Kinsale Capital Group, Inc. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO FINANCIAL STATEMENTS Page Audited Consolidated Financial Statements Management's Report on Internal Control Over Financial Reporting 64 Reports of Independent Registered Public Accounting Firm 64 Consolidated Balance Sheets as of December 31, 2021 and 2020 68 Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2021, 2020 and 2019 69 Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019 70 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 71 Notes to Consolidated Financial Statements 72 Schedule I - Summary of Investments - Other than Investments in Related Parties 98 Schedule II - Condensed Financial Information of Registrant - Parent Company Only 99 Schedule V - Valuation and Qualifying Accounts 104 Schedules other than those listed are omitted for the reason that they are not required, are not applicable or that equivalent information has been included in the financial statements or notes thereto or elsewhere herein. 63 Table of Contents Management's Report on Internal Control Over Financial Reporting: Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management does not expect that its internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. The design of any system of internal control over financial reporting also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors. Based on our evaluation, we have concluded that we maintained effective internal control over financial reporting as of December 31, 2021. KPMG LLP, our independent registered public accounting firm, has issued an opinion on the effectiveness of the Company's internal control over financial reporting, as stated in their report which is included herein. Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Kinsale Capital Group, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Kinsale Capital Group, Inc. and subsidiaries' (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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, 2021 and 2020, 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, 2021, and the related notes and financial statement schedules I, II, and V (collectively, the consolidated financial statements), and our report dated February 25, 2022 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 64 Table of Contents U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Richmond, Virginia February 25, 2022 65 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Kinsale Capital Group, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Kinsale Capital Group, Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, 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, 2021, and the related notes and financial statement schedules I, II, and V (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S. 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, 2021, 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, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. 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. 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, 2021, the Company recorded $881.3 million of reserves for unpaid losses and loss adjustment expenses. 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 66 Table of Contents 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 • 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. /s/ KPMG LLP We have served as the Company’s auditor since 2009. Richmond, Virginia February 25, 2022 67 Table of Contents KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2021 2020 (in thousands, except share and per share data) Assets Fixed-maturity securities available-for-sale, at fair value (amortized cost: $ 1,371,519 – 2021; $ 1,031,817 – 2020) $ 1,392,066 $ 1,081,800 Equity securities, at fair value (cost: $ 118,895 – 2021; $ 98,758 – 2020) 172,611 129,662 Total investments 1,564,677 1,211,462 Cash and cash equivalents 121,040 77,093 Investment income due and accrued 7,658 6,637 Premiums receivable, net 71,004 48,641 Reinsurance recoverables, net 122,970 93,215 Ceded unearned premiums 33,679 24,265 Deferred policy acquisition costs, net of ceding commissions 41,968 31,912 Intangible assets 3,538 3,538 Deferred income tax asset, net 2,109 — Other assets 57,012 50,133 Total assets $ 2,025,655 $ 1,546,896 Liabilities and Stockholders' Equity Reserves for unpaid losses and loss adjustment expenses $ 881,344 $ 636,013 Unearned premiums 347,730 260,986 Payable to reinsurers 16,112 12,672 Accounts payable and accrued expenses 23,250 13,651 Credit facility 42,696 42,570 Deferred income tax liability, net — 4,648 Other liabilities 15,188 118 Total liabilities 1,326,320 970,658 Commitments and contingencies Stockholders’ equity: Common stock, $ 0.01 par value, 400,000,000 shares authorized, 22,834,377 shares issued and outstanding at December 31, 2021; 22,757,251 shares issued and outstanding at December 31, 2020 228 228 Additional paid-in capital 295,040 291,315 Retained earnings 385,942 243,315 Accumulated other comprehensive income 18,125 41,380 Stockholders’ equity 699,335 576,238 Total liabilities and stockholders’ equity $ 2,025,655 $ 1,546,896 See accompanying notes to consolidated financial statements. 68 Table of Contents KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Income and Comprehensive Income Year Ended December 31, 2021 2020 2019 (in thousands, except per share data) Revenues: Gross written premiums $ 764,373 $ 552,814 $ 389,694 Ceded written premiums ( 104,164 ) ( 74,595 ) ( 47,633 ) Net written premiums 660,209 478,219 342,061 Change in unearned premiums ( 77,330 ) ( 65,465 ) ( 59,080 ) Net earned premiums 582,879 412,754 282,981 Net investment income 31,048 26,110 20,133 Change in fair value of equity securities 22,812 16,855 12,389 Net realized investment gains 2,828 3,533 359 Other income 212 634 26 Total revenues 639,779 459,886 315,888 Expenses: Losses and loss adjustment expenses 324,415 263,802 169,563 Underwriting, acquisition and insurance expenses 124,900 94,296 70,217 Other expenses 1,663 1,375 57 Total expenses 450,978 359,473 239,837 Income before income taxes 188,801 100,413 76,051 Income tax expense 36,142 11,994 12,735 Net income 152,659 88,419 63,316 Other comprehensive (loss) income: Change in unrealized (losses) gains on available-for-sale investments, net of taxes ( 23,255 ) 27,862 14,774 Total comprehensive income $ 129,404 $ 116,281 $ 78,090 Earnings per share: Basic $ 6.73 $ 3.96 $ 2.94 Diluted $ 6.62 $ 3.87 $ 2.86 Weighted-average shares outstanding: Basic 22,693 22,319 21,528 Diluted 23,062 22,852 22,136 See accompanying notes to consolidated financial statements. 69 Table of Contents KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Shares of Common Stock Common Stock Additional Paid-in Capital Retained Earnings Accumu- lated Other Compre- hensive Income (Loss) Total Stockholders' Equity (in thousands, except for per share data) 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 ($ 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 Issuance of common stock under stock-based compensation plan 90 — 982 — — 982 Stock-based compensation expense — — 4,844 — — 4,844 Restricted shares withheld for taxes ( 13 ) — ( 2,101 ) — — ( 2,101 ) Dividends declared ($ 0.44 per share) — — — ( 10,032 ) — ( 10,032 ) Other comprehensive loss, net of income taxes — — — — ( 23,255 ) ( 23,255 ) Net income — — — 152,659 — 152,659 Balance at December 31, 2021 22,834 $ 228 $ 295,040 $ 385,942 $ 18,125 $ 699,335 See accompanying notes to consolidated financial statements. 70 Table of Contents KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Year Ended December 31, 2021 2020 2019 (in thousands) Operating activities: Net income $ 152,659 $ 88,419 $ 63,316 Adjustments to reconcile net income to net cash provided by operating activities: Net unrealized gains on equity securities ( 22,812 ) ( 16,855 ) ( 12,389 ) Net realized investment gains ( 2,828 ) ( 3,533 ) ( 359 ) Deferred tax (benefit) expense ( 576 ) 616 ( 125 ) Depreciation and amortization 2,308 1,574 682 Stock compensation expense 4,844 3,575 2,742 Change in operating assets and liabilities: Investment income due and accrued ( 1,021 ) ( 1,894 ) ( 960 ) Premiums receivable, net ( 22,363 ) ( 14,158 ) ( 10,230 ) Reserves for unpaid loss and loss adjustment expenses 245,331 175,955 90,906 Unearned premiums 86,744 73,612 59,124 Reinsurance balances, net ( 35,729 ) ( 23,267 ) ( 13,246 ) Deferred policy acquisition costs ( 10,056 ) ( 8,348 ) ( 8,763 ) Income taxes (recoverable) payable ( 3,882 ) ( 1,611 ) 1,221 Accounts payable and accrued expenses 10,102 3,087 2,972 Other 4,321 2,802 3,466 Net cash provided by operating activities 407,042 279,974 178,357 Investing activities: Purchase of property and equipment ( 5,920 ) ( 32,875 ) ( 19,622 ) Sale of property and equipment — 5,077 — Purchases – fixed-maturity securities ( 654,922 ) ( 530,732 ) ( 306,203 ) Purchases – equity securities ( 24,867 ) ( 36,822 ) ( 29,887 ) Sales – fixed-maturity securities 113,006 119,749 35,526 Sales – equity securities 4,617 2,367 21,459 Maturities and calls – fixed-maturity securities 216,131 93,803 67,934 Net cash used in investing activities ( 351,955 ) ( 379,433 ) ( 230,793 ) Financing activities: Proceeds from issuance of common stock, net of issuance costs — 56,698 65,879 Proceeds from credit facility — 25,700 17,300 Debt issuance costs — — ( 628 ) Payroll taxes withheld and remitted on share-based payments ( 2,101 ) ( 1,803 ) ( 617 ) Common stock issued, stock options exercised 982 3,622 2,750 Dividends paid ( 10,021 ) ( 8,073 ) ( 6,929 ) Net cash (used in) provided by financing activities ( 11,140 ) 76,144 77,755 Net change in cash and cash equivalents 43,947 ( 23,315 ) 25,319 Cash and cash equivalents at beginning of year 77,093 100,408 75,089 Cash and cash equivalents at end of year $ 121,040 $ 77,093 $ 100,408 See accompanying notes to consolidated financial statements. 71 Table of Contents Kinsale Capital Group, Inc. and subsidiaries Notes to consolidated financial statements 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 (referred to as "Kinsale" or, with its subsidiaries, the "Company"). Kinsale Capital Group, Inc. writes excess and surplus lines insurance on a non-admitted basis principally through its insurance subsidiary, Kinsale Insurance Company ("Kinsale Insurance"), which is authorized to write business in 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. Kinsale Capital Group, Inc. also markets certain products through its subsidiary, Aspera Insurance Services, Inc. ("Aspera"), an insurance broker. 1. Summary of significant accounting policies Principles of consolidation The accompanying consolidated financial statements include the accounts of Kinsale Capital Group, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation. Use of estimates The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, if any, at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management periodically reviews its estimates and assumptions. These reviews include evaluating the adequacy of reserves for unpaid losses and loss adjustment expenses, allowance for credit losses and uncollectible reinsurance, fair value of investments, as well as evaluating the investment portfolio for credit impairments. Cash and cash equivalents The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Short-term investments Short-term investments are carried at cost, which approximates fair value. Short-term investments have maturities greater than three months but less than one year at the date of purchase. There were no short-term investments at December 31, 2021 or December 31, 2020. Fixed-maturity and equity securities Fixed-maturity securities are classified as available-for-sale and reported at fair value. Unrealized gains and losses on these securities are excluded from 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. 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 regarding the determination of credit losses. 72 Table of Contents Interest on fixed-maturity securities is credited to earnings as it accrues. 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. This method includes an adjustment for estimated principal prepayments, if any, on asset- and mortgage-backed securities. To the extent that the estimated lives of such securities change as a result of changes in estimated prepayment rates, the adjustments are included in net investment income using the retrospective method. Dividends on equity securities are included in earnings on the ex-dividend date. Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the trade date. Reinsurance Reinsurance premiums, commissions, and ceded unearned premiums on reinsured business are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. The Company receives ceding commissions in accordance with certain reinsurance treaties. The ceding commissions are capitalized and amortized as a reduction of underwriting, acquisition and insurance expenses. Reinsurance recoverables represent paid losses and loss adjustment expenses and reserves for unpaid losses and loss adjustment expenses ceded to reinsurers that are subject to reimbursement under reinsurance treaties. 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. This method is continually reviewed and updated and any resulting adjustments are reflected in earnings in the period identified. See Note 8 for a further discussion of the Company's reinsurance program. Premiums receivable, net Premiums receivable balances are carried at face value, net of any allowance for credit losses. The allowance for credit losses represents an estimate of amounts considered uncollectible based on the Company’s assessment of the collectability of receivables that are past due. The Company recorded an allowance for credit losses of $ 3.4 million and $ 3.1 million at December 31, 2021 and 2020, respectively, and believes that all other amounts due are collectible. Deferred policy acquisition costs, net of ceding commissions The Company defers commissions, net of ceding commissions, and certain other costs that are directly related to the successful acquisition of insurance contracts. All eligible costs are capitalized and charged to expense in proportion to premium earned over the estimated policy life. To the extent that unearned premiums on existing policies are not adequate to cover the related costs and expenses, referred to as a premium deficiency, deferred policy acquisition costs are charged to earnings. The Company considers anticipated investment income in determining whether a premium deficiency exists. Property and equipment, net Property and equipment are stated at cost less accumulated depreciation. 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 39 years for the building and parking deck, 15 to 20 years for land improvements, 7 to 10 years for furniture and equipment, and 3 to 7 years for electronic data processing hardware and software. 73 Table of Contents Property and equipment are included in "other assets" in the accompanying consolidated balance sheets and consists of the following: December 31, 2021 2020 (in thousands) Building $ 33,101 $ 31,675 Parking deck 5,072 5,072 Land 3,068 3,068 Equipment 3,143 2,770 Software 7,849 4,815 Furniture and fixtures 2,158 1,731 Land improvements 474 317 54,865 49,448 Accumulated depreciation ( 5,570 ) ( 3,262 ) Total property and equipment, net $ 49,295 $ 46,186 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 Intangible assets are recorded at fair value at the date of acquisition. The Company's intangible assets are comprised solely of indefinite-lived intangible assets, which arose from regulatory approvals granted by the various state insurance departments to write insurance business in the respective states on a non-admitted basis. In accordance with U.S. GAAP, amortization of indefinite-lived intangible assets is not permitted. Indefinite-lived intangible assets are tested for impairment during the fourth quarter on an annual basis, or earlier if there is reason to suspect that their values may have been diminished or impaired. There were no impairments recognized in 2021, 2020, or 2019. In addition, as of December 31, 2021, no triggering events occurred that suggested an updated review was necessary. Reserves for unpaid losses and loss adjustment expenses Reserves for unpaid losses and loss adjustment expenses represent management's best estimate of ultimate unpaid cost of all reported and unreported losses and loss adjustment expenses incurred prior to the financial statement date. The estimates are based on an actuarial method that uses management’s initial 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 reserves for unpaid losses and loss adjustment expenses are adjusted as necessary. Such adjustments are reflected in the results of operations in the period in which they are determined. Although management believes that the reserves for losses and loss adjustment expenses are reasonable, due to the inherent uncertainty in estimating reserves for unpaid losses and loss adjustment expenses, it is possible that the Company’s actual incurred losses and loss adjustment expenses will not develop in a manner consistent with the assumptions inherent in the determination of these reserves. If actual liabilities exceed recorded amounts, there will be an increase to the Company’s reserves resulting in a reduction in net income and stockholders’ equity in the period in which the deficiency is identified. 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, 2021 and 2020 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. 74 Table of Contents Revenue recognition Premiums are recognized as revenue ratably over the term of the insurance contracts, net of ceded reinsurance. Unearned premiums are calculated on a daily pro rata basis. Income taxes Deferred income tax assets and liabilities are determined based on the differences between the recorded amounts and the tax bases of assets and liabilities, using enacted tax rates expected to be in effect during the year in which the basis differences reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period in which such change was enacted. Valuation allowances on deferred tax assets are estimated based on the Company's assessment of the realizability of such amounts. Valuation allowances are recorded when it is more likely than not that some portion, or all, of the deferred tax assets will not be realizable. The Company provides for uncertain tax positions, and the related interest and penalties, based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent that the anticipated tax outcome of these uncertain tax positions changes, such changes in estimate will impact the income tax provision in the period in which such determination is made. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense. The Company uses the portfolio approach to release stranded tax effects in accumulated other comprehensive income ("AOCI") related to its available-for-sale fixed-maturity securities. Under this approach, stranded tax effects remaining in AOCI are released only when the entire portfolio of the available-for-sale fixed-maturity securities are liquidated, sold or extinguished. 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. Fair value of financial instruments Fair value is estimated for each class of financial instrument based on the framework established in the fair value accounting guidance. This guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). See Note 3 for further details regarding fair value disclosures. Stock-based compensation Stock-based compensation is expensed based upon the estimated fair value of employee stock awards. 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. See Note 9 for further discussion and related disclosures regarding stock-based compensation. Recently adopted accounting pronouncements 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- 75 Table of Contents maturity securities must also be recorded through an allowance for credit losses, which is limited 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 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 income tax accounting matters. Effective January 1, 2021, the Company adopted ASU 2019-12 using a modified-retrospective approach. The adoption of ASU 2019-12 did not have a material impact on the Company's consolidated financial statements. Prospective accounting pronouncements There are no other prospective accounting standards which, upon their effective date, would have a material impact on the Company's consolidated financial statements. 2. Investments Available-for-sale investments The following tables summarize the Company’s available-for-sale investments at December 31, 2021 and 2020: December 31, 2021 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Fixed maturities: U.S. Treasury securities and obligations of U.S. government agencies $ 6,936 $ — $ ( 89 ) $ 6,847 Obligations of states, municipalities and political subdivisions 216,375 12,139 ( 469 ) 228,045 Corporate and other securities 450,594 11,714 ( 3,821 ) 458,487 Asset-backed securities 299,810 2,217 ( 252 ) 301,775 Residential mortgage-backed securities 340,804 1,804 ( 4,923 ) 337,685 Commercial mortgage-backed securities 57,000 2,433 ( 206 ) 59,227 Total fixed-maturity investments $ 1,371,519 $ 30,307 $ ( 9,760 ) $ 1,392,066 76 Table of Contents December 31, 2020 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (in thousands) Fixed maturities: 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 Asset-backed securities 236,813 4,230 ( 382 ) 240,661 Residential mortgage-backed securities 217,859 4,938 ( 141 ) 222,656 Commercial mortgage-backed securities 66,110 4,886 ( 27 ) 70,969 Total fixed-maturity investments $ 1,031,817 $ 50,686 $ ( 703 ) $ 1,081,800 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 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 a credit loss. 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. 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 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. 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 earnings at the time the issuer of the bond defaults or is expected to default on payments. 77 Table of Contents 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, 2021 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: U.S. Treasury securities and obligations of U.S. government agencies $ 6,847 $ ( 89 ) $ — $ — $ 6,847 $ ( 89 ) Obligations of states, municipalities and political subdivisions 23,870 ( 469 ) — — 23,870 ( 469 ) Corporate and other securities 188,522 ( 3,718 ) 1,092 ( 103 ) 189,614 ( 3,821 ) Asset-backed securities 136,669 ( 204 ) 4,452 ( 48 ) 141,121 ( 252 ) Residential mortgage-backed securities 260,251 ( 4,329 ) 17,968 ( 594 ) 278,219 ( 4,923 ) Commercial mortgage-backed securities 10,773 ( 206 ) — — 10,773 ( 206 ) Total fixed-maturity investments $ 626,932 $ ( 9,015 ) $ 23,512 $ ( 745 ) $ 650,444 $ ( 9,760 ) At December 31, 2021, the Company held 234 fixed-maturity securities with a total estimated fair value of $ 650.4 million and gross unrealized losses of $ 9.8 million. Of those securities, 10 were in a continuous unrealized loss position for greater than one year. 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, 2021, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At December 31, 2021, 81.5 % 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 credit losses from fixed-maturity securities with unrealized losses for the year ended December 31, 2021. December 31, 2020 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: Obligations of states, municipalities and political subdivisions $ 6,412 $ ( 67 ) $ — $ — $ 6,412 $ ( 67 ) Corporate and other securities 3,829 ( 86 ) — — 3,829 ( 86 ) Asset-backed securities 57,750 ( 149 ) 23,825 ( 233 ) 81,575 ( 382 ) Residential mortgage-backed securities 46,869 ( 129 ) 266 ( 12 ) 47,135 ( 141 ) Commercial mortgage-backed securities 4,971 ( 27 ) — — 4,971 ( 27 ) Total fixed-maturity investments $ 119,831 $ ( 458 ) $ 24,091 $ ( 245 ) $ 143,922 $ ( 703 ) 78 Table of Contents 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, 2021 are summarized, by contractual maturity, as follows: Amortized Estimated Cost Fair Value (in thousands) Due in one year or less $ 6,742 $ 6,822 Due after one year through five years 185,273 189,497 Due after five years through ten years 226,707 232,197 Due after ten years 255,183 264,863 Asset-backed securities 299,810 301,775 Residential mortgage-backed securities 340,804 337,685 Commercial mortgage-backed securities 57,000 59,227 Total fixed maturities $ 1,371,519 $ 1,392,066 Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower. Net investment income The following table presents the components of net investment income: Year Ended December 31, 2021 2020 2019 (in thousands) Interest: Taxable bonds $ 25,654 $ 20,493 $ 14,853 Municipal bonds (tax exempt) 3,501 3,618 3,692 Cash equivalents and short-term investments 12 262 842 Dividends on equity securities 3,962 3,512 2,136 Gross investment income 33,129 27,885 21,523 Investment expenses ( 2,081 ) ( 1,775 ) ( 1,390 ) Net investment income $ 31,048 $ 26,110 $ 20,133 79 Table of Contents Realized investment gains and losses The following table presents realized investment gains and losses: Year Ended December 31, 2021 2020 2019 (in thousands) Fixed-maturity securities: Realized gains $ 2,944 $ 4,022 $ 567 Realized losses ( 3 ) ( 383 ) ( 79 ) Net realized gains from fixed-maturity securities 2,941 3,639 488 Equity securities: Realized gains 97 — 556 Realized losses ( 210 ) ( 119 ) ( 688 ) Net realized losses from equity securities ( 113 ) ( 119 ) ( 132 ) Short-term securities - realized gains — 13 3 Net realized investment gains $ 2,828 $ 3,533 $ 359 Change in net unrealized (losses) gains on fixed-maturity securities The change in net unrealized (losses) gains for fixed-maturity securities was $( 29.4 ) million, $ 35.3 million, and $ 18.7 million for the years ended December 31, 2021, 2020, and 2019 respectively. Insurance – statutory deposits The Company had invested assets with a carrying value of $ 6.7 million and $ 6.9 million on deposit with state regulatory authorities at December 31, 2021 and 2020, respectively. Payable for investments purchased The Company recorded a payable for investments purchased, not yet settled, of $ 15.0 million at December 31, 2021. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet. 3. Fair value measurements Fair value is estimated for each class of financial instrument based on the framework established in the fair value accounting guidance. 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. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value. The three levels of the fair value hierarchy are defined as follows: Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs. 80 Table of Contents 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 accounting vendor from nationally recognized third-party pricing services, where available. Values for U.S. Treasuries 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 non-redeemable 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, 2021 and 2020, 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. The following tables present the balances of assets measured at fair value on a recurring basis as of December 31, 2021 and 2020, by level within the fair value hierarchy. December 31, 2021 Level 1 Level 2 Level 3 Total (in thousands) Assets Fixed maturities: U.S. Treasury securities and obligations of U.S. government agencies $ 6,847 $ — $ — $ 6,847 Obligations of states, municipalities and political subdivisions — 228,045 — 228,045 Corporate and other securities — 458,487 — 458,487 Asset-backed securities — 301,775 — 301,775 Residential mortgage-backed securities — 337,685 — 337,685 Commercial mortgage-backed securities — 59,227 — 59,227 Total fixed maturities 6,847 1,385,219 — 1,392,066 Equity securities: Exchange traded funds 123,389 — — 123,389 Non-redeemable preferred stock — 49,222 — 49,222 Total equity securities 123,389 49,222 — 172,611 Total $ 130,236 $ 1,434,441 $ — $ 1,564,677 81 Table of Contents December 31, 2020 Level 1 Level 2 Level 3 Total (in thousands) Assets Fixed maturities: Obligations of states, municipalities and political subdivisions $ — $ 230,906 $ — $ 230,906 Corporate and other securities — 316,608 — 316,608 Asset-backed securities — 240,661 — 240,661 Residential mortgage-backed securities — 222,656 — 222,656 Commercial mortgage-backed securities — 70,969 — 70,969 Total fixed maturities — 1,081,800 — 1,081,800 Equity securities: Exchange traded funds 98,050 — — 98,050 Non-redeemable preferred stock — 31,612 — 31,612 Total equity securities 98,050 31,612 — 129,662 Total $ 98,050 $ 1,113,412 $ — $ 1,211,462 There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2021 or 2020. The Company holds cash equivalents that are managed as part of its investment portfolio and, due to the short-term maturities of these assets, the carrying value of these investments approximates fair value. The Company held cash equivalents of $ 44.7 million and $ 13.7 million at December 31, 2021 and 2020, respectively. In addition, the estimated fair value of the Credit Facility approximated its carrying value as of December 31, 2021 and 2020. See Note 11 for further information regarding the Credit Facility. 4. Deferred policy acquisition costs The following table presents the amounts of policy acquisition costs deferred and amortized for the years ended: Year Ended December 31, 2021 2020 2019 (in thousands) Balance, beginning of year $ 31,912 $ 23,564 $ 14,801 Policy acquisition costs deferred: Direct commissions 111,463 80,682 56,841 Ceding commissions ( 28,965 ) ( 18,879 ) ( 12,373 ) Other underwriting and policy acquisition costs 6,191 4,478 3,727 Policy acquisition costs deferred 88,689 66,281 48,195 Amortization of net policy acquisition costs ( 78,633 ) ( 57,933 ) ( 39,432 ) Balance, end of year $ 41,968 $ 31,912 $ 23,564 Amortization of net policy acquisition costs is included in the line item "Underwriting, acquisition and insurance expenses" in the accompanying consolidated statements of income and comprehensive income. 82 Table of Contents 5. Underwriting, acquisition and insurance expenses Underwriting, acquisition and insurance expenses consist of the following: Year Ended December 31, 2021 2020 2019 (in thousands) Underwriting, acquisition and insurance expenses incurred: Direct commissions $ 98,847 $ 69,922 $ 48,382 Ceding commissions ( 25,702 ) ( 16,145 ) ( 12,347 ) Other operating expenses 51,755 40,519 34,182 Total $ 124,900 $ 94,296 $ 70,217 Other operating expenses within underwriting, acquisition and insurance expenses included salaries, employee benefits and bonus expense of $ 48.9 million, $ 35.9 million and $ 27.8 million, for the years ended December 31, 2021, 2020 and 2019, respectively. 6. Income taxes The Company’s subsidiaries file a consolidated U.S. federal income tax return. Under a tax sharing agreement, Kinsale collects from or refunds to its subsidiaries the amount of taxes determined as if Kinsale and the subsidiaries filed separate returns. The Company is no longer subject to income tax examination by tax authorities for the years ended before January 1, 2018. Income tax expense includes the following components for the years ending December 31, 2021, 2020 and 2019: Year Ended December 31, 2021 2020 2019 (in thousands) Current federal income tax expense $ 36,718 $ 11,378 $ 12,860 Deferred federal income tax (benefit) expense ( 576 ) 616 ( 125 ) Income tax expense $ 36,142 $ 11,994 $ 12,735 The Company paid $ 40.6 million, $ 13.0 million and $ 11.6 million in federal income taxes during the years ended December 31, 2021, 2020 and 2019, respectively. Current income taxes recoverable was $ 5.1 million and $ 1.2 million at December 31, 2021 and 2020, respectively and included in "other assets" in the accompanying consolidated balance sheets. The prevailing federal income tax rate was 21 % in 2021, 2020 and 2019. 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, 2021 2020 2019 (in thousands) Income tax expense at federal income tax rate $ 39,648 $ 21,087 $ 15,971 Stock options exercised ( 2,148 ) ( 7,634 ) ( 2,411 ) Restricted stock award vesting ( 677 ) ( 658 ) ( 153 ) Tax-exempt investment income ( 546 ) ( 565 ) ( 577 ) Other ( 135 ) ( 236 ) ( 95 ) Total $ 36,142 $ 11,994 $ 12,735 83 Table of Contents The significant components of the net deferred tax asset (liability) are summarized as follows: December 31, 2021 2020 (in thousands) Deferred tax assets: Unpaid losses and loss adjustment expenses $ 15,723 $ 11,736 Unearned premiums 13,190 9,942 State operating loss carryforwards 4,554 3,833 Stock compensation 1,140 865 Allowance for credit losses 712 649 Other 278 254 Deferred tax assets before allowance 35,597 27,279 Less: valuation allowance ( 4,159 ) ( 3,491 ) Total deferred tax assets 31,438 23,788 Deferred tax liabilities: Unrealized gains on fixed-maturity securities 4,315 10,497 Unrealized gains on equity securities 11,368 6,552 Deferred policy acquisition costs, net of ceding commissions 8,813 6,701 Property and equipment 2,741 2,433 Transition adjustment for loss reserve discount 1,025 1,281 Intangible assets 743 743 Other 324 229 Total deferred tax liabilities 29,329 28,436 Net deferred tax asset (liability) $ 2,109 $ ( 4,648 ) At December 31, 2021 and 2020, the Company had state net operating losses ("NOLs") of $ 96.1 million and $ 80.9 million, respectively. The state NOLs are available to offset future taxable income or reduce taxes payable and begin expiring in 2029. Management evaluates the need for a valuation allowance related to its deferred tax assets. At December 31, 2021 and 2020, the Company recorded a tax valuation allowance equal to the state NOLs and the deferred tax assets, net of existing deferred tax liabilities that were expected to reverse in future periods, related to certain state jurisdictions. No other valuation allowances were established against the Company’s deferred tax assets at December 31, 2021 and 2020, 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 material uncertain tax positions in 2021 or 2020. Management is not aware of any events that would give rise to any uncertain tax positions. 84 Table of Contents 7. Reserves for unpaid losses and loss adjustment expenses The reserves for unpaid losses and loss adjustment expenses represent the Company's estimated ultimate cost of all unreported and reported but unpaid insured claims and the cost to adjust these losses that have occurred as of or before the balance sheet date. Reserves are estimated using individual case-basis valuations of reported claims and statistical analyses. Case reserves are established for individual claims that have been reported to the Company, typically by the Company's insureds or their brokers. Based on the information provided, case reserves are established by estimating the ultimate losses from the claim, including defense costs associated with the ultimate settlement of the claim. Incurred-but-not-reported ("IBNR") reserves are determined using actuarial methods to estimate losses that have occurred but have not yet been reported to the Company. The incurred Bornhuetter-Ferguson actuarial method ("BF method") is used to arrive at the Company's loss reserve estimates for each line of business. This method estimates the reserves based on the initial expected loss ratio and expected reporting patterns for losses. Because the Company has a limited number of years of loss experience compared to the period over which losses are expected to be reported, the Company uses industry and peer-group data, in addition to its own data, as a basis for selecting its expected reporting patterns. As part of the reserving process, the Company reviews historical data and considers the effect of various factors on claims development patterns including polices written on a "claims made" versus "occurrence" basis. Policies written on a claims made basis provide coverage to the insured only for losses incurred during the coverage period, and only if the claim was reported during a specified reporting period. Policies written on an occurrence basis provide coverage to the insured for liabilities arising from events occurring during the term of the policy, regardless of when a claim is actually made. Accordingly, claims related to policies written on an occurrence basis may arise many years after a policy has lapsed. Property losses, while written on an occurrence basis, are generally reported within a short time from the date of loss, and in most instances, property claims are settled and paid within a relatively short period of time. The following table presents a reconciliation of consolidated beginning and ending reserves for unpaid losses and loss adjustment expenses: December 31, 2021 2020 2019 (in thousands) Gross reserves for unpaid losses and loss adjustment expenses, beginning of year $ 636,013 $ 460,058 $ 369,152 Less: reinsurance recoverable on unpaid losses 83,730 69,792 55,389 Adoption of new accounting standard for credit losses — ( 282 ) — Net reserves for unpaid losses and loss adjustment expenses, beginning of year 552,283 390,548 313,763 Incurred losses and loss adjustment expenses: Current year 356,401 277,140 178,986 Prior year ( 31,986 ) ( 13,338 ) ( 9,423 ) Total net losses and loss adjustment expenses incurred 324,415 263,802 169,563 Payments: Current year 23,765 27,664 19,054 Prior year 89,150 74,403 74,006 Total payments 112,915 102,067 93,060 Net reserves for unpaid losses and loss adjustment expenses, end of year 763,783 552,283 390,266 Reinsurance recoverable on unpaid losses, net of allowance 117,561 83,730 69,792 Gross reserves for unpaid losses and loss adjustment expenses, end of year $ 881,344 $ 636,013 $ 460,058 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 the Company does not have any significant direct COVID-19 exposure, the related disruption in the court system and the general economy 85 Table of Contents 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. The Company's current outlook is more favorable than in the prior year and, based on observed trends, the Company 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. Current accident year incurred losses and loss adjustment expenses for the year ended December 31, 2021 included $ 8.6 million of catastrophe losses primarily related to Hurricane Ida and winter storms Uri and Viola in Texas. 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. 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, $ 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 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. Incurred and Paid Claims Development The following is information about incurred and paid claims development as of December 31, 2021, 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 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. The information about incurred and paid claims development for the years ended December 31, 2012 to December 31, 2020, is presented as unaudited supplementary information. Property Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Accident Year 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims ($ in thousands) 2017 $ 12,473 $ 11,705 $ 11,676 $ 11,631 $ 11,606 $ — 1,041 2018 11,559 12,004 12,698 12,704 26 650 2019 14,914 13,909 15,572 154 642 2020 40,612 37,939 1,234 2,294 2021 36,531 9,323 1,034 Total $ 114,352 86 Table of Contents Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 ($ in thousands) 2017 $ 9,938 $ 11,233 $ 11,602 $ 11,608 $ 11,605 2018 9,132 11,646 12,599 12,660 2019 9,852 12,581 13,996 2020 19,897 30,321 2021 14,268 Total 82,850 All outstanding liabilities before 2017, net of reinsurance — Liabilities for claims and claim adjustment expenses, net of reinsurance $ 31,502 Historical Claims Duration The following is supplementary information about average historical claims duration as of December 31, 2021: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Years 1 2 3 4 5 Property 62.5 % 19.0 % 6.6 % 0.3 % — % Casualty - Claims Made Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Accident Year 2012 Unaudited 2013 Unaudited 2014 Unaudited 2015 Unaudited 2016 Unaudited 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims 2012 $ 7,913 $ 5,749 $ 4,205 $ 3,102 $ 2,845 $ 2,477 $ 2,314 $ 2,207 $ 2,136 $ 1,867 $ 136 138 2013 15,238 11,639 9,113 7,917 7,002 6,463 6,128 6,087 6,215 356 228 2014 18,847 14,289 11,748 11,217 10,948 10,988 10,620 10,266 638 273 2015 18,883 16,777 14,896 13,583 13,942 13,548 13,414 937 258 2016 19,170 14,693 14,675 14,322 13,583 13,602 1,431 310 2017 18,116 17,097 16,120 15,794 14,989 2,434 371 2018 22,429 20,234 18,612 17,057 5,108 464 2019 34,693 29,056 26,426 11,037 550 2020 55,630 44,641 31,667 772 2021 84,018 74,017 1,035 Total $ 232,495 87 Table of Contents Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 Unaudited 2013 Unaudited 2014 Unaudited 2015 Unaudited 2016 Unaudited 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 2012 $ 153 $ 475 $ 877 $ 1,024 $ 1,090 $ 1,882 $ 1,946 $ 1,946 $ 1,946 $ 1,732 2013 499 1,915 4,436 5,070 5,320 5,439 5,482 5,612 5,843 2014 435 1,865 5,039 6,385 8,290 9,415 9,491 9,628 2015 217 4,496 7,563 9,238 11,372 11,522 12,142 2016 1,158 3,015 6,907 9,839 11,381 12,105 2017 340 4,897 8,252 10,484 11,357 2018 507 5,030 8,931 10,330 2019 2,487 6,005 10,123 2020 1,002 7,446 2021 1,146 Total 81,852 All outstanding liabilities before 2012, net of reinsurance 56 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 150,699 Casualty - Occurrence Incurred Claims and Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, As of December 31, 2021 Accident Year 2012 Unaudited 2013 Unaudited 2014 Unaudited 2015 Unaudited 2016 Unaudited 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 Total of IBNR Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims 2012 $ 16,977 $ 17,436 $ 18,803 $ 20,401 $ 20,579 $ 22,001 $ 22,401 $ 23,223 $ 23,197 $ 22,271 $ 997 597 2013 30,616 28,771 28,037 29,039 31,731 33,248 33,973 33,128 33,002 2,273 872 2014 47,805 40,668 38,049 36,678 39,313 41,859 42,434 41,367 4,374 1,230 2015 59,717 51,739 49,122 52,100 54,697 54,090 54,090 7,108 1,700 2016 61,440 55,680 53,549 55,534 57,401 60,861 10,378 1,518 2017 71,126 67,151 68,985 70,641 71,117 18,282 1,843 2018 86,157 78,331 78,386 83,952 33,875 1,918 2019 112,266 109,994 108,138 63,673 2,006 2020 154,619 136,212 119,143 1,761 2021 200,598 190,069 1,332 Total $ 811,608 88 Table of Contents Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2012 Unaudited 2013 Unaudited 2014 Unaudited 2015 Unaudited 2016 Unaudited 2017 Unaudited 2018 Unaudited 2019 Unaudited 2020 Unaudited 2021 2012 $ 757 $ 4,441 $ 7,850 $ 11,238 $ 14,382 $ 16,474 $ 19,383 $ 20,707 $ 21,408 $ 20,805 2013 1,099 4,469 7,957 14,890 21,348 26,715 28,248 29,610 30,116 2014 698 3,081 8,489 17,576 23,771 31,026 34,338 35,807 2015 941 3,161 12,685 28,385 37,690 41,724 44,161 2016 1,099 6,015 17,225 28,924 34,437 43,311 2017 1,581 9,352 22,407 37,736 46,025 2018 2,638 10,995 22,860 35,138 2019 3,944 16,687 30,518 2020 2,400 8,673 2021 3,205 Total 297,759 All outstanding liabilities before 2012, net of reinsurance 329 Liabilities for claims and claim adjustment expenses, net of reinsurance $ 514,178 Historical Claims Duration The following is supplementary information about average historical claims duration as of December 31, 2021: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited) Years 1 2 3 4 5 6 7 8 9 10 Casualty - claims made 4.9 % 20.5 % 25.7 % 12.6 % 9.9 % 12.3 % 2.4 % 1.1 % 1.9 % — % Casualty - occurrence 2.4 % 9.1 % 15.0 % 20.4 % 14.4 % 13.0 % 7.6 % 4.5 % 2.3 % — % 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 unpaid claims and claim adjustment expenses in the consolidated statement of financial position is as follows: (in thousands) December 31, 2021 Net outstanding liabilities Property $ 31,502 Casualty - claims made 150,699 Casualty - occurrence 514,178 Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance 696,379 Reinsurance recoverable on unpaid claims Property 16,777 Casualty - claims made 16,581 Casualty - occurrence 84,203 Total reinsurance recoverable on unpaid claims 117,561 Unallocated claims adjustment expenses 67,404 Gross liability for unpaid claims and claim adjustment expense $ 881,344 89 Table of Contents 8. Reinsurance 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. 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. The following table summarizes the effect of reinsurance on premiums written and earned: Year Ended December 31, 2021 2020 2019 (in thousands) Written: Direct $ 764,373 $ 552,814 $ 389,569 Assumed — — 125 Ceded ( 104,164 ) ( 74,595 ) ( 47,633 ) Net written $ 660,209 $ 478,219 $ 342,061 Earned: Direct $ 677,630 $ 479,181 $ 330,464 Assumed — 21 104 Ceded ( 94,751 ) ( 66,448 ) ( 47,587 ) Net earned $ 582,879 $ 412,754 $ 282,981 Incurred losses and loss adjustment expenses were net of reinsurance recoverables (ceded incurred losses and loss adjustment expenses) of $ 49.7 million, $ 42.0 million and $ 27.2 million for the years ended December 31, 2021, 2020 and 2019, respectively. Reinsurance balances The following table presents reinsurance recoverables on paid and unpaid losses as of December 31, 2021 and 2020: December 31, 2021 December 31, 2020 (in thousands) Reinsurance recoverables on paid losses $ 5,409 $ 9,485 Reinsurance recoverables on unpaid losses 117,561 83,730 Reinsurance recoverables $ 122,970 $ 93,215 Credit risk exists with reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements. Allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure to individual reinsurers. All reinsurance recoverables are from companies with A.M. Best ratings of "A" (Excellent) or better. To further reduce credit exposure to reinsurance recoverable balances, the Company has received letters of credit from certain reinsurers that are not authorized as reinsurers under U.S. state insurance regulations. The Company recorded an allowance for credit losses of $ 0.4 million and $ 0.3 million related to its reinsurance balances at December 31, 2021 and 2020, respectively; however, the deterioration in the credit quality of existing reinsurers or disputes over reinsurance agreements could result in future charges. At December 31, 2021, reinsurance recoverables on paid and unpaid losses from the Company’s five largest reinsurers were $ 28.0 million, $ 27.4 million, $ 16.3 million, $ 10.2 million and $ 9.5 million, representing 74.3 % of the total balance. 90 Table of Contents At December 31, 2021, unearned premiums ceded to five reinsurers were $ 8.4 million, $ 5.5 million, $ 3.5 million, $ 3.3 million and $ 3.3 million, representing 71.6 % of the total balance. 9. Stockholders’ equity Capital Stock 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, 2021 or 2020. 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. 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 On July 27, 2016, the Kinsale Capital Group, Inc. 2016 Omnibus Incentive Plan (the "2016 Incentive Plan") became effective. The 2016 Incentive Plan, which is administered by the Compensation, Nominating and Corporate Governance Committee of the Company's Board of Directors, provides for grants of stock options, restricted stock, restricted stock units and other stock-based awards to officers, employees, directors, independent contractors and consultants. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832 . The Company recognized total equity-based compensation expense of $ 4.8 million, $ 3.6 million and $ 2.7 million for the years ended December 31, 2021, 2020 and 2019, respectively. Stock Options 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 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. The value of the options granted was estimated at the date of grant using the Black-Scholes pricing model using the following assumptions: Risk-free rate of return 1.26 % Dividend yield 1.25 % Expected share price volatility (1) 18.50 % Expected life in years (2) 6.3 years (1) Expected volatility was based on the Company’s competitors within the industry. (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. 91 Table of Contents A summary of option activity as of December 31, 2021 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, 2020 387,738 $ 16.00 Granted — — Forfeited ( 934 ) 16.00 Exercised ( 61,371 ) 16.00 Outstanding at December 31, 2021 325,433 $ 16.00 4.6 $ 72,210 Exercisable at December 31, 2021 325,433 $ 16.00 4.6 $ 72,210 The total intrinsic value of options exercised was $ 10.4 million during the year ended December 31, 2021 and $ 37.0 million during the year ended December 31, 2020. Restricted Stock Awards During 2021, 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 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 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, 2021 Number of Shares Weighted Average Grant Date Fair Value per Share Nonvested outstanding at the beginning of the period 108,392 $ 97.40 Granted 35,870 $ 185.00 Vested ( 41,121 ) $ 87.82 Forfeited ( 7,157 ) $ 128.11 Nonvested outstanding at the end of the period 95,984 $ 131.94 Employees surrender restricted stock awards to pay for withholding tax obligations resulting from any vesting of those awards. During the year ended December 31, 2021, restricted stock awards withheld for taxes in connection with the vesting of those awards totaled 12,958 . The per share weighted average grant-date fair value of the Company's restricted stock awards granted during the years ended December 31, 2021, 2020, and 2019 was $ 185.00 , $ 147.45 and $ 80.59 , respectively. The fair value of restricted stock awards that vested during the year ended December 31, 2021, 2020 and 2019 was $ 6.8 million, $ 5.8 million and $ 2.1 million respectively. As of December 31, 2021, the Company had $ 9.1 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 2.6 years. Subsequent Events The Board of Directors granted 3,528 restricted stock awards on January 1, 2022 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 $ 237.89 per share and will vest on the first anniversary date of the grant. 92 Table of Contents 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 14, 2022 to all stockholders of record on March 2, 2022 . 10. Earnings per share The following table represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in the consolidated financial statements: Year ended December 31, 2021 2020 2019 (in thousands, except per share data) Net income $ 152,659 $ 88,419 $ 63,316 Weighted average common shares outstanding - basic 22,693 22,319 21,528 Dilutive effect of shares issued under stock compensation arrangements: Stock options 324 469 570 Restricted stock awards 45 64 38 Total dilutive effect of shares issued under stock compensation arrangements 369 533 608 Weighted average common shares outstanding - diluted 23,062 22,852 22,136 Earnings per common share: Basic $ 6.73 $ 3.96 $ 2.94 Diluted $ 6.62 $ 3.87 $ 2.86 There were 30 thousand, 35 thousand and 54 thousand anti-dilutive stock awards for the years ended December 31, 2021, 2020 and 2019, 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 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. 11. Credit agreement On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $ 50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $ 30.0 million. The Credit Facility has a maturity of May 28, 2024 . Borrowings under the Credit Facility were used to fund construction of the Company’s new headquarters and 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. At December 31, 2021, there was $ 42.7 million outstanding under the Credit Facility, net of debt issuance cost of $ 0.3 million, with a weighted average interest rate of 1.92 %. For the years ended December 31, 2021, 2020 and 2019, total interest expense under the Credit Facility was $ 1.0 million, $ 1.0 million and $ 0.2 million, respectively. For the years ended December 31, 2020 and 2019, $ 0.8 million and $ 0.2 million of interest expense was capitalized as part of the real estate project under construction, respectively. Interest paid was $ 0.9 million, $ 0.8 million and $ 0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. 93 Table of Contents 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. As of December 31, 2021, the Company was in compliance with all of its financial covenants under the Credit Facility. 12. Contingencies Contingencies arise in the normal conduct of the Company’s operations and are not expected to have a material effect on the Company’s financial condition or results of operations. However, adverse outcomes are possible and could negatively affect the Company’s financial condition and results of operations. 13. Employee benefit plan The Company has established a defined contribution employee retirement plan ("Plan") in accordance with Section 401(k) of the Internal Revenue Code. Expenses related to the Plan were $ 2.2 million, $ 1.7 million and $ 1.3 million in 2021, 2020 and 2019, respectively. 14. Other comprehensive (loss) income The following table summarizes the components of other comprehensive (loss) income: Year Ending December 31, 2021 2020 2019 (in thousands) Unrealized (losses) gains on fixed-maturity securities arising during the period, before income taxes: $ ( 26,792 ) $ 37,387 $ 19,190 Income tax benefit (expense) 5,626 ( 7,851 ) ( 4,029 ) Unrealized (losses) gains arising during the period, net of income taxes ( 21,166 ) 29,536 15,161 Less reclassification adjustment: Net realized investment gains on available-for-sale investments 2,644 2,119 489 Income tax benefit ( 555 ) ( 445 ) ( 102 ) Reclassification adjustment included in net income 2,089 1,674 387 Other comprehensive (loss) income $ ( 23,255 ) $ 27,862 $ 14,774 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. The related tax effect of the reclassification adjustment is recorded in income tax expense in current period earnings. See Note 2 for additional information. 15. Underwriting information The Company has one reportable segment, the Excess and Surplus Lines Insurance segment, which primarily offers commercial excess and surplus lines liability and property insurance products through its underwriting divisions. Gross written premiums by underwriting division are presented below: 94 Table of Contents Year Ended December 31, 2021 2020 2019 (in thousands) Commercial: Small Business $ 112,142 $ 83,289 $ 63,181 Excess Casualty 109,464 76,715 51,225 Construction 103,540 87,206 71,035 Commercial Property 78,722 51,789 29,115 Allied Health 59,208 37,562 23,962 Products Liability 55,070 38,306 26,333 Life Sciences 41,297 31,027 17,821 General Casualty 36,042 24,591 20,931 Professional Liability 33,226 27,051 20,029 Management Liability 32,163 24,061 14,820 Energy 19,925 16,985 15,371 Environmental 13,584 8,568 5,179 Entertainment 12,396 4,614 2,348 Health Care 11,271 7,666 5,963 Inland Marine 9,703 6,910 3,467 Public Entity 9,207 3,007 580 Commercial Insurance 411 1,757 1,674 Total commercial 737,371 531,104 373,034 Personal: Personal Insurance 27,002 21,710 16,660 Total $ 764,373 $ 552,814 $ 389,694 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. 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. Construction underwrites commercial general liability coverage on contractors focusing on new residential construction, residential remodeling and renovation and commercial construction. 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. 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. Products Liability underwrites commercial general liability on manufacturers, distributors and importers of a wide array of consumer, commercial and industrial products. 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. 95 Table of Contents General Casualty underwrites general liability and liquor liability on hospitality, habitational and retail risks, among others, with similar premises liability loss exposures. During 2021, certain business previously underwritten by this division is now underwritten by the Entertainment division and prior year amounts have been reclassified to conform to the current year's presentation. Professional Liability underwrites small-to-medium sized non-medical professional liability risks. 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. 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, product manufacturers and alternative energy. 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. Entertainment underwrites commercial general liability for small-to-medium sized entertainment classes, including such classes as bowling alleys, campgrounds, escape rooms, fitness centers, museums and paintball facilities, among others. As previously discussed, during 2021, certain business previously underwritten by the General Casualty division is now underwritten by this division and prior year amounts have been reclassified to conform to the current year's presentation. 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. 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 catastrophe exposure due to coastal location. The Company does business with two unaffiliated insurance brokers that generated $ 137.0 million and $ 118.8 million of gross written premiums for the year ended December 31, 2021, representing 17.9 % and 15.5 % of gross written premiums, respectively. No other broker generated 10.0% or more of the gross written premiums for the year ended December 31, 2021. 16. 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 U.S. GAAP. In converting from statutory accounting principles to U.S. GAAP, typical adjustments include deferral of policy acquisition costs, the inclusion of statutory non-admitted 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. Statutory net income and statutory capital and surplus for Kinsale Insurance as of December 31, 2021, 2020, and 2019 and for the years then ended are summarized as follows: Year ended December 31, 2021 2020 2019 (in thousands) Statutory net income $ 115,885 $ 54,338 $ 40,917 Statutory capital and surplus $ 606,910 $ 476,066 $ 348,811 96 Table of Contents Kinsale Insurance is subject to risk-based capital ("RBC") requirements. 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. The adequacy of a company’s actual capital is evaluated by a comparison to the RBC results, as determined by the formula. Companies that do not maintain statutory capital and surplus at a level in excess of the company action level RBC are required to take specified actions. At December 31, 2021 and 2020, actual statutory capital and surplus for Kinsale Insurance substantially exceeded the regulatory requirements. Dividend payments to Kinsale from Kinsale Insurance are restricted by state insurance laws as to the amount that may be paid without prior approval of the regulatory authorities of Arkansas. The maximum dividend distribution is limited by Arkansas law to the greater of 10 % of policyholder surplus as of December 31 of the previous year or statutory net income, not including realized capital gains, for the previous calendar year. Dividend payments are further limited to that part of available policyholder surplus which is derived from net profits on its business. The maximum dividend distribution that can be paid by Kinsale Insurance during 2022 without prior approval is $ 114.0 million. 97 Table of Contents Schedule I KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Summary of Investments—Other than Investments in Related Parties Type of Investment Cost or Amortized Cost Fair Value Amount at which shown on Balance Sheet (in thousands) Fixed maturities: U.S. Treasury securities and obligations of U.S. government agencies $ 6,936 $ 6,847 $ 6,847 Obligations of states, municipalities and political subdivisions 216,375 228,045 228,045 Corporate and other securities 450,594 458,487 458,487 Asset-backed securities 299,810 301,775 301,775 Residential mortgage-backed securities 340,804 337,685 337,685 Commercial mortgage-backed securities 57,000 59,227 59,227 Total fixed maturities 1,371,519 1,392,066 1,392,066 Equity securities: Exchange traded funds 70,151 123,389 123,389 Non-redeemable preferred stock 48,744 49,222 49,222 Total equity securities 118,895 172,611 172,611 Total investments $ 1,490,414 $ 1,564,677 $ 1,564,677 See accompanying Report of Independent Registered Public Accounting Firm. 98 Table of Contents Schedule II KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Condensed Financial Information of Registrant Balance Sheets (Parent Company Only) December 31, 2021 2020 (in thousands) Assets Cash and cash equivalents $ 14,596 $ 8,395 Due from subsidiaries — 7,792 Investment in subsidiaries 721,369 600,931 Deferred income tax asset, net 934 587 Income taxes recoverable 5,059 1,177 Other assets 314 290 Total assets $ 742,272 $ 619,172 Liabilities and Stockholders' Equity Liabilities: Accounts payable and accrued expenses $ 121 $ 302 Due to subsidiaries 47 — Credit facility 42,696 42,570 Other liabilities 73 62 Total liabilities 42,937 42,934 Stockholders’ equity: Common stock 228 228 Additional paid-in capital 295,040 291,315 Retained earnings 385,942 243,315 Accumulated other comprehensive income 18,125 41,380 Stockholders’ equity 699,335 576,238 Total liabilities and stockholders’ equity $ 742,272 $ 619,172 See accompanying notes to condensed financial information. See accompanying Report of Independent Registered Public Accounting Firm. 99 Table of Contents Schedule II KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Condensed Financial Information of Registrant Statements of Income and Comprehensive Income (Parent Company Only) Years Ended December 31, 2021 2020 2019 (in thousands) Revenues: Management fees from subsidiaries $ 7,002 $ 5,709 $ 4,502 Total revenues 7,002 5,709 4,502 Expenses: Operating expenses 7,972 6,624 5,215 Other expenses 994 1,332 — Total expenses 8,966 7,956 5,215 Loss before income taxes ( 1,964 ) ( 2,247 ) ( 713 ) Income tax benefit ( 3,424 ) ( 8,779 ) ( 2,714 ) Income before equity in net income of subsidiaries 1,460 6,532 2,001 Equity in net income of subsidiaries 151,199 81,887 61,315 Net income 152,659 88,419 63,316 Other comprehensive (loss) income: Equity in other comprehensive (losses) earnings of subsidiaries ( 23,255 ) 27,862 14,774 Total comprehensive income $ 129,404 $ 116,281 $ 78,090 See accompanying notes to condensed financial information. See accompanying Report of Independent Registered Public Accounting Firm. 100 Table of Contents Schedule II KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Condensed Financial Information of Registrant Statements of Cash Flows (Parent Company Only) Years Ended December 31, 2021 2020 2019 (in thousands) Operating activities Net income $ 152,659 $ 88,419 $ 63,316 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Deferred tax benefit ( 347 ) ( 68 ) ( 150 ) Stock compensation expense 4,844 3,575 2,742 Equity in undistributed earnings of subsidiaries ( 151,199 ) ( 81,887 ) ( 61,315 ) Changes in operating assets and liabilities 3,955 7,520 ( 14,247 ) Dividends received from subsidiary 8,000 — 5,000 Net cash provided by (used in) operating activities 17,912 17,559 ( 4,654 ) Investing activities Contributions to subsidiary ( 571 ) ( 100,034 ) ( 68,391 ) Net cash used in investing activities ( 571 ) ( 100,034 ) ( 68,391 ) Financing activities Common stock issued, net of transaction costs — 56,698 65,879 Common stock issued, stock options exercised 982 3,622 2,750 Payroll taxes withheld and remitted on share-based payments ( 2,101 ) ( 1,803 ) ( 617 ) Dividends paid ( 10,021 ) ( 8,073 ) ( 6,929 ) Proceeds from credit facility — 25,700 17,300 Debt issuance costs — — ( 628 ) Net cash (used in) provided by financing activities ( 11,140 ) 76,144 77,755 Net change in cash and cash equivalents 6,201 ( 6,331 ) 4,710 Cash and cash equivalents at beginning of year 8,395 14,726 10,016 Cash and cash equivalents at end of year $ 14,596 $ 8,395 $ 14,726 See accompanying notes to condensed financial information. See accompanying Report of Independent Registered Public Accounting Firm. 101 Table of Contents KINSALE CAPITAL GROUP, INC. Condensed Financial Information of Registrant Notes to Condensed Financial Information (Parent Company Only) 1. Accounting policies Organization 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 The accompanying condensed financial statements have been prepared using the equity method. Under the equity method, the investment in consolidated subsidiaries is stated at cost plus equity in undistributed earnings of consolidated subsidiaries since the date of acquisition. These condensed financial statements should be read in conjunction with the Company’s consolidated financial statements. Estimates and assumptions 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. Credit agreement On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $ 50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $ 30.0 million. The Credit Facility has a maturity of May 28, 2024 . Borrowings under the Credit Facility were used to fund construction of the Company’s new headquarters and 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. At December 31, 2021, there was $ 42.7 million outstanding under the Credit Facility, net of debt issuance cost of $ 0.3 million, with a weighted average interest rate of 1.92 %. For the years ended December 31, 2021, 2020 and 2019, total interest expense under the Credit Facility was $ 1.0 million, $ 1.0 million and $ 0.2 million, respectively. For the years ended December 31, 2020 and 2019, $ 0.8 million and $ 0.2 million of interest expense was capitalized as part of the real estate project under construction, respectively. Interest paid was $ 0.9 million, $ 0.8 million and $ 0.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. 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. As of December 31, 2021, the Company was in compliance with all of its financial covenants under the Credit Facility. 102 Table of Contents Dividends from subsidiary Cash dividends paid to Kinsale Capital Group, Inc. by its wholly-owned subsidiary, Kinsale Insurance Company, were $ 8.0 million for the year ended December 31, 2021 and $ 5.0 million for the year ended December 31, 2019. 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 non-insurance 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. 103 Table of Contents Schedule V KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts Additions Deductions (in thousands) Balance at Beginning of Period (1) Amounts Charged to Expense Amounts Written Off or Disposals Balance at End of Period Year Ended December 31, 2021: Allowance for premiums receivable $ 3,087 $ 2,189 $ 1,885 $ 3,391 Valuation allowance for deferred tax assets 3,491 668 — 4,159 Allowance for reinsurance recoverables 282 118 — 400 Year Ended December 31, 2020: Allowance for premiums receivable 2,345 1,240 498 3,087 Valuation allowance for deferred tax assets 1,592 1,899 — 3,491 Allowance for reinsurance recoverables 282 — — 282 Year Ended December 31, 2019: Allowance for premiums receivable 2,615 835 745 2,705 Valuation allowance for deferred tax assets 780 812 — 1,592 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. 104 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.