SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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



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




	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)

(Address of principal executive offices, including zip code)

(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	KNSL	Nasdaq Global Select Market

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 April ~~24, 2020: 22,254,573~~23, 2021: 22,812,216

Table of Contents

KINSALE CAPITAL GROUP, INC.

TABLE OF CONTENTS


					Page
PART I. FINANCIAL INFORMATION

			~~Page~~
~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements			4
		Consolidated Balance Sheets at March 31, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020			4
		Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020			5
		Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020			6
		Condensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020			7
		Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			3739
Item 4.		Controls and Procedures			3739

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings			3841
Item 1A.		Risk Factors			3841
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			3941
Item 6.		Exhibits			3941
		Signatures			4142

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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" and 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 other catastrophes may result in an increase in the number and amount of claims filed against us;

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

•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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•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;

~~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;~~

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

~~our employees taking excessive risks;~~

~~the possibility that severe weather conditions, catastrophes, pandemics and similar events may adversely affect our business, results of operations and financial condition;~~

~~the inability to manage our growth effectively;~~

~~the intense competition for business in our industry;~~

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

~~the failure to maintain effective internal controls in accordance with the Sarbanes-Oxley of 2002 (the "Sarbanes-Oxley Act"); 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, ~~2019.~~2020.

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.

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Unaudited)

March 31,
2020 December 31,
2019
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities available for sale, at fair value (amortized cost: $815,865 in 2020; $714,817 in 2019) $ 818,905
$ 729,532
Equity securities, at fair value (cost: $85,678 in 2020 $64,245 in 2019) 83,566
78,294
Total investments 902,471
807,826
Cash and cash equivalents 52,554
100,408
Investment income due and accrued 5,499
4,743
Premiums receivable, net 42,187
34,483
Reinsurance recoverables 71,422
72,574
Ceded unearned premiums 18,112
16,118
Deferred policy acquisition costs, net of ceding commissions 26,005
23,564
Intangible assets 3,538
3,538
Deferred income tax asset, net 9,869
3,374
Other assets 33,832
23,922
Total assets $ 1,165,489
$ 1,090,550

Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses $ 491,333
$ 460,058
Unearned premiums 207,662
187,374
Payable to reinsurers 10,658
7,151
Accounts payable and accrued expenses 7,528
12,366
Credit facility 24,075
16,744
Other liabilities 22,899
977
Total liabilities 764,155
684,670

Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,253,823 and 22,205,665 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively 223
222
Additional paid-in capital 230,742
229,229
Retained earnings 166,074
162,911
Accumulated other comprehensive income 4,295
13,518
Total stockholders’ equity 401,334
405,880
Total liabilities and stockholders’ equity $ 1,165,489
$ 1,090,550


	March 31, 2021		December 31, 2020
	(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $1,074,618 – 2021; $1,031,817 – 2020)	$	1,099,763	$	1,081,800
Equity securities, at fair value (cost: $102,041 – 2021; $98,758 – 2020)	140,036		129,662

Total investments	1,239,799		1,211,462
Cash and cash equivalents	132,535		77,093
Investment income due and accrued	6,639		6,637
Premiums receivable, net	55,212		48,641
Reinsurance recoverables	96,191		93,215
Ceded unearned premiums	26,854		24,265
Deferred policy acquisition costs, net of ceding commissions	34,741		31,912
Intangible assets	3,538		3,538
Deferred income tax asset, net	608		0
Other assets	49,221		50,133
Total assets	$	1,645,338	$	1,546,896

Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses	$	688,773	$	636,013
Unearned premiums	284,832		260,986
Payable to reinsurers	15,010		12,672
Accounts payable and accrued expenses	6,502		13,651
Credit facility	42,601		42,570
Deferred income tax liability, net	0		4,648
Other liabilities	20,054		118
Total liabilities	1,057,772		970,658

Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,811,929 and 22,757,251 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	228		228
Additional paid-in capital	292,690		291,315
Retained earnings	272,890		243,315
Accumulated other comprehensive income	21,758		41,380
Total stockholders’ equity	587,566		576,238
Total liabilities and stockholders’ equity	$	1,645,338	$	1,546,896

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 (Loss) (Unaudited)


	Three Months Ended March 31,
		2021		2020
		(in thousands, except per share data)
Revenues:
Gross written premiums		$	168,876	$	124,036
Ceded written premiums		(24,578)		(15,983)
Net written premiums		144,298		108,053
Change in unearned premiums		(21,257)		(18,292)
Net earned premiums		123,041		89,761
Net investment income		6,942		5,960
Change in the fair value of equity securities		7,091		(16,161)
Net realized investment gains		1,198		776
Other income		11		10
Total revenues		138,283		80,346

Expenses:
Losses and loss adjustment expenses		70,260		53,733
Underwriting, acquisition and insurance expenses		28,136		21,583
Other expenses		448		0
Total expenses		98,844		75,316
Income before income taxes		39,439		5,030
Total income tax expense (benefit)		7,360		(56)
Net income		32,079		5,086
Other comprehensive income (loss):
Change in net unrealized gains on available-for-sale investments, net of taxes		(19,622)		(9,223)
Total comprehensive income (loss)		$	12,457	$	(4,137)

Three Months Ended March 31,
2020 2019
(in thousands, except per share data)
Revenues:
Gross written premiums $ 124,036
$ 84,626
Ceded written premiums (15,983 ) (11,559 )
Net written premiums 108,053
73,067
Change in unearned premiums (18,292 ) (11,576 )
Net earned premiums 89,761
61,491
Net investment income 5,960
4,515
Change in the fair value of equity securities (16,161 ) 5,895
Net realized investment gains 776
280
Other income 10
4
Total revenues 80,346
72,185

Expenses:
Losses and loss adjustment expenses 53,733
33,732
Underwriting, acquisition and insurance expenses 21,583
15,616
Other expenses —
36
Total expenses 75,316
49,384
Income before income taxes 5,030
22,801
Total income tax (benefit) expense (56 ) 4,081
Net income 5,086
18,720
Other comprehensive (loss) income:
Change in unrealized (losses) gains on available-for-sale investments, net of taxes of $(2,452) in 2020 and $1,802 in 2019 (9,223 ) 6,780
Total comprehensive (loss) income $ (4,137 ) $ 25,500


Earnings per share:
Basic	$	1.42	$	0.23
Diluted	$	1.39	$	0.22

Weighted-average shares outstanding:
Basic	22,665		22,109
Diluted	23,069		22,678

Earnings per share:
Basic $ 0.23
$ 0.88
Diluted $ 0.22
$ 0.86

Weighted-average shares outstanding:
Basic 22,109
21,169
Diluted 22,678
21,763

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 Income		Total Stock- holders' Equity
																(in thousands, except per share data)
Balance at December 31, 2020															Balance at December 31, 2020	22,757	$	228	$	291,315	$	243,315	$	41,380	$	576,238
Issuance of common stock under stock-based compensation plan															Issuance of common stock under stock-based compensation plan	55	0		339		—		—		339
Stock-based compensation expense															Stock-based compensation expense	—	—		1,036		—		—		1,036
Dividends declared ($0.11 per share)															Dividends declared ($0.11 per share)	—	—		—		(2,504)		—		(2,504)
Other comprehensive loss, net of tax															Other comprehensive loss, net of tax	—	—		—		—		(19,622)		(19,622)
Net income															Net income	—	—		—		32,079		—		32,079
Balance at March 31, 2021															Balance at March 31, 2021	22,812	$	228	$	292,690	$	272,890	$	21,758	$	587,566

	Shares of Common Stock	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumu- lated Other Compre- hensive Income			Total Stock- holders' Equity
	(in thousands)
Balance at December 31, 2019	22,206	$	222	$	229,229	$	162,911		$	13,518		$	405,880
Adoption of new accounting standard for credit losses, net	—	—		—		78			—			78
Issuance of common stock under stock-based compensation plan	48	1		701		—			—			702
Stock-based compensation expense	—	—		812		—			—			812
Dividends declared ($0.09 per share)	—	—		—		(2,001		)	—			(2,001		)
Other comprehensive loss, net of tax	—	—		—		—			(9,223		)	(9,223		)
Net income	—	—		—		5,086			—			5,086
Balance at March 31, 2020	22,254	$	223	$	230,742	$	166,074		$	4,295		$	401,334

Balance at December 31, 2018 21,242
$ 212
$ 158,485
$ 106,545
$ (1,256 ) $ 263,986
Issuance of common stock under stock-based compensation plan 43
1
597
—
—
598
Stock-based compensation expense —
—
507
—
—
507
Dividends declared ($0.08 per share) —
—
—
(1,702 ) —
(1,702 )
Other comprehensive income, net of tax —
—
—
—
6,780
6,780
Net income —
—
—
18,720
—
18,720
Balance at March 31, 2019 21,285
$ 213
$ 159,589
$ 123,563
$ 5,524
$ 288,889




Balance at December 31, 2019	22,206	$	222	$	229,229	$	162,911	$	13,518	$	405,880
Adoption of new accounting standard for credit losses, net	—	—		—		78		—		78
Issuance of common stock under stock-based compensation plan	48	1		701		—		—		702
Stock-based compensation expense	—	—		812		—		—		812
Dividends declared ($0.09 per share)	—	—		—		(2,001)		—		(2,001)
Other comprehensive loss, net of tax	—	—		—		—		(9,223)		(9,223)
Net income	—	—		—		5,086		—		5,086
Balance at March 31, 2020	22,254	$	223	$	230,742	$	166,074	$	4,295	$	401,334

See accompanying notes to condensed consolidated financial statements.

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended March 31,
2020 2019
(in thousands)
Operating activities:
Net cash provided by operating activities $ 59,683
$ 33,804

Investing activities:
Purchase of property and equipment (9,264 ) (3,925 )
Sale of property and equipment 4,999
—
Purchases – fixed-maturity securities (146,963 ) (43,040 )
Purchases – equity securities (13,443 ) (1,831 )
Sales – fixed-maturity securities 31,641
28,416
Sales – equity securities —
915
Maturities and calls – fixed-maturity securities 19,482
14,545
Net cash used in investing activities (113,548 ) (4,920 )

Financing activities:
Proceeds from credit facility 7,300
—
Common stock issued, stock options exercised 702
597
Dividends paid (1,991 ) (1,696 )
Net cash provided by (used in) financing activities 6,011
(1,099 )
Net change in cash and cash equivalents (47,854 ) 27,785
Cash and cash equivalents at beginning of year 100,408
75,089
Cash and cash equivalents at end of period $ 52,554
$ 102,874


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Operating activities:
Net cash provided by operating activities	$	91,322	$	59,683

Investing activities:
Purchase of property and equipment	(1,282)		(9,264)
Sale of property and equipment	0		4,999

Purchases – fixed-maturity securities	(105,010)		(146,963)
Purchases – equity securities	(3,282)		(13,443)
Sales – fixed-maturity securities	30,797		31,641

Maturities and calls – fixed-maturity securities	45,053		19,482
Net cash used in investing activities	(33,724)		(113,548)

Financing activities:

Proceeds from credit facility	0		7,300


Proceeds from stock options exercised	339		702
Dividends paid	(2,495)		(1,991)
Net cash (used in) provided by financing activities	(2,156)		6,011
Net change in cash and cash equivalents	55,442		(47,854)
Cash and cash equivalents at beginning of year	77,093		100,408
Cash and cash equivalents at end of period	$	132,535	$	52,554

See accompanying notes to condensed consolidated financial statements.

KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of significant accounting policies

Basis of presentation

The accompanying 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. For a more complete description of Kinsale Capital Group, Inc. and its wholly owned subsidiaries' (the "Company") business and accounting policies, these condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of the Company included in the Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. 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. Interim results are not necessarily indicative of results of operations for the full year.

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 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. Management periodically reviews its estimates and assumptions.

Recently adopted accounting pronouncements

Accounting ~~Standards~~Standard Update ("ASU") ~~2016-13, Financial Instruments – Credit Losses (Topic 326)~~2019-12, Income Taxes - Simplifying the Accounting for Income Taxes

~~On June 16, 2016,~~In December 2019, the Financial Accounting Standards Board ("FASB") issued ~~ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"~~updated guidance for the accounting for income taxes. The updated guidance is intended to ~~provide more useful information about~~simplify the ~~expected credit losses on financial instruments. The update requires a financial asset measured at amortized cost~~accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities must also be recorded through an allowance for credit losses. However, the amendments limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under previous GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. The FASB has issued additional ASUs on Topic 326 that do not change the core principle of the guidance in ASU 2016-13 but clarify certain aspects of it.

simplify several other income tax accounting matters. Effective January 1, 2020, the Company adopted this ASU using the modified-retrospective approach and recorded a cumulative effect adjustment to beginning retained earnings. The adoption of this ASU resulted in the recognition of an allowance for credit loss related to the Company’s reinsurance recoverables. However, since the Company enters into contracts with reinsurers that have A.M. Best ratings of “A” (Excellent) or better, the allowance was not material to the Company’s consolidated financial statements.

~~ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~

On August 29, 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up and other up-front costs incurred in a cloud computing arrangement hosted by the vendor. The new guidance requires an entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The new guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. Effective January 1, 2020,2021, the Company adopted ASU ~~2018-15 using a modified-retrospective approach. The adoption of ASU 2018-15~~2019-12, which did not have a material impact on the Company's condensed consolidated financial statements.

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

Available-for-sale investments

The following tables summarize the available-for-sale investments at March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


	March 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Fixed maturities:

Obligations of states, municipalities and political subdivisions	$	205,744	$	10,349	$	(1,730)	$	214,363
Corporate and other securities	333,572		12,682		(3,428)		342,826
Asset-backed securities	255,544		3,951		(70)		259,425
Commercial mortgage-backed securities	62,519		2,537		(230)		64,826
Residential mortgage-backed securities	217,239		3,562		(2,478)		218,323
Total fixed-maturity investments	$	1,074,618	$	33,081	$	(7,936)	$	1,099,763

March 31, 2020
Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies $ 110
$ 4
$ —
$ 114
Obligations of states, municipalities and political subdivisions 173,422
8,830
(702 ) 181,550
Corporate and other securities 255,784
5,849
(7,418 ) 254,215
Commercial mortgage and asset-backed securities 232,773
2,112
(7,820 ) 227,065
Residential mortgage-backed securities 153,776
3,527
(1,342 ) 155,961
Total available-for-sale investments $ 815,865
$ 20,322
$ (17,282 ) $ 818,905

December 31, 2019
Amortized Cost Gross Unrealized Holding Gains Gross Unrealized Holding Losses Estimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies $ 110
$ 2
$ —
$ 112
Obligations of states, municipalities and political subdivisions 166,312
7,542
(961 ) 172,893
Corporate and other securities 180,287
4,736
(255 ) 184,768
Commercial mortgage and asset-backed securities 195,750
2,930
(710 ) 197,970
Residential mortgage-backed securities 172,358
1,819
(388 ) 173,789
Total available-for-sale investments $ 714,817
$ 17,029
$ (2,314 ) $ 729,532


	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Fixed maturities:

Obligations of states, municipalities and political subdivisions	$	216,181	$	14,792	$	(67)	$	230,906
Corporate and other securities	294,854		21,840		(86)		316,608
Asset-backed securities	236,813		4,230		(382)		240,661
Commercial mortgage-backed securities	66,110		4,886		(27)		70,969
Residential mortgage-backed securities	217,859		4,938		(141)		222,656
Total fixed-maturity investments	$	1,031,817	$	50,686	$	(703)	$	1,081,800

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 ~~securities’~~ fair value is deemed to be a credit loss. The Company considers a number of factors in completing its review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition of an issuer. In addition to specific issuer information, the Company also evaluates the current market and interest rate environment. Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute a credit loss.

For fixed-maturity securities, the Company also considers whether it intends to sell the security or, if it is more likely than not that it will be required to sell the security before recovery, and ~~the~~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 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, resulting in a new cost basis for the security.~~assessment. For fixed-maturity securities that the Company ~~has~~does not intend to sell or for which it is more likely than not that the ~~intent and ability~~Company would not be required to ~~hold,~~sell before recovery of its amortized cost, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income ~~resulting in a new cost basis~~through an allowance for ~~the security.~~credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income. ~~Beginning on January 1, 2020, credit losses are recognized through an allowance account. See Note 1 - Recently adopted accounting pronouncements -~~ ~~ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)~~ ~~for additional information.~~

The Company reports investment income due and accrued separately from ~~fixed-maturity securities, available for sale,~~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 net realized gains (losses) on investments at the time the issuer of the bond defaults or is expected to default on payments.

The following tables summarize gross unrealized ~~holding~~ 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:


	March 31, 2021
	Less than 12 Months				12 Months or Longer				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities:

Obligations of states, municipalities and political subdivisions	$	38,432	$	(1,730)	$	0	$	0	$	38,432	$	(1,730)
Corporate and other securities	114,920		(3,428)		0		0		114,920		(3,428)
Asset-backed securities	25,069		(16)		17,373		(54)		42,442		(70)
Commercial mortgage-backed securities	9,556		(230)		0		0		9,556		(230)
Residential mortgage-backed securities	113,150		(2,423)		5,543		(55)		118,693		(2,478)
Total fixed-maturity investments	$	301,127	$	(7,827)	$	22,916	$	(109)	$	324,043	$	(7,936)

March 31, 2020
Less than 12 Months 12 Months or Longer Total
Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions $ 24,377
$ (702 ) $ —
$ —
$ 24,377
$ (702 )
Corporate and other securities 104,161
(7,418 ) —
—
104,161
(7,418 )
Commercial mortgage and asset-backed securities 127,009
(5,608 ) 21,917
(2,212 ) 148,926
(7,820 )
Residential mortgage-backed securities 52,605
(1,324 ) 282
(18 ) 52,887
(1,342 )
Total available-for-sale investments $ 308,152
$ (15,052 ) $ 22,199
$ (2,230 ) $ 330,351
$ (17,282 )

At March 31, ~~2020,~~2021, the Company held ~~206~~167 fixed-maturity securities in an unrealized loss position with a total estimated fair value of ~~$330.4~~$324.0 million and gross unrealized losses of ~~$17.3~~$7.9 million. Of these securities, 1211 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 March 31, ~~2020,~~2021, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At March 31, ~~2020, 85.2%~~2021, 78.3% 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. For the three months ended March 31, ~~2020,~~2021, the Company concluded that there were 0 credit losses from fixed-maturity securities with unrealized losses.

December 31, 2019
Less than 12 Months 12 Months or Longer Total
Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses Estimated Fair Value Gross Unrealized Holding Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions $ 28,997
$ (961 ) $ 254
$ —
$ 29,251
$ (961 )
Corporate and other securities 22,409
(251 ) 1,509
(4 ) 23,918
(255 )
Commercial mortgage and asset-backed securities 37,723
(303 ) 46,623
(407 ) 84,346
(710 )
Residential mortgage-backed securities 36,986
(148 ) 24,815
(240 ) 61,801
(388 )
Total available-for-sale investments $ 126,115
$ (1,663 ) $ 73,201
$ (651 ) $ 199,316
$ (2,314 )


	December 31, 2020
	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:

Obligations of states, municipalities and political subdivisions	$	6,412	$	(67)	$	0	$	0	$	6,412	$	(67)
Corporate and other securities	3,829		(86)		0		0		3,829		(86)
Asset-backed securities	57,750		(149)		23,825		(233)		81,575		(382)
Commercial mortgage-backed securities	4,971		(27)		0		0		4,971		(27)
Residential mortgage-backed securities	46,869		(129)		266		(12)		47,135		(141)
Total fixed-maturity investments	$	119,831	$	(458)	$	24,091	$	(245)	$	143,922	$	(703)

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

The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at March 31, ~~2020~~2021 are summarized, by contractual maturity, as follows:


	March 31, 2021
	Amortized		Estimated
	Cost		Fair Value
	(in thousands)
Due in one year or less	$	11,278	$	11,466
Due after one year through five years	124,996		131,847
Due after five years through ten years	171,090		177,032
Due after ten years	231,952		236,844
Asset-backed securities	255,544		259,425
Commercial mortgage-backed securities	62,519		64,826
Residential mortgage-backed securities	217,239		218,323
Total fixed-maturity securities	$	1,074,618	$	1,099,763

March 31, 2020
Amortized Estimated
Cost Fair Value
(in thousands)
Due in one year or less $ 13,680
$ 13,742
Due after one year through five years 109,574
111,474
Due after five years through ten years 134,900
135,904
Due after ten years 171,162
174,759
Commercial mortgage and asset-backed securities 232,773
227,065
Residential mortgage-backed securities 153,776
155,961
Total fixed-maturity securities $ 815,865
$ 818,905

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

Net investment income

The following table presents the components of net investment income for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Realized investment gains and losses

The following table presents realized investment gains and losses for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Fixed-maturity securities:
Realized gains		$	1,199	$	787
Realized losses		(1)		(23)
Net realized gains from fixed-maturity securities		1,198		764





Realized gains from the sales of short-term investments		0		12

Net realized investment gains		$	1,198	$	776

Three Months Ended March 31,
2020 2019
(in thousands)
Fixed-maturity securities:
Realized gains $ 787
$ 371
Realized losses (23 ) (79 )
Net realized gains from fixed-maturity securities 764
292

Equity securities:
Realized gains —
4
Realized losses —
(16 )
Net realized losses from equity securities —
(12 )
Realized gains from the sales of short-term investments 12
—
Net realized investment gains $ 776
$ 280

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

For the three months ended March 31, 2021 and 2020, the ~~change in net unrealized losses for fixed-maturity securities was $11.7 million. For the three months ended March 31, 2019, the change~~changes in net unrealized gains for fixed-maturity securities ~~was $8.6 million.~~were decreases of $24.8 million and $11.7 million, respectively.

Insurance – statutory deposits

The Company had invested assets with a carrying value of $6.8 million and $6.9 million on deposit with state regulatory authorities at ~~both~~ March 31, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively.

Payable for investments purchased

The Company recorded a payable for investments purchased, not yet settled, of ~~$13.1~~$13.6 million at March 31, ~~2020.~~2021. The payable balance was included in the "other liabilities" line item of the consolidated balance ~~sheet and treated as a non-cash transaction for purposes~~sheet.

Table of ~~cash flow presentation.~~ Contents

3. Fair value measurements

Fair value is estimated for each class of financial instrument for which it iswas practical to estimate fair value. Fair value is defined as the price in the principal market that would be received ~~in exchange~~ 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 ~~manager~~accounting vendor from ~~third party~~nationally recognized third-party pricing services, where available. Values for U.S. Treasury and exchange traded funds are generally based on Level 1 inputs which use quoted prices in active markets for identical assets. For other fixed-maturity securities ~~where~~and preferred stock, the ~~Company is unable to obtain fair values from~~pricing vendors use a pricing ~~service~~methodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or ~~broker,~~securities with similar characteristics to establish a valuation. The estimates of fair ~~values~~value of these investments are ~~estimated using information obtained from~~included in the amounts disclosed as Level 2. For those investments where significant inputs are unobservable, the Company's investment ~~manager.~~ 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 ~~manager~~accounting vendor that ~~obtains~~assess fair values from third party pricing services, 2) discussing with the Company's investment ~~manager~~accounting vendor its process for reviewing and validating pricing obtained from ~~outside~~third party pricing services and 3) reviewing the security pricing received from the Company's investment ~~manager~~accounting vendor and monitoring changes in unrealized gains and ~~losses.~~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.

Table of Contents

The following tables present the balances of assets measured at fair value on a recurring basis as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, by level within the fair value hierarchy.


	March 31, 2021
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Fixed maturities:

Obligations of states, municipalities and political subdivisions	$	0	$	214,363	$	0	$	214,363
Corporate and other securities	0		342,826		0		342,826
Asset-backed securities	0		259,425		0		259,425
Commercial mortgage-backed securities	0		64,826		0		64,826
Residential mortgage-backed securities	0		218,323		0		218,323
Total fixed-maturity securities	0		1,099,763		0		1,099,763

Equity securities:
Exchange traded funds	106,014		0		0		106,014
Nonredeemable preferred stock	0		34,022		0		34,022
Total equity securities	106,014		34,022		0		140,036

Total	$	106,014	$	1,133,785	$	0	$	1,239,799

March 31, 2020
Level 1 Level 2 Level 3 Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies $ 114
$ —
$ —
$ 114
Obligations of states, municipalities and political subdivisions —
181,550
—
181,550
Corporate and other securities —
254,215
—
254,215
Commercial mortgage and asset-backed securities —
227,065
—
227,065
Residential mortgage-backed securities —
155,961
—
155,961
Total fixed-maturity securities 114
818,791
—
818,905

Equity securities:
Exchange traded funds 59,046
—
—
59,046
Nonredeemable preferred stock —
24,520
—
24,520
Total equity securities 59,046
24,520
—
83,566
Total $ 59,160
$ 843,311
$ —
$ 902,471


	December 31, 2020
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Fixed maturities:

Obligations of states, municipalities and political subdivisions	$	0	$	230,906	$	0	$	230,906
Corporate and other securities	0		316,608		0		316,608
Asset-backed securities	0		240,661		0		240,661
Commercial mortgage-backed securities	0		70,969		0		70,969
Residential mortgage-backed securities	0		222,656		0		222,656
Total fixed-maturity securities	0		1,081,800		0		1,081,800

Equity securities:
Exchange traded funds	98,050		0		0		98,050
Nonredeemable preferred stock	0		31,612		0		31,612
Total equity securities	98,050		31,612		0		129,662

Total	$	98,050	$	1,113,412	$	0	$	1,211,462

December 31, 2019
Level 1 Level 2 Level 3 Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies $ 112
$ —
$ —
$ 112
Obligations of states, municipalities and political subdivisions —
172,893
—
172,893
Corporate and other securities —
184,768
—
184,768
Commercial mortgage and asset-backed securities —
197,970
—
197,970
Residential mortgage-backed securities —
173,789
—
173,789
Total fixed-maturity securities 112
729,420
—
729,532

Equity securities:
Exchange traded funds 54,463
—
—
54,463
Nonredeemable preferred stock —
23,831
—
23,831
Total equity securities 54,463
23,831
—
78,294
Total $ 54,575
$ 753,251
$ —
$ 807,826

There were no assets or liabilities measured at fair value on a nonrecurring basis as of March 31, ~~2020~~2021 or December 31, ~~2019.~~2020.

The carrying value of cash equivalents approximates its fair value at March 31, 2021 and December 31, 2020, due to the short-term maturities of these assets. In addition, the estimated fair value of the Credit Facility approximated its carrying value as of March 31, 2021 and December 31, 2020. See Note 12 for further information regarding the Credit Facility.

4. Deferred policy acquisition costs

The following table presents the amounts of policy acquisition costs deferred and amortized for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Balance, beginning of period		$	31,912	$	23,564
Policy acquisition costs deferred:
Direct commissions		24,650		18,078
Ceding commissions		(6,204)		(3,872)
Other underwriting and policy acquisition costs		1,368		1,187
Policy acquisition costs deferred		19,814		15,393
Amortization of net policy acquisition costs		(16,985)		(12,952)
Balance, end of period		$	34,741	$	26,005

Three Months Ended March 31,
2020 2019
(in thousands)
Balance, beginning of period $ 23,564
$ 14,801
Policy acquisition costs deferred:
Direct commissions 18,078
12,363
Ceding commissions (3,872 ) (3,256 )
Other underwriting and policy acquisition costs 1,187
965
Policy acquisition costs deferred 15,393
10,072
Amortization of net policy acquisition costs (12,952 ) (8,559 )
Balance, end of period $ 26,005
$ 16,314

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.~~income (loss).

5. Property and equipment, net

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


	March 31, 2021		December 31, 2020
	(in thousands)
Building	$	31,770	$	31,675
Parking deck	5,072		5,072
Land	3,068		3,068
Equipment	2,861		2,770
Software	5,393		4,815
Furniture and fixtures	1,778		1,731

Land improvements	317		317
Construction in progress - corporate headquarters	253		0
	50,512		49,448
Accumulated depreciation	(3,763)		(3,262)
Total property and equipment, net	$	46,749	$	46,186

March 31, 2020 December 31, 2019
(in thousands)
Equipment $ 2,415
$ 2,353
Software 2,999
2,356
Furniture and fixtures 1,025
1,025
Leasehold improvements 984
984
Construction in progress - corporate headquarters 29,332
19,789
36,755
26,507
Accumulated depreciation (4,073 ) (3,873 )
Total property and equipment, net $ 32,682
$ 22,634

~~Construction in progress includes~~During the ~~purchased~~first quarter of 2020, the Company sold a portion of both its land and ~~capitalized expenses related~~parking deck for approximately $6.5 million to a real estate developer for the ~~construction~~development of an apartment building. As of March 31, 2021, the Company had received $5.0 million of the ~~new corporate headquarters' building~~proceeds from the sale and ~~parking deck. Construction~~ is expected to ~~be completed~~receive the remaining $1.5 million upon completion of the apartment building. This receivable is included in "other assets" on the ~~third quarter of 2020.~~accompanying consolidated balance sheet.

6. Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 consist of the following:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Underwriting, acquisition and insurance expenses incurred:
Direct commissions		$	21,165	$	15,142
Ceding commissions		(5,355)		(3,183)
Other operating expenses		12,326		9,624
Total		$	28,136	$	21,583

Three Months Ended March 31,
2020 2019
(in thousands)
Underwriting, acquisition and insurance expenses incurred:
Direct commissions $ 15,142
$ 10,674
Ceding commissions (3,183 ) (2,938 )
Other operating expenses 9,624
7,880
Total $ 21,583
$ 15,616

Other operating expenses within underwriting, acquisition and insurance expenses include salaries, bonus and employee benefits expenses of ~~$8.8~~$11.3 million and ~~$6.8~~$8.8 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

7. 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~~Company’s Board of Directors, provides for grants of stock options, restricted stock, restricted stock units and other stock-based awards to officers, employees, directors, independent contractors and consultants. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832.

The total compensation cost that has been charged against income for share-based compensation arrangements was ~~$0.8~~$1.0 million and ~~$0.5~~$0.8 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Restricted Stock Awards

During the three months ended March 31, ~~2020,~~2021, 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 ~~year.~~to 4 years. 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 ~~all~~ restricted stock activity under the 2016 Incentive Plan for the three months ended March 31, ~~2020~~2021 is as follows:

For the Three Months Ended
March 31, 2020
Number of Shares Weighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the period 122,723
$ 67.01
Granted 4,428
$ 101.66
Vested (7,020 ) $ 55.56
Forfeited (140 ) $ 53.60
Non-vested outstanding at the end of the period 119,991
$ 68.97

The weighted average grant-date fair value of the Company's restricted stock awards granted during the three months ended March 31, 2021 and 2020 was $185.00 and ~~2019 was~~ $101.66, ~~and $55.56,~~ respectively. The fair value of restricted stock awards that vested during the three months ended March 31, 2021 and 2020 was $0.9 million and ~~2019 was~~ ~~$0.7 million~~ ~~and $0.4~~$0.7 million, respectively. As of March 31, ~~2020,~~2021, the Company had ~~$6.3~~$13.5 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of ~~2.7~~3.1 years.

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~~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 ~~vest~~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 using the following assumptions:



Risk-free rate of return	1.26	%
Dividend yield	1.25	%
Expected share price volatility⁽¹⁾	18.50	%
Expected life in years⁽²⁾	6.3 years

(1)Expected volatility was based on the Company’s competitors within the industry.

⁽¹⁾

(2)Expected life was calculated using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period, as the Company did not have sufficient historical data for determining the expected term of our stock option awards.

A summary of option activity as of March 31, ~~2020,~~2021, 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, 2021	387,738	$	16.00
Granted	0	0
Forfeited	0	16.00
Exercised	(21,214)	16.00
Outstanding at March 31, 2021	366,524	$	16.00	5.3	$	54,539
Exercisable at March 31, 2021	366,524	$	16.00	5.3	$	54,539

Number of Shares Weighted-average exercise price Weighted-average remaining years of contractual term Aggregate intrinsic value (in thousands)
Outstanding at January 1, 2020 614,345
$ 16.00

Granted —
—

Forfeited —
—

Exercised (43,870 ) 16.00

Outstanding at March 31, 2020 570,475
$ 16.00
6.3 $ 50,504
Exercisable at March 31, 2020 349,744
$ 16.00
6.3 $ 30,963

The total intrinsic value of options exercised was ~~$4.6~~$3.6 million and ~~$1.9~~$4.6 million during the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. As

Table of ~~March 31, 2020, the Company had $0.2 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 0.3 years.~~Contents

8. 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 March 31,
		2021		2020
		(in thousands, except per share data)
Net income		$	32,079	$	5,086

Weighted average common shares outstanding - basic		22,665		22,109
Effect of potential dilutive securities:
Conversion of stock options		343		508
Conversion of restricted stock		61		61
Weighted average common shares outstanding - diluted		23,069		22,678

Earnings per common share:
Basic		$	1.42	$	0.23
Diluted		$	1.39	$	0.22

Three Months Ended March 31,
2020 2019
(in thousands, except per share data)
Net income $ 5,086
$ 18,720

Weighted average common shares outstanding - basic 22,109
21,169
Effect of potential dilutive securities:
Conversion of stock options 508
568
Conversion of restricted stock 61
26
Weighted average common shares outstanding - diluted 22,678
21,763

Earnings per common share:
Basic $ 0.23
$ 0.88
Diluted $ 0.22
$ 0.86

There were no33 thousand anti-dilutive stock awards for the three months ended March 31, ~~2020 or~~2021. There were 0 anti-dilutive stock awards for the three months ended March 31, ~~2019.~~2020.

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 18.7% and (1.1)% ~~and 17.9%~~ for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, the effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and ~~2019, respectively. In~~tax-exempt investment income. For the ~~first quarter of~~three months ended March 31, 2020, the effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock options exercised and tax-exempt investment income in relation to pretax income. Pretax income was lower in the first quarter of 2020 ~~reflected a decline~~from the decrease in the fair value of the Company's equity investment portfolio.

~~The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020. The purpose~~

Table of the CARES Act is to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic. The CARES Act builds on and clarifies a number of changes in corporate tax law implemented by the Tax Cuts and Jobs Act. The Company does not expect that the CARES Act will have a significant impact on its financial statements.Contents

10. 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:


	March 31,
	2021		2020
	(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	$	636,013	$	460,058
Less: reinsurance recoverable on unpaid losses	83,730		69,792
Adoption of accounting standard for credit losses	0		(282)
Net reserves for unpaid losses and loss adjustment expenses, beginning of year	552,283		390,548
Incurred losses and loss adjustment expenses:
Current year	77,333		56,742
Prior years	(7,073)		(3,009)
Total net losses and loss adjustment expenses incurred	70,260		53,733

Payments:
Current year	1,018		777
Prior years	27,571		21,270
Total payments	28,589		22,047
Net reserves for unpaid losses and loss adjustment expenses, end of period	593,954		422,234
Reinsurance recoverable on unpaid losses	94,819		69,099
Gross reserves for unpaid losses and loss adjustment expenses, end of period	$	688,773	$	491,333

March 31
2020 2019
(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year $ 460,058
$ 369,152
Less reinsurance recoverable on unpaid losses 69,792
55,389
Adoption of new accounting standard for credit losses (282 ) —
Net reserves for unpaid losses and loss adjustment expenses, beginning of year 390,548
313,763
Incurred losses and loss adjustment expenses:
Current year 56,742
40,128
Prior years (3,009 ) (6,396 )
Total net losses and loss adjustment expenses incurred 53,733
33,732

Payments:
Current year 777
2,042
Prior years 21,270
17,955
Total payments 22,047
19,997
Net reserves for unpaid losses and loss adjustment expenses, end of period 422,234
327,498
Reinsurance recoverable on unpaid losses 69,099
57,627
Gross reserves for unpaid losses and loss adjustment expenses, end of period $ 491,333
$ 385,125

During the three months ended March 31, 2021, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2020 developed favorably by $7.1 million. The favorable development was primarily attributable to the 2020 accident year of $9.5 million, which resulted from reported losses emerging at a lower level than expected across most statutory lines of business.

During the three months ended March 31, 2020, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2019 developed favorably by $3.0 million across substantially all accident years, which resulted from reported losses emerging at a lower level than expected across most statutory lines of business.

During the three months ended March 31, 2019, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2018 developed favorably by $6.4 million. The favorable development was primarily attributable to the 2015 through 2018 accident years

Table of ~~$6.3 million, which resulted from reported losses emerging at a lower level than expected across most statutory lines of business.~~Contents

11. Reinsurance

The following table summarizes the effect of reinsurance on premiums written and earned for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Premiums written:
Direct		$	168,876	$	124,036
Assumed		0		0
Ceded		(24,578)		(15,983)
Net written		$	144,298	$	108,053

Premiums earned:
Direct		$	145,031	$	103,734
Assumed		0		15
Ceded		(21,990)		(13,988)
Net earned		$	123,041	$	89,761

Three Months Ended March 31,
2020 2019
(in thousands)
Premiums written:
Direct $ 124,036
$ 84,563
Assumed —
63
Ceded (15,983 ) (11,559 )
Net written $ 108,053
$ 73,067

Premiums earned:
Direct $ 103,734
$ 72,078
Assumed 15
57
Ceded (13,988 ) (10,644 )
Net earned $ 89,761
$ 61,491

~~Incurred~~The following table summarizes ceded losses and loss adjustment expenses ~~were net of reinsurance (ceded incurred losses and loss adjustment expenses) of $6.5 million and $4.3 million~~ for the three months ended March 31, ~~2020~~2021 and ~~2019, respectively. At March 31, 2020,~~2020:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Ceded incurred losses and loss adjustment expenses		$	12,501	$	6,452

The following table presents reinsurance recoverables on paid and unpaid losses ~~were $2.3 million~~as of March 31, 2021 and ~~$69.1 million, respectively. At~~ December 31, ~~2019, reinsurance recoverables on paid and unpaid losses were $2.8 million and $69.8 million, respectively.~~2020:


	March 31, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables on paid losses	$	1,372	$	9,485
Reinsurance recoverables on unpaid losses	94,819		83,730
Reinsurance recoverables	$	96,191	$	93,215

12. Credit Agreement

On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $30.0 million. The Credit Facility has a maturity of May 28, ~~2024~~.2024. Borrowings under the Credit Facility ~~will be~~was used to fund construction of the Company’s new headquarters ~~and~~but may also be used for working capital and general corporate purposes.

Loans under the Credit Facility may be subject to varying rates of interest depending on whether the loan is a Eurodollar loan or an alternate base rate (ABR) loan, at the Company's election. Eurodollar loans bear an interest rate per annum equal to adjusted LIBOR for the applicable interest period plus a margin of 1.75%. ABR loans bear an interest rate per annum equal to (a) the higher of the prime rate, the New York Federal Reserve Board Rate plus 0.50% or the one-month adjusted LIBOR plus 1%, plus (b) the applicable margin of 0.75%. As of March 31, ~~2020,~~2021, there was ~~$24.1~~$42.6 million outstanding under the Credit Facility, net of debt issuance cost of ~~$0.5~~$0.4 million, with a weighted average interest rate of ~~3.01%~~1.95%.

The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default provisions. As of March 31, ~~2020,~~2021, the Company was in compliance with all of its financial covenants under the Credit Facility.

13. Other comprehensive ~~(loss) income~~loss

The following table summarizes the components of other comprehensive ~~(loss) income~~loss for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
		2021		2020
		(in thousands)
Unrealized losses on fixed-maturity securities arising during the period, before income taxes		$	(23,650)	$	(10,911)
Income tax benefit		4,966		2,291
Unrealized losses arising during the period, net of income taxes		(18,684)		(8,620)
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes		1,188		764
Income tax expense		(250)		(161)
Reclassification adjustment included in net income, net of income taxes		938		603
Other comprehensive loss		$	(19,622)	$	(9,223)

Three Months Ended March 31,
2020 2019
(in thousands)
Unrealized (losses) gains on fixed-maturity securities arising during the period, before income taxes $ (10,911 ) $ 8,873
Income taxes 2,291
(1,863 )
Unrealized (losses) gains arising during the period, net of income taxes (8,620 ) 7,010
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes 764
292
Income taxes (161 ) (62 )
Reclassification adjustment included in net income, net of income taxes 603
230
Other comprehensive (loss) income $ (9,223 ) $ 6,780

The sale of an available-for-sale fixed-maturity security results in amounts being reclassified from accumulated other comprehensive income (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.

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

The discussion and analysis below includes 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, ~~2019.~~2020. 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 months ended March 31, ~~2020~~2021 are not necessarily indicative of the results that may be expected for the full year ended December 31, ~~2020,~~2021, 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, ~~2019.~~2020.

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

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 three months of ~~2020,~~2021, the percentage breakdown of our gross written premiums was ~~approximately 90%~~87% casualty and ~~10%~~13% property. Our underwriting divisions include construction, small business, excess casualty, commercial property, allied health, product liability, ~~commercial property,~~ professional liability, life sciences, general casualty, ~~life sciences,~~ management liability, energy, health care, environmental, public entity, inland marine, and commercial ~~insurance and public entity.~~insurance. We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented ~~approximately~~ 4% of our gross written premiums in the first ~~quarter~~three months of ~~2020,~~2021, and is included inwithin our ~~property~~personal insurance division.

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

With respect to reported claims, Kinsale does not write lines of business with heightened exposure to COVID-19 related claims. Specifically, Kinsale does not write event cancellation, mortgage insurance, trade credit or surety, workers' compensation or reinsurance business. Lines of business written by Kinsale that could be subject to COVID-19 related claims include general liability, management liability, healthcare-related professional liability and commercial property. In each case, policy terms and conditions would be expected to preclude coverage for

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

With respect to our investment portfolio, we seek to hold a high-quality, diversified portfolio of investments. ~~We believe~~During the first quarter of 2020, we experienced a significant ~~declines~~decline in the fair value of our investment portfolio ~~in the three months ended March 31, 2020 was~~ due to ~~the recent~~ disruption in the global financial markets associated with ~~COVID-19 as opposed~~COVID-19. Subsequent to ~~underlying issues with~~the first quarter of 2020, the fair values of our investment ~~portfolio. During an~~portfolio rebounded sharply, gaining back all of the decline in fair value. However, during economic ~~downturn,~~downturns, certain investments ~~however,~~ may default or become impaired due to deterioration in the financial condition or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Given the conservative nature of our investment portfolio, we do not expect ~~that any~~a material adverse impact on the value of our investment portfolio ~~as it relates to COVID-19 will be temporary, and we do not expect~~or a long-term negative impact on our financial condition, results of operations or cash ~~flows.~~

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.

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 and any decision we make to increase or decrease retention levels.

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; 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.

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.

Change in fair value of equity securities

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

Net realized investment gains (losses) ~~on investments~~

Net realized investment gains (losses) ~~on investments~~ are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost, as well as any ~~"other-than-temporary"~~credit impairments recognized in earnings.

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.

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

Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized gains and losses on investments, other income, other expenses and income tax expense. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to underwriting income.

Net operating earnings is a non-GAAP financial measure. We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, and net realized gains and losses on investments, after taxes. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

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

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

Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% 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, before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending ~~balances~~book value of those investments during the period.

Three months ended March 31, ~~2020~~2021 compared to three months ended March 31, ~~2019~~2020

The following table summarizes our results of operations for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

Underwriting income ⁽¹⁾

Underwriting income (1)

Net operating earnings ⁽²⁾

Net operating earnings (2)

Annualized operating return on equity⁽²⁾

Annualized operating return on equity(2)

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 ~~effects of the~~ net change in the fair value of equity securities, after taxes, and net realized investment gains and 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 non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.

Net income was $32.1 million for the three months ended March 31, 2021 compared to $5.1 million for the three months ended March 31, 2020, ~~compared to $18.7 million for the three months ended March 31, 2019, a decrease~~an increase of ~~72.8%~~530.7%. The ~~decrease~~increase in net income for the first three months of ~~2020~~2021 over the same period last year was ~~largely~~primarily due to a ~~decline~~number of factors including growth in ~~fair value on our equity investment portfolio driven by~~ the ~~disruption in global financial markets beginning in March 2020, associated with the COVID-19 pandemic. This decrease was offset in part by higher submission activity~~business from ~~brokers, resulting from continued~~ favorable market conditions and continued rate increases, higher returns on equity investments as a result of a rebound in the ~~excess~~financial markets and ~~surplus lines market.~~higher net favorable development of loss reserves from prior accident years.

Underwriting income ⁽¹⁾was $24.6 million for the three months ended March 31, 2021 compared to $14.4 million for the three months ended March 31, 2020, an increase of 70.6%. The corresponding combined ratios were 80.0% for the three months ended March 31, 2021 compared to ~~$12.1~~83.9% for the three months ended March 31, 2020. The increase in underwriting income quarter over quarter was largely due to premium growth from a positive underwriting environment, continued rate increases and higher net favorable development of loss reserves from prior accident years.

Our gross written premiums were $168.9 million for the three months ended March 31, ~~2019, an increase of 19.0%. The corresponding combined ratios were 83.9% for the three months ended March 31, 2020~~2021 compared to 80.3% for the three months ended March 31, 2019. The increase in our underwriting income in the first three months of 2020 compared to the same period last year was due to growth in earned premiums quarter over quarter, offset in part by lower favorable development on loss reserves from prior accident years.

~~Our gross written premiums were~~ $124.0 million for the three months ended March 31, 2020, ~~compared to $84.6 million for the three months ended March 31, 2019,~~ an increase of ~~$39.4~~$44.8 million, or ~~46.6%~~36.2%. The increase in gross written premiums for the first three months of ~~2020~~2021 over the same period last year was due to higher submission activity from brokers and higher rates across substantially all lines of business, resulting from continued favorable market conditions in the ~~excess and surplus lines~~E&S market. The average premium on a policy written was approximately $9,800 in the first three months of 2021 compared to approximately $9,200 in the first three months of ~~2020 compared to approximately $8,000 in the first three months of 2019.~~2020. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was approximately $12,300 for the first three months of 2021 and approximately $11,900 for the first three months of ~~2020 and $10,400 for the first three months of 2019.~~2020.

Net written premiums increased by ~~$35.0~~$36.2 million, or ~~47.9%~~33.5%, to $144.3 million for the three months ended March 31, 2021 from $108.1 million for the three months ended March 31, ~~2020 from $73.1 million for the three months ended March 31, 2019.~~2020. The increase in net written premiums for the first three months of ~~2020~~2021 compared to the same period last year was primarily due to higher gross written ~~premiums and higher retention of gross written~~ premiums. The net retention ratio was ~~87.1%~~85.4% for the three months ended March 31, ~~2020~~2021 compared to ~~86.3%~~87.1% for the same period last year. The ~~increase~~decrease in the net retention ratio was primarily due to ~~higher retention levels~~reinstatement premiums on the ~~reinsurance treaties effective with~~property lines of business and change in the ~~June 1, 2019 contract renewal.~~mix of business.

Net earned premiums increased by ~~$28.3~~$33.3 million, or ~~46.0%~~37.1%, to $123.0 million for the three months ended March 31, 2021 from $89.8 million for the three months ended March 31, 2020 ~~from $61.5 million for the three months ended March 31, 2019~~ due to growth in gross written premiums.

The loss ratio was 57.1% for the three months ended March 31, 2021 compared to 59.9% for the three months ended March 31, ~~2020 compared to 54.9% for the three months ended March 31, 2019.~~2020. The ~~increase~~decrease in the loss ratio in the first three months of ~~2020~~2021 compared to the first three months of ~~2019~~2020 was due primarily ~~to lower~~from favorable net development ~~on loss~~of reserves from prior accident ~~years, offset in part by lower reported losses in the current accident year compared to the same period last year.~~years.

During the first three months of 2021 and 2020, ~~and 2019,~~ the ~~overall~~ favorable development onof loss reserves from prior accident years was primarily due to reported losses emerging at lower levels than expected. During the three months ended March 31, 2021, the favorable development from prior accident years was primarily attributable to the 2020 accident year. During the three months ended March 31, 2020, loss reserves from prior accident years developed favorably by $3.0 million, across substantially all ~~accident years. During the three months ended March 31, 2019, loss reserves for~~ prior accident ~~years developed favorably by $6.4 million,~~years.

Table of which $6.3 million was largely attributable to accident years 2015 through 2018. The lower favorable development on loss reserves from prior accident years was in part due to management’s decision to addContents

what it believes to be an appropriate level of conservatism to provide for the emergence of reported losses over a longer period of time in light of recent economic conditions and other effects related to the COVID-19 pandemic.

The following table summarizes the loss ratios for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
	2021				2020
($ in thousands)	Losses and Loss Adjustment Expenses		% of Earned Premiums		Losses and Loss Adjustment Expenses		% of Earned Premiums
Loss ratio:
Current accident year before catastrophe losses	$	77,257	62.8	%	$	56,671	63.1	%
Current year catastrophe losses	76		—	%	71		0.1	%
Effect of prior year development	(7,073)		(5.7)	%	(3,009)		(3.3)	%
Total	$	70,260	57.1	%	$	53,733	59.9	%

Three Months Ended March 31,
2020 2019
($ in thousands) Losses and Loss Adjustment Expenses % of Earned Premiums Losses and Loss Adjustment Expenses % of Earned Premiums
Loss ratio:
Current accident year before catastrophe losses $ 56,671
63.1 % $ 40,098
65.2 %
Current year catastrophe losses 71
0.1 % 30
0.1 %
Effect of prior year development (3,009 ) (3.3 )% (6,396 ) (10.4 )%
Total $ 53,733
59.9 % $ 33,732
54.9 %

Expense ratio

The following table summarizes the components of the expense ratio for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
	2021				2020
($ in thousands)	Underwriting Expenses		% of Earned Premiums		Underwriting Expenses		% of Earned Premiums

Commissions incurred:
Direct	$	21,165	17.2	%	$	15,142	16.9	%
Ceding	(5,355)		(4.3)	%	(3,183)		(3.6)	%
Net commissions incurred	15,810		12.9	%	11,959		13.3	%
Other underwriting expenses	12,326		10.0	%	9,624		10.7	%
Underwriting, acquisition and insurance expenses	$	28,136	22.9	%	$	21,583	24.0	%

Three Months Ended March 31,
2020 2019
($ in thousands) Underwriting Expenses % of Earned Premiums Underwriting Expenses % of Earned Premiums

Commissions incurred:
Direct $ 15,142
16.9 % $ 10,674
17.4 %
Ceding (3,183 ) (3.6 )% (2,938 ) (4.8 )%
Net commissions incurred 11,959
13.3 % 7,736
12.6 %
Other underwriting expenses 9,624
10.7 % 7,880
12.8 %
Underwriting, acquisition and insurance expenses $ 21,583
24.0 % $ 15,616
25.4 %

The expense ratio was 22.9% for the three months ended March 31, 2021 compared to 24.0% for the three months ended March 31, ~~2020 compared to 25.4% for the three months ended March 31, 2019.~~2020. The decrease in the expense ratio was primarily due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums. The decrease in the other underwriting expenses as a percentage of earned premiums was due to higher net earned premiums, without a proportional increase in the amount of other underwriting ~~expenses. This~~expenses as a result of management's focus on controlling costs. The decrease ~~was offset~~ in ~~part by higher~~ net commissions incurred as a percentage of earned premiums ~~quarter over quarter, which~~ was largely due to ~~an increase in~~ceding commission from the ~~retention on our reinsurance treaties, which resulted in relatively lower ceded premiums and associated commissions for the three months ended March 31,~~personal insurance quota share treaty effective June 1, 2020. Direct commissions paid as a percent of gross written premiums was 14.6% for both the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

Table of Contents

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 March 31, 2021 and 2020:


	Three Months Ended March 31,
($ in thousands)	2021		2020		Change		% Change

Interest from fixed-maturity securities	$	6,614	$	5,526	$	1,088	19.7	%
Dividends from equity securities	869		575		294		51.1	%
Other	1		250		(249)		(99.6)	%
Gross investment income	7,484		6,351		1,133		17.8	%
Investment expenses	(542)		(391)		(151)		38.6	%
Net investment income	6,942		5,960		982		16.5	%
Change in fair value of equity securities	7,091		(16,161)		23,252		NM
Net realized investment gains	1,198		776		422		NM


Total	$	15,231	$	(9,425)	$	24,656	NM

NM - Percentage change not meaningful.

Our net investment income increased by ~~32.0%~~16.5% to $6.9 million for the three months ended March 31, 2021 from $6.0 million for the three months ended March 31, ~~2020 from $4.5 million for the three months ended March 31, 2019.~~2020. This increase in the first three months of ~~2020~~2021 compared to the same period last year was primarily due to growth in our investment portfolio balance generated from the investment of ~~excess operating funds~~positive cash flow since March 31, ~~2019~~2020 and proceeds from our equity offering in the third quarter of ~~2019. This increase was offset in part by lower gross investment returns in the first quarter of 2020 compared to the first quarter of 2019.~~

~~The following table summarizes net investment income and net realized and unrealized investment gains and losses for the three months ended March 31, 2020 and 2019:~~

Three Months Ended March 31,
($ in thousands) 2020 2019 Change % Change

Interest from fixed-maturity securities $ 5,526
$ 4,075
$ 1,451
35.6 %
Dividends from equity securities 575
521
54
10.4 %
Other 250
245
5
2.0 %
Gross investment income 6,351
4,841
1,510
31.2 %
Investment expenses (391 ) (326 ) (65 ) 19.9 %
Net investment income 5,960
4,515
1,445
32.0 %
Change in fair value of equity securities (16,161 ) 5,895
(22,056 ) NM
Net realized gains on investments 776
280
496
177.1 %
Total $ (9,425 ) $ 10,690
$ (20,115 ) (188.2 )%

~~NM - Percentage change not meaningful.~~

2020. Our fixed-maturity investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 2.6% for the three months ended March 31, 2021 and 2.9% for the three months ended March 31, ~~2020, compared to 3.2% for~~2020.

During the first three months ~~ended March 31, 2019. The decrease~~of 2021, the change in ~~annualized gross investment returns~~fair value of equity securities was ~~due~~comprised of unrealized gains related to ~~a lower interest rate environment since March 31, 2019.~~exchange traded funds ("ETFs") of $7.5 million and unrealized losses related to preferred stock of $0.4 million. Unrealized gains during the first quarter of 2021 were largely reflective of the gains in the broader U.S. stock market. During the first three months of 2020, the change in fair value of equity securities was comprised of unrealized losses related to ETFs of $13.1 million and unrealized losses related to preferred stock of $3.1 million, driven by significant disruption in the financial markets associated with the COVID-19 pandemic.

We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in ~~the securities'~~a security's fair value is deemed to be a credit loss. Management concluded that there were no credit losses from available-for-sale investments for the three months ended March 31, ~~2020~~2021 or ~~2019.~~2020.

Income tax expense

Our ~~income~~effective tax ~~benefit~~rate was ~~$0.1 million~~18.7% for the three months ended March 31, ~~2020~~2021 compared to ~~income tax expense of $4.1 million for the three months ended March 31, 2019. Our effective tax rate was approximately~~ (1.1)% for the three months ended March 31, ~~2020 compared~~2020. In the first quarter of 2021, the effective tax rate was lower than the federal statutory rate of 21% primarily due to ~~17.9% for~~ the ~~three months ended March 31, 2019.~~tax benefits from stock-based compensation and tax-exempt investment income. In the first quarter of 2020, the effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock options exercised and tax-exempt investment income in relation to pretax income. Pretax income was lower in the first quarter of 2020 ~~reflected a decline~~from the decrease in the fair value of the Company's equity investment portfolio.

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Return on equity

Our annualized return on equity was 22.1% for the three months ended March 31, 2021 compared to 5.0% for the three months ended March 31, ~~2020 compared to 27.1%~~2020. Our annualized operating return on equity was 17.6% for the three months ended March 31, ~~2019. Our annualized operating return on equity was~~2021 compared to 17.1% for the three months ended March 31, ~~2020 compared to 20.0% for the three months ended March 31, 2019.~~2020. The ~~decrease~~increase in annualized operating return on equity for the three months ended March 31, ~~2020~~2021 compared to the ~~prior-year~~prior period was ~~due largely~~attributable primarily to ~~the proceeds received from our equity offering~~growth in the ~~third quarter~~business and higher net favorable development of ~~2019.~~loss reserves from prior accident years.

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 2019, we filed a universal shelf registration statement with the SEC that expires in 2022. We can use this shelf registration to issue an unspecified amount of debt securities, 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.

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.

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.

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Our cash flows for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 were:


	Three Months Ended March 31,
	2021		2020
	(in thousands)
Cash and cash equivalents provided by (used in):
Operating activities	$	91,322	$	59,683
Investing activities	(33,724)		(113,548)
Financing activities	(2,156)		6,011
Change in cash and cash equivalents	$	55,442	$	(47,854)

Three Months Ended March 31,
2020 2019
(in thousands)
Cash and cash equivalents provided by (used in):
Operating activities $ 59,683
$ 33,804
Investing activities (113,548 ) (4,920 )
Financing activities 6,011
(1,099 )
Change in cash and cash equivalents $ (47,854 ) $ 27,785

Net cash provided by operating activities was approximately ~~$59.7~~$91.3 million for the three months ended March 31, ~~2020,~~2021, compared to ~~$33.8~~$59.7 million for the same period in ~~2019.~~2020. 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 $33.7 million for the three months ended March 31, 2021, compared to $113.5 million for the three months ended March 31, ~~2020, compared to $4.9 million for the three months ended March 31, 2019.~~2020. Net cash used in investing activities during the first three months of 2021 included purchases of fixed-maturity securities of $105.0 million, and were comprised primarily of corporate bonds and asset- and mortgage-backed securities. During the first three months of 2021, we received proceeds of $30.8 million from sales of fixed-maturity securities, largely corporate bonds, and $45.1 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the three months ended March 31, 2021, purchases of ETFs and non-redeemable preferred stock were $0.5 million and $2.8 million, respectively.

Net cash used in investing activities of $113.5 million during the first three months of 2020 included purchases of fixed-maturity securities of $147.0 million, which in part reflected the deployment of cash

equivalents held at December 31, 2019. Purchases of fixed-maturity securities were comprised of corporate bonds, asset- and mortgage-backed securities, and municipal securities. During the first three months of 2020, we received proceeds of $31.6 million from sales of fixed-maturity securities, largely corporate bonds, and $19.5 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the three months ended March 31, 2020, purchases of ETFs and non-redeemable preferred stock were $9.6 million and $3.8 million, respectively. Net cash used in investing activities included net purchases of property and equipment of $4.3 million, primarily related to the development of our new corporate headquarters, previously disclosed.

Cash used in investing activities during the first three months of 2019 reflected purchases of fixed-income securities of $43.0 million, comprised of asset- and mortgage-backed securities and corporate bonds. During the first three months of 2019, we received proceeds of $28.4 million from sales of fixed-maturity securities, principally municipal bonds, and $14.5 million from redemptions of corporate bonds and asset- and mortgage-backed securities. During the three months ended March 31, 2019, purchases and sales of equity securities were $1.8 million and $0.9 million, respectively, largely related to non-redeemable preferred stocks. In addition, net cash used in investing activities included the purchase of land for $2.5 million in anticipation of developing a new corporate headquarters.

During the first three months of March 31, ~~2020~~2021, cash used in financing activities reflected dividends paid of $0.11 per common share, or $2.5 million in aggregate. During the first three months of March 31, 2020, we drew down $7.3 million on our Credit Facility, which was used to fund construction of our new headquarter facilities. In addition, during the first three months of March 31, 2020,, cash used in financing activities reflected dividends paid of $0.09 per common share, or $2.0 million in aggregate. ~~During the first three months of March 31, 2019, cash used in financing activities primarily reflected dividends paid of $0.08 per common share, or $1.7 million in aggregate. Net proceeds~~Proceeds received from our equity compensation plans were ~~$0.7~~$0.3 million and ~~$0.6~~$0.7 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Credit agreement

In May 2019, we entered into a Credit Agreement that provided us with a $50 million Credit Facility and an uncommitted accordion feature that permits us to increase the commitments by an additional $30 million. The Credit Facility has a maturity of May 28, 2024. Borrowings under the Credit Facility ~~will be~~was used to fund construction of our new headquarters ~~and~~but may also be used for working capital and general corporate purposes. Interest rates on borrowings are based on prevailing interest rates and the applicable margin, as described in the Credit Agreement. As of March 31, ~~2020~~2021, there was ~~$24.1~~$42.6 million outstanding under the Credit Facility, net of debt issuance costs.

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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 contracts and excess of loss contracts. 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 use facultative reinsurance coverage on a limited basis. Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.

~~The following is a summary of our significant reinsurance programs as of~~ ~~March 31, 2020~~:



~~Line of Business Covered~~	~~Company Policy Limit~~	~~Reinsurance Coverage~~	~~Company Retention~~
~~Property - per risk~~	~~Up to $10.0 million per risk~~	~~$8.0 million excess of $2.0 million~~	~~$2.0 million per occurrence~~
~~Property - catastrophe (1)~~	~~N/A~~	~~$77.5 million excess of $7.5 million~~	~~$7.5 million per catastrophe~~
~~Primary casualty (2)~~	~~Up to $10.0 million per occurrence~~	~~$8.0 million excess of $2.0 million~~	~~$2.0 million per occurrence~~
~~Excess casualty (3)~~	~~Up to $10.0 million per occurrence~~	~~Variable quota share~~	~~$2.0 million per occurrence except as described in note (3) below~~

~~(1)~~

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 $155 million and is in addition to the per-occurrence coverage provided by our facultative and other treaty coverages.


~~(2)~~	~~Reinsurance is not applicable to any individual policy with a per occurrence limit of $2.0 million or less.~~

~~(3)~~

For policies with a per occurrence limit higher than $2.0 million, the quota-share 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.

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. Effective with the June 1, 2020 renewal, we entered into a new personal insurance quota share treaty. We used model results previously noted to stress test the completeness of our program and determined that over 70% of the modelled losses from catastrophes costing over $10 million came from our personal insurance business. We determined that utilizing a personal lines quota share treaty combined with a catastrophe treaty was a more efficient and cost effective way to manage the total loss exposure on our property coverages.

The following is a summary of our significant reinsurance programs as of March 31, 2021:

Line of Business Covered

Company Policy Limit

Reinsurance Coverage

Company Retention

Property - per risk (1)

Up to $10.0 million per risk

$8.0 million excess of $2.0 million

$2.0 million per occurrence

Property - personal insurance (2)

N/A

50% up to $47.5 million per catastrophe

50% of all personal property losses

Property - catastrophe (3)

N/A

$45.0 million excess of $10.0 million

$10.0 million per catastrophe

Primary casualty (4)

Up to $10.0 million per occurrence

$8.0 million excess of $2.0 million

$2.0 million per occurrence

Excess casualty (5)

Up to $10.0 million per occurrence

Variable quota share

$2.0 million per occurrence except as described in note (5) below

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(1) Our property per-risk reinsurance reduces the financial impact of a large loss on a single commercial property or inland marine policy. This treaty includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage.

~~Reinsuran~~ce(2) Our personal insurance quota share reinsurance reduces the financial impact of property losses on our personal insurance policies.

(3) 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 $90 million and is in addition to the per-occurrence coverage provided by our facultative and treaty coverages.

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

(5) 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 ~~obligations~~obligation could result in losses to us, and ~~if such an event occurred,~~therefore, we ~~would establish~~established an allowance for ~~those amounts considered uncollectible.~~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 March 31, ~~2020,~~2021, 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 March 31, ~~2020,~~2021, we ~~have never had a loss~~recorded an allowance for ~~uncollectible reinsurance.~~doubtful accounts of $0.3 million related to our reinsurance balances.

Ratings

Kinsale Insurance Company has a financial strength rating of ~~"A-"~~"A" (Excellent) with a ~~positive~~stable outlook from A.M. Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). ~~"A-"~~"A" (Excellent) is the ~~fourth~~third highest rating issued by A.M. Best. The ~~"A-"~~"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-"~~"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.

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Financial condition

Stockholders' equity

At March 31, ~~2020,~~2021, total stockholders' equity was ~~$401.3~~$587.6 million and tangible stockholders' equity was ~~$398.5~~$584.8 million, compared to total stockholders' equity of ~~$405.9~~$576.2 million and tangible stockholders' equity ~~$403.1~~$573.4 million at December 31, ~~2019.~~2020. The ~~decreases~~increases in both total and tangible stockholders' equity over the prior year-end balances were primarily due to ~~lower fair value of our available-for-sale investments, net of taxes, and the payment of dividends. These decreases were offset in part by~~ profits generated during the period and activity related to stock-based compensation ~~plans.~~

plans, offset in part by an increase in unrealized losses on available-for-sale investments, net of taxes, and payment of dividends. Tangible stockholders’ equity is a non-GAAP financial measure. ~~We define tangible stockholders’~~See "—Reconciliation of non-GAAP financial measures" for a reconciliation of stockholders' equity 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 March 31, 2020 and December 31, 2019, reconciles~~GAAP to tangible stockholders' ~~equity as follows:~~

March 31, 2020 December 31, 2019
(in thousands)
Stockholders' equity $ 401,334
$ 405,880
Less: intangible assets, net of deferred taxes 2,795
2,795
Tangible stockholders' equity $ 398,539
$ 403,085
equity.

Investment portfolio

At March 31, ~~2020,~~2021, our cash and invested assetsof $1.4 billion ~~of $955.0 million~~ consisted of fixed-maturity securities, equity securities and cash and cash equivalents. At March 31, ~~2020,~~2021, the majority of the investment portfolio was comprised of fixed-maturity securities of ~~$818.9 million~~$1.1 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 March 31, ~~2020,~~2021, we also held ~~$83.6~~$140.0 million of equity securities, which were comprised of ETFs and non-redeemable preferred stock, and ~~$52.6~~$132.5 million of cash and cash equivalents.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of ~~4.7~~4.3 years at March 31, ~~2020~~2021 and ~~4.3 years at~~ December 31, ~~2019~~2020 and an average rating of "AA-" at March 31, ~~2020~~2021 and December 31, ~~2019.~~2020.

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, the amortized cost and estimated fair value on fixed-maturity securities were as follows:


	March 31, 2021						December 31, 2020
	Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value
	($ in thousands)
Fixed-maturity securities:

Obligations of states, municipalities and political subdivisions	$	205,744	$	214,363	19.5	%	$	216,181	$	230,906	21.3	%
Corporate and other securities	333,572		342,826		31.2	%	294,854		316,608		29.3	%
Asset-backed securities	255,544		259,425		23.6	%	236,813		240,661		22.2	%
Commercial mortgage-backed securities	62,519		64,826		5.9	%	66,110		70,969		6.6	%
Residential mortgage-backed securities	217,239		218,323		19.8	%	217,859		222,656		20.6	%
Total fixed-maturity securities	$	1,074,618	$	1,099,763	100.0	%	$	1,031,817	$	1,081,800	100.0	%

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March 31, 2020 December 31, 2019
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 $ 110
$ 114
— % $ 110
$ 112
— %
Obligations of states, municipalities and political subdivisions 173,422
181,550
22.2 % 166,312
172,893
23.7 %
Corporate and other securities 255,784
254,215
31.1 % 180,287
184,768
25.4 %
Commercial mortgage and asset-backed securities 232,773
227,065
27.7 % 195,750
197,970
27.1 %
Residential mortgage-backed securities 153,776
155,961
19.0 % 172,358
173,789
23.8 %
Total fixed-maturity securities $ 815,865
$ 818,905
100.0 % $ 714,817
$ 729,532
100.0 %

The table below summarizes the credit quality of our fixed-maturity securities at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):


	March 31, 2021				December 31, 2020
Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
	($ in thousands)
AAA	$	329,793	30.0	%	$	312,721	28.9	%
AA	344,402		31.3	%	382,174		35.3	%
A	187,268		17.0	%	187,970		17.4	%
BBB	174,494		15.9	%	157,777		14.6	%
Below BBB and unrated	63,806		5.8	%	41,158		3.8	%
Total	$	1,099,763	100.0	%	$	1,081,800	100.0	%

March 31, 2020 December 31, 2019
Standard & Poor’s or Equivalent Designation Estimated Fair Value % of Total Estimated Fair Value % of Total
($ in thousands)
AAA $ 226,860
27.7 % $ 213,174
29.2 %
AA 270,501
33.0 % 259,873
35.6 %
A 200,204
24.5 % 176,338
24.2 %
BBB 103,904
12.7 % 74,872
10.3 %
Below BBB and unrated 17,436
2.1 % 5,275
0.7 %
Total $ 818,905
100.0 % $ 729,532
100.0 %

The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, were as follows:


	March 31, 2021						December 31, 2020
	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	$	11,278	$	11,466	1.0	%	$	15,545	$	15,782	1.5	%
Due after one year through five years	124,996		131,847		12.0	%	107,150		115,390		10.7	%
Due after five years through ten years	171,090		177,032		16.1	%	156,958		169,711		15.7	%
Due after ten years	231,952		236,844		21.5	%	231,382		246,631		22.8	%
Asset-backed securities	255,544		259,425		23.6	%	236,813		240,661		22.2	%
Commercial mortgage-backed securities	62,519		64,826		5.9	%	66,110		70,969		6.5	%
Residential mortgage-backed securities	217,239		218,323		19.9	%	217,859		222,656		20.6	%
Total fixed-maturity securities	$	1,074,618	$	1,099,763	100.0	%	$	1,031,817	$	1,081,800	100.0	%

March 31, 2020 December 31, 2019

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 $ 13,680
$ 13,742
1.7 % $ 9,940
$ 9,990
1.4 %
Due after one year through five years 109,574
111,474
13.6 % 115,480
118,611
16.3 %
Due after five years through ten years 134,900
135,904
16.6 % 79,235
82,314
11.3 %
Due after ten years 171,162
174,759
21.4 % 142,054
146,858
20.1 %
Commercial mortgage and asset-backed securities 232,773
227,065
27.7 % 195,750
197,970
27.1 %
Residential mortgage-backed securities 153,776
155,961
19.0 % 172,358
173,789
23.8 %
Total fixed maturities $ 815,865
$ 818,905
100.0 % $ 714,817
$ 729,532
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.

As of March 31, ~~2020, approximately 6.2%~~2021, 7.7% of our total cash and investments were invested in ETFs. At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, our ETF balances were comprised of the following funds:


	March 31, 2021				December 31, 2020
Fund	Fair Value		% of Total		Fair Value		% of Total
	($ in thousands)
Domestic stock market fund	$	68,994	65.1	%	$	64,760	66.0	%
Dividend yield equity fund	37,020		34.9	%	33,290		34.0	%


Total	$	106,014	100.0	%	$	98,050	100.0	%

Table of Contents

March 31, 2020 December 31, 2019
Fund Fair Value % of Total Fair Value % of Total
($ in thousands)
Domestic stock market fund $ 42,357
71.7 % $ 42,873
78.7 %
Dividend yield equity fund 16,689
28.3 % 11,590
21.3 %
Total $ 59,046
100.0 % $ 54,463
100.0 %

As of March 31, ~~2020, approximately 2.6%~~2021, 2.5% of our total cash and investments were invested in non-redeemable preferred stock. A summary of these securities by industry segment is shown below as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020:


	March 31, 2021				December 31, 2020
Industry	Fair Value		% of Total		Fair Value		% of Total
	($ in thousands)
Financial	$	30,166	88.7	%	$	27,744	87.8	%
Utilities	3,013		8.8	%	3,034		9.6	%
Industrials and other	843		2.5	%	834		2.6	%
Total	$	34,022	100.0	%	$	31,612	100.0	%

March 31, 2020 December 31, 2019
Industry Fair Value % of Total Fair Value % of Total
($ in thousands)
Financial $ 21,675
88.4 % $ 20,369
85.5 %
Utilities 2,598
10.6 % 2,992
12.5 %
Industrials and other 247
1.0 % 470
2.0 %
Total $ 24,520
100.0 % $ 23,831
100.0 %

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~~$6.9~~ $6.8 million and $6.9 million at ~~both~~ March 31, ~~2020~~2021 and December 31, ~~2019.~~2020, respectively.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements at March 31, ~~2020.~~2021.

Reconciliation of non-GAAP financial measures

Reconciliation of underwriting 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 on investments,~~ other income, other expenses and income tax expense. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company's financial information useful insight into the Company's results of operations and 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.

Net income for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, reconciles to underwriting income as follows:


	Three Months Ended March 31,
(in thousands)		2021		2020

Net income		$	32,079	$	5,086
Income tax expense (benefit)		7,360		(56)
Income before income taxes		39,439		5,030
Other expenses		448		—
Net investment income		(6,942)		(5,960)
Change in the fair value of equity securities		(7,091)		16,161
Net realized investment gains		(1,198)		(776)
Other income		(11)		(10)
Underwriting income		$	24,645	$	14,445

Table of Contents

Three Months Ended March 31,
(in thousands) 2020 2019

Net income $ 5,086
$ 18,720
Income tax (benefit) expense (56 ) 4,081
Income before income taxes 5,030
22,801
Other expenses —
36
Net investment income (5,960 ) (4,515 )
Change in the fair value of equity securities 16,161
(5,895 )
Net realized gains on investments (776 ) (280 )
Other income (10 ) (4 )
Underwriting income $ 14,445
$ 12,143

Reconciliation of netnet operating earnings

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

exclusion of these items provides a more useful comparison of the Company's underlying business performance from period to period. Net operating earnings 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 months ended March 31, ~~2020~~2021 and ~~2019,~~2020, reconciles to net operating earnings as follows:


	Three Months Ended March 31,							Three Months Ended March 31,
(in thousands)	2020			2019			(in thousands)		2021			2020

Net operating earnings:

Net income	$	5,086		$	18,720		Net income		$	32,079		$	5,086
Change in the fair value of equity securities, after taxes	12,767			(4,657		)	Change in the fair value of equity securities, after taxes		(5,602)			12,767
Net realized gains on investments, after taxes	(613		)	(221		)
Net realized investment gains, after taxes							Net realized investment gains, after taxes		(946)			(613)
Net operating earnings	$	17,240		$	13,842		Net operating earnings		$	25,531		$	17,240

Operating return on equity:							Operating return on equity:
Average stockholders' equity ⁽¹⁾	$	403,607		$	276,438		Average stockholders' equity (1)		$	581,902		$	403,607
Annualized return on equity ⁽²⁾	5.0		%	27.1		%	Annualized return on equity (2)		22.1		%	5.0		%
Annualized operating return on equity ⁽³⁾	17.1		%	20.0		%	Annualized operating return on equity (3)		17.6		%	17.1		%

⁽¹⁾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.

⁽²⁾Annualized return on equity is net income expressed on an annualized basis as a percentage of average ~~stockholders’~~beginning and ending stockholders' equity during the period.

⁽³⁾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 March 31, 2021 and December 31, 2020, reconciles to tangible stockholders' equity as follows:


	March 31, 2021		December 31, 2020
	(in thousands)
Stockholders' equity	$	587,566	$	576,238
Less: intangible assets, net of deferred taxes	2,795		2,795
Tangible stockholders' equity	$	584,771	$	573,443

Critical accounting estimates



	March 31, 2020		December 31, 2019
	(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities available for sale, at fair value (amortized cost: $815,865 in 2020; $714,817 in 2019)	$	818,905	$	729,532
Equity securities, at fair value (cost: $85,678 in 2020 $64,245 in 2019)	83,566		78,294
Total investments	902,471		807,826
Cash and cash equivalents	52,554		100,408
Investment income due and accrued	5,499		4,743
Premiums receivable, net	42,187		34,483
Reinsurance recoverables	71,422		72,574
Ceded unearned premiums	18,112		16,118
Deferred policy acquisition costs, net of ceding commissions	26,005		23,564
Intangible assets	3,538		3,538
Deferred income tax asset, net	9,869		3,374
Other assets	33,832		23,922
Total assets	$	1,165,489	$	1,090,550

Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses	$	491,333	$	460,058
Unearned premiums	207,662		187,374
Payable to reinsurers	10,658		7,151
Accounts payable and accrued expenses	7,528		12,366
Credit facility	24,075		16,744
Other liabilities	22,899		977
Total liabilities	764,155		684,670

Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,253,823 and 22,205,665 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively	223		222
Additional paid-in capital	230,742		229,229
Retained earnings	166,074		162,911
Accumulated other comprehensive income	4,295		13,518
Total stockholders’ equity	401,334		405,880
Total liabilities and stockholders’ equity	$	1,165,489	$	1,090,550



Balance at December 31, 2018	21,242	$	212	$	158,485	$	106,545		$	(1,256	)	$	263,986
Issuance of common stock under stock-based compensation plan	43	1		597		—			—			598
Stock-based compensation expense	—	—		507		—			—			507
Dividends declared ($0.08 per share)	—	—		—		(1,702		)	—			(1,702		)
Other comprehensive income, net of tax	—	—		—		—			6,780			6,780
Net income	—	—		—		18,720			—			18,720
Balance at March 31, 2019	21,285	$	213	$	159,589	$	123,563		$	5,524		$	288,889



	March 31, 2020
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	110	$	4	$	—		$	114
Obligations of states, municipalities and political subdivisions	173,422		8,830		(702		)	181,550
Corporate and other securities	255,784		5,849		(7,418		)	254,215
Commercial mortgage and asset-backed securities	232,773		2,112		(7,820		)	227,065
Residential mortgage-backed securities	153,776		3,527		(1,342		)	155,961
Total available-for-sale investments	$	815,865	$	20,322	$	(17,282	)	$	818,905



	December 31, 2019
	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses			Estimated Fair Value
	(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies	$	110	$	2	$	—		$	112
Obligations of states, municipalities and political subdivisions	166,312		7,542		(961		)	172,893
Corporate and other securities	180,287		4,736		(255		)	184,768
Commercial mortgage and asset-backed securities	195,750		2,930		(710		)	197,970
Residential mortgage-backed securities	172,358		1,819		(388		)	173,789
Total available-for-sale investments	$	714,817	$	17,029	$	(2,314	)	$	729,532


	For the Three Months Ended March 31, 2021
	Number of Shares	Weighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the period	108,392	$	97.40
Granted	35,870	$	185.00
Vested	(4,428)	$	101.66
Forfeited	(2,406)	$	148.60
Non-vested outstanding at the end of the period	137,428	$	119.22


⁽¹⁾ (2)Expected life was calculated using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period, as the Company did not have sufficient historical data for determining the expected term of our stock option awards.	~~Expected volatility was based on the Company’s competitors within the industry.~~


⁽²⁾	Expected life was calculated using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period, as the Company did not have sufficient historical data for determining the expected term of our stock option awards.



	March 31
	2020			2019
	(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	$	460,058		$	369,152
Less reinsurance recoverable on unpaid losses	69,792			55,389
Adoption of new accounting standard for credit losses	(282		)	—
Net reserves for unpaid losses and loss adjustment expenses, beginning of year	390,548			313,763
Incurred losses and loss adjustment expenses:
Current year	56,742			40,128
Prior years	(3,009		)	(6,396		)
Total net losses and loss adjustment expenses incurred	53,733			33,732

Payments:
Current year	777			2,042
Prior years	21,270			17,955
Total payments	22,047			19,997
Net reserves for unpaid losses and loss adjustment expenses, end of period	422,234			327,498
Reinsurance recoverable on unpaid losses	69,099			57,627
Gross reserves for unpaid losses and loss adjustment expenses, end of period	$	491,333		$	385,125



Exhibit Number						Description
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)



	KINSALE CAPITAL GROUP, INC.
Date: April ~~30, 2020~~29, 2021		By:	/s/ Michael P. Kehoe
			Michael P. Kehoe President and Chief Executive Officer

Date: April ~~30, 2020~~29, 2021		By:	/s/ Bryan P. Petrucelli
			Bryan P. Petrucelli Executive Vice President, Chief Financial Officer and Treasurer