What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-23 compared with 2023-02-24 · 176 added, 150 removed, 1231 unchanged (21% of the section changed)

Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements

81 unchanged sentences

In addition, the evaluation of

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

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

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

27 unchanged sentences

Investment income due and accrued 21,689 14,451

Premiums receivable, net of allowance for credit losses of $ 8,067 in 2022 and $ 3,391 in 2021

Premiums and fees receivable, net of allowance for credit losses of $ 13,383 in 2023 and $ 8,067 in 2022

143,212 105,754

21 unchanged sentences

Retained earnings 828,247 533,121

Accumulated other comprehensive (loss) income ( 134,918 ) 18,125

Accumulated other comprehensive loss ( 94,617 ) ( 134,918 )

Stockholders’ equity 1,086,832 745,449

12 unchanged sentences

Net earned premiums 1,072,537 794,119 582,879

Fee income 27,026 19,604 13,693

Net investment income 102,335 51,282 31,048

14 unchanged sentences

Net income 308,093 159,114 152,659

Other comprehensive (loss) income:

Change in unrealized (losses) gains on available-for-sale investments, net of taxes ( 153,043 ) ( 23,255 ) 27,862

Other comprehensive income (loss):

Change in unrealized gains (losses) on available-for-sale investments, net of taxes 40,301 ( 153,043 ) ( 23,255 )

Total comprehensive income $ 348,394 $ 6,071 $ 129,404

10 unchanged sentences

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

Income (Loss) Total Stockholders' Equity

(in thousands, except for per share data)

hensive (Loss)

Income Total Stockholders' Equity

(in thousands, except for share and per share data)

Balance at December 31, 2020 22,757,251 $ 228 $ 291,315 $ 243,315 $ 41,380 $ 576,238

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

4 unchanged sentences

— — — ( 10,032 ) — ( 10,032 )

Other comprehensive income, net of income taxes — — — — 27,862 27,862

Other comprehensive loss, net of income taxes — — — — ( 23,255 ) ( 23,255 )

Net income — — — 152,659 — 152,659

Balance at December 31, 2021 22,834,377 228 295,040 385,942 18,125 699,335

Issuance of common stock, net of issuance costs

155,000 2 47,496 — — 47,498

Issuance of common stock under stock-based compensation plan

8 unchanged sentences

Issuance of common stock, net of issuance costs

155 2 47,496 — — 47,498

Issuance of common stock under stock-based compensation plan

4 unchanged sentences

— — — ( 12,967 ) — ( 12,967 )

Other comprehensive loss, net of income taxes — — — — ( 153,043 ) ( 153,043 )

Other comprehensive income, net of income taxes — — — — 40,301 40,301

Net income — — — 308,093 — 308,093

13 unchanged sentences

Change in allowance for credit losses on investments 187 366 —

Deferred tax (benefit) expense ( 14,191 ) ( 576 ) 616

Deferred tax benefit ( 9,429 ) ( 14,191 ) ( 576 )

Depreciation and amortization 3,274 2,721 2,308

14 unchanged sentences

Purchase of real estate investment ( 2,116 ) ( 76,623 ) —

Sale of property and equipment — — 5,077

Sale of real estate investment 62,036 — —

Change in short-term investments, net 36,706 ( 40,638 ) —

14 unchanged sentences

Dividends paid ( 12,954 ) ( 11,927 ) ( 10,021 )

Net cash provided by (used in) financing activities 185,992 ( 11,140 ) 76,144

Net cash (used in) provided by financing activities ( 28,523 ) 185,992 ( 11,140 )

Net change in cash and cash equivalents ( 29,580 ) 35,234 43,947

40 unchanged sentences

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.

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.

8 unchanged sentences

Real estate is evaluated for impairment when events or circumstances indicate the carrying value of the real estate may not be recoverable.

Intangibles related to real estate investments consist of the value attributable to the acquired in-place leases.

These intangibles are amortized to expense over the related lease term of 12 years.

Amortization of the intangibles related to real estate investments is reflected in net investment income in the consolidated statement of income.

See Note 2 for further details regarding real estate investments.

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.

33 unchanged sentences

Furniture and fixtures 3,065 2,615

Leasehold improvements 153 —

Land improvements 474 474

19 unchanged sentences

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, 2022 and 2021 are adequate and represent a reasonable estimate of the Company's future obligations.

The Company believes that the reserves for unpaid losses and loss adjustment expenses at December 31, 2023 and 2022 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.

2 unchanged sentences

Unearned premiums are calculated on a daily pro rata basis.

Fee income is recognized as revenue when the related premium is written.

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.

22 unchanged sentences

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-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.

There were no recently adopted accounting standards that had 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.

ASU 2023-07, Segment Reporting - Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures," which expands reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker ("CODM") and included within each reported measure of a segment's profit or loss.

The ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment's profit or loss in assessing segment performance and deciding how to allocate resources.

Additionally, ASU 2023-07 requires all segment profit or loss and assets disclosures to be provided on an annual and interim basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning one year later.

Early adoption is permitted and the amendments must be applied retrospectively to all prior periods presented.

The Company does not expect the adoption of this guidance to materially affect the consolidated financial statements, and the Company is currently evaluating the effect the guidance will have on its disclosures.

Available-for-sale investments

15 unchanged sentences

December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value

(in thousands)

19 unchanged sentences

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.

estimated present value of the cash flows expected to be collected to the amortized cost of the security.

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.

Inputs into the present value cash flow analysis include default rates and recoverability rates based on credit rating.

5 unchanged sentences

The following table presents changes in the allowance for expected credit losses on available-for-sale securities:

Year Ended December 31,

Years Ended December 31,

(in thousands)

2 unchanged sentences

Reduction from securities sold during the period ( 12 ) —

Net increase (decrease) from securities that had an allowance at the beginning of the period — —

Net increase from securities that had an allowance at the beginning of the period 198 —

Ending balance $ 553 $ 366

19 unchanged sentences

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, 2022, except for securities previously discussed, the

securities' in unrealized loss positions were caused by interest rate changes or other market factors and were not credit-specific issues, nor did the Company intend to sell these securities.

Based on the Company's review as of December 31, 2023, except for securities previously discussed, the securities' in unrealized loss positions were caused by interest rate changes or other market factors and were not credit-specific issues, nor did the Company intend to sell these securities.

At December 31, 2023, 83.3 % 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.

30 unchanged sentences

Real estate investments

During the year ended December 31, 2022, the Company completed the purchase of a real estate investment property.

During the year ended December 31, 2022, the Company purchased a real estate investment property.

Real estate investments consisted of the following at December 31, 2023 and 2022:

5 unchanged sentences

Parking deck — 1,311

14,791 76,623

Accumulated depreciation — ( 236 )

Total real estate investments, net $ 14,791 $ 76,387

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

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

Future minimum rental income expected on these operating leases is $ 4.4 million in 2023, $ 4.5 million in 2024, $ 4.6 million in 2025, $ 4.8 million in 2026, $ 4.9 million in 2027 and $ 36.2 million thereafter.

During the third quarter of 2023, the Company sold the parking deck, one of the office buildings and the related in-place leases of its real estate investment property for approximately $ 62.0 million in cash, net of seller’s costs.

The Company recognized a gain on the sale of $ 4.3 million, which is included in net realized investment gains on the consolidated statement of income.

The Company used the net sale proceeds to pay down a portion of its Credit Facility.

Concurrent with the sale of the investment property, the Company refined its plans for the remainder of the property and determined the predominant use of the remaining office building would be for future office space expansion.

Upon this determination, the Company reclassified the carrying value of the building to construction in progress within property and equipment.

Net investment income

6 unchanged sentences

Cash equivalents and short-term investments

3,004 1,251 12

Dividends on equity securities 5,097 4,406 3,962

3 unchanged sentences

Net investment income $ 102,335 $ 51,282 $ 31,048

Investment expenses included depreciation expense related to real estate investments of $ 0.2 million for the year ended December 31, 2022.

There were no real estate investments for the years ended December 31, 2021 and 2020.

Investment expenses included depreciation expense related to real estate investments of $ 0.5 million and $ 0.2 million for the years ended December 31, 2023 and 2022, respectively.

There were no real estate investments at December 31, 2021.

Realized investment gains and losses

6 unchanged sentences

Realized losses ( 2,374 ) ( 904 ) ( 3 )

Net realized gains from fixed-maturity securities 174 2,941 3,639

Net realized (losses) gains from fixed-maturity securities ( 522 ) 174 2,941

Equity securities:

2 unchanged sentences

Net realized gains (losses) from equity securities 2,349 1,066 ( 113 )

Realized (losses) gains from the sales of short-term investments ( 49 ) — 13

Realized losses from the sales of short-term investments ( 37 ) ( 49 ) —

Realized gain on sale of real estate investments 4,250 — —

Net realized investment gains $ 6,040 $ 1,191 $ 2,828

Change in net unrealized (losses) gains on fixed-maturity securities

The change in net unrealized (losses) gains for fixed-maturity securities was $( 193.7 ) million, $( 29.4 ) million, and $ 35.3 million for the years ended December 31, 2022, 2021, and 2020 respectively.

The net realized gains or losses on sales of equity securities represent the total gains or losses from the purchase dates of the equity securities.

The change in unrealized gains (losses) in the consolidated statement of income consists of two

(1) the reversal of the gain or loss recognized in previous periods on equity securities sold and (2) the change in unrealized gain or loss resulting from mark-to-market adjustments on equity securities still held.

Change in net unrealized gains (losses) on fixed-maturity securities

The change in net unrealized gains (losses) for fixed-maturity securities was $ 51.0 million, $( 193.7 ) million, and $( 29.4 ) million for the years ended December 31, 2023, 2022, and 2021, respectively.

Insurance – statutory deposits

20 unchanged sentences

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, 2022 and 2021, 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.

Management performs several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2023 and 2022, 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.

38 unchanged sentences

Non-redeemable preferred stock — 38,162 — 38,162

Common stocks 10,107 — — 10,107

Total equity securities 114,309 38,162 — 152,471

Short-term investments 31,366 9,971 — 41,337

Total $ 162,416 $ 1,791,492 $ — $ 1,953,908

There were no assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2023 or 2022.

The carrying amount of the Company's 5.15% Series A Senior Notes was $ 125.0 million, less debt issuance cost, and the corresponding estimated fair value was $ 117.2 million at December 31, 2022.

The carrying amount of the Company's fixed-rate senior notes was $ 175.0 million and $ 125.0 million, less debt issuance cost, and the corresponding estimated fair value was $ 171.6 million and $ 117.2 million at December 31, 2023 and 2022, respectively.

The fair value measurement was determined using a discounted cash flow analysis that factors in current market yields for comparable borrowing arrangements under the Company's credit profile.

18 unchanged sentences

Balance, end of year $ 88,395 $ 61,594 $ 41,968

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.

Amortization of net policy acquisition costs is included in underwriting, acquisition and insurance expense in the accompanying consolidated statements of income and comprehensive income.

Underwriting, acquisition and insurance expenses

21 unchanged sentences

The Company paid $ 84.6 million, $ 43.1 million and $ 40.6 million in federal income taxes during the years ended December 31, 2023, 2022 and 2021, respectively.

Current income taxes (payable) recoverable were $( 2.5 ) million and $ 5.1 million at December 31, 2022 and 2021, respectively, and included in "other liabilities" and "other assets" in the accompanying consolidated balance sheets.

Current income taxes payable were $ 3.2 million and $ 2.5 million at December 31, 2023 and 2022, respectively, and included in other liabilities in the accompanying consolidated balance sheets.

The prevailing federal income tax rate was 21 % in December 31, 2023, 2022 and 2021.

24 unchanged sentences

Deferred tax liabilities:

Unrealized gains on fixed-maturity securities — 4,315

Unrealized gains on equity securities 8,667 5,459

1 unchanged sentence

Property and equipment 3,005 2,670

Transition adjustment for loss reserve discount 768 1,025

Intangible assets 743 743

Other 1,583 1,614

5 unchanged sentences

At December 31, 2023 and 2022, 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, 2022 and 2021, 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.

No other valuation allowances were established against the Company’s deferred tax assets at December 31, 2023 and 2022, 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.

With respect to deferred tax assets associated with unrealized losses on fixed-maturity securities, management has the ability and intent to execute a tax planning strategy to hold those securities to recovery or maturity to the extent not matched with realized capital gains or available carry back to ensure recognition of the deferred tax asset.

1 unchanged sentence

The Company did not have any material uncertain tax positions in 2023 or 2022.

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

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

Reserves for unpaid losses and loss adjustment expenses

19 unchanged sentences

177,039 117,561 83,730

Adoption of new accounting standard for credit losses

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

2 unchanged sentences

Current year 635,993 493,800 356,401

Prior year ( 35,887 ) ( 31,986 ) ( 13,338 )

Prior years ( 35,774 ) ( 35,887 ) ( 31,986 )

Total net losses and loss adjustment expenses incurred 600,219 457,913 324,415

Current year 38,565 49,205 23,765

Prior year 111,128 89,150 74,403

Prior years 171,499 111,128 89,150

Total payments 210,064 160,333 112,915

5 unchanged sentences

During the year ended December 31, 2023, prior accident years developed favorably by $ 35.8 million, of which $ 49.0 million was attributable to the 2021 and 2022 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 2017 through 2019 accident years due to long-tailed property damage claims within the construction-related primary casualty business that are more exposed to the increase in inflation.

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.

1 unchanged sentence

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 levels of reported losses.

Although the Company 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.

Although the Company did not have any significant direct COVID-19 loss 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.

3 unchanged sentences

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.

Incurred and Paid Claims Development

155 unchanged sentences

Casualty - occurrence 159,820

Allowance for credit losses ( 744 )

Total reinsurance recoverable on unpaid claims 241,357

Unallocated claims adjustment expenses 149,323

Allowance for credit losses 744

Gross liability for unpaid claims and claim adjustment expense $ 1,692,875

10 unchanged sentences

Direct $ 1,367,141 $ 950,145 $ 677,630

Assumed — — 21

Ceded ( 294,604 ) ( 156,026 ) ( 94,751 )

26 unchanged sentences

The Company received net proceeds from the offering of $ 47.5 million.

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.

Equity-based Compensation

8 unchanged sentences

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)

Expected life in years (2)

(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.

The value of the options granted was estimated at the date of grant using the Black-Scholes pricing model.

A summary of option activity as of December 31, 2023 and changes during the year then ended is presented below:

45 unchanged sentences

Diluted $ 13.22 $ 6.88 $ 6.62

There were no anti-dilutive stock awards for the year ended December 31, 2022.

There were 30 thousand and 35 thousand anti-dilutive stock awards for the years ended December 31, 2021 and 2020, respectively.

There were 1 thousand, zero and 30 thousand anti-dilutive stock awards for the years ended December 31, 2023, 2022 and 2021, 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.

2 unchanged sentences

On July 22, 2022, the Company entered into a Note Purchase and Private Shelf Agreement (the "Note Purchase Agreement") with PGIM, Inc.

(“Prudential”) and the purchasers of the Notes (as defined below), named in the Purchaser Schedule attached thereto (collectively, the “Note Purchasers”).

Pursuant to the Note Purchase Agreement, on July 22, 2022 , the Company issued to the Note Purchasers $ 125.0 million aggregate principal amount of 5.15 % Series A Senior Notes Due July 22, 2034 (collectively, the "Series A Notes”).

The Note Purchase Agreement also provides for the issuance of additional shelf notes from time to time issued thereunder (the “Shelf Notes” and, together with the Series A Notes, the “Notes”) not to exceed $ 150.0 million of Notes outstanding thereunder.

The proceeds of the Notes may be used, among other things, to fund surplus at Kinsale Insurance Company, or any other insurance subsidiary of the Company, refinance indebtedness and for general corporate purposes.

The Series A Notes are senior unsecured obligations of the Company and rank pari passu with the Company’s Amended and Restated Credit Agreement.

Debt issuance costs of $ 1.9 million were incurred in connection with the issuance of the Series A Notes and have been recorded on the consolidated balance sheet within "Debt" as a contra-liability.

The Note Purchase Agreement contains representations and affirmative and negative covenants, including financial covenants customary for agreements of this type, as well as customary events of default provisions.

As of December 31, 2022, the Company was in compliance with all of its financial covenants under the Note Purchase Agreement.

("Prudential") and the purchasers of the Series A Notes (as defined below), named in the Purchaser Schedule attached thereto (collectively, the "Note Purchasers").

Pursuant to the Note Purchase Agreement, on July 22, 2022 , the Company issued $ 125.0 million aggregate principal amount of 5.15 % Series A Senior Notes Due July 22, 2034 (collectively, the "Series A Notes") to the Note Purchasers.

The Note Purchase Agreement also provides for the issuance of additional shelf notes issued thereunder (the "Shelf Notes" and, together with the Series A Notes, the "Notes") not to exceed $ 150.0 million of Notes outstanding thereunder.

On September 18, 2023, the Company entered into a First Amendment to the Note Purchase Agreement and increased the additional Shelf Notes limit to $ 200.0 million.

Pursuant to the First Amendment to the Note Purchase Agreement, on September 18, 2023 , the Company issued a $ 50.0 million aggregate principal amount 6.21 % Series B Senior Note due July 22, 2034 to the note purchaser.

The Series A and B Notes are senior unsecured obligations of the Company and rank pari passu with the Company’s Amended and Restated Credit Agreement.

The Series A Notes bear interest at 5.15 % per annum and mature on July 22, 2034 , unless paid earlier by the Company.

Should the Company elect to prepay the Series A Notes, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Note Purchase Agreement.

Should the Company elect to prepay the Series A Notes, such aggregate prepayment will include the applicable make-whole amount(s),

as defined within the applicable Note Purchase Agreement.

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

On July 25, 2022, 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, fund surplus at Kinsale Insurance Company and for general corporate purposes.

The Series B Note bears interest at 6.21 % per annum and matures on July 22, 2034 , unless paid earlier by the Company.

Should the Company elect to prepay the Series B Note, such aggregate prepayment will include the applicable make-whole amount(s), as defined within the applicable Note Purchase Agreement.

Principal payments are required annually beginning on July 22, 2030 in equal installments of $ 10.0 million through July 22, 2034 .

Credit Agreement

4 unchanged sentences

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).

Debt issuance costs of $ 0.5 million were incurred in connection with the Amended and Restated Credit Agreement and have been recorded on the consolidated balance sheet within "Debt" as a contra-liability.

During December 2022, the Company drew down $ 73.0 million at an interest rate of 6.2 % to fund the purchase of its real estate investment property, previously discussed.

At December 31, 2022, there was $ 72.5 million outstanding, net of unamortized debt issuance costs.

The Amended and Restated Credit Agreement also contains representations and affirmative and negative covenants, including financial covenants customary for agreements of this type, as well as customary events of default provisions.

As of December 31, 2022, the Company was in compliance with all of its financial covenants under the Credit Facility.

In September 2023, the Company used proceeds from the sale of its real estate investment property to pay down $ 62.0 million from the Credit Facility.

The loans under the Amended and Restated Credit Agreement bear interest, at the Company's option, at a rate equal to the Adjusted Term SOFR Rate (as defined therein) plus 1.625% or the Alternate Base Rate (as defined therein) plus 0.625%.

For the year ended December 31, 2023, the annual weighted-average interest rate of borrowings under the Credit Facility was 6.84 %.

The following table presents the Company's outstanding debt as of December 31, 2023 and December 31, 2022:

Issuance Maturities December 31, 2023 December 31, 2022

(in thousands)

Credit Facility Various 7/22/2027 $ 11,000 $ 73,000

5.15 % Series A Notes

7/22/2022 7/22/2034 125,000 125,000

6.21 % Series B Note

9/18/2023 7/22/2034 50,000 —

Unamortized debt issuance costs ( 2,154 ) ( 2,253 )

Total debt $ 183,846 $ 195,747

Interest paid under both agreements totaled $ 10.5 million, $ 2.4 million and $ 0.9 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Both the Note Purchase Agreement and the Amended and Restated Credit Agreement contain representations and affirmative and negative covenants, including financial covenants customary for agreements of this type, as well as customary events of default provisions.

As of December 31, 2023, the Company was in compliance with all of its financial covenants under both the Note Purchase Agreement and the Credit Facility.

Contingencies

1 unchanged sentence

However, adverse outcomes are possible and could negatively affect the Company’s financial condition and results of operations.

In June 2019, Marie Hughes, as authorized administrator for the estate of George Hughes, filed a wrongful death claim against Venetian Hills Apartments, LLC ("Venetian Hills") in DeKalb County in Georgia state court.

On December 20, 2023, the jury awarded a verdict to the plaintiff of $140 million.

Venetian Hills was a policyholder of a $1 million general liability policy issued by Kinsale Insurance.

The Company believes exclusions in the policy apply to the claim and intends to defend any action related to this proceeding vigorously.

The Company expects to appeal the verdict at the conclusion of post trial motions and does not expect a resolution as to the Company’s liability, if any, with respect to this matter in the foreseeable future, and potentially for multiple years.

The Company does not believe this legal proceeding will have a material adverse effect on its results of operations or business.

The Company believes adequate provision has been made in its consolidated financial statements and its existing reserves account for liabilities to the Company relating to claims such as this legal proceeding.

Employee benefit plan

1 unchanged sentence

Expenses related to the Plan were $ 3.8 million, $ 3.1 million and $ 2.2 million in 2023, 2022 and 2021, respectively.

Other comprehensive (loss) income

The following table summarizes the components of other comprehensive (loss) income:

Other comprehensive income (loss)

The following table summarizes the components of other comprehensive income (loss):

Year Ending December 31,

1 unchanged sentence

(in thousands)

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

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

$ 49,384 $ ( 193,970 ) $ ( 26,792 )

Income tax benefit (expense) 40,734 5,626 ( 7,851 )

Unrealized (losses) gains arising during the period, net of income taxes ( 153,236 ) ( 21,166 ) 29,536

Income tax (expense) benefit ( 10,371 ) 40,734 5,626

Unrealized gains (losses) arising during the period, net of income taxes 39,013 ( 153,236 ) ( 21,166 )

Less reclassification adjustment:

Net realized investment gains on available-for-sale investments

121 2,644 2,119

Income tax expense ( 25 ) ( 555 ) ( 445 )

Net realized investment (losses) gains on available-for-sale investments ( 1,443 ) 121 2,644

Income tax benefit (expense) 303 ( 25 ) ( 555 )

Reclassification adjustment included in net income ( 1,140 ) 96 2,089

2 unchanged sentences

Reclassification adjustment included in net income ( 148 ) ( 289 ) —

Other comprehensive (loss) income $ ( 153,043 ) $ ( 23,255 ) $ 27,862

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.

Other comprehensive income (loss) $ 40,301 $ ( 153,043 ) $ ( 23,255 )

The sale of or credit loss on 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.

7 unchanged sentences

Commercial Property $ 411,956 $ 181,505 $ 72,392

Small Business Casualty 149,366 112,553 85,046

Excess Casualty 194,049 147,485 108,487

Small Business Casualty 174,080 149,366 112,553

Construction 137,887 122,524 101,441

2 unchanged sentences

Products Liability 61,786 60,374 55,070

Small Business Property 43,893 21,002 6,160

Life Sciences 41,379 41,346 40,487

Professional Liability 41,273 33,226 27,051

Entertainment 39,218 22,268 12,401

Energy 38,637 32,217 19,710

Professional Liability 35,743 30,313 22,626

Management Liability 26,617 28,856 28,031

Entertainment 22,268 12,396 4,614

Small Property 21,002 6,160 3,691

Environmental 25,938 19,455 13,584

Excess Professional 24,033 22,826 21,340

Health Care 20,378 16,916 11,156

Public Entity 20,028 15,512 9,977

Inland Marine 14,396 9,752 6,910

Commercial Auto 19,050 5,950 977

Inland Marine 18,669 14,396 9,752

Aviation 6,453 4,424 2,099

Product Recall 1,419 810 24

Ocean Marine 2,339 765 215

Product Recall 1,637 1,419 810

Railroad 15 — —

Total commercial 1,530,338 1,067,542 737,250

Personal Insurance 24,182 31,289 27,002

High Value Homeowners 14,295 3,261 121

Total personal 38,477 34,550 27,123

Total $ 1,568,815 $ 1,102,092 $ 764,373

1 unchanged sentence

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.

Small Business Casualty 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 casualty divisions.

1 unchanged sentence

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

Small Business Casualty underwrites commercial general liability on smaller risks, generally businesses with revenues not exceeding $2.5 million, with an emphasis on artisan contractors and premises related exposures.

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

2 unchanged sentences

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

Small Business Property underwrites Commercial Property coverage for smaller properties, generally with total insured values not exceeding $3.5 million, including banks, daycare centers, strip malls, and greenhouses, among others.

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.

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.

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.

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.

Small Property underwrites Commercial Property coverage for smaller properties including banks, daycare centers, strip malls, and greenhouses, among others.

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.

Excess Professional underwrites excess coverage over an array of insurance products in Allied Health, Management Liability, Health Care and Professional Liability.

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

1 unchanged sentence

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

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

Commercial Auto underwrites garage liability and excess auto coverages.

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

Aviation underwrites general liability coverage for small-to-medium sized aviation-related businesses.

Product recall underwrites recall expense and liability coverage for life sciences and general products sector consumable, commercial, and consumer goods.

Ocean Marine underwrites marine cargo coverage for small-to-medium sized risks that transport goods and products in domestic inland waterways and certain U.S.

coastal waters.

Product Recall underwrites recall expense and liability coverage for life sciences and general products sector consumable, commercial and consumer goods.

Railroad underwrites excess liability for Class III short line railroads, railroad support activities and contractors and other miscellaneous railroad-related risks.

Personal Insurance writes homeowners' coverage on manufactured homes with catastrophe exposure due to coastal location.

High Value Homeowners underwrites first party homeowners' coverage on homes valued above $1.0 million on a primary and excess basis.

The Company does business with three unaffiliated insurance brokers that generated $ 316.5 million, $ 286.8 million and $ 178.7 million of gross written premiums for the year ended December 31, 2023, representing 20.2 %, 18.3 % and 11.4 % of gross written premiums, respectively.

21 unchanged sentences

The maximum dividend distribution that can be paid by Kinsale Insurance during 2024 without prior approval is $ 257.3 million.

Immaterial Correction to Prior Period Financial Statements for Accounting Policy Change

The Company charges insureds certain policy fees and recognizes such fees into earnings when the related premium is written.

Previously, the Company presented these fees as a reduction of underwriting, acquisition and insurance expenses.

Effective April 1, 2023, the Company corrected its accounting policy to present these fees as fee income in the consolidated statements of income and comprehensive income in accordance with ASC 944, Financial Services–Insurance.

The Company presented $ 27.0 million as fee income for the year ended December 31, 2023 in the consolidated statements of income and comprehensive income.

The Company reclassified $ 19.6 million and $ 13.7 million to fee income from

underwriting, acquisition and insurance expenses in the previously issued financial statements on Form 10-K for the years ended December 31, 2022 and 2021, respectively, to correct prior periods’ presentation.

The Company considered the qualitative and quantitative impacts and determined that the correction was not material to the Company's previously issued consolidated financial statements.

KINSALE CAPITAL GROUP, INC.

14 unchanged sentences

Equity securities:

Exchange traded funds 70,621 104,202 104,202

Non-redeemable preferred stock 45,822 38,162 38,162

Common stocks:

ETFs (industrial, miscellaneous and all other) 65,401 106,300 106,300

Banks, trust and insurance companies 22,090 24,528 24,528

Industrial, miscellaneous and all other 67,763 70,812 70,812

Non-redeemable preferred stock 38,289 33,173 33,173

Total equity securities 193,543 234,813 234,813

12 unchanged sentences

Deferred income tax asset, net 1,673 1,301

Income taxes recoverable — 5,059

Other assets 410 278

2 unchanged sentences

Accounts payable and accrued expenses $ 2,042 $ 1,558

Due to subsidiaries — 47

Income taxes payable 3,201 2,948

24 unchanged sentences

Interest expense 10,301 4,284 994

Other expenses — — 1,164

Total expenses 23,308 14,049 8,966

1 unchanged sentence

Income tax benefit ( 7,324 ) ( 5,387 ) ( 3,424 )

Income before equity in net income of subsidiaries 153 1,460 6,532

(Loss) income before equity in net income of subsidiaries ( 4,066 ) 153 1,460

Equity in net income of subsidiaries 312,159 158,961 151,199

Net income 308,093 159,114 152,659

Other comprehensive (loss) income:

Equity in other comprehensive (losses) earnings of subsidiaries ( 153,043 ) ( 23,255 ) 27,862

Other comprehensive income (loss):

Equity in other comprehensive earnings (losses) of subsidiaries 40,301 ( 153,043 ) ( 23,255 )

Total comprehensive income $ 348,394 $ 6,071 $ 129,404

16 unchanged sentences

Dividends received from subsidiary — — 8,000

Net cash (used in) provided by operating activities ( 65,175 ) 17,912 17,559

Net cash provided by (used in) operating activities 60,816 ( 65,175 ) 17,912

Investing activities

12 unchanged sentences

Dividends paid ( 12,954 ) ( 11,927 ) ( 10,021 )

Net cash provided by (used in) financing activities 185,992 ( 11,140 ) 76,144

Net cash (used in) provided by financing activities ( 28,523 ) 185,992 ( 11,140 )

Net change in cash and cash equivalents ( 17,707 ) 20,193 6,201