What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 138 added, 126 removed, 493 unchanged (35% of the section changed)

7 unchanged sentences

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

We focus exclusively on the E&S market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place small business risks and personal lines risks.

We focus exclusively on the E&S market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place, small- to medium-sized business risks and personal lines risks.

We market and sell these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S.

4 unchanged sentences

In 2022, the percentage breakdown of our gross written premiums was 77.2% casualty and 22.8% property.

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

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

We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2.8% of our gross written premiums in 2022.

Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns.

We seek to accomplish this by generating consistent and attractive underwriting profits while managing our capital prudently.

We seek to accomplish this by generating consistent and strong underwriting profits while managing our capital prudently.

We believe that we have built a company that is entrepreneurial and highly efficient, using our proprietary technology platform and leveraging the expertise of our highly-experienced employees in our daily operations.

2 unchanged sentences

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

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

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

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

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

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

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

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

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

During the first quarter of 2020, we experienced a significant decline in the fair value of our investment portfolio due to disruption in the global financial markets associated with COVID-19.

Subsequent to the first quarter of 2020, the fair values of our investment portfolio rebounded sharply, gaining back all of the decline in fair value.

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

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

Consistent with 2021, the Company's results of operations, financial position and cash flows were not materially impacted by COVID-19 and the related economic effects during the year ended December 31, 2022.

Components of Our Results of Operations

23 unchanged sentences

• Wage inflation;

• Social inflation;

• Inflation in material costs, and

• Inflation in medical costs.

6 unchanged sentences

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

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

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

Net investment income

1 unchanged sentence

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

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

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

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

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

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

Net investment income also includes rental income and depreciation expense from our real estate investment property.

Change in fair value of equity securities

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

Net realized investment gains

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

Net realized investment gains (losses)

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

Income tax expense

1 unchanged sentence

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

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

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

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

1 unchanged sentence

Underwriting income is a non-GAAP financial measure.

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

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

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

Net operating earnings is a non-GAAP financial measure.

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

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

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

9 unchanged sentences

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

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

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

Results of Operations

11 unchanged sentences

175,488 133,564 41,924 31.4 %

Other expenses, net (1,451) (741) (710) NM

Net investment income 51,282 31,048 20,234 65.2 %

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

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

Change in fair value of equity securities (27,723) 22,812 (50,535) (221.5) %

Net realized investment gains 1,191 2,828 (1,637) (57.9) %

Change in allowance for credit losses on investments (366) — (366) NM

Interest expense (4,284) (994) (3,290) 331.0 %

Other expenses, net (24) (457) 433 (94.7) %

Income before taxes 195,564 188,801 6,763 3.6 %

13 unchanged sentences

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

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

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

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

1 unchanged sentence

Net income was $159.1 million for the year ended December 31, 2022 compared to $152.7 million for the year ended December 31, 2021, an increase of $6.5 million, or 4.2%.

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

rates on bound accounts and strong growth in broker submissions.

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

The increase in net income in 2022 over 2021 was primarily due to strong growth in the business from favorable E&S market conditions and continued rate increases and an increase in investment income year over year driven by higher investment balances.

These increases were partially offset by a decline in the fair value of our equity investment portfolio driven by adverse movements in the capital markets during the year and higher catastrophe losses incurred.

Our underwriting income was $175.5 million for the year ended December 31, 2022 compared to $133.6 million for the year ended December 31, 2021, an increase of $41.9 million, or 31.4%.

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

The increase in our underwriting income was due to a combination of premium growth and favorable rate increases from a strong underwriting environment and lower levels of operating expenses relative to premium growth and management's cost control efforts.

These increases were offset in part by higher catastrophe losses incurred.

The corresponding combined ratios were 77.9% for the year ended December 31, 2022 compared to 77.1% for the year ended December 31, 2021.

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

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

Gross written premiums were $1.1 billion for the year ended December 31, 2022 compared to $764.4 million for the year ended December 31, 2021, an increase of $337.7 million, or 44.2%.

The increase in gross written premiums for the year ended December 31, 2022 over the prior year was due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable conditions in the E&S market.

The average premium per policy written by us was $12,400 in 2022 compared to $10,400 in 2021.

2 unchanged sentences

Gross written premiums increased across substantially all of our lines of business for the year ended December 31, 2022 and were most notable in the following lines of business:

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

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

• Commercial Property, which represented approximately 16.8% of our gross written premiums in 2022, increased by $112.3 million, or 154.8%, for the year ended December 31, 2022 over the prior year;

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

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

• Small Business Casualty, which represented approximately 13.6% of our gross written premiums in 2022, increased by $36.8 million, or 32.7%, for the year ended December 31, 2022 over the prior year;

• Excess Casualty, which represented approximately 13.4% of our gross written premiums in 2022, increased by $39.0 million, or 35.9%, for the year ended December 31, 2022 over the prior year;

• Construction, which represented approximately 11.1% of our gross written premiums in 2022, increased by $21.1 million, or 20.8%, for the year ended December 31, 2022 over the prior year, and

• General Casualty, which represented approximately 6.3% of our gross written premiums in 2022, increased by $33.7 million, or 93.6%, for the year ended December 31, 2022 over the prior year.

Net written premiums increased by $276.6 million, or 41.9%, to $936.8 million for the year ended December 31, 2022 from $660.2 million for the year ended December 31, 2021.

1 unchanged sentence

Our net retention ratio was 85.0% for the year ended December 31, 2022 compared to 86.4% for the year ended December 31, 2021.

The decrease in the net retention ratio was primarily due to change in the mix of business.

The decrease in the net retention ratio was due to higher premiums ceded under the new commercial property quota share reinsurance treaty, effective June 1, 2022, and a change in the mix of business.

Net earned premiums were $794.1 million for the year ended December 31, 2022 compared to $582.9 million for the year ended December 31, 2021, an increase of $211.2 million, or 36.2%.

1 unchanged sentence

Our loss ratio was 57.7% for the year ended December 31, 2022 compared to 55.7% for the year ended December 31, 2021.

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

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

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

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

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

The increase in the loss ratio for the year ended December 31, 2022 was due primarily to higher catastrophe losses incurred and lower net favorable development of loss reserves from prior accident years as a percentage of earned premiums.

During the year ended December 31, 2022, current year incurred losses and loss adjustment expenses included $26.6 million of net catastrophe losses primarily related to Hurricane Ian.

During the year ended December 31, 2021, current year incurred losses and loss adjustment expenses included $8.6 million of net catastrophe losses primarily attributable to Hurricane Ida and the winter storms in Texas.

During the year ended December 31, 2022, prior accident years developed favorably by $35.9 million, of which $41.8 million was attributable to the 2020 and 2021 accident years due to lower emergence of reported losses than expected across most lines of business.

This favorable development was offset in part by adverse development largely from the 2016 and 2018 accident years due to routine variability in reported losses and modest adjustments in actuarial assumptions.

During the year ended December 31, 2021, loss reserves for 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 levels of reported losses.

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

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

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

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

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

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

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

On an inception-to-date basis as of December 31, 2022, all accident years have developed favorably, with the exception of the 2011 accident year.

22 unchanged sentences

The expense ratio was 20.2% for the year ended December 31, 2022 compared to 21.4% for the year ended December 31, 2021.

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

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

The decrease in the net commissions incurred ratio was largely due to higher ceding commissions resulting from the new commercial property quota share treaty, effective June 1, 2022, and a change in the mix of business.

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

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

Direct commissions paid as a percent of gross written premiums was 14.6% for the years ended December 31, 2022 and 2021.

Investing results

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

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

Our net investment income increased by 65.2% to $51.3 million for the year ended December 31, 2022 from $31.0 million for the year ended December 31, 2021, primarily due to growth in our investment portfolio balance generated from the investment of strong operating cash flows since December 31, 2021 and higher interest rates relative to the prior year.

The following table summarizes the components of net investment income, change in the fair value of equity securities, net realized investment gains and change in allowance for credit losses on investments for the years ended December 31, 2022 and 2021:

Year Ended December 31,

2 unchanged sentences

Dividends on equity securities 4,406 3,962 444

Other 12 262 (250)

Cash equivalents and short-term investments 1,251 12 1,239

Real estate investment income 234 — 234

Gross investment income 54,077 33,129 20,948

3 unchanged sentences

Net realized investment gains 1,191 2,828 (1,637)

Change in allowance for credit losses on investments (366) — (366)

Net unrealized and realized investment gains (26,898) 25,640 (52,538)

Total $ 24,384 $ 56,688 $ (32,304)

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

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

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

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

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

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

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

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

The weighted average duration of our investment portfolio, including cash equivalents, was 3.5 years and 4.3 years at December 31, 2022 and 2021, respectively.

Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had a gross investment return of 3.0% as of December 31, 2022, compared to 2.5% as of December 31, 2021.

During the year ended December 31, 2022, the decrease in fair value of equity securities of $(27.7) million was comprised of higher unrealized losses related to ETF securities of $(19.6) million and higher unrealized losses related to non-redeemable preferred stock of $(8.1) million.

The decrease in the fair value of our ETF and common stock portfolio reflected lower valuations in the broader U.S.

stock market during the period.

The change in unrealized losses during 2022 attributable to non-redeemable preferred stock reflected a higher interest rate environment.

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

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

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

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

Based on our review, we recorded an allowance for credit losses of $0.4 million for the year ended December 31, 2022.

There were no credit losses recorded for the year ended December 31, 2021.

See Note 2 of the notes to the consolidated financial statements for further information regarding credit losses.

Income tax expense

1 unchanged sentence

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

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

Return on equity

1 unchanged sentence

Operating return on equity was 25.0% for 2022, an increase from 20.8% for 2021.

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

The increase in the operating return on equity was due primarily to growth in the business from favorable market conditions and rate increases and a decrease in average stockholders' equity driven by the decline in the fair value of investments as a result of the higher interest rate environment.

These increases were offset in part by higher catastrophe losses incurred during 2022.

Liquidity and Capital Resources

13 unchanged sentences

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

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

Kinsale Insurance did not pay dividends to us during 2022.

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

1 unchanged sentence

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

Credit agreement

On May 28, 2019, we entered into a Credit Agreement that provided us with a $50 million Credit Facility (the "Credit Facility") and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $30 million.

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

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

As of December 31, 2021, there was $42.7 million outstanding under the Credit Facility, net of debt issuance costs.

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

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.

In July 2017, the U.K.

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

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

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

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

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

Real Estate Investment

In December of 2022, we acquired real estate property adjacent to our current headquarters for $76.6 million.

The property is comprised of two office buildings totaling over 580,000 square feet situated on approximately 29 acres of land.

The property is expected to provide flexibility for future expansion of our operations as well as serve as an investment opportunity.

The acquisition was funded primarily through a draw down on our revolving credit facility.

Concurrent with the purchase of the real estate investment property, the Company entered into two operating lease agreements for office space on the property as the lessor.

The terms of these two leases are 5 years and 12 years.

On July 22, 2022, we entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), which provides for the issuance of senior promissory notes with an aggregate principal amount of up to $150.0 million.

Pursuant to the Note Purchase Agreement, on July 22, 2022 we issued $125.0 million aggregate principal amount of 5.15% senior promissory notes (the “Series A Notes”), the proceeds of which were used to fund surplus at Kinsale Insurance Company, refinance indebtedness and for general corporate purposes.

See Note 11 for further information regarding the Note Purchase Agreement.

On July 22, 2022, we entered into an Amended and Restated Credit Agreement, which extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to certain conditions.

Borrowings under the Amended and Restated Credit Agreement may be used for general corporate purposes (which may include, without limitation, to fund future growth, to finance working capital needs, to fund capital expenditures, and to refinance, redeem or repay indebtedness).

See Note 11 for further information regarding the Amended and Restated Credit Agreement.

On July 25, 2022, a portion of the proceeds from the Series A Notes were used to pay off outstanding loans of $43.0 million, plus accrued interest, under our Amended and Restated Credit Agreement.

Shelf registration

In August 2022, we filed a universal shelf registration statement with the SEC that expires in 2025.

We can use this shelf registration to issue an unspecified amount of debt securities, common stock, preferred stock, depositary shares and warrants.

We can use this shelf registration to issue an unspecified amount of common stock, preferred stock, depositary shares and warrants.

The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.

On August 7, 2020, we completed an underwritten public offering and sold and issued 310,500 shares of our common stock at a price of $190 per share.

After deducting underwriting discounts and commissions, we received net proceeds of $56.7 million, which was used for general corporate purposes, including to fund organic growth.

In November 2022, we completed an underwritten public offering and sold and issued 155,000 shares of our common stock at a price of $308.30 per share, to the underwriter.

We received net proceeds from the offering of $47.5 million, which was used for general corporate purposes, including to fund organic growth.

Our most significant source of cash is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period.

2 unchanged sentences

We also use cash to pay commissions to brokers, as well as to pay for ongoing operating expenses such as salaries, consulting services and taxes.

As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take on our policies.

As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take on our

We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.

11 unchanged sentences

$ 35,234 $ 43,947

We have historically generated positive operating cash flows.

We have historically generated positive operating cash flows allowing our cash and invested assets to grow.

The increase in cash provided by operating activities in 2022 compared to 2021 was due primarily to growth in business and the timing of claim payments and reinsurance recoverable balances.

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

For the year ended December 31, 2022, net cash used in investing activities of $708.6 million reflected growth in our business operations.

For the year ended December 31, 2022, funds from operations were used to purchase fixed-maturity securities, particularly corporate bonds and asset- and mortgage-backed securities of $713.2 million, and to a lesser extent, municipal bonds of $22.2 million and sovereigns of $16.0 million.

During 2022, we received proceeds of $63.1 million from sales of fixed-maturity securities, largely corporate bonds and mortgage- and asset-backed securities and $110.4 million from redemptions of asset- and mortgage-backed securities and corporate bonds.

For the year ended December 31, 2022, purchases of common stocks and ETFs were $10.0 million and $1.5 million, respectively.

In addition, net purchases of short-term investments of $40.6 million consisted of U.S.

Treasuries and corporate bonds.

Net cash used in investing activities also included the purchase of a real estate investment property for $76.6 million in December of 2022 and property and equipment of $6.9 million.

For the year ended December 31, 2021 , net cash used in investing activities was $352.0 million.

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

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

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

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

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

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

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

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

Treasuries of $1.1 million.

During 2020, we received proceeds of $119.7 million from sales of fixed-maturity securities, largely corporate bonds in order to take advantage of favorable valuations.

In addition, we received proceeds of $93.8 million from redemptions of asset- and mortgage-backed securities and corporate bonds.

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

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

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

For the year ended December 31, 2022, net cash provided by financing activities was $186.0 million and reflected proceeds of $125.0 million from the issuance of the Series A Notes on July 22, 2022, a portion of which were used to pay off the outstanding loans of $43.0 million under the Amended and Restated Credit Agreement on July 25, 2022, and proceeds of $47.5 million from our equity offering in November 2022.

In December 2022, we drew down

$73.0 million from our revolving credit facility to finance the purchase of our real estate investment property.

Financing activities also reflected dividends of $0.52 per common share, or $11.9 million in the aggregate.

Proceeds received from our equity compensation plans were $1.1 million, offset by payroll taxes withheld and remitted on restricted stock awards of $3.3 million for the year ended December 31, 2022.

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

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

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

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

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

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

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

3 unchanged sentences

For the year ended December 31, 2022, property insurance represented 22.8% of our gross written premiums.

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

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

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

8 unchanged sentences

As of December 31, 2022 , Kinsale Insurance has only contracted with reinsurers with A.M.

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

Best financial strength rati ngs of "A-" (Ex cellent) or better.

At December 31, 2022, the net reinsurance receivable, defined as the sum of paid and unpaid reinsurance recoverables, ceded unearned premiums less reinsurance payables, from five reinsurers represented 67.8% of the total balance.

20 unchanged sentences

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

Credit facility

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

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

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

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

As of December 31, 2022, we had $125 million of 5.15% Series A Senior Notes outstanding, net of debt issuance costs.

Principal payments are required annually beginning on July 22, 2030 in equal installments of $25.0 million through July 22, 2034, the maturity date.

Interest accrues quarterly and is payable in arrears.

As of December 31, 2022, we had $72.5 million outstanding, net of debt issuance costs, under the Amended and Restated Credit Agreement, which has a maturity of July 22, 2027.

Interest on the outstanding amounts is based on 3-month Adjusted Term SOFR plus a margin of 1.625%.

Interest accrues over the term of the interest rate and is payable in arrears.

See Note 11 to the consolidated financial statements for further details regarding our debt obligations.

Financial Condition

1 unchanged sentence

At December 31, 2022, total stockholders' equity was $745.4 million and tangible stockholders' equity was $742.7 million, compared to total stockholders' equity of $699.3 million and tangible stockholders' equity of $696.5 million at December 31, 2021.

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

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

The increase in both total stockholders' equity and tangible stockholders' equity in 2022 compared to 2021 was primarily due to profits generated during the period, proceeds from our equity offering in November 2022 and net activity related to stock-based compensation plans.

These increases were offset in part by an increase in unrealized losses on available-for-sale investments, net of taxes, due to the higher interest rate environment and dividends declared during 2022.

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

3 unchanged sentences

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

This dividend was paid on March 12, 2021 to all stockholders of record on February 26, 2021.

This dividend was paid on March 14, 2022 to all stockholders of record on March 2, 2022.

On May 10, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock.

5 unchanged sentences

On February 15, 2023, the Company’s Board of Directors declared a cash dividend of $0.14 per share of common stock.

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

This dividend is payable on March 13, 2023 to all stockholders of record on February 28, 2023.

Investment portfolio

At December 31, 2021, o ur cash and invested assets of $1.7 billion consisted of fixed-maturity securities, cash and cash equivalents and equity securities.

At December 31, 2022, o ur cash and invested assets of $2.2 billion consisted of fixed-maturity securities, cash and cash equivalents, equity securities, short-term investments and real estate investments.

At December 31, 2022, the majority of the investment portfolio was comprised of fixed-maturity securities of $1.8 billion that were classified as available-for-sale.

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

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

At December 31, 2022, we also held $152.5 million of equity securities, which were comprised of ETFs, common stocks and non-redeemable preferred stock, $156.3 million of cash and cash equivalents, $76.4 million of real estate investments and $41.3 million of short-term investments.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 3.5 years and an average rating of "AA-" at December 31, 2022.

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

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

Our investment portfolio, excluding cash equivalents and real estate investments, had a gross investment return of 3.0% as of December 31, 2022, compared to 2.5% as of December 31, 2021.

At December 31, 2022, the amortized cost and estimated fair value of our fixed-maturity, equity, and short-term investments were as follows:

December 31, 2022

16 unchanged sentences

Nonredeemable preferred stock 45,822 38,162 2.0 %

Common stock 10,035 10,107 0.5 %

Total equity securities 126,478 152,471 7.8 %

Total investments $ 1,490,414 $ 1,564,677 100.0 %

Short-term investments 41,349 41,337 2.1 %

Total $ 2,101,459 $ 1,953,908 100.0 %

The table below summarizes the credit quality of our fixed-maturity securities as of December 31, 2022, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's") or equivalent designation:

28 unchanged sentences

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

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

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

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

6 unchanged sentences

Income before taxes 195,564 188,801

Other expenses 1,663 1,375

Net investment income (51,282) (31,048)

1 unchanged sentence

Net realized investment gains (1,191) (2,828)

Change in allowance for credit losses on investments 366 —

Interest expense 4,284 994

Other expenses (1)

Other income (697) (212)

Underwriting income $ 175,488 $ 133,564

(1) Other expenses are comprised of corporate expenses not allocated to our insurance operations.

Reconciliation of net operating earnings

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

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

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

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

Net operating earnings and percentages or calculations using net operating earnings (e.g., operating return on equity) are non-GAAP financial measures.

5 unchanged sentences

Change in the fair value of equity securities, before taxes 27,723 (22,812)

Income tax expense (1)

Income tax (benefit) expense (1)

(5,822) 4,791

Change in the fair value of equity securities, after taxes 21,901 (18,021)

2 unchanged sentences

Net realized investment gains, after taxes (941) (2,234)

Change in allowance for credit losses on investments, before taxes 366 —

Income tax benefit (1)

Change in allowance for credit losses on investments, after taxes 289 —

Net operating earnings $ 180,363 $ 132,404

41 unchanged sentences

case reserves and reserves for incurred but not reported losses ("IBNR").

Our gross reserves for losses and loss adjustment expenses at December 31, 2021 were $881.3 million, and of this amount, 84.8% related to IBNR.

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

Our gross reserves for losses and loss adjustment expenses at December 31, 2022 were $1.2 billion, and of this amount, 85.6% related to IBNR.

Our reserves for losses and loss adjustment expenses, net of reinsurance, at December 31, 2022 were $1.1 billion, and of this amount, 87.0% related

A 5% change in net IBNR reserves would equate to a $46.1 million change in the reserve for losses and loss adjustment expenses at such date, as well as a $36.5 million change in net income, a 4.9% change in both stockholders' equity and tangible stockholders' equity, in each case at or for the year ended December 31, 2022.

25 unchanged sentences

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

We reserve for large catastrophes after an event has occurred.

Shortly after an occurrence, we review insured locations exposed to the event, modeled losses for our portfolio, and industry loss estimates for the event.

We also consider frequency and severity from early claims reports to determine an appropriate reserve for the catastrophe.

These reserves are reviewed frequently to reflect actual reported losses and changes to our estimates are made to reflect the new information.

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

37 unchanged sentences

The amount by which estimated losses differ from those originally reported for a period is known as "development." Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.

Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves

on unresolved claims.

Development is favorable when losses ultimately settle for less than the amount reserved or subsequent estimates indicate a basis for reducing loss reserves on unresolved claims.

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

17 unchanged sentences

Changes in the observability of valuation inputs may result in a reclassification for certain financial assets and liabilities.

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

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

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

3 unchanged sentences

As a result of these potential fluctuations, it is possible to have significant unrealized gains or losses on a security.

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

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

Reinsurance refers to an arrangement in which a company called a reinsurer agrees in a contract (often referred to as a treaty) to assume specified risks written by an insurance company (known as a ceding company) by paying the insurance company all or a portion of the insurance company's losses arising under specified classes of insurance policies in return for a share in premiums.

5 unchanged sentences

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

It is difficult to fully evaluate the impact of major catastrophic events on the financial stability of reinsurers, as well as the access to capital that reinsurers may have when such events occur.

It is difficult to fully evaluate the impact of major catastrophic events on the financial stability of reinsurers, as well as the access to capital that reinsurers may have when such

events occur.

The ceding of insurance does not legally discharge us from our primary liability for the full amount of the policies, and we will be required to pay the loss and bear the collection risk if any reinsurer fails to meet its obligations under the reinsurance contracts.

We target reinsurers with A.M.

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

Best financial strength ratings of "A-" (Excellen t) or better.

Based on our evaluation of the factors discussed above, the allowance for credit losses related to reinsuran ce balances was $0.5 million at December 31, 2022.

2 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis