockholders.

Net cash used in investing activities increased by $148.6 million in 2020 from 2019, which reflected growth in our business operations and proceeds from our equity offering in August 2020 of $56.7 million.

For the year ended December 31, 2021, net cash used in investing activities of $352.0 million reflected growth in our business operations.

For the year ended December 31, 2021, funds from operations were used to purchase fixed-maturity securities, particularly corporate bonds and asset- and mortgage-backed securities of $633.6 million, and to a lesser extent, municipal bonds of $14.4 million and sovereigns of $6.9 million.

During 2021, we received proceeds of $113.0 million from sales of fixed-maturity securities, largely corporate bonds in order to take advantage of favorable valuations.

In addition, we received proceeds of $216.1 million from redemptions of asset- and mortgage-backed securities and corporate bonds.

For the year ended December 31, 2021, purchases of ETFs and non-redeemable preferred stock were $2.1 million and $22.7 million, respectively.

Net cash used in investing activities included purchases of property and equipment of $5.9 million.

For the year ended December 31, 2020 , net cash used in investing activities of $379.4 million reflected growth in our business operations and proceeds from our equity offering in August 2020 of $56.7 million.

For the year ended December 31, 2020, these funds were used to purchase fixed-maturity securities, particularly corporate bonds and asset- and mortgage-backed securities of $474.8 million, and to a lesser extent, municipal bonds of $54.8 million and U.S.

3 unchanged sentences

For the year ended December 31, 2020, purchases of ETFs and non-redeemable preferred stock were $27.2 million and $9.6 million, respectively.

Net cash used in investing activities included net purchases of property and equipment of $27.8 million, primarily related to the construction of our new corporate headquarters, previously discussed.

For the year ended December 31, 2019, net cash used in investing activities of $230.8 million reflected the investment of operating funds from growth in our business operations and proceeds from our equity offering in August of 2019.

These cash inflows were used to purchase fixed-maturity securities, particularly corporate bonds and residential mortgage-backed securities of $203.0 million, and to a lesser extent, other asset-backed securities of

$60.4 million and municipal bonds of $42.8 million.

During 2019, we received proceeds of $35.5 million from sales of fixed-maturity securities, largely municipal bonds in order to take advantage of favorable valuations.

In addition, we received proceeds of $67.9 million from redemptions of asset- and mortgage-backed securities and corporate bonds.

During 2019, the Company reallocated its ETFs from foreign and small-cap funds to domestic equity funds to more closely mirror the broader U.S.

stock market.

For the year ended December 31, 2019, purchases and sales of ETFs were $19.3 million and $13.7 million, respectively.

For the year ended December 31, 2019, purchases and sales of non-redeemable preferred stocks were $10.6 million and $7.8 million, respectively.

Net cash used in investing activities during 2019 included purchases of property and equipment of $19.6 million and was principally comprised of expenditures related to the construction of our new corporate headquarters, discussed previously.

For the year ended December 31, 2020, net cash provided by financing activities was $76.1 million and reflected the proceeds from our equity offering of $56.7 million, previously discussed, and the drawdown of $25.7 million on our Credit Facility, which was used to fund construction of our new headquarter facilities.

Net cash used in investing activities included net purchases of property and equipment of $27.8 million, primarily related to the construction of our corporate headquarters.

For the year ended December 31, 2021, net cash used in financing activities was $11.1 million and reflected dividends of $0.44 per common share, or $10.0 million in the aggregate.

Proceeds received from our equity compensation plans were $1.0 million, offset by payroll taxes withheld and remitted on restricted stock awards of $2.1 million for the year ended December 31, 2021.

For the year ended December 31, 2020 , net cash provided by financing activities was $76.1 million and reflected the proceeds from our equity offering of $56.7 million, previously discussed, and the drawdown of $25.7 million on our Credit Facility, which was used to fund construction of our headquarter facilities.

During the year ended December 31, 2020 , we paid dividends of $0.36 per common share, or $8.1 million in the aggregate.

Proceeds received from our equity compensation plans were $3.6 million, offset by payroll taxes withheld and remitted on restricted stock awards of $1.8 million for the year ended December 31, 2020 .

For the year ended December 31, 2019, net cash provided by financing activities was $77.8 million and reflected the proceeds from our equity offering of $65.9 million, previously discussed, and the drawdown of $17.3 million on our Credit Facility, which was used to fund construction of our new headquarter facilities.

During year ended December 31, 2019 we paid dividends of $0.32 per common share, or $6.9 million in the aggregate.

During 2019, we received net proceeds of $2.1 million from our equity compensation plans.

We enter into reinsurance contracts to limit our exposure to potential large losses as well as to provide additional capacity for growth.

Our reinsurance is primarily contracted under quota-share reinsurance contracts and excess of loss contracts.

Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties.

In quota-share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission.

3 unchanged sentences

When we write property insurance, we buy reinsurance to significantly mitigate our risk.

We use computer models to analyze the risk of severe losses from weather-related events and earthquakes.

We use sophisticated computer models to analyze the risk of severe losses from weather-related events and earthquakes.

We measure exposure to these catastrophe losses in terms of PML, which is an estimate of what level of loss we would expect to experience in a windstorm or earthquake event occurring once in every 100 or 250 years.

2 unchanged sentences

Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage.

Including the reinstatement provision, the maximum aggregate loss recovery limit is $90 million and is in addition to the per-occurrence coverage provided by our facultative and treaty coverages.

Including the reinstatement provision, the maximum aggregate loss recovery limit is $120 million and is in addition to the per-occurrence coverage provided by our treaty coverages.

Reinsurance contracts do not relieve us from our obligations to policyholders.

4 unchanged sentences

At December 31, 2021, the net reinsurance receivable, defined as the sum of paid and unpaid reinsurance recoverables, ceded unearned premiums less reinsurance payables, from five reinsurers represented 74.1% of the total balance.

During 2020, we adopted new accounting guidance ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) a nd, as a result, we recorded an allowance for doubtful accounts of $0.3 million related to our reinsurance balances at December 31, 2020.

At December 31, 2021, we recorded an allowance for credit losses of $0.4 million related to our reinsurance balances.

Kinsale Insurance has a financial strength rating of "A" (Excellent) from A.M.

9 unchanged sentences

Contractual obligations and commitments

The following table illustrates our contractual obligations and commercial commitments by due date as of December 31, 2020:

Payments Due by Period

Total Less Than

One Year One Year to

Three Years Three Years

Five Years More Than

(in thousands)

Reserves for losses and loss adjustment expenses

Credit facility 45,871 846 1,686 43,339 —

Total $ 681,884 $ 133,353 $ 215,355 $ 168,275 $ 164,901

Reserves for losses and loss adjustment expenses

Reserves for losses and loss adjustment expenses represent our best estimate of the ultimate cost of settling reported and unreported claims and related expenses.

As discussed previously, the estimation of loss and loss expense reserves is based on various complex and subjective judgments.

The estimation of loss and loss expense reserves is based on various complex and subjective judgments.

Actual losses and settlement expenses paid may deviate, perhaps substantially, from the reserve estimates reflected in our consolidated financial statements.

Similarly, the timing for payment of our estimated losses is not fixed and is not determinable on an individual or aggregate basis.

The assumptions used in estimating the payments due by period are based on Company experience as well as on industry and peer-group claims payment experience.

Due to the uncertainty inherent in the process of estimating the timing of such payments, there is a risk that the amounts paid in any period can be significantly different than the amounts disclosed above.

Amounts disclosed above are gross of anticipated amounts recoverable from reinsurers.

Reinsurance balances recoverable on reserves for losses and loss adjustment expenses are reported

separately as assets, instead of being netted with the related liabilities, since reinsurance does not discharge us of our liability to policyholders.

Reinsurance balances recoverable on reserves for paid and unpaid losses and loss adjustment expenses totaled $93.2 million at December 31, 2020.

Similarly, the timing for payment of our estimated losses is not fixed and is not determinable on an individual or aggregate basis due to the uncertainty inherent in the process of estimating such payments.

See Note 7 of the notes to the consolidated financial statements and "—Critical Accounting Estimates" for a discussion of estimates and assumptions related to the reserves for unpaid losses and loss adjustment expenses.

Reinsurance balances recoverable on reserves for losses and loss adjustment expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not discharge us of our liability to policyholders.

The method for determining reinsurance recoverables for unpaid losses and loss adjustment expenses involves reviewing actuarial estimates of gross unpaid losses and loss adjustment expenses to determine the Company's ability to cede unpaid losses and loss adjustment expenses under the Company's existing reinsurance contracts.

See Note 8 to the consolidated financial statements and "—Critical Accounting Estimates" for a discussion of reinsurance recoverables.

Credit facility

As of December 31, 2021, we had $42.7 million outstanding under the Credit Facility, which has a maturity of May 28, 2024.

Interest on the outstanding amounts is estimated based on 3-month LIBOR plus a margin of 1.75%.

Current borrowings under the Credit Facility were used to fund construction of our new headquarters, which was substantially complete at December 31, 2020.

However, we may decide to repay the Credit Facility without penalty and as a result, actual amounts paid and the associated interest may differ from the estimates presented.

Interest on the outstanding amounts is based on 3-month LIBOR plus a margin of 1.75%.

Current borrowings under the Credit Facility were used to fund construction of our new headquarters, which was completed in 2020.

See Note 11 to the consolidated financial statements for further details regarding our Credit Facility.

Financial Condition

1 unchanged sentence

At December 31, 2021, total stockholders' equity was $699.3 million and tangible stockholders' equity was $696.5 million, compared to total stockholders' equity of $576.2 million and tangible stockholders' equity of $573.4 million at December 31, 2020.

The increase in both total stockholders' equity and tangible stockholders' equity in 2020 compared to 2019 was primarily due to profits generated during the period, proceeds received from the public equity offering in August of 2020, an increase in unrealized gains on available-for-sale investments, net of taxes, and net activity related to stock-based compensation plans.

These increases were offset in part by the dividends declared during 2020.

The increase in both total stockholders' equity and tangible stockholders' equity in 2021 compared to 2020 was primarily due to profits generated during the period and net activity related to stock-based compensation plans.

These increases were offset in part by a decrease in net unrealized gains on available-for-sale investments, net of taxes, and dividends declared during 2021.

Tangible stockholders’ equity is a non-GAAP financial measure.

See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity.

Equity-based compensation

On July 27, 2016, the Kinsale Capital Group, Inc.

2016 Omnibus Incentive Plan (the "2016 Incentive Plan"), became effective.

The 2016 Incentive Plan provides for grants of stock options, restricted stock, restricted stock units and other stock-based awards to directors, officers and other employees, as well as independent contractors or consultants providing consulting or advisory services to the Company.

The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832.

During 2020, 42,694 shares of restricted stock awards were granted under the 2016 Incentive Plan to the Company’s employees and non-employee directors.

The restricted stock had a weighted average fair value on the date of grant of $147.45 per share and vest over a term of 1 to 4 years.

On January 1, 2021, the Board of Directors granted 3,200 shares of restricted stock awards 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 $200.13 per share and will vest on the first anniversary date of the grant.

See Note 9 to the consolidated financial statements for further details regarding our stock-based compensation plans.

Dividend declarations

2 unchanged sentences

On May 4, 2021, the Company’s Board of Directors declared a cash dividend of $0.11 per share of common stock.

This dividend was paid on June 12, 2020 to all stockholders of record on June 2, 2020.

This dividend was paid on June 11, 2021 to all stockholders of record on May 27, 2021.

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

3 unchanged sentences

On February 14, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock.

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

This dividend is payable on March 14, 2022 to all stockholders of record on March 2, 2022.

Investment portfolio

2 unchanged sentences

Available-for-sale investments are carried at fair value with unrealized gains and losses on those securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.

At December 31, 2020, we also held $77.1 million of cash and cash equivalents and $129.7 million of equity securities, which are comprised of ETFs and non-redeemable preferred stock.

At December 31, 2021, we also held $172.6 million of equity securities, which were comprised of ETFs and non-redeemable preferred stock and $121.0 million of cash and cash equivalents.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 4.3 years and an average rating of "AA-" at December 31, 2021.

Our investment portfolio, excluding cash equivalents, had a gross return of 2.9% as of December 31, 2020, compared to 3.1% as of December 31, 2019.

Our investment portfolio, excluding cash equivalents, had a gross investment return of 2.5% as of December 31, 2021, compared to 2.9% as of December 31, 2020.

At December 31, 2021, the amortized cost and estimated fair value of our investments were as follows:

3 unchanged sentences

Fixed maturities:

Treasury securities and obligations of U.S.

government agencies

$ 6,936 $ 6,847 0.4 %

Obligations of states, municipalities and political subdivisions

2 unchanged sentences

Asset-backed securities 299,810 301,775 19.3 %

Commercial mortgage-backed securities 66,110 70,969 5.8 %

Residential mortgage-backed securities

340,804 337,685 21.6 %

Commercial mortgage-backed securities 57,000 59,227 3.8 %

Total fixed maturities 1,371,519 1,392,066 89.0 %

23 unchanged sentences

Asset-backed securities 299,810 301,775 21.7 %

Commercial mortgage-backed securities 66,110 70,969 6.5 %

Residential mortgage-backed securities 340,804 337,685 24.3 %

Commercial mortgage-backed securities 57,000 59,227 4.2 %

Total fixed maturities $ 1,371,519 $ 1,392,066 100.0 %

3 unchanged sentences

Assets held on deposit or in trust accounts are primarily in the form of cash or certain high-grade securities.

The fair value of our restricted assets was $6.9 million at December 31, 2020 and 2019.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements as of December 31, 2020.

The fair value of our restricted assets was $6.7 million and $6.9 million at December 31, 2021 and 2020, respectively.

Reconciliation of Non-GAAP Financial Measures

1 unchanged sentence

Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income.

Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized gains and losses on investments, other income, other expenses and income tax expense.

Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized investment gains and losses, other income, other expenses and income tax expense.

We use underwriting income as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations and our underlying business performance.

12 unchanged sentences

Underwriting income $ 133,564 $ 54,656

Reconciliation of adjusted loss ratio, adjusted expense ratio and adjusted combined ratio

Our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio are non-GAAP financial measures.

We define our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio as each of our loss ratio, expense ratio and combined ratio, respectively, excluding the effects of the MLQS.

We use these adjusted ratios as an internal performance measure in the management of our operations because we believe they give our management and other users of our financial information useful insight into our results of operations and our underlying business performance.

Our adjusted loss ratio, adjusted expense ratio and adjusted combined ratio should not be viewed as substitutes for our loss ratio, expense ratio and combined ratio, respectively, which are presented in accordance with GAAP.

The effect of the MLQS on our results of operations is primarily reflected in our ceded written premiums, losses and loss adjustment expenses, as well as our underwriting, acquisition and insurance expenses.

The following table summarize the effect of the MLQS on our underwriting income for the year ended December 31, 2016:

Year Ended December 31, 2016

($ in thousands)

Excluding Quota Share

Net earned premiums

$ 133,816 $ (16,996) $ 150,812

Losses and loss adjustment expenses

(70,961) 4,380 (75,341)

Underwriting, acquisition and insurance expenses (28,551) 11,936 (40,487)

Underwriting income

$ 34,304 $ (680) $ 34,984

53.0 % 25.8 % —

Expense ratio

21.3 % 70.2 % —

Combined ratio

74.3 % 96.0 % —

Adjusted loss ratio

Adjusted expense ratio

Adjusted combined ratio

Reconciliation of net operating earnings

Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized gains and losses on investments, after taxes, as well as the earnings impact of the deferred tax revaluation recognized resulting from the enactment of the TCJA in December 2017.

Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized investment gains and losses, after taxes.

Management believes the exclusion of these items provides a more useful comparison of the Company's underlying business performance from period to period.

1 unchanged sentence

Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.

Net income for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 reconcile to net operating earnings as follows:

Net income for the years ended December 31, 2021 and 2020 reconciles to net operating earnings as follows:

Year Ended December 31,

1 unchanged sentence

Net income $ 152,659 $ 88,419

Change in the fair value of equity securities, before taxes (22,812) (16,855)

Income tax expense (1)

Change in the fair value of equity securities, after taxes (18,021) (13,315)

Net realized gains on investments, after taxes (2,791) (284) (222) (98) (114)

TCJA charge — — — 1,915 —

Net realized investment gains, before taxes (2,828) (3,533)

Income tax expense (1)

Net realized investment gains, after taxes (2,234) (2,791)

Net operating earnings $ 132,404 $ 72,313

6 unchanged sentences

20.8 % 14.7 %

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

(2) Computed by adding the total stockholders' equity as of the date indicated to the prior year-end total and dividing by two.

(2) Return on equity represents net income expressed as a percentage of average beginning and ending stockholders’ equity during the period.

(3) Return on equity is net income expressed as a percentage of average beginning and ending stockholders’ equity during the period.

(4) Operating return on equity is net operating earnings expressed as a percentage of average beginning and ending stockholders’ equity during the period.

5 unchanged sentences

Stockholders' equity at December 31, 2021 and 2020 reconciles to tangible stockholders' equity as follows:

2020 2019 2018 2017 2016

($ in thousands) 2021 2020

16 unchanged sentences

Those estimates are based on our historical information, industry information and our estimates of future trends in variable factors such as loss severity, loss frequency and other factors such as inflation.

We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes

We regularly review our estimates and adjust them as necessary as experience develops or as new information becomes known to us.

Such adjustments are included in current operations.

6 unchanged sentences

Our reserves for losses and loss adjustment expenses, net of reinsurance, at December 31, 2021 were $763.8 million, and of this amount, 85.9% related to IBNR.

A 5% change in net IBNR reserves at December 31, 2020 would equate to an $23.4 million change in the reserve for losses and loss adjustment expenses at such date, as well as $18.5 million change in net income, a 3.2% change in both stockholders' equity and tangible stockholders' equity, in each case at or for the year ended December 31, 2020.

A 5% change in net IBNR reserves would equate to a $32.8 million change in the reserve for losses and loss adjustment expenses at such date, as well as a $25.9 million change in net income, a 3.7% change in both stockholders' equity and tangible stockholders' equity, in each case at or for the year ended December 31, 2021.

The following tables summarize our reserves for unpaid losses and loss adjustment expenses, on a gross basis and net of reinsurance, at December 31, 2021 and 2020:

22 unchanged sentences

Since the incurred BF method does not directly use reported losses in the estimation of IBNR, it is less sensitive to our level of reported losses than other actuarial methods.

This method avoids some of the distortions that could result from a large loss development factor

being applied to a small base of reported losses to calculate ultimate losses.

This method avoids some of the distortions that could result from a large loss development factor being applied to a small base of reported losses to calculate ultimate losses.

However, this method will react more slowly than some other loss development methods if reported loss experience deviates significantly from our expected losses.

Our Reserve Committee consists of our Chief Actuary, Chief Executive Officer, Chief Operating Officer and Chief Financial Officer.

Our Reserve Committee consists of our Chief Actuary and other select members of senior management.

The Reserve Committee meets quarterly to review the actuarial recommendations made by the Chief Actuary.

4 unchanged sentences

Although we believe that our assumptions and methodology are reasonable, our ultimate payments may vary, potentially materially, from the estimates we have made.

In addition, we retain an independent external actuary annually to assist us in determining if the reserve levels are reasonable.

In addition, we retain an independent actuary annually to review our reserve levels.

The independent actuary is not involved in the establishment and recording of our loss reserve.

The actuarial consulting firm prepares its own estimate of our reserves for loss and loss adjustment expenses, and we compare their estimate to the reserves for losses and loss adjustment expenses reviewed and approved by the Reserve Committee in order to gain additional comfort on the adequacy of those reserves.

The table below quantifies the impact of potential reserve deviations from our carried reserve at December 31, 2020.

We applied sensitivity factors to incurred losses for the three most recent accident years and to the carried reserve for all prior accident years combined.

We believe that potential changes such as these would not have a material impact on our liquidity.

December 31, 2020 Potential Impact on 2020

Sensitivity Accident Year Net Ultimate Loss and LAE Sensitivity Factor Net Ultimate Incurred Losses and LAE Net Loss and LAE Reserve Pre-tax income Stockholders' Equity

($ in thousands)

Sample increases 2020 10.0 % $ 277,140 $ 249,475 $ (27,714) $ (21,894)

2019 5.0 % 168,445 128,656 (8,422) (6,653)

2018 2.5 % 120,304 71,297 (3,008) (2,376)

Prior 2.5 % 102,855 (2,571) (2,031)

Sample decreases 2020 (10.0) % 277,140 249,475 27,714 21,894

2019 (5.0) % 168,445 128,656 8,422 6,653

2018 (2.5) % 120,304 71,297 3,008 2,376

Prior (2.5) % 102,855 2,571 2,031

While we believe that loss reserves at December 31, 2021 are adequate, new information, events, or circumstances may result in ultimate losses that are materially greater or less than our estimates.

As previously noted, there are many factors that may cause reserves to increase or decrease, particularly those related to catastrophe losses and long-tailed lines of business.

Key assumptions

Expected loss ratios are a key assumption in estimates of ultimate losses for business at an early stage of development.

A higher expected loss ratio results in a higher ultimate loss estimate, and vice versa.

Assumed loss development patterns are another significant assumption in estimating loss reserves.

Accelerating a loss development pattern results in lower ultimate losses, as the estimated proportion of losses already incurred would be higher.

The uncertainty in estimating the loss development patterns is generally greater for a company with a relatively limited operating history, therefore, we rely on industry benchmarks to a certain extent when establishing loss reserve estimates.

Each of the impacts described below is estimated individually, without consideration for any correlation among key indicators or among lines of business.

Therefore, it would be inappropriate to take each of the amounts described below and add them together in an attempt to estimate volatility for our reserves in total.

For any one reserving line of business, the estimated variation in reserves due to changes in key indicators is a reasonable estimate of possible variation that may occur in the future.

The variation discussed is not meant to be a worst-case scenario and, therefore, it is possible that future variation may be greater than the amounts shown below.

The impact of reasonably likely changes in the two key assumptions used to estimate net loss reserves at December 31, 2021 is as follows:

Development Pattern Expected Loss Ratio

Property 10% lower Unchanged 10% higher

($ in millions)

2 months slower $ 7.6 $ 10.5 $ 13.4

Unchanged (1.7) — 1.7

2 months faster (5.8) (4.7) (3.6)

Casualty Occurrence 5% lower Unchanged 5% higher

6 months slower $ 22.9 $ 62.4 $ 101.9

Unchanged (35.0) — 35.0

6 months faster (90.4) (59.6) (28.9)

Casualty Claims-Made 5% lower Unchanged 5% higher

6 months slower $ 14.6 $ 30.0 $ 45.3

Unchanged (12.7) — 12.7

6 months faster (38.0) (27.7) (17.4)

Reserve development

3 unchanged sentences

We reflect favorable or unfavorable development of loss reserves in the results of operations in the period the estimates are changed.

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 the 2018 accident year, which was primarily due to reported losses emerging at a lower level than expected, largely across the other liability and excess lines of business.

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, which 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 $5.2 million for accident years 2015 and prior, primarily attributable to the other liability occurrence statutory line of business.

This adverse development largely resulted from management’s decision to lengthen the actuarial loss development factors in certain lines to provide for emergence of reported losses over a longer period of time based on observed trends.

Refer to Note 7 to the consolidated financial statements for discussion on our reserve development for the years ended December 31, 2021 and 2020.

Fair value measurements

16 unchanged sentences

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

For securities where we are unable

to obtain fair values from a pricing service or broker, fair values are estimated using information obtained from our investment accounting vendor.

For securities where we are unable to obtain fair values from a pricing service or broker, fair values are estimated using information obtained from our investment accounting vendor.

We perform several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2021, including (1) obtaining and reviewing the internal control report from our investment accounting vendor that obtain fair values from third party pricing services, (2) discussing with our investment accounting vendor their process for reviewing and validating pricing obtained from outside pricing services and (3) reviewing the security pricing received from our investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level.

6 unchanged sentences

In addition to these uncertainties, our reinsurance recoverables may prove uncollectible if the reinsurers are unable or unwilling to perform under the reinsurance contracts.

In establishing our reinsurance allowance for amounts deemed uncollectible, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from our exposure to individual reinsurers.

In establishing our reinsurance allowance for credit losses, we evaluate the financial condition of our reinsurers and monitor concentration of credit risk arising from our exposure to individual reinsurers.

To determine if an allowance is necessary, we consider, among other factors, published financial information, reports from rating agencies, payment history, collateral held and our legal right to offset balances recoverable against balances we may owe.

Our reinsurance allowance for doubtful accounts is subject to uncertainty and volatility due to the time lag involved in collecting amounts recoverable from reinsurers.

Our reinsurance allowance for credit losses is subject to uncertainty and volatility due to the time lag involved in collecting amounts recoverable from reinsurers.

Over the period of time that losses occur, reinsurers are billed and amounts are ultimately collected, economic conditions, as well as the operational and financial performance of particular reinsurers may change and these changes may affect the reinsurers’ willingness and ability to meet their contractual obligations to us.

3 unchanged sentences

Best financial strength ratings of "A" (Excellent) or better.

Based on our evaluation of the factors discussed above, the allowance for uncollectible reinsurance was $0.3 million at December 31, 2020.

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

Based on our evaluation of the factors discussed above, the allowance for credit losses related to reinsuran ce balances was $0.4 million at December 31, 2021.

Recent Accounting Pronouncements

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 7. Management’s Discussion and Analysis