knsl-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


☒			Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2023


☐			Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______

Commission File Number: 001-37848



	KINSALE CAPITAL GROUP, INC.
	(Exact name of registrant as specified in its charter)
Delaware		98-0664337
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2035 Maywill Street

Suite 100

Richmond, Virginia 23230

(Address of principal executive offices, including zip code)

(804) 289-1300

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	KNSL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of the registrant's common stock outstanding at July 21, 2023: 23,162,175

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KINSALE CAPITAL GROUP, INC.

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		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Consolidated Balance Sheets at June 30, 2023 (Unaudited) and December 31, 2022	4
	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2023 and 2022	5
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for Each Quarter Within the Six Months Ended June 30, 2023 and 2022	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 6.	Exhibits	49
	Signatures	50

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Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that does not directly relate to historical or current fact. These statements may discuss, among others, our future financial performance, our business prospects and strategy, our anticipated financial position, liquidity and capital, dividends and general market and industry conditions. You can identify forward-looking statements by words such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," "believes," "seeks," "outlook," "future," "will," "would," "should," "could," "may," "can have," "prospects" or similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements are only predictions and are not guarantees of future performance. Actual results may differ materially from those contemplated by a forward-looking statement. Factors that may cause such differences include, without limitation:

•the possibility that our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows;

•the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;

•the failure of any of the loss limitations or exclusions we employ, or change in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;

•the inability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;

•the possibility that severe weather conditions and catastrophes, including due to climate change, pandemics and similar events adversely affecting our business, results of operations and financial condition;

•adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity resulting in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, affecting our growth and profitability;

•a decline in our financial strength rating adversely affecting the amount of business we write;

•the potential loss of one or more key executives or an inability to attract and retain qualified personnel adversely affecting our results of operations;

•our reliance on a select group of brokers;

•the changing market conditions of our excess and surplus lines ("E&S") insurance operations, as well as the cyclical nature of our business, affecting our financial performance;

•our employees taking excessive risks;

•the intense competition for business in our industry;

•the effects of litigation having an adverse effect on our business;

•the performance of our investment portfolio adversely affecting our financial results;

•the ability to pay dividends being dependent on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary;

•being forced to sell investments to meet our liquidity requirements;

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•our credit agreements contain a number of financial and other covenants, the breach of which could result in acceleration of payment of amounts due under our borrowings;

•extensive regulation adversely affecting our ability to achieve our business objectives or the failure to comply with these regulations adversely affecting our financial condition and results of operations; and

•the other risks and uncertainties discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022.

Forward-looking statements speak only as of the date on which they are made. Except as expressly required under federal securities laws or the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)


	June 30, 2023		December 31, 2022
	(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $2,352,901, allowance for credit losses: $422 – 2023; $1,933,632 and $366 –2022)	$	2,183,686	$	1,760,100
Equity securities, at fair value (cost: $161,526 – 2023; $126,478 – 2022)	196,848		152,471
Assets held for sale	57,526		—
Real estate investments, net	19,482		76,387
Short-term investments	28,778		41,337
Total investments	2,486,320		2,030,295
Cash and cash equivalents	125,057		156,274
Investment income due and accrued	17,696		14,451
Premiums receivable, net of allowance for credit losses of $12,167 – 2023; $8,067 – 2022	147,092		105,754
Reinsurance recoverables, net of allowance for credit losses of $459 – 2023; $459 – 2022	229,903		220,454
Ceded unearned premiums	48,645		42,935
Deferred policy acquisition costs, net of ceding commissions	85,326		61,594
Intangible assets	3,538		3,538
Deferred income tax asset, net	58,047		56,983
Other assets	68,578		54,844
Total assets	$	3,270,202	$	2,747,122

Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses	$	1,455,734	$	1,238,402
Unearned premiums	675,254		499,677
Payable to reinsurers	42,143		32,024
Accounts payable and accrued expenses	22,457		31,361
Debt	195,876		195,747

Other liabilities	6,923		4,462
Total liabilities	2,398,387		2,001,673

Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 23,162,175 and 23,090,526 shares issued and outstanding at June 30, 2023 and December 31, 2022 respectively	232		231
Additional paid-in capital	347,865		347,015
Retained earnings	655,234		533,121
Accumulated other comprehensive loss	(131,516)		(134,918)
Total stockholders’ equity	871,815		745,449
Total liabilities and stockholders’ equity	$	3,270,202	$	2,747,122

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except per share data)
Revenues:
Gross written premiums	$	438,222	$	277,001	$	795,810	$	522,514
Ceded written premiums	(73,181)		(34,658)		(131,739)		(63,673)
Net written premiums	365,041		242,343		664,071		458,841
Change in unearned premiums	(107,995)		(52,185)		(169,867)		(90,121)
Net earned premiums	257,046		190,158		494,204		368,720
Fee income	6,986		4,919		13,187		9,264
Net investment income	24,172		10,594		44,867		19,682
Change in the fair value of equity securities	5,811		(23,353)		9,329		(31,104)
Net realized investment (losses) gains	1,291		1,413		(3,361)		1,708
Change in allowance for credit losses on investments	25		—		(56)		—
Other income	435		145		741		269
Total revenues	295,766		183,876		558,911		368,539

Expenses:
Losses and loss adjustment expenses	147,042		107,040		286,076		209,545
Underwriting, acquisition and insurance expenses	55,473		43,891		108,219		86,781
Interest expense	2,724		337		5,294		590
Other expenses	417		166		819		309
Total expenses	205,656		151,434		400,408		297,225
Income before income taxes	90,110		32,442		158,503		71,314
Total income tax expense	17,319		5,352		29,912		12,433
Net income	72,791		27,090		128,591		58,881
Other comprehensive income (loss):
Change in net unrealized gains (losses) on available-for-sale investments, net of taxes	(14,107)		(54,882)		3,402		(118,812)
Total comprehensive income (loss)	$	58,684	$	(27,792)	$	131,993	$	(59,931)


Earnings per share:
Basic	$	3.16	$	1.19	$	5.59	$	2.59
Diluted	$	3.12	$	1.17	$	5.52	$	2.55

Weighted-average shares outstanding:
Basic	23,040		22,781		23,024		22,767
Diluted	23,301		23,103		23,293		23,095

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (Unaudited)


	Shares of Common Stock	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumu- lated Other Compre- hensive (Loss) Income		Total Stock- holders' Equity
	(in thousands, except share and per share data)
Balance at December 31, 2022	23,090,526	$	231	$	347,015	$	533,121	$	(134,918)	$	745,449
Issuance of common stock under stock-based compensation plan	70,047	1		323		—		—		324
Stock-based compensation expense	—	—		1,988		—		—		1,988
Restricted shares withheld for taxes	(6,628)	—		(2,104)		—		—		(2,104)
Dividends declared ($0.14 per share)	—	—		—		(3,235)		—		(3,235)
Other comprehensive income, net of tax	—	—		—		—		17,509		17,509
Net income	—	—		—		55,800		—		55,800
Balance at March 31, 2023	23,153,945	232		347,222		585,686		(117,409)		815,731
Issuance of common stock under stock-based compensation plan	15,046	—		230		—		—		230
Stock-based compensation expense	—	—		2,543		—		—		2,543
Restricted shares withheld for taxes	(6,816)	—		(2,130)		—		—		(2,130)
Dividends declared ($0.14 per share)	—	—		—		(3,243)		—		(3,243)
Other comprehensive loss, net of tax	—	—		—		—		(14,107)		(14,107)
Net income	—	—		—		72,791		—		72,791
Balance at June 30, 2023	23,162,175	$	232	$	347,865	$	655,234	$	(131,516)	$	871,815




Balance at December 31, 2021	22,834,377	$	228	$	295,040	$	385,942	$	18,125	$	699,335
Issuance of common stock under stock-based compensation plan	75,630	1		377		—		—		378
Stock-based compensation expense	—	—		1,489		—		—		1,489
Restricted shares withheld for taxes	(2,459)	—		(516)		—		—		(516)
Dividends declared ($0.13 per share)	—	—		—		(2,977)		—		(2,977)
Other comprehensive loss, net of tax	—	—		—		—		(63,930)		(63,930)
Net income	—	—		—		31,791		—		31,791
Balance at March 31, 2022	22,907,548	229		296,390		414,756		(45,805)		665,570
Issuance of common stock under stock-based compensation plan	8,630	—		150		—		—		150
Stock-based compensation expense	—	—		1,857		—		—		1,857
Restricted shares withheld for taxes	(12,420)	—		(2,741)		—		—		(2,741)
Dividends declared ($0.13 per share)	—	—		—		(2,978)		—		(2,978)
Other comprehensive loss, net of tax	—	—		—		—		(54,882)		(54,882)
Net income	—	—		—		27,090		—		27,090
Balance at June 30, 2022	22,903,758	$	229	$	295,656	$	438,868	$	(100,687)	$	634,066

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Six Months Ended June 30,
	2023		2022
	(in thousands)
Operating activities:
Net cash provided by operating activities	$	423,577	$	278,654

Investing activities:
Purchase of property and equipment	(4,219)		(2,023)
Purchase of real estate investment	(1,085)		—

Change in short-term investments, net	13,071		(10,793)
Purchases – fixed-maturity securities	(667,804)		(398,033)
Purchases – equity securities	(40,535)		(806)
Sales – fixed-maturity securities	187,418		72,384
Sales – equity securities	6,251		3,990
Maturities and calls – fixed-maturity securities	62,284		65,177
Net cash used in investing activities	(444,619)		(270,104)

Financing activities:




Payroll taxes withheld and remitted on share-based payments	(4,234)		(3,257)
Proceeds from stock options exercised	554		528
Dividends paid	(6,495)		(5,971)
Net cash used in financing activities	(10,175)		(8,700)
Net change in cash and cash equivalents	(31,217)		(150)
Cash and cash equivalents at beginning of year	156,274		121,040
Cash and cash equivalents at end of period	$	125,057	$	120,890

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of Significant Accounting Policies

Basis of presentation

The unaudited condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of Kinsale Capital Group, Inc. and its subsidiaries ("the Company") included in the Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All significant intercompany balances and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results of operations for the full year.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if any, at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Prospective accounting pronouncements

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

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2. Investments

Available-for-sale investments

The following tables summarize the available-for-sale investments at June 30, 2023 and December 31, 2022:


	June 30, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	28,830	$	—	$	(1,169)	$	—	$	27,661
Obligations of states, municipalities and political subdivisions	201,952		90		(21,691)		—		180,351
Corporate and other securities	1,129,678		83		(77,927)		(422)		1,051,412
Asset-backed securities	574,255		300		(8,643)		—		565,912
Residential mortgage-backed securities	350,674		124		(53,196)		—		297,602
Commercial mortgage-backed securities	67,512		—		(6,764)		—		60,748
Total fixed-maturity investments	$	2,352,901	$	597	$	(169,390)	$	(422)	$	2,183,686


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	17,934	$	—	$	(1,193)	$	—	$	16,741
Obligations of states, municipalities and political subdivisions	230,746		330		(26,444)		—		204,632
Corporate and other securities	909,285		730		(76,757)		(366)		832,892
Asset-backed securities	361,248		292		(8,534)		—		353,006
Residential mortgage-backed securities	349,066		52		(55,156)		—		293,962
Commercial mortgage-backed securities	65,353		—		(6,486)		—		58,867
Total fixed-maturity investments	$	1,933,632	$	1,404	$	(174,570)	$	(366)	$	1,760,100

Available-for-sale securities in a loss position

The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss. The Company considers a number of factors in completing its review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition of an issuer. In addition to specific issuer information, the Company also evaluates the current market and interest rate environment. Generally, a decline in a security’s value caused by a change in the market or interest rate environment does not constitute a credit loss.

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

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

For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment. For fixed-maturity securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to sell before recovery of its amortized cost, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. Inputs into the cash flow analysis include default rates and recoverability rates based on credit rating. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income.

The Company reports investment income due and accrued separately from available-for-sale investments and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through earnings at the time the issuer of the bond defaults or is expected to default on payments.

At June 30, 2023, the Company's credit loss review resulted in an allowance for credit losses on 5 securities. The following table presents changes in the allowance for expected credit losses on available-for-sale securities for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Beginning balance	$	447	$	—	$	366	$	—
Increase to allowance from securities for which credit losses were not previously recorded	—		—		—		—
Reduction from securities sold during the period	(12)		—		(12)		—
Net increase (decrease) from securities that had an allowance at the beginning of the period	(13)		—		68		—
Ending balance	$	422	$	—	$	422	$	—

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


	June 30, 2023
	Less than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of the U.S. government agencies	$	12,528	$	(31)	$	15,133	$	(1,138)	$	27,661	$	(1,169)
Obligations of states, municipalities and political subdivisions	62,886		(1,038)		103,234		(20,653)		166,120		(21,691)
Corporate and other securities	590,109		(11,740)		439,752		(66,187)		1,029,861		(77,927)
Asset-backed securities	287,725		(3,289)		244,952		(5,354)		532,677		(8,643)
Residential mortgage-backed securities	13,740		(387)		274,653		(52,809)		288,393		(53,196)
Commercial mortgage-backed securities	2,148		(66)		58,600		(6,698)		60,748		(6,764)
Total fixed-maturity investments	$	969,136	$	(16,551)	$	1,136,324	$	(152,839)	$	2,105,460	$	(169,390)

At June 30, 2023, the Company held 1,125 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $2.1 billion and gross unrealized losses of $169.4 million. Of these securities, 668 were in a continuous unrealized loss position for greater than one year. As discussed above, the Company regularly reviews all fixed-maturity securities within its investment portfolio to determine whether a credit loss has occurred. Based on the Company's review as of June 30, 2023, except for securities previously discussed, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At June 30, 2023, 82.3% of the Company’s fixed-maturity securities were rated "A-" or better and all of the Company’s fixed-maturity securities made expected coupon payments under the contractual terms of the securities.

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	December 31, 2022
	Less than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	10,538	$	(447)	$	6,204	$	(746)	$	16,742	$	(1,193)
Obligations of states, municipalities and political subdivisions	141,460		(20,347)		17,314		(6,097)		158,774		(26,444)
Corporate and other securities	583,619		(42,675)		156,148		(34,082)		739,767		(76,757)
Asset-backed securities	216,487		(5,429)		97,703		(3,105)		314,190		(8,534)
Residential mortgage-backed securities	98,909		(12,324)		194,773		(42,832)		293,682		(55,156)
Commercial mortgage-backed securities	50,666		(4,732)		8,201		(1,754)		58,867		(6,486)
Total fixed-maturity investments	$	1,101,679	$	(85,954)	$	480,343	$	(88,616)	$	1,582,022	$	(174,570)

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

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at June 30, 2023 are summarized, by contractual maturity, as follows:


	June 30, 2023
	Amortized		Estimated
	Cost		Fair Value
	(in thousands)
Due in one year or less	$	119,449	$	117,363
Due after one year through five years	788,144		758,082
Due after five years through ten years	220,688		195,848
Due after ten years	232,179		188,131
Asset-backed securities	574,255		565,912
Residential mortgage-backed securities	350,674		297,602
Commercial mortgage-backed securities	67,512		60,748
Total fixed-maturity securities	$	2,352,901	$	2,183,686

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.

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Real estate investments and assets held for sale

In December 2022, the Company completed the purchase of a real estate investment property. Real estate investments consisted of the following:


	June 30, 2023		December 31, 2022
	(in thousands)
Building	$	2,445	$	44,931
Land	15,604		17,946
Intangible in-place lease	—		9,749
Site improvements	1,483		2,686
Parking deck	—		1,311

	19,532		76,623
Accumulated depreciation	(50)		(236)
Total real estate investments, net	$	19,482	$	76,387

During the second quarter of 2023, the Company initiated plans to sell the parking deck and one of the office buildings and the related in-place leases of its real estate investment property. The Company determined that the related assets met held-for-sale accounting criteria and reclassified them separately on the consolidated balance sheet at the assets' carrying value. Upon reclassification to held for sale, the Company ceased recording depreciation on the real estate property held for sale, as well as amortization of acquired in-place leases.

During the third quarter of 2023, the Company, entered into a Purchase and Sale Agreement (the “PSA”) to sell the leased office building and parking deck for approximately $63.0 million in cash, net of seller’s costs. The PSA contains customary representations, warranties and covenants of each of the parties thereto, and is subject to certain termination rights and closing conditions. The Company expects the sale to close during the third quarter of 2023 and anticipates using the net sale proceeds to pay down its Credit Facility.

The property's in-place leases held for sale consist of two operating leases with terms of 5 years and 12 years. Future minimum rental income expected on these operating leases is $2.2 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.

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Net investment income

The following table presents the components of net investment income for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Interest:
Taxable bonds	$	20,924	$	9,179	$	39,028	$	16,974
Tax exempt municipal bonds	546		852		1,182		1,709
Cash equivalents and short-term investments	866		104		1,579		123
Dividends on equity securities	1,278		1,093		2,421		2,123
Real estate investment income	1,356		—		2,714		—
Gross investment income	24,970		11,228		46,924		20,929
Investment expenses	(798)		(634)		(2,057)		(1,247)
Net investment income	$	24,172	$	10,594	$	44,867	$	19,682

Investment expenses included depreciation expense related to real estate investments of $0.5 million for the six months ended June 30, 2023. There was no depreciation of real estate investments for the three months ended June 30, 2023 as the related depreciable real estate investments were reclassified to held for sale. There was no depreciation of real estate investments for the three and six months ended June 30, 2022.

Realized investment gains and losses

The following table presents realized investment gains and losses for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Fixed-maturity securities:
Realized gains	$	1,338	$	234	$	1,737	$	1,076
Realized losses	(958)		(178)		(2,217)		(543)
Net realized (losses) gains from fixed-maturity securities	380		56		(480)		533

Equity securities:
Realized gains	1,611		1,363		1,626		1,363
Realized losses	(687)		—		(4,487)		(148)
Net realized (losses) gains from equity securities	924		1,363		(2,861)		1,215
Realized losses from the sales of short-term investments	(13)		(6)		(20)		(40)

Net realized investment (losses) gains	$	1,291	$	1,413	$	(3,361)	$	1,708

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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 components: (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

For the three months ended June 30, 2023 and 2022, the changes in net unrealized losses for fixed-maturity securities were $(17.8) million and $(69.5) million, respectively. For the six months ended June 30, 2023 and 2022, the changes in net unrealized gains (losses) for fixed-maturity securities were $4.4 million and $(150.4) million, respectively.

Insurance – statutory deposits

The Company had invested assets with a fair value of $5.8 million and $5.9 million on deposit with state regulatory authorities at June 30, 2023 and December 31, 2022, respectively.

Payable for investments purchased

The Company recorded a payable for investments purchased, not yet settled, of $6.8 million and $1.8 million at June 30, 2023 and December 31, 2022, respectively. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet.

3. Fair Value Measurements

Fair value is estimated for each class of financial instrument based on the framework established in the fair value accounting guidance. Fair value is defined as the price in the principal market that would be received for an asset or paid to transfer a liability to facilitate an orderly transaction between market participants on the measurement date. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value.

The three levels of the fair value hierarchy are defined as follows:

Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.

Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

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

Fair values of the Company's investment portfolio are estimated using unadjusted prices obtained by its investment accounting vendor from nationally recognized third-party pricing services, where available. Values for U.S. Treasuries, exchange traded funds and common stocks are generally based on Level 1 inputs, which use quoted prices in active markets for identical assets. For other fixed-maturity securities and non-redeemable preferred stock, the pricing vendors use a pricing methodology involving the market approach, including pricing models which use

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prices and relevant market information regarding a particular security or securities with similar characteristics to establish a valuation. The estimates of fair value of these investments are included in the amounts disclosed as Level 2. For those investments where significant inputs are unobservable, the Company's investment accounting vendor obtains valuations from pricing vendors or brokers using the market approach and income approach valuation techniques and are disclosed as Level 3.

Management performs several procedures to ascertain the reasonableness of investment values included in the condensed consolidated financial statements, including 1) obtaining and reviewing internal control reports from the Company's investment accounting vendor that assess fair values from third party pricing services, 2) discussing with the Company's investment accounting vendor its process for reviewing and validating pricing obtained from third party pricing services and 3) reviewing the security pricing received from the Company's investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level. The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs.

The following tables present the balances of assets measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022, by level within the fair value hierarchy:


	June 30, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Fixed maturities:

U.S. Treasury securities and obligations of U.S. government agencies	$	27,661	$	—	$	—	$	27,661
Obligations of states, municipalities and political subdivisions	—		180,351		—		180,351
Corporate and other securities	—		1,051,412		—		1,051,412
Asset-backed securities	—		565,912		—		565,912
Residential mortgage-backed securities	—		297,602		—		297,602
Commercial mortgage-backed securities	—		60,748		—		60,748
Total fixed-maturity securities	27,661		2,156,025		—		2,183,686

Equity securities:
Exchange traded funds	110,125		—		—		110,125
Non-redeemable preferred stock	—		31,582		—		31,582
Common stocks	55,141		—		—		55,141
Total equity securities	165,266		31,582		—		196,848
Short-term investments	4,664		24,114		—		28,778
Total	$	197,591	$	2,211,721	$	—	$	2,409,312

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	December 31, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	16,741	$	—	$	—	$	16,741
Obligations of states, municipalities and political subdivisions	—		204,632		—		204,632
Corporate and other securities	—		832,892		—		832,892
Asset-backed securities	—		353,006		—		353,006
Residential mortgage-backed securities	—		293,962		—		293,962
Commercial mortgage-backed securities	—		58,867		—		58,867
Total fixed-maturity securities	16,741		1,743,359		—		1,760,100

Equity securities:
Exchange traded funds	104,202		—		—		104,202
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 June 30, 2023 or December 31, 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 $118.2 million and $117.2 million at June 30, 2023 and December 31, 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. Since this methodology is based upon market yields for comparable arrangements, the measurement is categorized as Level 2. The estimated fair value of outstanding borrowings under the Company's revolving Credit Facility approximated its carrying value at June 30, 2023 and December 31, 2022. See Note 13 for further information regarding the Company's debt arrangements.

The Company holds cash equivalents that are managed as part of its investment portfolio and, due to the short-term maturities of these assets, the carrying value of these investments approximates fair value. The Company held cash equivalents of $26.2 million and $58.0 million at June 30, 2023 and December 31, 2022, respectively.

4. Allowance for Credit Losses

Premiums receivable

Premiums receivable balances are carried at face value, net of any allowance for credit losses. The allowance for credit losses represents an estimate of amounts considered uncollectible based on the Company’s assessment of the collectability of receivables that are past due. The estimate considers historical loss data, current and future economic conditions and specific identification of collectability concerns, where applicable. The following table presents the change in the allowance for credit losses for premiums receivable for the three and six months ended June 30, 2023 and 2022:

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	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Beginning balance	$	10,127	$	5,041	$	8,067	$	3,391
Current period change for estimated uncollectible premiums	2,711		928		5,118		2,944
Write-offs of uncollectible premiums receivable	(671)		(357)		(1,018)		(723)
Ending balance	$	12,167	$	5,612	$	12,167	$	5,612

5. Deferred Policy Acquisition Costs

The following table presents the amounts of policy acquisition costs deferred and amortized for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Balance, beginning of period	$	69,444	$	47,483	$	61,594	$	41,968
Policy acquisition costs deferred:
Direct commissions	63,279		40,236		114,643		76,096
Ceding commissions	(21,171)		(10,247)		(38,549)		(18,792)
Other underwriting and policy acquisition costs	3,242		2,244		5,888		4,232
Policy acquisition costs deferred	45,350		32,233		81,982		61,536
Amortization of net policy acquisition costs	(29,468)		(24,910)		(58,250)		(48,698)
Balance, end of period	$	85,326	$	54,806	$	85,326	$	54,806

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.

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6. Property and Equipment, Net

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


	June 30, 2023		December 31, 2022
	(in thousands)
Building	$	37,107	$	33,065
Parking deck	5,072		5,072
Land	3,068		3,068
Equipment	3,669		3,444
Software	13,393		11,410
Furniture and fixtures	3,049		2,615
Land improvements	474		474
Leasehold improvements	153		—

Construction in progress - building	—		2,618
	65,985		61,766
Accumulated depreciation	(9,812)		(8,291)
Total property and equipment, net	$	56,173	$	53,475

7. Underwriting, Acquisition and Insurance Expenses

Underwriting, acquisition and insurance expenses for the three and six months ended June 30, 2023 and 2022 consist of the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Underwriting, acquisition and insurance expenses incurred:
Direct commissions	$	46,977	$	32,412	$	90,146	$	62,363
Ceding commissions	(19,927)		(9,301)		(36,486)		(17,130)
Other underwriting expenses	28,423		20,780		54,559		41,548
Total	$	55,473	$	43,891	$	108,219	$	86,781

Other underwriting expenses within underwriting, acquisition and insurance expenses include salaries, bonus and employee benefits expenses of $20.6 million and $15.7 million for the three months ended June 30, 2023 and 2022, respectively. Other underwriting expenses within underwriting, acquisition and insurance expenses included salaries, bonus and employee benefits expenses of $39.9 million and $30.7 million for the six months ended June 30, 2023 and 2022, respectively. See Note 15 for further information regarding underwriting, acquisition and insurance expenses.

8. Stock-based Compensation

On July 27, 2016, the Kinsale Capital Group, Inc. 2016 Omnibus Incentive Plan (the "2016 Incentive Plan") became effective. The 2016 Incentive Plan, which is administered by the Compensation, Nominating and Corporate Governance Committee of the Company’s Board of Directors, provides for grants of stock options, restricted stock,

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restricted stock units and other stock-based awards to officers, employees, directors, independent contractors and consultants. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832.

The total compensation cost that has been charged against income for share-based compensation arrangements was $4.5 million and $3.3 million for the six months ended June 30, 2023 and 2022, respectively.

Restricted Stock Awards

During the six months ended June 30, 2023, the Company granted restricted stock awards under the 2016 Incentive Plan. The restricted stock awards were valued on the date of grant and will vest over a period of 1 to 4 years corresponding to the anniversary date of the grants. The fair value of restricted stock awards was determined based on the closing trading price of the Company’s shares on the grant date or, if no shares were traded on the grant date, the last preceding date for which there was a sale of shares. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive dividends. Unvested shares of restricted stock awards and accrued dividends, if any, are forfeited upon the termination of service to or employment with the Company.

A summary of restricted stock activity under the 2016 Incentive Plan for the six months ended June 30, 2023 is as follows:


	For the Six Months Ended June 30, 2023
	Number of Shares	Weighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the period	98,621	$	182.37
Granted	51,176	$	313.35
Vested	(40,582)	$	163.62
Forfeited	(725)	$	225.64
Non-vested outstanding at the end of the period	108,490	$	250.88

Employees surrender shares to pay for withholding tax obligations resulting from any vesting of restricted stock awards. During the six months ended June 30, 2023, shares withheld for taxes in connection with the vesting of restricted stock awards totaled 13,444.

The weighted average grant-date fair value per share of the Company's restricted stock awards granted during the six months ended June 30, 2023 and 2022 was $313.35 and $211.86, respectively. The fair value of restricted stock awards that vested during the six months ended June 30, 2023 and 2022 was $12.6 million and $9.9 million, respectively. As of June 30, 2023, the Company had $24.1 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 3.0 years.

Stock Options

On July 27, 2016, the Board of Directors approved, and the Company granted, 1,036,916 stock options with an exercise price equal to the initial public offering price of $16.00 per share and a weighted-average grant-date fair value of $2.71 per share. The options have a maximum contractual term of 10 years and vested in 4 equal annual installments following the date of the grant. The value of the options granted was estimated at the date of grant using the Black-Scholes pricing model.

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A summary of option activity as of June 30, 2023, and changes during the period then ended is presented below:


	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Years of Contractual Term	Aggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2023	256,357	$	16.00
Granted	—	—
Forfeited	—	—
Exercised	(34,642)	16.00
Outstanding at June 30, 2023	221,715	$	16.00	3.1	$	79,418
Exercisable at June 30, 2023	221,715	$	16.00	3.1	$	79,418

The total intrinsic value of options exercised was $10.6 million and $6.4 million during the six months ended June 30, 2023 and 2022, respectively.

9. Earnings Per Share

The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in the condensed consolidated financial statements:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except per share data)
Net income	$	72,791	$	27,090	$	128,591	$	58,881

Weighted average common shares outstanding - basic	23,040		22,781		23,024		22,767
Effect of potential dilutive securities:
Conversion of stock options	217		276		225		283
Conversion of restricted stock	44		46		44		45
Weighted average common shares outstanding - diluted	23,301		23,103		23,293		23,095

Earnings per common share:
Basic	$	3.16	$	1.19	$	5.59	$	2.59
Diluted	$	3.12	$	1.17	$	5.52	$	2.55

There were no anti-dilutive stock awards for the three months ended June 30, 2023 and 2022. There were 47 thousand and 48 thousand anti-dilutive stock awards for the six months ended June 30, 2023 and 2022, respectively.

10. Income Taxes

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company's best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate, primarily as a result of tax-exempt investment income and any discrete items recognized during the period. The Company's effective tax rates were

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18.9% and 17.4% for the six months ended June 30, 2023 and 2022, respectively. The effective tax rates were lower than the federal statutory rate of 21% due primarily to the tax benefits from stock-based compensation and from income generated by certain tax-exempt investments.

11. Reserves For Unpaid Losses and Loss Adjustment Expenses

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


	June 30,
	2023		2022
	(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	$	1,238,402	$	881,344
Less: reinsurance recoverable on unpaid losses	177,039		117,561

Net reserves for unpaid losses and loss adjustment expenses, beginning of year	1,061,363		763,783
Incurred losses and loss adjustment expenses:
Current year	305,536		227,403
Prior years	(19,460)		(17,858)
Total net losses and loss adjustment expenses incurred	286,076		209,545

Payments:
Current year	8,058		6,785
Prior years	92,055		61,317
Total payments	100,113		68,102
Net reserves for unpaid losses and loss adjustment expenses, end of period	1,247,326		905,226
Reinsurance recoverable on unpaid losses	208,408		131,515
Gross reserves for unpaid losses and loss adjustment expenses, end of period	$	1,455,734	$	1,036,741

During the six months ended June 30, 2023, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2022 developed favorably by $19.5 million, of which $27.1 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 six months ended June 30, 2022, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2021 developed favorably by $17.9 million, of which $21.0 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 2018 accident year due to routine variability in reported losses and modest adjustments in actuarial assumptions.

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12. Reinsurance

The following table summarizes the effect of reinsurance on premiums written and earned for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Premiums written:
Direct	$	438,222	$	277,001	$	795,810	$	522,514

Ceded	(73,181)		(34,658)		(131,739)		(63,673)
Net written	$	365,041	$	242,343	$	664,071	$	458,841

Premiums earned:
Direct	$	326,697	$	222,136	$	620,233	$	427,764

Ceded	(69,651)		(31,978)		(126,029)		(59,044)
Net earned	$	257,046	$	190,158	$	494,204	$	368,720

The following table summarizes ceded losses and loss adjustment expenses for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Ceded incurred losses and loss adjustment expenses	$	25,981	$	13,380	$	61,990	$	23,016

The following table presents reinsurance recoverables on paid and unpaid losses as of June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
	(in thousands)
Reinsurance recoverables on paid losses	$	21,495	$	43,415
Reinsurance recoverables on unpaid losses, net	208,408		177,039
Reinsurance recoverables, net	$	229,903	$	220,454

13. Debt

Note Purchase and Private Shelf Agreement

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 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 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

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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. At June 30, 2023, there was $123.3 million outstanding under the Series A Notes, net of debt issuance costs of $1.7 million. 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 June 30, 2023, the Company was in compliance with all of its financial covenants under the Note Purchase 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. Principal payments are required annually beginning on July 22, 2030 in equal installments of $25.0 million through July 22, 2034.

Credit Agreement

On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $30.0 million. On July 22, 2022, the Company entered into an Amended and Restated Credit Agreement, with JPMorgan Chase Bank, N.A., as administrative agent and as issuing bank, Truist Bank, as syndication agent, and the lenders party thereto (collectively, the “Lenders”). The Amended and Restated Credit Agreement 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 the Company obtaining commitments from existing or new lenders and satisfying other conditions specified in the Amended and Restated Credit Agreement. The Company is required to pay a Commitment Fee Rate (as defined therein) of 0.25% on the average daily amount of the Available Revolving Commitment (as defined therein). 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). At June 30, 2023, there was $72.6 million outstanding, net of debt issuance costs of $0.4 million, with a weighted average interest rate of 6.6%. 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 June 30, 2023, the Company was in compliance with all of its financial covenants under 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%.

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14. Other Comprehensive Income (Loss)

The following table summarizes the components of other comprehensive income (loss) for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
Unrealized gains (losses) on fixed-maturity securities arising during the period, before income taxes	$	(18,236)	$	(69,483)	$	2,934	$	(149,968)
Income tax (expense) benefit	3,830		14,591		(616)		31,493
Unrealized gains (losses) arising during the period, net of income taxes	(14,406)		(54,892)		2,318		(118,475)
Less reclassification adjustment:
Net realized (losses) gains on fixed-maturity securities, before income taxes	(404)		(12)		(1,316)		427
Income tax benefit (expense)	85		2		276		(90)
Reclassification adjustment included in net income	(319)		(10)		(1,040)		337
Change in allowance for credit losses on investments, before income taxes	25		—		(56)		—
Income tax benefit (expense)	(5)		—		12		—
Reclassification adjustment included in net income	20		—		(44)		—
Other comprehensive income (loss)	$	(14,107)	$	(54,882)	$	3,402	$	(118,812)

The sale or credit loss of an available-for-sale fixed-maturity security results in amounts being reclassified from accumulated other comprehensive loss to realized gains or losses in current period earnings. The related tax effect of the reclassification adjustment is recorded in income tax expense in current period earnings. See Note 2 for additional information.

15. 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 $7.0 million and $13.2 million as fee income for the three and six months ended June 30, 2023, respectively, in the consolidated statements of income and comprehensive income. The Company reclassified $4.9 million and $9.3 million to fee income from underwriting, acquisition and insurance expenses in the previously issued financial statements on Form 10-Q for the three and six months ended June 30, 2022, 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.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion and analysis below include certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk Factors" in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2022. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.

The results of operations for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2023, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022.

References to the "Company," "Kinsale," "we," "us," and "our" are to Kinsale Capital Group, Inc. and its subsidiaries, unless the context otherwise requires.

Overview

Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses exclusively on the excess and surplus lines ("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 market these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, primarily through a network of independent insurance brokers.

We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers property and casualty ("P&C") insurance products through the E&S market. For the first six months of 2023, the percentage breakdown of our gross written premiums was 65% casualty and 35% property. Our commercial underwriting divisions include commercial property, excess casualty, small business casualty, construction, general casualty, allied health, products liability, professional liability, life sciences, entertainment, energy, small property, management liability, environmental, health care, inland marine, commercial auto, public entity, aviation, ocean marine, product recall and excess professional. We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2% of our gross written premiums in the first six months of 2023 and is included within our personal insurance division.

Components of Our Results of Operations

Gross written premiums

Gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by:

•New business submissions;

•Conversion of new business submissions into policies;

•Renewals of existing policies; and

•Average size and premium rate of bound policies.

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We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year. Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements.

Ceded written premiums

Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premiums is impacted by the level of our gross written premiums, any decision we make to increase or decrease retention levels and reinstatement premiums, if any.

Fee income

Fee income includes policy fees charged to insureds and is recognized in earnings when the related premium is written. Policy fees are a flat charge to insureds and fee income is impacted primarily by the volume of business we write. In the period ended June 30, 2023, we reclassified policy fees to fee income. Historically, these fees were presented as a reduction to underwriting, acquisition and insurance expenses. We modified the definition of the loss and expense ratios to include fee income in the denominator of each ratio. We have reclassified prior periods' results to conform to the current period's presentation. See Note 15 of the notes to the consolidated financial statements for further information regarding fee income.

Losses and loss adjustment expenses

Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage. In general, our losses and loss adjustment expenses are affected by:

•Frequency of claims associated with the particular types of insurance contracts that we write;

•Trends in the average size of losses incurred on a particular type of business;

•Mix of business written by us;

•Changes in the legal or regulatory environment related to the business we write;

•Trends in legal defense costs;

•Wage inflation

•Social inflation;

•Inflation in material costs, and

•Inflation in medical costs.

Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods. Losses and loss adjustment expenses may be paid out over a period of years.

Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs also include underwriting expenses that are directly related to the successful acquisition of those policies which are deferred. The amortization of policy acquisition costs is charged to expense in proportion to premium earned over the policy life.

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

Net investment income

Net investment income is an important component of our results of operations. 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. 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 (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

Currently, substantially all of our income tax expense relates to federal income taxes. Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes, but have not generated any material taxable income 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.

Key metrics

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

Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized 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, 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.

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

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

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Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.

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

Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

Net 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 (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.

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Results of Operations

Three months ended June 30, 2023 compared to three months ended June 30, 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022:


	Three Months Ended June 30,
($ in thousands)	2023			2022			Change		% Change

Gross written premiums	$	438,222		$	277,001		$	161,221	58.2	%
Ceded written premiums	(73,181)			(34,658)			(38,523)		111.2	%
Net written premiums	$	365,041		$	242,343		$	122,698	50.6	%

Net earned premiums	$	257,046		$	190,158		$	66,888	35.2	%
Fee income	6,986			4,919			2,067		42.0	%
Losses and loss adjustment expenses	147,042			107,040			40,002		37.4	%
Underwriting, acquisition and insurance expenses	55,473			43,891			11,582		26.4	%
Underwriting income (1)	61,517			44,146			17,371		39.3	%
Net investment income	24,172			10,594			13,578		128.2	%
Change in the fair value of equity securities	5,811			(23,353)			29,164		(124.9)	%
Net realized investment gains	1,291			1,413			(122)		(8.6)	%
Change in allowance for credit losses on investments	25			—			25		NM
Interest expense	(2,724)			(337)			(2,387)		708.3	%
Other income (expense), net	18			(21)			39		(185.7)	%
Income before taxes	90,110			32,442			57,668		177.8	%
Income tax expense	17,319			5,352			11,967		223.6	%
Net income	$	72,791		$	27,090		$	45,701	168.7	%

Net operating earnings (2)	$	67,160		$	44,423		$	22,737	51.2	%

Loss ratio	55.7		%	54.9		%
Expense ratio	21.0		%	22.5		%
Combined ratio (3)	76.7		%	77.4		%

Annualized return on equity	34.5		%	16.7		%
Annualized operating return on equity (2)	31.8		%	27.3		%

NM - Percentage change not meaningful.

(1) Underwriting income is a non-GAAP financial measure. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

(2) Net operating earnings and annualized 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, net realized investment gains and losses, after taxes, and change in allowance for credit losses on investments, after taxes. Annualized operating return on equity is defined as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total stockholders’ equity during the period. See "—Reconciliation of

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

(3) The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding.

Net income was $72.8 million for the three months ended June 30, 2023 compared to $27.1 million for the three months ended June 30, 2022, an increase of 168.7%. The increase in net income for the second quarter of 2023 from the same period last year was primarily due to continued profitable growth, higher returns on equity investments and an increase in investment income driven by higher investment balances and higher interest rates.

Underwriting income was $61.5 million for the three months ended June 30, 2023 compared to $44.1 million for the three months ended June 30, 2022, an increase of 39.3%. The corresponding combined ratios were 76.7% for the three months ended June 30, 2023 compared to 77.4% for the three months ended June 30, 2022. The increase in our underwriting income in the second quarter of 2023 compared to the second quarter of 2022 was largely due to a combination of premium growth, favorable loss experience and lower net commissions.

Premiums

Our gross written premiums were $438.2 million for the three months ended June 30, 2023 compared to $277.0 million for the three months ended June 30, 2022, an increase of $161.2 million, or 58.2%. The increase in gross written premiums for the second quarter of 2023 over the same period last 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 on a policy written was approximately $16,400 in the second quarter of 2023 compared to approximately $11,700 in the second quarter of 2022. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was approximately $17,800 in the second quarter of 2023 compared to $14,500 in the second quarter of 2022.

Net written premiums increased by $122.7 million, or 50.6%, to $365.0 million for the three months ended June 30, 2023 from $242.3 million for the three months ended June 30, 2022. The increase in net written premiums for the second quarter of 2023 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 83.3% for the three months ended June 30, 2023 compared to 87.5% for the three months ended June 30, 2022. The decrease in the net retention ratio was due to higher premiums ceded under the commercial property quota share reinsurance treaty and a change in the mix of business.

Net earned premiums increased by $66.9 million, or 35.2%, to $257.0 million for the three months ended June 30, 2023 from $190.2 million for the three months ended June 30, 2022 and was directly related to growth in gross written premiums.

Loss ratio

The loss ratio was 55.7% for the three months ended June 30, 2023 compared to 54.9% for the three months ended June 30, 2022. The increase in the loss ratio in the second quarter of 2023 compared to the second quarter of 2022 was due primarily to lower net favorable development of loss reserves from prior accident years as a percentage of earned premiums and fee income and higher catastrophe losses incurred during the period.

During the three months ended June 30, 2023, prior accident years developed favorably by $10.4 million, of which $14.4 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 primarily to long-tail property damage claims within our construction-related primary casualty business that are more exposed to the increase in inflation.

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During the three months ended June 30, 2022, prior accident years developed favorably by $9.5 million, of which $10.9 million was attributable to the 2020 and 2021 accident years due to lower than expected reported losses across most lines of business. This favorable development was offset in part by adverse development largely from the 2018 accident year due to routine variability in reported losses and modest adjustments in actuarial assumptions.

The following table summarizes the loss ratios for the three months ended June 30, 2023 and 2022:


	Three Months Ended June 30,
	2023				2022
($ in thousands)	Losses and Loss Adjustment Expenses		% of Sum of Earned Premiums and Fee Income		Losses and Loss Adjustment Expenses		% of Sum of Earned Premiums and Fee Income
Loss ratio:
Current accident year before catastrophe losses	$	156,008	59.1	%	$	116,531	59.8	%
Current year catastrophe losses	1,451		0.5	%	21		—	%
Effect of prior year development	(10,417)		(3.9)	%	(9,512)		(4.9)	%
Total	$	147,042	55.7	%	$	107,040	54.9	%

Expense ratio

The following table summarizes the components of the expense ratio for the three months ended June 30, 2023 and 2022:


	Three Months Ended June 30,
	2023				2022
($ in thousands)	Underwriting Expenses		% of Sum of Earned Premiums and Fee Income		Underwriting Expenses		% of Sum of Earned Premiums and Fee Income




Net commissions incurred	27,050		10.2	%	23,111		11.8	%
Other underwriting expenses	28,423		10.8	%	20,780		10.7	%
Underwriting, acquisition and insurance expenses	$	55,473	21.0	%	$	43,891	22.5	%

The expense ratio was 21.0% for the three months ended June 30, 2023 compared to 22.5% for the three months ended June 30, 2022. The decrease in the expense ratio was due to lower net commissions incurred due primarily to higher ceding commissions earned under the commercial property quota share treaty as a result of commercial property premium growth. Direct commissions paid as a percent of gross written premiums was 14.4% and 14.5% the three months ended June 30, 2023 and 2022, respectively.

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Investing results

The following table summarizes net investment income, change in the fair value of equity securities and net realized investment gains for the three months ended June 30, 2023 and 2022:


	Three Months Ended June 30,
($ in thousands)	2023		2022		Change

Interest from fixed-maturity securities	$	21,470	$	10,031	$	11,439
Dividends from equity securities	1,278		1,093		185
Cash equivalents and short-term investments	866		104		762
Real estate investment income	1,356		—		1,356
Gross investment income	24,970		11,228		13,742
Investment expenses	(798)		(634)		(164)
Net investment income	24,172		10,594		13,578
Change in the fair value of equity securities	5,811		(23,353)		29,164
Net realized investment gains	1,291		1,413		(122)
Change in allowance for credit losses on investments	25		—		25
Net realized and unrealized investment gains (losses)	7,127		(21,940)		29,067
Total	$	31,299	$	(11,346)	$	42,645

Our net investment income increased by 128.2% to $24.2 million for the three months ended June 30, 2023 from $10.6 million for the three months ended June 30, 2022. This increase was primarily due to growth in our investment portfolio generated from the investment of strong operating cash flows and higher interest rates relative to the prior year period. Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 3.9% and 2.6% for the three months ended June 30, 2023 and 2022, respectively.

During the second quarter of 2023, the change in fair value of equity securities was comprised of unrealized gains related to exchange traded funds ("ETFs") of $3.8 million, unrealized gains related to common stocks of $1.9 million and unrealized gains related to non-redeemable preferred stock of $0.1 million. The change in unrealized gains during the second quarter of 2023 attributable to ETFs and common stocks reflected higher valuations in the broader U.S. stock market during the period.

During the second quarter of 2022, the change in fair value of equity securities was comprised of unrealized losses related to ETFs of $18.4 million and unrealized losses related to non-redeemable preferred stock of $5.0 million. The change in unrealized losses during the second quarter of 2022 attributable to ETFs was largely reflective of the broader U.S. stock market, which fell sharply at the end of the quarter. The change in unrealized losses during the second quarter of 2022 attributable to non-redeemable preferred stock was reflective of a higher interest rate environment.

Income tax expense

Our effective tax rate was 19.2% for the three months ended June 30, 2023 compared to 16.5% for the three months ended June 30, 2022. The effective tax rates were lower than the federal statutory rate of 21% due to the tax benefits from stock-based compensation and tax-exempt investment income.

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Six months ended June 30, 2023 compared to six months ended June 30, 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
($ in thousands)	2023			2022			Change		% Change

Gross written premiums	$	795,810		$	522,514		$	273,296	52.3	%
Ceded written premiums	(131,739)			(63,673)			(68,066)		106.9	%
Net written premiums	$	664,071		$	458,841		$	205,230	44.7	%

Net earned premiums	$	494,204		$	368,720		$	125,484	34.0	%
Fee income	13,187			9,264			3,923		42.3	%
Losses and loss adjustment expenses	286,076			209,545			76,531		36.5	%
Underwriting, acquisition and insurance expenses	108,219			86,781			21,438		24.7	%
Underwriting income (1)	113,096			81,658			31,438		38.5	%
Net investment income	44,867			19,682			25,185		128.0	%
Change in fair value of equity securities	9,329			(31,104)			40,433		NM
Net realized investment (losses) gains	(3,361)			1,708			(5,069)		NM
Change in allowance for credit losses on investments	(56)			—			(56)		NM
Interest expense	(5,294)			(590)			(4,704)		797.3	%
Other expense, net	(78)			(40)			(38)		95.0	%
Income before taxes	158,503			71,314			87,189		122.3	%
Income tax expense	29,912			12,433			17,479		140.6	%
Net income	$	128,591		$	58,881		$	69,710	118.4	%

Net operating earnings (2)	$	123,920		$	82,104		$	41,816	50.9	%

Loss ratio	56.4		%	55.4		%
Expense ratio	21.3		%	23.0		%
Combined ratio (3)	77.7		%	78.4		%

Annualized return on equity	31.8		%	17.7		%
Annualized operating return on equity (2)	30.6		%	24.6		%

NM - Percentage change not meaningful.

(1) Underwriting income is a non-GAAP financial measure. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

(3) The combined ratio is the sum of the loss ratio and expense ratio as presented. Calculations of each component may not add due to rounding.

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Overview

Net income was $128.6 million for the six months ended June 30, 2023 compared to $58.9 million for the six months ended June 30, 2022, an increase of 118.4%. The increase in net income for the first six months of 2023 over the same period last year was primarily due to a combination of continued profitable growth, higher returns on equity investments and an increase in investment income driven by higher investment balances and higher interest rates.

Underwriting income was $113.1 million for the six months ended June 30, 2023 compared to $81.7 million for the six months ended June 30, 2022, an increase of 38.5%. The corresponding combined ratios were 77.7% for the six months ended June 30, 2023 compared to 78.4% for the six months ended June 30, 2022. The increase in underwriting income for the first six months of 2023 compared to the same period last year was due to a combination of premium growth, favorable loss experience, lower net commissions and scale.

Premiums

Our gross written premiums were $795.8 million for the six months ended June 30, 2023 compared to $522.5 million for the six months ended June 30, 2022, an increase of $273.3 million, or 52.3%. The increase in gross written premiums for the first six months of 2023 over the same period last 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 on a policy written was $15,700 in the first six months of 2023 compared to $11,800 in the first six months of 2022. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was $17,100 for the first six months of 2023 and $14,300 for the first six months of 2022.

Net written premiums increased by $205.2 million, or 44.7%, to $664.1 million for the six months ended June 30, 2023 from $458.8 million for the six months ended June 30, 2022. The increase in net written premiums for the first six months of 2023 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 83.4% for the six months ended June 30, 2023 compared to 87.8% for the same period last year. The decrease in the net retention ratio was due to higher premiums ceded under the commercial property quota share reinsurance treaty and a change in the mix of business.

Net earned premiums increased by $125.5 million, or 34.0%, to $494.2 million for the six months ended June 30, 2023 from $368.7 million for the six months ended June 30, 2022 due to growth in gross written premiums.

Loss ratio

The loss ratio was 56.4% for the six months ended June 30, 2023 compared to 55.4% for the six months ended June 30, 2022. The increase in the loss ratio in the first six months of 2023 compared to the first six months of 2022 was due primarily to lower net favorable development of loss reserves from prior accident years as a percentage of earned premiums and fee income and higher catastrophe losses incurred during the period.

During the six months ended June 30, 2023, prior accident years developed favorably by $19.5 million, of which $27.1 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. On an inception-to-date basis, all prior accident years have developed favorably with the exception of the 2011 accident year.

During the six months ended June 30, 2022, prior accident years developed favorably by $17.9 million, of which $21.0 million was attributable to the 2020 and 2021 accident years due to lower than expected reported losses across

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most lines of business. This favorable development was offset in part by adverse development largely from the 2018 accident year due to routine variability in reported losses and modest adjustments in actuarial assumptions.

The following table summarizes the loss ratios for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023				2022
($ in thousands)	Losses and Loss Adjustment Expenses		% of Sum of Earned Premiums and Fee Income		Losses and Loss Adjustment Expenses		% of Sum of Earned Premiums and Fee Income
Loss ratio:
Current accident year before catastrophe losses	$	302,511	59.6	%	$	227,320	60.1	%
Current year catastrophe losses	3,025		0.6	%	83		—	%
Effect of prior year development	(19,460)		(3.8)	%	(17,858)		(4.7)	%
Total	$	286,076	56.4	%	$	209,545	55.4	%

Expense ratio

The following table summarizes the components of the expense ratio for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
	2023				2022
($ in thousands)	Underwriting Expenses		% of Sum of Earned Premiums and Fee Income		Underwriting Expenses		% of Sum of Earned Premiums and Fee Income




Net commissions incurred	53,660		10.6	%	45,233		12.0	%
Other underwriting expenses	54,559		10.7	%	41,548		11.0	%
Total	$	108,219	21.3	%	$	86,781	23.0	%

The expense ratio was 21.3% for the six months ended June 30, 2023 compared to 23.0% for the six months ended June 30, 2022. The decrease in the expense ratio was due to lower net commissions incurred and lower other underwriting expenses as a percentage of earned premiums and fee income. The decrease in net commissions incurred was due primarily to higher ceding commissions earned under the commercial property quota share treaty as a result of commercial property premium growth. Underwriting expenses relative to earned premiums and fee income decreased as the Company continues to benefit from scale. Direct commissions paid as a percentage of gross written premiums was 14.4% and 14.6% for the six months ended June 30, 2023 and 2022, respectively.

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Investing results

The following table summarizes net investment income, change in the fair value of equity securities and net realized investment (losses) and gains for the six months ended June 30, 2023 and 2022:


	Six Months Ended June 30,
($ in thousands)	2023		2022		Change

Interest from fixed-maturity securities	$	40,210	$	18,683	$	21,527
Dividends from equity securities	2,421		2,123		298
Cash equivalents and short-term investments	1,579		123		1,456
Real estate investment income	2,714		—		2,714
Gross investment income	46,924		20,929		25,995
Investment expenses	(2,057)		(1,247)		(810)
Net investment income	44,867		19,682		25,185
Change in fair value of equity securities	9,329		(31,104)		40,433
Net realized investment (losses) gains	(3,361)		1,708		(5,069)
Change in allowance for credit losses on investments	(56)		—		(56)
Net realized and unrealized investment gains (losses)	5,912		(29,396)		35,308
Total	$	50,779	$	(9,714)	$	60,493

Our net investment income increased by 128.0% to $44.9 million for the six months ended June 30, 2023 from $19.7 million for the six months ended June 30, 2022. The increase in the first six months of 2023 compared to the same period last year was primarily due to growth in our investment portfolio largely generated from the investment of strong operating cash flows and higher interest rates relative to the prior year period. Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 3.8% and 2.6% for the six months ended June 30, 2023 and 2022, respectively.

During the first six months of 2023, the change in fair value of equity securities was comprised of unrealized gains related to ETFs of $7.0 million, unrealized gains related to common stocks of $1.4 million and unrealized gains related to non-redeemable preferred stock of $0.9 million. The change in unrealized gains during the first six months of 2023 attributable to ETFs and common stocks reflected higher valuations in the broader U.S. stock market during the period.

During the first six months of 2022, the change in fair value of equity securities was comprised of unrealized losses related to ETFs of $23.0 million and unrealized losses related to non-redeemable preferred stock of $8.1 million. The change in unrealized losses during the first six months of 2022 attributable to ETFs was largely reflective of the broader U.S. stock market, which moved lower overall during the first half of 2022 and declined sharply toward the end of the period. The change in unrealized losses during the first six months of 2022 attributable to non-redeemable preferred stock reflected a higher interest rate environment.

Net realized investments losses were $3.4 million for the three months ended June 30, 2023 and were primarily related to disposing of securities issued by certain banking and financial institutions.

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. Based on our review, we recorded an allowance for credit losses of $0.4 million at June 30, 2023. There were no credit losses recorded at June 30, 2022. See Note 2 of the notes to the consolidated financial statements for further information regarding credit losses.

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Income tax expense

Our effective tax rate was 18.9% for the six months ended June 30, 2023 compared to 17.4% for the six months ended June 30, 2022. 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.

Return on equity

Our annualized return on equity was 31.8% for the six months ended June 30, 2023 compared to 17.7% for the six months ended June 30, 2022. Our annualized operating return on equity was 30.6% for the six months ended June 30, 2023 compared to 24.6% for the six months ended June 30, 2022. The increase in annualized operating return on equity for the six months ended June 30, 2023 compared to the prior period was attributable largely to continued profitable growth from continuing favorable market conditions and rate increases.

Liquidity and Capital Resources

Sources and uses of funds

We are organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary, Kinsale Insurance Company, which is domiciled in Arkansas. Accordingly, we may receive cash through (1) loans from banks and other third parties, (2) issuance of equity and debt securities, (3) corporate service fees from our insurance subsidiary, (4) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions, and (5) dividends from our insurance subsidiary. We may use the proceeds from these sources to contribute funds to Kinsale Insurance Company in order to support premium growth, reduce our reliance on reinsurance, pay dividends and taxes and for other business purposes.

We receive corporate service fees from Kinsale Insurance Company to reimburse us for most of the operating expenses that we incur. Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs.

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 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.

In July 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 13 for further information regarding the Note Purchase Agreement.

In July 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 13 for further information regarding the Amended and Restated Credit Agreement.

Management believes that the Company has sufficient liquidity available both in Kinsale and in its insurance subsidiary, Kinsale Insurance Company, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.

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Cash flows

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. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that earn interest and dividends. We also use cash to pay commissions to insurance 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 related to the issuance of our policies. 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.

The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, so their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future.

Our cash flows for the six months ended June 30, 2023 and 2022 were:


	Six Months Ended June 30,
	2023		2022
	(in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	423,577	$	278,654
Investing activities	(444,619)		(270,104)
Financing activities	(10,175)		(8,700)
Change in cash and cash equivalents	$	(31,217)	$	(150)

Net cash provided by operating activities was approximately $423.6 million for the six months ended June 30, 2023, compared to $278.7 million for the same period in 2022. This increase was largely driven by higher premium volume, the timing of claim payments and reinsurance recoveries, offset in part by changes in operating assets and liabilities.

Net cash used in investing activities was $444.6 million for the six months ended June 30, 2023, compared to $270.1 million for the six months ended June 30, 2022. Net cash used in investing activities during the first six months of 2023 included purchases of fixed-maturity securities of $667.8 million, which were comprised largely of corporate bonds, asset- and mortgage-backed securities, and to a lesser extent, U.S. Treasuries and municipal securities. During the first six months of 2023, we received proceeds of $187.4 million from sales of fixed-maturity securities, largely corporate bonds, asset-backed securities and municipal securities and $62.3 million from redemptions and maturities of asset- and mortgage-backed securities and corporate bonds. For the six months ended June 30, 2023, purchases of equity securities of $40.5 million consisted of common stocks. During the first six months of 2023, we received proceeds of $6.3 million from sales of equity securities, primarily ETFs and common stocks. In addition, net sales of short-term investments of $13.1 million consisted of U.S. Treasuries and corporate bonds.

Net cash used in investing activities of $270.1 million for the six months ended June 30, 2022 included purchases of fixed-maturity securities of $398.0 million, which were comprised largely of corporate bonds, mortgage- and asset-backed securities, and to a lesser extent, municipal securities and sovereigns. During the first six months of 2022, we received proceeds of $72.4 million from sales of fixed-maturity securities, largely corporate bonds and mortgage- and asset-backed securities, and $65.2 million from redemptions of mortgage- and asset-backed securities and

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corporate bonds. For the six months ended June 30, 2022, we received proceeds of $4.0 million from sales of equity securities, which were comprised of $2.4 million from sales of ETFs and $1.6 million from calls of non-redeemable preferred stock. In addition, we purchased $10.8 million of short-term investments consisting of U.S. Treasuries and corporate bonds.

During the first six months of 2023, cash used in financing activities reflected dividends paid of $0.28 per common share, or $6.5 million in aggregate. In addition, for the six months ended June 30, 2023, payroll taxes withheld and remitted on restricted stock awards were $4.2 million, offset in part by proceeds received from our equity compensation plans of $0.6 million.

During the first six months of 2022, cash used in financing activities reflected dividends paid of $0.26 per common share, or $6.0 million in aggregate. In addition, payroll taxes withheld and remitted on restricted stock awards was $3.3 million, offset in part by proceeds received from our equity compensation plans of $0.5 million, for the six months ended June 30, 2022.

Reinsurance

We enter into reinsurance contracts primarily to limit our exposure to potential large losses. Reinsurance involves an insurance company transferring ("ceding") a portion of its exposure on a risk to another insurer, the reinsurer. The reinsurer assumes the exposure in return for a portion of the premium. Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties. In quota-share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company's losses, in excess of a specified amount. Under excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses.

We renew our reinsurance treaties annually. During each renewal cycle, there are a number of factors we consider when determining our reinsurance coverage, including (1) plans to change the underlying insurance coverage we offer, (2) trends in loss activity, (3) the level of our capital and surplus, (4) changes in our risk appetite and (5) the cost and availability of reinsurance coverage.

To manage our natural catastrophe exposure, we use computer models to analyze the risk of severe losses. We measure exposure to these losses in terms of probable maximum loss ("PML"), which is an estimate of the amount of loss we would expect to meet or exceed once in a given number of years (referred to as the return period). When managing our catastrophe exposure, we focus on the 100-year and the 250-year return periods.

The following is a summary of our significant reinsurance programs as of June 30, 2023:

Line of Business Covered

Company Policy Limit

Reinsurance Coverage

Company Retention

Property - commercial insurance (1)

Up to $10.0 million per occurrence

50% up to $247.3 million per catastrophe

50% of all commercial property losses

Property - catastrophe (2)

N/A

$127.5 million excess of $47.5 million

$47.5 million per catastrophe

Primary casualty (3)

Up to $10.0 million per occurrence

$8.0 million excess of $2.0 million

$2.0 million per occurrence

Excess casualty (4)

Up to $10.0 million per occurrence

Variable quota share

$2.0 million per occurrence as described in note (4) below

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(1) Our commercial property quota-share reinsurance reduces the financial impact of property losses on our commercial property, small property and inland marine policies. Reinsurance is not applicable to any individual policy with a limit of $2.0 million or less.

(2) Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders. Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage. Including the reinstatement provision, the maximum aggregate loss recovery limit is $270.0 million and is in addition to the per-occurrence coverage provided by our treaty coverages.

(3) Reinsurance is not applicable to any individual policy with a per-occurrence limit of $2.0 million or less.

(4) For casualty policies with a per-occurrence limit higher than $2.0 million, the ceding percentage varies such that the retention is always $2.0 million or less. For example, for a $4.0 million limit excess policy, our retention would be 50%, whereas for a $10.0 million limit excess policy, our retention would be 20%. For policies for which we also write an underlying primary limit, the retention on the primary and excess policy combined would not exceed $2.0 million.

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligation could result in losses to us, and therefore, we established an allowance for credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At June 30, 2023, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A-" (Excellent) or better. As of June 30, 2023, we recorded an allowance for credit losses of $0.5 million related to our reinsurance balances.

Ratings

Kinsale Insurance Company has a financial strength rating of "A" (Excellent) with a stable outlook from A.M. Best. A.M. Best assigns ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer's ability to meet its obligation to policyholders and is not an evaluation directed at investors.

The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A" (Excellent) rating obtained by Kinsale Insurance Company is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.

Financial Condition

Stockholders' equity

At June 30, 2023, total stockholders' equity was $871.8 million and tangible stockholders' equity was $869.0 million, compared to total stockholders' equity of $745.4 million and tangible stockholders' equity $742.7 million at December 31, 2022. The increases in both total and tangible stockholders' equity over the prior year-end balances were due to profits generated during the period, an increase in the fair value of our fixed-maturity investments and

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net activity related to stock-based compensation plans, offset in part by payment of dividends. Tangible stockholders’ equity is a non-GAAP financial measure. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity.

Investment portfolio

At June 30, 2023, our cash and invested assets of $2.6 billion consisted of fixed-maturity securities, equity securities, cash and cash equivalents, real estate investments and short-term investments. At June 30, 2023, the majority of the investment portfolio was comprised of fixed-maturity securities of $2.2 billion that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. At June 30, 2023, we also held $196.8 million of equity securities, which were comprised of ETF securities, common stocks and non-redeemable preferred stock, $125.1 million of cash and cash equivalents, $57.5 million of real estate investments held for sale, $19.5 million of real estate investments and $28.8 million of short-term investments.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 3.1 years and 3.5 years at June 30, 2023 and December 31, 2022, respectively, and an average rating of "AA-" at both June 30, 2023 and December 31, 2022.

At June 30, 2023 and December 31, 2022, the amortized cost and estimated fair value on fixed-maturity securities were as follows:


	June 30, 2023						December 31, 2022
	Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value
	($ in thousands)
Fixed-maturity securities:
U.S. Treasury securities and obligations of U.S. government agencies	$	28,830	$	27,661	1.3	%	$	17,934	$	16,741	1.0	%
Obligations of states, municipalities and political subdivisions	201,952		180,351		8.3	%	230,746		204,632		11.6	%
Corporate and other securities	1,129,678		1,051,412		48.1	%	909,285		832,892		47.3	%
Asset-backed securities	574,255		565,912		25.9	%	361,248		353,006		20.1	%
Residential mortgage-backed securities	350,674		297,602		13.6	%	349,066		293,962		16.7	%
Commercial mortgage-backed securities	67,512		60,748		2.8	%	65,353		58,867		3.3	%
Total fixed-maturity securities	$	2,352,901	$	2,183,686	100.0	%	$	1,933,632	$	1,760,100	100.0	%

The table below summarizes the credit quality of our fixed-maturity securities at June 30, 2023 and December 31, 2022, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):


	June 30, 2023				December 31, 2022
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
	($ in thousands)
AAA	$	684,010	31.3	%	$	452,001	25.7	%
AA	479,750		22.0	%	496,761		28.2	%
A	633,320		29.0	%	434,388		24.7	%
BBB	326,320		14.9	%	313,875		17.8	%
Below BBB and unrated	60,286		2.8	%	63,075		3.6	%
Total	$	2,183,686	100.0	%	$	1,760,100	100.0	%

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The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of June 30, 2023 and December 31, 2022, were as follows:


	June 30, 2023						December 31, 2022
	Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value
	($ in thousands)
Due in one year or less	$	119,449	$	117,363	5.4	%	$	15,133	$	14,925	0.9	%
Due after one year through five years	788,144		758,082		34.7	%	647,263		626,182		35.6	%
Due after five years through ten years	220,688		195,848		9.0	%	245,670		213,539		12.1	%
Due after ten years	232,179		188,131		8.6	%	249,899		199,619		11.3	%
Asset-backed securities	574,255		565,912		25.9	%	361,248		353,006		20.1	%
Residential mortgage-backed securities	350,674		297,602		13.6	%	349,066		293,962		16.7	%
Commercial mortgage-backed securities	67,512		60,748		2.8	%	65,353		58,867		3.3	%
Total fixed-maturity securities	$	2,352,901	$	2,183,686	100.0	%	$	1,933,632	$	1,760,100	100.0	%

Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Restricted investments

In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of high-grade securities. The fair value of our restricted assets was $5.8 million and $5.9 million at June 30, 2023 and December 31, 2022, respectively.

Reconciliation of Non-GAAP Financial Measures

Reconciliation of underwriting income

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

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Net income for the three and six months ended June 30, 2023 and 2022, reconciles to underwriting income as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
($ in thousands)	2023		2022		2023		2022

Net income	$	72,791	$	27,090	$	128,591	$	58,881
Income tax expense	17,319		5,352		29,912		12,433
Income before income taxes	90,110		32,442		158,503		71,314
Net investment income	(24,172)		(10,594)		(44,867)		(19,682)
Change in the fair value of equity securities	(5,811)		23,353		(9,329)		31,104
Net realized investment losses (gains)	(1,291)		(1,413)		3,361		(1,708)
Change in allowance for credit losses on investments	(25)		—		56		—
Interest expense	2,724		337		5,294		590
Other expenses (1)	417		166		819		309
Other income	(435)		(145)		(741)		(269)
Underwriting income	$	61,517	$	44,146	$	113,096	$	81,658

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

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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, net realized investment gains and losses, after taxes, and the change in allowance for credit losses on investments, after taxes. We believe the exclusion of these items provides a useful comparison of our underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.

Net income for the three and six months ended June 30, 2023 and 2022, reconciles to net operating earnings as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
($ in thousands)	2023			2022			2023			2022


Net income	$	72,791		$	27,090		$	128,591		$	58,881
Adjustments:
Change in the fair value of equity securities, before taxes	(5,811)			23,353			(9,329)			31,104
Income tax expense (benefit) (1)	1,220			(4,904)			1,959			(6,532)
Change in the fair value of equity securities, after taxes	(4,591)			18,449			(7,370)			24,572

Net realized investment losses (gains), before taxes	(1,291)			(1,413)			3,361			(1,708)
Income tax (benefit) expense (1)	271			297			(706)			359
Net realized investment losses (gains), after taxes	(1,020)			(1,116)			2,655			(1,349)

Change in allowance for credit losses on investments, before taxes	(25)			—			56			—
Income tax (benefit) expense (1)	5			—			(12)			—
Change in allowance for credit losses on investments, after taxes	(20)			—			44			—
Net operating earnings	$	67,160		$	44,423		$	123,920		$	82,104

Operating return on equity:
Average stockholders' equity (2)	$	843,773		$	649,818		$	808,632		$	666,701
Annualized return on equity (3)	34.5		%	16.7		%	31.8		%	17.7		%
Annualized operating return on equity (4)	31.8		%	27.3		%	30.6		%	24.6		%

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

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

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(3) Annualized return on equity is net income expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

(4) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders' equity during the period.

Reconciliation of tangible stockholders' equity

Tangible stockholders’ equity is defined as total stockholders’ equity less intangible assets, net of deferred taxes. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders' equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.

Stockholders' equity at June 30, 2023 and December 31, 2022, reconciles to tangible stockholders' equity as follows:


($ in thousands)	June 30, 2023		December 31, 2022

Stockholders' equity	$	871,815	$	745,449
Less: intangible assets, net of deferred taxes	2,795		2,795
Tangible stockholders' equity	$	869,020	$	742,654

Critical Accounting Estimates

We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities, if any. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. Our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. We do not have any material exposure to foreign currency exchange rate risk or commodity risk.

There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information

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is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of that date.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the second quarter of 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K

for the year ended December 31, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 5. Other Information

Securities Trading Plans of Directors and Executive Officers

Transactions in our securities by our non-employee directors and executive officers are required to be made in accordance with our Policy on the Prevention of Insider Trading and Selective Disclosure (the “Insider Trading Policy”), which, among other things, requires that the transactions be in accordance with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables prearranged transactions in securities in a manner that avoids concerns about initiating transactions at a future date while possibly in possession of material nonpublic information. Our Insider Trading Policy permits our non-employee directors and executive officers to enter into trading plans designed to comply with Rule 10b5-1.

The following table describes any contracts, instructions or written plans adopted, terminated or modified for the sale or purchase of our securities adopted by our non-employee directors and executive officers during the second quarter of 2023, which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), referred to as Rule 10b5-1 trading plans.

Name

Title

Date of Adoption of Rule 10b5-1 Trading Plan

Scheduled Expiration Date of Rule 10b5-1 Trading Plan(1)

Aggregate Number of Securities to Be Purchased or Sold

Michael P. Kehoe

President, Chief Executive Officer and Director

May 22, 2023

August 23, 2024

Sale of up to 28,000 shares over a 1-year period beginning on the commencement date of the trading period

(1) A trading plan may also expire on such earlier date as all transactions under the trading plan are completed.

During the second quarter of 2023, none of our non-employee directors adopted Rule 10b5-1 trading plans and none of our non-employee directors or executive officers terminated or modified a Rule 10b5-1 trading plan or adopted, modified or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).

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Item 6. Exhibits


Exhibit Number						Description
3.1						Second Amended and Restated Certificate of Incorporation of Kinsale Capital Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018)
3.2						Amended and Restated By-Laws of Kinsale Capital Group, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018)


31.1						Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS **						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.

** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		KINSALE CAPITAL GROUP, INC.
Date: July 27, 2023	By:	/s/ Michael P. Kehoe
		Michael P. Kehoe President and Chief Executive Officer

Date: July 27, 2023	By:	/s/ Bryan P. Petrucelli
		Bryan P. Petrucelli Executive Vice President, Chief Financial Officer and Treasurer