UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, ~~2020~~2021


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

For the transition period from _______ to _______

Commission File Number: 001-37848



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

2035 Maywill Street

Suite 100

Richmond, Virginia 23230

(Address of principal executive offices, including zip code)

(804) 289-1300

(Registrant's telephone number, including area code)

~~2221 Edward Holland Drive~~

~~Suite 600~~

~~Richmond, Virginia 23230~~

~~(Former address, if changed since last report)~~

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	KNSL	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 October ~~23, 2020: 22,677,083~~22, 2021: 22,818,845

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KINSALE CAPITAL GROUP, INC.

TABLE OF CONTENTS


		Page
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	4
	Consolidated Balance Sheets at September 30, ~~2020~~2021 (Unaudited) and December 31, ~~2019~~2020	4
	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	5
	Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for Each Quarter Within the ~~Three and~~ Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, ~~2020~~2021 and ~~2019~~2020	8
	Notes to Condensed Consolidated Financial Statements (Unaudited)	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2524
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4544
Item 4.	Controls and Procedures	4544

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4746
Item 1A.	Risk Factors	4746
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4846
Item 6.	Exhibits	4946
	Signatures	5047

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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~~have," "prospects" or similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements are only predictions and are not guarantees of future performance. Actual results may differ materially from those contemplated by a forward-looking statement. Factors that may cause such differences include, without limitation:

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

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

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

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

•the possibility that severe weather conditions and 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;

•~~extensive regulation adversely affecting~~ our ~~ability to achieve~~employees taking excessive risks;

•the intense competition for business in our ~~business objectives or~~ industry;

•the ~~failure to comply with these regulations~~effects of litigation having an adverse effect on our business;

•the performance of our investment portfolio adversely affecting our financial ~~condition and results of operations;~~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;

•~~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;~~

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•~~the inability~~extensive regulation adversely affecting our ability to ~~manage~~achieve our ~~growth effectively;~~

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

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

•objectives or the failure to ~~maintain effective internal controls in accordance~~comply with ~~the Sarbanes-Oxley~~these regulations adversely affecting our financial condition and results of ~~2002 (the "Sarbanes-Oxley Act"); and~~operations;

•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)


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(in thousands, except share and per share data)					(in thousands, except share and per share data)
Assets	Assets					Assets
Investments:	Investments:					Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $979,365 in 2020; $714,817 in 2019)		$	1,024,889	$	729,532
Equity securities, at fair value (cost: $98,253 in 2020 $64,245 in 2019)		116,011		78,294
Fixed-maturity securities, available for sale, at fair value (amortized cost: $1,313,284 – 2021; $1,031,817 – 2020)						Fixed-maturity securities, available for sale, at fair value (amortized cost: $1,313,284 – 2021; $1,031,817 – 2020)	$	1,342,873	$	1,081,800
Equity securities, at fair value (cost: $107,244 – 2021; $98,758 – 2020)						Equity securities, at fair value (cost: $107,244 – 2021; $98,758 – 2020)	151,792		129,662

Total investments	Total investments	1,140,900		807,826		Total investments	1,494,665		1,211,462
Cash and cash equivalents	Cash and cash equivalents	78,696		100,408		Cash and cash equivalents	90,012		77,093
Investment income due and accrued	Investment income due and accrued	6,245		4,743		Investment income due and accrued	7,276		6,637
Premiums receivable, net	Premiums receivable, net	47,646		34,483		Premiums receivable, net	63,709		48,641
Reinsurance recoverables	Reinsurance recoverables	88,305		72,574		Reinsurance recoverables	112,026		93,215
Ceded unearned premiums	Ceded unearned premiums	22,870		16,118		Ceded unearned premiums	32,783		24,265
Deferred policy acquisition costs, net of ceding commissions	Deferred policy acquisition costs, net of ceding commissions	30,293		23,564		Deferred policy acquisition costs, net of ceding commissions	40,273		31,912
Intangible assets	Intangible assets	3,538		3,538		Intangible assets	3,538		3,538
Deferred income tax asset, net	Deferred income tax asset, net	0		3,374		Deferred income tax asset, net	392		—
Other assets	Other assets	50,096		23,922		Other assets	54,221		50,133
Total assets	Total assets	$	1,468,589	$	1,090,550	Total assets	$	1,898,895	$	1,546,896

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Liabilities:	Liabilities:					Liabilities:
Reserves for unpaid losses and loss adjustment expenses	Reserves for unpaid losses and loss adjustment expenses	$	603,200	$	460,058	Reserves for unpaid losses and loss adjustment expenses	$	814,856	$	636,013
Unearned premiums	Unearned premiums	247,075		187,374		Unearned premiums	334,620		260,986
Payable to reinsurers	Payable to reinsurers	11,636		7,151		Payable to reinsurers	15,097		12,672
Accounts payable and accrued expenses	Accounts payable and accrued expenses	10,400		12,366		Accounts payable and accrued expenses	16,725		13,651
Credit facility	Credit facility	40,138		16,744		Credit facility	42,664		42,570
Deferred income tax liability, net	Deferred income tax liability, net	1,248		0		Deferred income tax liability, net	—		4,648
Other liabilities	Other liabilities	20,761		977		Other liabilities	15,768		118
Total liabilities	Total liabilities	934,458		684,670		Total liabilities	1,239,730		970,658

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,661,754 and 22,205,665 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		227		222
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,818,527 and 22,757,251 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively						Common stock, $0.01 par value, 400,000,000 shares authorized, 22,818,527 and 22,757,251 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	228		228
Additional paid-in capital	Additional paid-in capital	288,868		229,229		Additional paid-in capital	293,535		291,315
Retained earnings	Retained earnings	207,179		162,911		Retained earnings	340,133		243,315
Accumulated other comprehensive income	Accumulated other comprehensive income	37,857		13,518		Accumulated other comprehensive income	25,269		41,380
Total stockholders’ equity	Total stockholders’ equity	534,131		405,880		Total stockholders’ equity	659,165		576,238
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,468,589	$	1,090,550	Total liabilities and stockholders’ equity	$	1,898,895	$	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 (Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands, except per share data)									(in thousands, except per share data)
Revenues:	Revenues:									Revenues:
Gross written premiums	Gross written premiums	$	144,777	$	97,984	$	402,904	$	277,557	Gross written premiums	$	197,616	$	144,777	$	560,553	$	402,904
Ceded written premiums	Ceded written premiums	(22,529)		(11,232)		(54,996)		(35,051)		Ceded written premiums	(26,939)		(22,529)		(77,825)		(54,996)
Net written premiums	Net written premiums	122,248		86,752		347,908		242,506		Net written premiums	170,677		122,248		482,728		347,908
Change in unearned premiums	Change in unearned premiums	(14,004)		(14,131)		(52,946)		(42,307)		Change in unearned premiums	(13,806)		(14,004)		(65,116)		(52,946)
Net earned premiums	Net earned premiums	108,244		72,621		294,962		200,199		Net earned premiums	156,871		108,244		417,612		294,962
Net investment income	Net investment income	7,008		5,265		19,613		14,586		Net investment income	8,095		7,008		22,466		19,613
Change in the fair value of equity securities	Change in the fair value of equity securities	6,031		246		3,709		8,050		Change in the fair value of equity securities	(1,012)		6,031		13,644		3,709
Net realized investment gains	Net realized investment gains	647		185		1,676		230		Net realized investment gains	895		647		2,397		1,676
Other income	Other income	571		10		594		19		Other income	35		571		58		594
Total revenues	Total revenues	122,501		78,327		320,554		223,084		Total revenues	164,884		122,501		456,177		320,554

Expenses:	Expenses:									Expenses:
Losses and loss adjustment expenses	Losses and loss adjustment expenses	82,431		44,810		194,468		118,121		Losses and loss adjustment expenses	87,352		82,431		236,727		194,468
Underwriting, acquisition and insurance expenses	Underwriting, acquisition and insurance expenses	22,927		18,324		67,471		50,377		Underwriting, acquisition and insurance expenses	31,465		22,927		89,490		67,471
Other expenses	Other expenses	1,022		0		1,022		57		Other expenses	388		1,022		1,234		1,022
Total expenses	Total expenses	106,380		63,134		262,961		168,555		Total expenses	119,205		106,380		327,451		262,961
Income before income taxes	Income before income taxes	16,121		15,193		57,593		54,529		Income before income taxes	45,679		16,121		128,726		57,593
Total income tax expense	Total income tax expense	1,231		2,217		7,355		9,066		Total income tax expense	9,054		1,231		24,387		7,355
Net income	Net income	14,890		12,976		50,238		45,463		Net income	36,625		14,890		104,339		50,238
Other comprehensive income:
Change in unrealized gains on available-for-sale investments, net of taxes of $1,742 and $6,470 in 2020 and $863 and $4,407 in 2019		6,554		3,242		24,339		16,577
Other comprehensive (loss) income:										Other comprehensive (loss) income:
Change in net unrealized gains on available-for-sale investments, net of taxes										Change in net unrealized gains on available-for-sale investments, net of taxes	(6,072)		6,554		(16,111)		24,339
Total comprehensive income	Total comprehensive income	$	21,444	$	16,218	$	74,577	$	62,040	Total comprehensive income	$	30,553	$	21,444	$	88,228	$	74,577


Earnings per share:	Earnings per share:									Earnings per share:
Basic	Basic	$	0.66	$	0.60	$	2.26	$	2.13	Basic	$	1.61	$	0.66	$	4.60	$	2.26
Diluted	Diluted	$	0.65	$	0.58	$	2.21	$	2.07	Diluted	$	1.59	$	0.65	$	4.53	$	2.21

Weighted-average shares outstanding:	Weighted-average shares outstanding:									Weighted-average shares outstanding:
Basic	Basic	22,398		21,660		22,220		21,348		Basic	22,714		22,398		22,681		22,220
Diluted	Diluted	22,928		22,277		22,775		21,965		Diluted	23,064		22,928		23,057		22,775

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			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)												(in thousands, except per share data)
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
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	48	1		701		—		—		702		Issuance of common stock under stock-based compensation plan	55	—		339		—		—		339
Stock-based compensation expense	Stock-based compensation expense	—	—		812		—		—		812		Stock-based compensation expense	—	—		1,036		—		—		1,036
Dividends declared ($0.09 per share)		—	—		—		(2,001)		—		(2,001)
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	—	—		—		—		(9,223)		(9,223)		Other comprehensive loss, net of tax	—	—		—		—		(19,622)		(19,622)
Net income	Net income	—	—		—		5,086		—		5,086		Net income	—	—		—		32,079		—		32,079
Balance at March 31, 2020		22,254	223		230,742		166,074		4,295		401,334
Balance at March 31, 2021													Balance at March 31, 2021	22,812	228		292,690		272,890		21,758		587,566
Issuance of common stock under stock-based compensation plan	Issuance of common stock under stock-based compensation plan	61	0		395		—		—		395		Issuance of common stock under stock-based compensation plan	7	—		163		—		—		163
Stock-based compensation expense	Stock-based compensation expense	—	—		931		—		—		931		Stock-based compensation expense	—	—		1,279		—		—		1,279
Restricted shares withheld for taxes	Restricted shares withheld for taxes	(12)	—		(1,803)		—		—		(1,803)		Restricted shares withheld for taxes	(13)	—		(2,082)		—		—		(2,082)
Dividends declared ($0.09 per share)		—	—		—		(2,013)		—		(2,013)
Dividends declared ($0.11 per share)													Dividends declared ($0.11 per share)	—	—		—		(2,508)		—		(2,508)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—		27,008		27,008		Other comprehensive income, net of tax	—	—		—		—		9,583		9,583
Net income	Net income	—	—		—		30,262		—		30,262		Net income	—	—		—		35,635		—		35,635
Balance at June 30, 2020		22,303	223		230,265		194,323		31,303		456,114
Issuance of common stock, net of issuance costs		311	3		56,698		—		—		56,701
Balance at June 30, 2021													Balance at June 30, 2021	22,806	228		292,050		306,017		31,341		629,636
Issuance of common stock under stock-based compensation plan	Issuance of common stock under stock-based compensation plan	48	1		953		—		—		954		Issuance of common stock under stock-based compensation plan	13	—		220		—		—		220
Stock-based compensation expense	Stock-based compensation expense	—	—		952		—		—		952		Stock-based compensation expense	—	—		1,265		—		—		1,265
Dividends declared ($0.09 per share)		—	—		—		(2,034)		—		(2,034)
Other comprehensive income, net of tax		—	—		—		—		6,554		6,554
Dividends declared ($0.11 per share)													Dividends declared ($0.11 per share)	—	—		—		(2,509)		—		(2,509)
Other comprehensive loss, net of tax													Other comprehensive loss, net of tax	—	—		—		—		(6,072)		(6,072)
Net income	Net income	—	—		—		14,890		—		14,890		Net income	—	—		—		36,625		—		36,625
Balance at September 30, 2020		22,662	$	227	$	288,868	$	207,179	$	37,857	$	534,131
Balance at September 30, 2021													Balance at September 30, 2021	22,819	$	228	$	293,535	$	340,133	$	25,269	$	659,165

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - Continued


		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, 2018		21,242	$	212	$	158,485	$	106,545	$	(1,256)	$	263,986
														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, 2019													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													Adoption of new accounting standard for credit losses, net	—	—		—		78		—		78
Issuance of common stock under stock-based compensation plan	Issuance of common stock under stock-based compensation plan	43	1		597		—		—		598		Issuance of common stock under stock-based compensation plan	48	1		701		—		—		702
Stock-based compensation expense	Stock-based compensation expense	—	—		507		—		—		507		Stock-based compensation expense	—	—		812		—		—		812
Dividends declared ($0.08 per share)		—	—		—		(1,702)		—		(1,702)
Other comprehensive income, net of tax		—	—		—		—		6,780		6,780
Dividends declared ($0.09 per share)													Dividends declared ($0.09 per share)	—	—		—		(2,001)		—		(2,001)
Other comprehensive loss, net of tax													Other comprehensive loss, net of tax	—	—		—		—		(9,223)		(9,223)
Net income	Net income	—	—		—		18,720		—		18,720		Net income	—	—		—		5,086		—		5,086
Balance at March 31, 2019		21,285	213		159,589		123,563		5,524		288,889
Balance at March 31, 2020													Balance at March 31, 2020	22,254	223		230,742		166,074		4,295		401,334
Issuance of common stock under stock-based compensation plan	Issuance of common stock under stock-based compensation plan	78	1		393		—		—		394		Issuance of common stock under stock-based compensation plan	61	—		395		—		—		395
Stock-based compensation expense	Stock-based compensation expense	—	—		621		—		—		621		Stock-based compensation expense	—	—		931		—		—		931
Restricted shares withheld for taxes	Restricted shares withheld for taxes	(7)	—		(617)		—		—		(617)		Restricted shares withheld for taxes	(12)	—		(1,803)		—		—		(1,803)
Dividends declared ($0.08 per share)		—	—		—		(1,702)		—		(1,702)
Dividends declared ($0.09 per share)													Dividends declared ($0.09 per share)	—	—		—		(2,013)		—		(2,013)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—		6,555		6,555		Other comprehensive income, net of tax	—	—		—		—		27,008		27,008
Net income	Net income	—	—		—		13,767		—		13,767		Net income	—	—		—		30,262		—		30,262
Balance at June 30, 2019		21,356	214		159,986		135,628		12,079		307,907
Balance at June 30, 2020													Balance at June 30, 2020	22,303	223		230,265		194,323		31,303		456,114
Issuance of common stock, net of issuance costs	Issuance of common stock, net of issuance costs	742	7		65,872		—		—		65,879		Issuance of common stock, net of issuance costs	311	3		56,698		—		—		56,701
Issuance of common stock under stock-based compensation plan	Issuance of common stock under stock-based compensation plan	61	1		989		—		—		990		Issuance of common stock under stock-based compensation plan	48	1		953		—		—		954
Stock-based compensation expense	Stock-based compensation expense	—	—		814		—		—		814		Stock-based compensation expense	—	—		952		—		—		952
Dividends declared ($0.08 per share)		—	—		—		(1,772)		—		(1,772)
Dividends declared ($0.09 per share)													Dividends declared ($0.09 per share)	—	—		—		(2,034)		—		(2,034)
Other comprehensive income, net of tax	Other comprehensive income, net of tax	—	—		—		—		3,242		3,242		Other comprehensive income, net of tax	—	—		—		—		6,554		6,554
Net income	Net income	—	—		—		12,976		—		12,976		Net income	—	—		—		14,890		—		14,890
Balance at September 30, 2019		22,159	$	222	$	227,661	$	146,832	$	15,321	$	390,036
Balance at September 30, 2020													Balance at September 30, 2020	22,662	$	227	$	288,868	$	207,179	$	37,857	$	534,131

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
		(in thousands)					(in thousands)
Operating activities:	Operating activities:					Operating activities:
Net cash provided by operating activities	Net cash provided by operating activities	$	206,461	$	119,100	Net cash provided by operating activities	$	301,881	$	206,461

Investing activities:	Investing activities:					Investing activities:
Purchase of property and equipment	Purchase of property and equipment	(29,088)		(12,406)		Purchase of property and equipment	(4,770)		(29,088)
Sale of property and equipment	Sale of property and equipment	4,999		0		Sale of property and equipment	—		4,999

Purchases – fixed-maturity securities	Purchases – fixed-maturity securities	(389,713)		(245,335)		Purchases – fixed-maturity securities	(509,000)		(389,713)
Purchases – equity securities	Purchases – equity securities	(33,830)		(21,139)		Purchases – equity securities	(11,717)		(33,830)
Sales – fixed-maturity securities	Sales – fixed-maturity securities	79,042		32,510		Sales – fixed-maturity securities	102,552		79,042
Sales – equity securities	Sales – equity securities	0		20,755		Sales – equity securities	3,185		—
Maturities and calls – fixed-maturity securities	Maturities and calls – fixed-maturity securities	66,204		44,481		Maturities and calls – fixed-maturity securities	139,669		66,204
Net cash used in investing activities	Net cash used in investing activities	(302,386)		(181,134)		Net cash used in investing activities	(280,081)		(302,386)

Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of common stock, net of issuance costs	Proceeds from issuance of common stock, net of issuance costs	56,701		65,879		Proceeds from issuance of common stock, net of issuance costs	—		56,701
Proceeds from credit facility	Proceeds from credit facility	23,300		11,800		Proceeds from credit facility	—		23,300
Debt issuance costs		0		(628)

Payroll taxes withheld and remitted on share-based payments	Payroll taxes withheld and remitted on share-based payments	(1,803)		(617)		Payroll taxes withheld and remitted on share-based payments	(2,082)		(1,803)
Proceeds from stock options exercised	Proceeds from stock options exercised	2,051		1,982		Proceeds from stock options exercised	722		2,051
Dividends paid	Dividends paid	(6,036)		(5,163)		Dividends paid	(7,521)		(6,036)
Net cash provided by financing activities		74,213		73,253
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(8,881)		74,213
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(21,712)		11,219		Net change in cash and cash equivalents	12,919		(21,712)
Cash and cash equivalents at beginning of year	Cash and cash equivalents at beginning of year	100,408		75,089		Cash and cash equivalents at beginning of year	77,093		100,408
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	78,696	$	86,308	Cash and cash equivalents at end of period	$	90,012	$	78,696

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Summary of significant accounting policies

Basis of presentation

The ~~accompanying~~unaudited condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. ~~For a more complete description of Kinsale Capital Group, Inc. and its wholly owned subsidiaries' (the "Company") business and accounting policies,~~As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of Kinsale Capital Group, Inc. and its subsidiaries ("the ~~Company~~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.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities 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

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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~~Company's condensed consolidated financial statements.

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

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2. Investments

Available-for-sale investments

The following tables summarize the available-for-sale investments at September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:


		September 30, 2020								September 30, 2021
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value				Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
		(in thousands)								(in thousands)
Fixed maturities:	Fixed maturities:										Fixed maturities:

U.S. Treasury securities and obligations of U.S. government agencies											U.S. Treasury securities and obligations of U.S. government agencies	$	6,932	$	—	$	(10)	$	6,922
Obligations of states, municipalities and political subdivisions	Obligations of states, municipalities and political subdivisions	$	210,703	$	14,240	$	(57)	$	224,886		Obligations of states, municipalities and political subdivisions	214,776		11,739		(454)		226,061
Corporate and other securities	Corporate and other securities	317,977		19,911		(700)		337,188			Corporate and other securities	434,489		14,101		(2,100)		446,490
Asset-backed securities	Asset-backed securities	225,969		4,139		(1,328)		228,780			Asset-backed securities	298,492		3,255		(79)		301,668
Commercial mortgage-backed securities	Commercial mortgage-backed securities	62,421		4,739		(88)		67,072			Commercial mortgage-backed securities	58,579		2,942		(81)		61,440
Residential mortgage-backed securities	Residential mortgage-backed securities	162,295		4,719		(51)		166,963			Residential mortgage-backed securities	300,016		2,817		(2,541)		300,292
Total fixed-maturity investments	Total fixed-maturity investments	$	979,365	$	47,748	$	(2,224)	$	1,024,889		Total fixed-maturity investments	$	1,313,284	$	34,854	$	(5,265)	$	1,342,873

December 31, 2019
Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies $ 110 $ 2 $ 0 $ 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
Asset-backed securities 141,123 1,272 (471) 141,924
Commercial mortgage-backed securities 54,627 1,658 (239) 56,046
Residential mortgage-backed securities 172,358 1,819 (388) 173,789
Total fixed-maturity investments $ 714,817 $ 17,029 $ (2,314) $ 729,532

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	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 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

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facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.

For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment. For fixed-maturity securities that the Company ~~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 through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income. ~~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 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.

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


		September 30, 2020													September 30, 2021
		Less than 12 Months				12 Months or Longer				Total					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			Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
		(in thousands)													(in thousands)
Fixed maturities:	Fixed maturities:													Fixed maturities:

U.S. Treasury securities and obligations of the U.S. government agencies														U.S. Treasury securities and obligations of the U.S. government agencies	$	6,922	$	(10)	$	—	$	—	$	6,922	$	(10)
Obligations of states, municipalities and political subdivisions	Obligations of states, municipalities and political subdivisions	$	9,598	$	(57)	$	0	$	0	$	9,598	$	(57)	Obligations of states, municipalities and political subdivisions	24,496		(454)		—		—		24,496		(454)
Corporate and other securities	Corporate and other securities	48,288		(700)		0		0		48,288		(700)		Corporate and other securities	127,870		(1,984)		1,080		(116)		128,950		(2,100)
Asset-backed securities	Asset-backed securities	82,614		(852)		23,605		(476)		106,219		(1,328)		Asset-backed securities	63,318		(58)		7,771		(21)		71,089		(79)
Commercial mortgage-backed securities	Commercial mortgage-backed securities	6,747		(88)		0		0		6,747		(88)		Commercial mortgage-backed securities	8,500		(81)		—		—		8,500		(81)
Residential mortgage-backed securities	Residential mortgage-backed securities	24,615		(42)		279		(9)		24,894		(51)		Residential mortgage-backed securities	188,418		(2,505)		1,249		(36)		189,667		(2,541)
Total fixed-maturity investments	Total fixed-maturity investments	$	171,862	$	(1,739)	$	23,884	$	(485)	$	195,746	$	(2,224)	Total fixed-maturity investments	$	419,524	$	(5,092)	$	10,100	$	(173)	$	429,624	$	(5,265)

At September 30, ~~2020,~~2021, the Company held ~~106~~165 fixed-maturity securities in an unrealized loss position with a total estimated fair value of ~~$195.7~~$429.6 million and gross unrealized losses of ~~$2.2~~$5.3 million. Of these securities, 128 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 September 30, ~~2020,~~2021, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At September 30, ~~2020, 81.6%~~2021, 80.3% of the Company’s fixed-maturity securities were rated "A-" or better and all of the Company’s fixed-maturity securities made expected coupon

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payments under the contractual terms of the securities. For the nine months ended September 30, ~~2020,~~2021, the Company concluded that there were 0no 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 Losses Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions $ 28,997 $ (961) $ 254 $ 0 $ 29,251 $ (961)
Corporate and other securities 22,409 (251) 1,509 (4) 23,918 (255)
Asset-backed securities 21,371 (79) 44,115 (392) 65,486 (471)
Commercial mortgage-backed securities 16,352 (224) 2,508 (15) 18,860 (239)
Residential mortgage-backed securities 36,986 (148) 24,815 (240) 61,801 (388)
Total fixed-maturity investments $ 126,115 $ (1,663) $ 73,201 $ (651) $ 199,316 $ (2,314)

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	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)	$	—	$	—	$	6,412	$	(67)
Corporate and other securities	3,829		(86)		—		—		3,829		(86)
Asset-backed securities	57,750		(149)		23,825		(233)		81,575		(382)
Commercial mortgage-backed securities	4,971		(27)		—		—		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 September 30, ~~2020~~2021 are summarized, by contractual maturity, as follows:


		September 30, 2020					September 30, 2021
		Amortized		Estimated			Amortized		Estimated
		Cost		Fair Value			Cost		Fair Value
		(in thousands)					(in thousands)
Due in one year or less	Due in one year or less	$	9,043	$	9,192	Due in one year or less	$	8,471	$	8,601
Due after one year through five years	Due after one year through five years	112,714		120,488		Due after one year through five years	172,248		178,438
Due after five years through ten years	Due after five years through ten years	169,530		181,209		Due after five years through ten years	211,736		219,098
Due after ten years	Due after ten years	237,393		251,185		Due after ten years	263,742		273,336
Asset-backed securities	Asset-backed securities	225,969		228,780		Asset-backed securities	298,492		301,668
Commercial mortgage-backed securities	Commercial mortgage-backed securities	62,421		67,072		Commercial mortgage-backed securities	58,579		61,440
Residential mortgage-backed securities	Residential mortgage-backed securities	162,295		166,963		Residential mortgage-backed securities	300,016		300,292
Total fixed-maturity securities	Total fixed-maturity securities	$	979,365	$	1,024,889	Total fixed-maturity securities	$	1,313,284	$	1,342,873

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

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Net investment income

The following table presents the components of net investment income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(in thousands)
Interest:
Taxable bonds $ 5,383 $ 4,050 $ 15,253 $ 10,593
Tax exempt municipal bonds 918 887 2,741 2,783
Cash equivalents and short-term investments 0 266 261 667
Dividends on equity securities 1,100 406 2,554 1,493
Gross investment income 7,401 5,609 20,809 15,536
Investment expenses (393) (344) (1,196) (950)
Net investment income $ 7,008 $ 5,265 $ 19,613 $ 14,586

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Interest:
Taxable bonds	$	6,471	$	5,383	$	18,356	$	15,253
Tax exempt municipal bonds	874		918		2,636		2,741
Cash equivalents and short-term investments	1		—		11		261
Dividends on equity securities	979		1,100		2,801		2,554
Gross investment income	8,325		7,401		23,804		20,809
Investment expenses	(230)		(393)		(1,338)		(1,196)
Net investment income	$	8,095	$	7,008	$	22,466	$	19,613

Realized investment gains and losses

The following table presents realized investment gains and losses for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Fixed-maturity securities:	Fixed-maturity securities:									Fixed-maturity securities:
Realized gains	Realized gains	$	719	$	61	$	1,826	$	457	Realized gains	$	804	$	719	$	2,445	$	1,826
Realized losses	Realized losses	(72)		0		(162)		(79)		Realized losses	—		(72)		(2)		(162)
Net realized gains from fixed-maturity securities	Net realized gains from fixed-maturity securities	647		61		1,664		378		Net realized gains from fixed-maturity securities	804		647		2,443		1,664

Equity securities:	Equity securities:									Equity securities:
Realized gains	Realized gains	0		505		0		539		Realized gains	97		—		97		—
Realized losses	Realized losses	0		(381)		0		(687)		Realized losses	(6)		—		(143)		—
Net realized gains (losses) from equity securities	Net realized gains (losses) from equity securities	0		124		0		(148)		Net realized gains (losses) from equity securities	91		—		(46)		—
Realized gains from the sales of short-term investments	Realized gains from the sales of short-term investments	0		0		12		0		Realized gains from the sales of short-term investments	—		—		—		12

Net realized investment gains	Net realized investment gains	$	647	$	185	$	1,676	$	230	Net realized investment gains	$	895	$	647	$	2,397	$	1,676

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

For the three and nine months ended September 30, 2021, the changes in net unrealized gains (losses) for fixed-maturity securities were $(7.7) million and $(20.4) million, respectively. For the three and nine months ended September 30, 2020, the changes in net unrealized gains for fixed-maturity securities were $8.3 million and $30.8 million, respectively. ~~For the three and nine months ended September 30, 2019, the changes in net unrealized gains for fixed-maturity securities were $4.1 million and $21.0 million, respectively.~~

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Insurance – statutory deposits

The Company had invested assets with a ~~carrying~~fair value of ~~$7.0~~$6.7 million and $6.9 million on deposit with state regulatory authorities at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Payable for investments purchased

The Company recorded a payable for investments purchased, not yet settled, of ~~$20.7~~$15.6 million at September 30, ~~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 of cash flow presentation.~~

sheet.

3. Fair value measurements

Fair value is estimated for each class of financial instrument ~~for which it is practical to estimate~~based on the framework established in the fair ~~value.~~value accounting guidance. 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

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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 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 non-redeemable 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

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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.

Given management's understanding of the investment manager's pricing methodologies and procedures, investments valued by third-party pricing services are typically classified as Level 2. While the vast majority of the Company’s fixed-maturity investments are valued by third-party pricing services, the Company purchased a residential mortgage-backed security with an estimated fair value of $1.2 million that was valued using a broker quote at September 30, 2020. Broker quotes are typically based on an income approach given the lack of available market data and are therefore classified as Level 3. In addition, in September of 2020, the Company purchased two residential mortgage-backed securities for $3.2 million that have not been valued by a third-party pricing service or broker quote as of period end. As a result, these securities are valued at the securities' transaction prices and are classified as Level 3. These securities are expected to be valued by a third-party pricing service in the fourth quarter of 2020.

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The following tables present the balances of assets measured at fair value on a recurring basis as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, by level within the fair value ~~hierarchy.~~hierarchy:


		September 30, 2020									September 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
		(in thousands)									(in thousands)
Assets	Assets									Assets
Fixed maturities:	Fixed maturities:									Fixed maturities:

U.S. Treasury securities and obligations of U.S. government agencies										U.S. Treasury securities and obligations of U.S. government agencies	$	6,922	$	—	$	—	$	6,922
Obligations of states, municipalities and political subdivisions	Obligations of states, municipalities and political subdivisions	$	0	$	224,886	$	0	$	224,886	Obligations of states, municipalities and political subdivisions	—		226,061		—		226,061
Corporate and other securities	Corporate and other securities	0		337,188		0		337,188		Corporate and other securities	—		446,490		—		446,490
Asset-backed securities	Asset-backed securities	0		228,780		0		228,780		Asset-backed securities	—		301,668		—		301,668
Commercial mortgage-backed securities	Commercial mortgage-backed securities	0		67,072		0		67,072		Commercial mortgage-backed securities	—		61,440		—		61,440
Residential mortgage-backed securities	Residential mortgage-backed securities	0		162,519		4,444		166,963		Residential mortgage-backed securities	—		300,292		—		300,292
Total fixed-maturity securities	Total fixed-maturity securities	0		1,020,445		4,444		1,024,889		Total fixed-maturity securities	6,922		1,335,951		—		1,342,873

Equity securities:	Equity securities:									Equity securities:
Exchange traded funds	Exchange traded funds	85,617		0		0		85,617		Exchange traded funds	112,984		—		—		112,984
Nonredeemable preferred stock		0		30,394		0		30,394
Non-redeemable preferred stock										Non-redeemable preferred stock	—		38,808		—		38,808
Total equity securities	Total equity securities	85,617		30,394		0		116,011		Total equity securities	112,984		38,808		—		151,792

Total	Total	$	85,617	$	1,050,839	$	4,444	$	1,140,900	Total	$	119,906	$	1,374,759	$	—	$	1,494,665

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 $ 0 $ 0 $ 112
Obligations of states, municipalities and political subdivisions 0 172,893 0 172,893
Corporate and other securities 0 184,768 0 184,768
Asset-backed securities 0 141,924 0 141,924
Commercial mortgage-backed securities 0 56,046 0 56,046
Residential mortgage-backed securities 0 173,789 0 173,789
Total fixed-maturity securities 112 729,420 0 729,532
Equity securities:
Exchange traded funds 54,463 0 0 54,463
Nonredeemable preferred stock 0 23,831 0 23,831
Total equity securities 54,463 23,831 0 78,294
Total $ 54,575 $ 753,251 $ 0 $ 807,826


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

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

Equity securities:
Exchange traded funds	98,050		—		—		98,050
Non-redeemable preferred stock	—		31,612		—		31,612
Total equity securities	98,050		31,612		—		129,662

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

1615

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~~The following table summarizes changes in Level 3 investments measured at fair value on a recurring basis.~~

Nine Months Ended September 30,
2020 2019
Beginning balance $ 0 $ 0
Total gains (losses) included in:
Net income 0 0
Other comprehensive income 0 0
Purchases 4,444 0
Sales 0 0
Transfers into Level 3 0 0
Transfers out of Level 3 0 0
Ending balance $ 4,444 $ 0

There were no assets or liabilities measured at fair value on a nonrecurring basis as of September 30, ~~2020~~2021 or December 31, ~~2019.~~2020.

The carrying value of cash equivalents approximates its fair value at September 30, ~~2020~~2021 and December 31, ~~2019,~~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 September 30, ~~2020~~2021 and December 31, ~~2019.~~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 and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Balance, beginning of period	Balance, beginning of period	$	28,942	$	18,652	$	23,564	$	14,801	Balance, beginning of period	$	38,801	$	28,942	$	31,912	$	23,564
Policy acquisition costs deferred:	Policy acquisition costs deferred:									Policy acquisition costs deferred:
Direct commissions	Direct commissions	21,214		14,358		58,788		40,601		Direct commissions	28,837		21,214		81,740		58,788
Ceding commissions	Ceding commissions	(5,746)		(2,824)		(13,509)		(9,338)		Ceding commissions	(8,089)		(5,746)		(21,283)		(13,509)
Other underwriting and policy acquisition costs	Other underwriting and policy acquisition costs	916		989		3,385		2,803		Other underwriting and policy acquisition costs	1,600		916		4,540		3,385
Policy acquisition costs deferred	Policy acquisition costs deferred	16,384		12,523		48,664		34,066		Policy acquisition costs deferred	22,348		16,384		64,997		48,664
Amortization of net policy acquisition costs	Amortization of net policy acquisition costs	(15,033)		(10,115)		(41,935)		(27,807)		Amortization of net policy acquisition costs	(20,876)		(15,033)		(56,636)		(41,935)
Balance, end of period	Balance, end of period	$	30,293	$	21,060	$	30,293	$	21,060	Balance, end of period	$	40,273	$	30,293	$	40,273	$	30,293

Amortization of net policy acquisition costs is included in the line item "Underwriting, acquisition and insurance expenses" in the accompanying consolidated statements of income and comprehensive income.

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5. Property and equipment, net

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


		September 30, 2020		December 31, 2019			September 30, 2021		December 31, 2020
		(in thousands)					(in thousands)
Building	Building	$	29,749	$	0	Building	$	32,973	$	31,675
Parking deck	Parking deck	4,894		0		Parking deck	5,072		5,072
Land	Land	3,063		0		Land	3,068		3,068
Equipment	Equipment	2,736		2,353		Equipment	3,054		2,770
Software	Software	4,366		2,356		Software	6,991		4,815
Furniture and fixtures	Furniture and fixtures	2,340		1,025		Furniture and fixtures	2,194		1,731
Leasehold improvements		984		984

Land improvements	Land improvements	276		0		Land improvements	472		317
Construction in progress - corporate headquarters		0		19,789

		48,408		26,507			53,824		49,448
Accumulated depreciation	Accumulated depreciation	(4,596)		(3,873)		Accumulated depreciation	(4,941)		(3,262)
Total property and equipment, net	Total property and equipment, net	$	43,812	$	22,634	Total property and equipment, net	$	48,883	$	46,186

~~At December 31, 2019, construction in progress includes the purchased land and capitalized expenses related to the construction~~

Table of the new corporate headquarters' building and parking deck. During the third quarter of 2020, the construction of the headquarters and parking deck was substantially completed and the related fixed assets were placed into service.Contents

During the ~~third~~first quarter of 2020, the Company sold a portion of both ~~the~~its land and parking deck for approximately $6.5 million to a real estate developer for the development of an apartment building. As of September 30, ~~2020,~~2021, the Company had received $5.0 million of the proceeds from the sale and is expected to receive the remaining $1.5 million upon completion of the apartment building. This receivable is included in "other assets" on the accompanying consolidated balance sheet.

6. Underwriting, acquisition and insurance expenses

Underwriting, acquisition and insurance expenses for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 consist of the following:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Underwriting, acquisition and insurance expenses incurred:	Underwriting, acquisition and insurance expenses incurred:									Underwriting, acquisition and insurance expenses incurred:
Direct commissions	Direct commissions	$	18,585	$	12,409	$	50,068	$	34,470	Direct commissions	$	26,317	$	18,585	$	71,036	$	50,068
Ceding commissions	Ceding commissions	(4,588)		(3,150)		(11,234)		(9,202)		Ceding commissions	(6,902)		(4,588)		(18,344)		(11,234)
Other operating expenses	Other operating expenses	8,930		9,065		28,637		25,109		Other operating expenses	12,050		8,930		36,798		28,637
Total	Total	$	22,927	$	18,324	$	67,471	$	50,377	Total	$	31,465	$	22,927	$	89,490	$	67,471

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Other operating expenses within underwriting, acquisition and insurance expenses include salaries, bonus and employee benefits expenses of ~~$6.6~~$11.6 million and ~~$7.3~~$6.6 million for the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. Salaries, bonuses, and employee benefit expenses were ~~$24.6~~$34.9 million and ~~$21.2~~$24.6 million for the nine months ended September 30, ~~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 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 ~~$2.7~~$3.6 million and ~~$1.9~~$2.7 million for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

Restricted Stock Awards

During the nine months ended September 30, ~~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 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.

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A summary of ~~all~~ restricted stock activity under the 2016 Incentive Plan for the nine months ended September 30, ~~2020~~2021 is as follows:


		For the Nine Months Ended September 30, 2020				For the Nine Months Ended September 30, 2021
		Number of Shares	Weighted Average Grant Date Fair Value per Share			Number of Shares	Weighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the period	Non-vested outstanding at the beginning of the period	122,723	$	67.01	Non-vested outstanding at the beginning of the period	108,392	$	97.40
Granted	Granted	41,217	$	145.46	Granted	35,870	$	185.00
Vested	Vested	(41,010)	$	63.86	Vested	(40,752)	$	86.77
Forfeited	Forfeited	(11,845)	$	81.20	Forfeited	(6,940)	$	128.40
Non-vested outstanding at the end of the period	Non-vested outstanding at the end of the period	111,085	$	95.76	Non-vested outstanding at the end of the period	96,570	$	132.19

Employees surrender shares to pay for withholding tax obligations resulting from any vesting of restricted stock awards. During the nine months ended September 30, ~~2020,~~2021, shares withheld for taxes in connection with the vesting of restricted stock awards totaled ~~11,966.~~12,846.

The weighted average grant-date fair value of the Company's restricted stock awards granted during the nine months ended September 30, 2021 and 2020 was $185.00 and ~~2019 was~~ $145.46, ~~and $80.59,~~ respectively. The fair value of restricted stock awards that vested during the nine months ended September 30, 2021 and 2020 was $6.8 million and ~~2019 was~~ $5.8 million, ~~and $2.1 million,~~

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respectively. As of September 30, ~~2020,~~2021, the Company had ~~$9.2~~$10.4 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of ~~3.0~~2.7 years.

Stock Options

On July 27, 2016, the Board of Directors approved, and the Company granted, 1,036,916 stock options with an exercise price equal to the ~~Initial Public Offering~~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.

(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.

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A summary of option activity as of September 30, ~~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)			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
Outstanding at January 1, 2021								Outstanding at January 1, 2021	387,738	$	16.00
Granted	Granted	0	0					Granted	—	—
Forfeited	Forfeited	(234)	16.00					Forfeited	(934)	16.00
Exercised	Exercised	(128,183)	16.00					Exercised	(45,192)	16.00
Outstanding at September 30, 2020		485,928	$	16.00	5.8	$	84,639
Exercisable at September 30, 2020		485,928	$	16.00	5.8	$	84,639
Outstanding at September 30, 2021								Outstanding at September 30, 2021	341,612	$	16.00	4.8	$	49,773
Exercisable at September 30, 2021								Exercisable at September 30, 2021	341,612	$	16.00	4.8	$	49,773

The total intrinsic value of options exercised was ~~$17.9~~$7.3 million and ~~$8.3~~$17.9 million during the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

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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 September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands, except per share data)									(in thousands, except per share data)
Net income	Net income	$	14,890	$	12,976	$	50,238	$	45,463	Net income	$	36,625	$	14,890	$	104,339	$	50,238

Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	22,398		21,660		22,220		21,348		Weighted average common shares outstanding - basic	22,714		22,398		22,681		22,220
Effect of potential dilutive securities:	Effect of potential dilutive securities:									Effect of potential dilutive securities:
Conversion of stock options	Conversion of stock options	465		572		491		581		Conversion of stock options	317		465		329		491
Conversion of restricted stock	Conversion of restricted stock	65		45		64		36		Conversion of restricted stock	33		65		47		64
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	22,928		22,277		22,775		21,965		Weighted average common shares outstanding - diluted	23,064		22,928		23,057		22,775

Earnings per common share:	Earnings per common share:									Earnings per common share:
Basic	Basic	$	0.66	$	0.60	$	2.26	$	2.13	Basic	$	1.61	$	0.66	$	4.60	$	2.26
Diluted	Diluted	$	0.65	$	0.58	$	2.21	$	2.07	Diluted	$	1.59	$	0.65	$	4.53	$	2.21

There were no anti-dilutive stock awards for the three months ended September 30, ~~2020~~2021 and ~~2019.~~2020. There were ~~approximately 35~~30 thousand and ~~approximately 54~~35 thousand anti-dilutive stock awards for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively.

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9. Income taxes

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company's best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate, primarily as a result of tax-exempt investment income and any discrete items recognized during the period. The Company's effective tax rates were ~~12.8%~~18.9% and ~~16.6%~~12.8% for the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, respectively. The effective tax rates were lower than the federal statutory rate of 21% due primarily to the tax benefits from stock-based compensation and from income generated by certain ~~tax-advantaged~~tax-exempt investments. During the nine months ended September 30, 2021, the level of stock options exercised was lower than the nine months ended September 30, 2020, which resulted in a higher effective tax rate.

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

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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:


		September 30					September 30,
		2020		2019			2021		2020
		(in thousands)					(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	$	460,058	$	369,152	Gross reserves for unpaid losses and loss adjustment expenses, beginning of year	$	636,013	$	460,058
Less: reinsurance recoverable on unpaid losses	Less: reinsurance recoverable on unpaid losses	69,792		55,389		Less: reinsurance recoverable on unpaid losses	83,730		69,792
Adoption of new accounting standard for credit losses		(282)		0
Adoption of accounting standard for credit losses						Adoption of accounting standard for credit losses	—		(282)
Net reserves for unpaid losses and loss adjustment expenses, beginning of year	Net reserves for unpaid losses and loss adjustment expenses, beginning of year	390,548		313,763		Net reserves for unpaid losses and loss adjustment expenses, beginning of year	552,283		390,548
Incurred losses and loss adjustment expenses:	Incurred losses and loss adjustment expenses:					Incurred losses and loss adjustment expenses:
Current year	Current year	204,096		126,471		Current year	262,140		204,096
Prior years	Prior years	(9,628)		(8,350)		Prior years	(25,413)		(9,628)
Total net losses and loss adjustment expenses incurred	Total net losses and loss adjustment expenses incurred	194,468		118,121		Total net losses and loss adjustment expenses incurred	236,727		194,468

Payments:	Payments:					Payments:
Current year	Current year	10,256		12,258		Current year	12,110		10,256
Prior years	Prior years	57,253		53,808		Prior years	68,546		57,253
Total payments	Total payments	67,509		66,066		Total payments	80,656		67,509
Net reserves for unpaid losses and loss adjustment expenses, end of period	Net reserves for unpaid losses and loss adjustment expenses, end of period	517,507		365,818		Net reserves for unpaid losses and loss adjustment expenses, end of period	708,354		517,507
Reinsurance recoverable on unpaid losses	Reinsurance recoverable on unpaid losses	85,693		63,714		Reinsurance recoverable on unpaid losses	106,502		85,693
Gross reserves for unpaid losses and loss adjustment expenses, end of period	Gross reserves for unpaid losses and loss adjustment expenses, end of period	$	603,200	$	429,532	Gross reserves for unpaid losses and loss adjustment expenses, end of period	$	814,856	$	603,200

During the nine months ended September 30, 2021, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2020 developed favorably by $25.4 million, of which $28.9 million was attributable to the 2020 accident year. Actuarial assumptions for the 2020 accident year reflected additional uncertainty to account for potential COVID-19 related claims. However, the Company's current outlook is more favorable than in the prior year as no significant claims have been reported to date and, as a result, the Company adjusted certain assumptions in the 2021 period. In addition, reported losses have been emerging at lower levels than expected across most lines of business. This favorable development was offset in part by adverse development, mostly attributable to the

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2015-2018 accident years as a result of modest adjustments in actuarial assumptions based on observable trends. Current accident year incurred losses and loss adjustment expenses for the nine months ended September 30, 2021 included $8.8 million of catastrophe losses primarily related to Hurricane Ida and winter storms Uri and Viola in Texas.

During the nine months ended September 30, 2020, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2019 developed favorably by $9.6 ~~million. The favorable development~~million, of which $7.8 million was ~~primarily~~ attributable to the 2019 accident ~~year of $7.8 million, which~~year. The favorable development resulted from reported losses emerging at a lower ~~level~~levels than expected across most ~~statutory~~ lines of business. Current accident year incurred losses and loss adjustment expenses for the nine months ended September 30, 2020 included $17.1 million of catastrophe losses primarily related to ~~Hurricane~~Hurricanes Laura ~~Hurricane~~and Sally and the California wildfires.

During the nine months ended September 30, 2019, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2018 developed favorably by $8.4 million. The favorable development was primarily attributable to the 2016 through 2018 accident years of $14.8 million, which mostly resulted from reported losses emerging at a lower level than expected across most statutory lines of business. This favorable development was offset in part by adverse development from the 2011 through 2015 accident years of $6.4 million, which primarily resulted from higher incurred but not yet reported ("IBNR") losses to provide for uncertainty associated with the emergence of reported losses over a longer period of time.

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11. Reinsurance

The following table summarizes the effect of reinsurance on premiums written and earned for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2020		2019		2020		2019			2021		2020		2021		2020
		(in thousands)									(in thousands)
Premiums written:	Premiums written:									Premiums written:
Direct	Direct	$	144,777	$	97,984	$	402,904	$	277,432	Direct	$	197,616	$	144,777	$	560,553	$	402,904
Assumed	Assumed	0		0		0		125		Assumed	—		—		—		—
Ceded	Ceded	(22,529)		(11,232)		(54,996)		(35,051)		Ceded	(26,939)		(22,529)		(77,825)		(54,996)
Net written	Net written	$	122,248	$	86,752	$	347,908	$	242,506	Net written	$	170,677	$	122,248	$	482,728	$	347,908

Premiums earned:	Premiums earned:									Premiums earned:
Direct	Direct	$	127,301	$	84,790	$	343,184	$	234,788	Direct	$	180,458	$	127,301	$	486,920	$	343,184
Assumed	Assumed	0		16		21		89		Assumed	—		—		—		21
Ceded	Ceded	(19,057)		(12,185)		(48,243)		(34,678)		Ceded	(23,587)		(19,057)		(69,308)		(48,243)
Net earned	Net earned	$	108,244	$	72,621	$	294,962	$	200,199	Net earned	$	156,871	$	108,244	$	417,612	$	294,962

The following table summarizes ceded losses and loss adjustment expenses for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(in thousands)
Ceded incurred losses and loss adjustment expenses $ 19,297 $ 4,864 $ 30,202 $ 18,609


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Ceded incurred losses and loss adjustment expenses	$	10,640	$	19,297	$	34,053	$	30,202

The following table presents reinsurance recoverables on paid and unpaid losses as of September 30, ~~2020~~2021 and December 31, ~~2019:~~2020:

September 30, 2020 December 31, 2019
(in thousands)
Reinsurance recoverables on paid losses $ 2,612 $ 2,782
Reinsurance recoverables on unpaid losses 85,693 69,792
Reinsurance recoverables $ 88,305 $ 72,574

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	September 30, 2021		December 31, 2020
	(in thousands)
Reinsurance recoverables on paid losses	$	5,524	$	9,485
Reinsurance recoverables on unpaid losses	106,502		83,730
Reinsurance recoverables	$	112,026	$	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. Borrowings under the Credit Facility ~~will be~~were used to fund construction of the Company’s new headquarters ~~and~~but may also be used for working capital and general corporate purposes.

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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)~~("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%. ~~During the nine months ended September 30, 2020, the Company drew down $23.3 million on its Credit Facility.~~ As of September 30, ~~2020,~~2021, there was ~~$40.1~~$42.7 million outstanding under the Credit Facility, net of debt issuance cost of ~~$0.5~~$0.3 million, with a weighted average interest rate of ~~2.01%~~1.88%.

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 September 30, ~~2020,~~2021, the Company was in compliance with all of its financial covenants under the Credit Facility.

13. ~~Stockholders' Equity~~

On August 7, 2020, the Company completed an underwritten public offering and sold and issued 310,500 shares of its common stock at a price of $190 per share. After deducting underwriting discounts and commissions, the Company received net proceeds of $56.7 million, which will be used for general corporate purposes, including to fund organic growth.

~~14.~~ Other comprehensive (loss) income

The following table summarizes the components of other comprehensive (loss) income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
(in thousands)
Unrealized gains on fixed-maturity securities arising during the period, before income taxes $ 8,701 $ 4,166 $ 32,113 $ 21,362
Income taxes (1,827) (875) (6,744) (4,486)
Unrealized gains arising during the period, net of income taxes 6,874 3,291 25,369 16,876
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes 405 61 1,304 378
Income taxes (85) (12) (274) (79)
Reclassification adjustment included in net income, net of income taxes 320 49 1,030 299
Other comprehensive income $ 6,554 $ 3,242 $ 24,339 $ 16,577


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in thousands)
Unrealized (losses) gains on fixed-maturity securities arising during the period, before income taxes	$	(6,994)	$	8,701	$	(18,162)	$	32,113
Income tax benefit (expense)	1,469		(1,827)		3,814		(6,744)
Unrealized (losses) gains arising during the period, net of income taxes	(5,525)		6,874		(14,348)		25,369
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes	693		405		2,232		1,304
Income tax expense	(146)		(85)		(469)		(274)
Reclassification adjustment included in net income, net of income taxes	547		320		1,763		1,030
Other comprehensive (loss) income	$	(6,072)	$	6,554	$	(16,111)	$	24,339

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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.

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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 and nine months ended September 30, ~~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.

Overview

Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses exclusively on the excess and surplus lines ("E&S") market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place small business risks and personal lines risks. We market these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, primarily through a network of independent insurance brokers.

We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers property and casualty ("P&C") insurance products through the E&S market. For the first nine months of ~~2020,~~2021, the percentage breakdown of our gross written premiums was 86% casualty and 14% property. Our underwriting divisions include ~~construction,~~ small business, excess casualty, construction, commercial property, allied health, product liability, ~~allied health,~~general casualty, life sciences, ~~general casualty,~~ professional liability, management liability, energy, environmental, health care, public entity, inland marine ~~public entity~~ and commercial insurance. We also write a small amount of homeowners insurance in ~~our~~the personal lines ~~division,~~market, which in aggregate represented 4% of our gross written premiums in the first nine months of ~~2020,~~2021, and is included inwithin our ~~property business.~~personal insurance division.

COVID-19

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

To date, management has not seen a significant decrease in the growth rate of its gross written premiums since the beginning of the COVID-19 pandemic and the related ~~economic downturn.~~pressure in certain sectors of the U.S. economy. Over the past ~~year,~~few years, including athe time period preceding COVID-19, the E&S segment of the P&C market has been experiencing rapid growth due to dislocation in the overall property and casualty market and management expects premium growth to continue throughout the remainder of ~~2020.~~

2021.

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

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and commercial property. In each case, policy terms and conditions would be expected to preclude coverage for

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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. During the first quarter of 2020, we experienced a significant decline in the fair value of our investment portfolio due to disruption in the global financial markets associated with COVID-19. Subsequent to the first quarter of 2020, the fair ~~values~~value of our investment portfolio rebounded sharply, gaining back all of the decline in fair value. However, during economic downturns, certain investments may default or become impaired due to deterioration in the financial condition or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Given the conservative nature of our investment portfolio, we do not expect a material adverse impact on the value of our investment portfolio or a long-term negative impact on our financial condition, results of operations or cash flows as it relates to COVID-19.

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;

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•Trends in legal defense costs;

•Wage inflation; and

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•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 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 credit impairments recognized in earnings.

Income tax expense

Currently, substantially all of our income tax expense relates to federal income taxes. Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes, but have not generated any material taxable income to date. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.

Key metrics

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

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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.

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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.

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Three months ended September 30, ~~2020~~2021 compared to three months ended September 30, ~~2019~~2020

The following table summarizes our results of operations for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended September 30,
($ in thousands) 2020 2019 Change % Change
Gross written premiums $ 144,777 $ 97,984 $ 46,793 47.8 %
Ceded written premiums (22,529) (11,232) (11,297) 100.6 %
Net written premiums $ 122,248 $ 86,752 $ 35,496 40.9 %
Net earned premiums $ 108,244 $ 72,621 $ 35,623 49.1 %
Losses and loss adjustment expenses 82,431 44,810 37,621 84.0 %
Underwriting, acquisition and insurance expenses 22,927 18,324 4,603 25.1 %
Underwriting income (1)
2,886 9,487 (6,601) (69.6) %
Net investment income 7,008 5,265 1,743 33.1 %
Change in the fair value of equity securities 6,031 246 5,785 NM
Net realized gains on investments 647 185 462 NM
Other (expense) income, net (451) 10 (461) NM
Income before taxes 16,121 15,193 928 6.1 %
Income tax expense 1,231 2,217 (986) (44.5) %
Net income $ 14,890 $ 12,976 $ 1,914 14.8 %
Net operating earnings (2)
$ 9,615 $ 12,636 $ (3,021) (23.9) %
Loss ratio 76.1 % 61.7 %
Expense ratio 21.2 % 25.2 %
Combined ratio 97.3 % 86.9 %
Annualized return on equity 12.0 % 14.9 %
Annualized operating return on equity(2)
7.8 % 14.5 %

~~NM - Percentage change not meaningful.~~


	Three Months Ended September 30,
($ in thousands)	2021			2020			Change		% Change

Gross written premiums	$	197,616		$	144,777		$	52,839	36.5	%
Ceded written premiums	(26,939)			(22,529)			(4,410)		19.6	%
Net written premiums	$	170,677		$	122,248		$	48,429	39.6	%

Net earned premiums	$	156,871		$	108,244		$	48,627	44.9	%
Losses and loss adjustment expenses	87,352			82,431			4,921		6.0	%
Underwriting, acquisition and insurance expenses	31,465			22,927			8,538		37.2	%
Underwriting income (1)	38,054			2,886			35,168		1,218.6	%
Net investment income	8,095			7,008			1,087		15.5	%
Change in the fair value of equity securities	(1,012)			6,031			(7,043)		(116.8)	%
Net realized gains on investments	895			647			248		38.3	%
Other expense, net	(353)			(451)			98		(21.7)	%
Income before taxes	45,679			16,121			29,558		183.4	%
Income tax expense	9,054			1,231			7,823		635.5	%
Net income	$	36,625		$	14,890		$	21,735	146.0	%

Net operating earnings (2)	$	36,717		$	9,615		$	27,102	281.9	%

Loss ratio	55.7		%	76.1		%
Expense ratio	20.0		%	21.2		%
Combined ratio	75.7		%	97.3		%

Annualized return on equity	22.7		%	12.0		%
Annualized operating return on equity (2)	22.8		%	7.8		%

(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 $36.6 million for the three months ended September 30, 2021 compared to $14.9 million for the three months ended September 30, 2020, ~~compared to $13.0 million for the three months ended September 30, 2019,~~ an increase of ~~14.8%~~146.0%. The increase in net income for the third quarter of ~~2020~~2021 over the third quarter of ~~2019~~2020 was primarily due to higher ~~earned premiums, resulting from~~underwriting income reflecting favorable E&S market conditions, which resulted in higher rates on bound accounts and strong growth in broker ~~submissions,~~submissions. In addition, net income for the third quarter of 2021 over the third quarter of 2020 reflected lower catastrophe activity and higher ~~returns on our investment portfolio in terms of higher unrealized gains on our equity securities and~~ net ~~investment income. In addition, the increase in net income was also attributable to higher~~ favorable development of loss reserves infrom prior accident ~~years and a lower effective~~

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~~tax rate generated from the tax benefits related to stock-based compensation activity.~~years. These increases were offset in part

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by ~~higher catastrophe losses incurred~~a decline in the fair value of equity securities during the ~~period.~~third quarter of 2021 relative to the same period last year.

Underwriting income was $38.1 million for the three months ended September 30, 2021 compared to $2.9 million for the three months ended September 30, 2020, ~~compared to $9.5 million~~an increase of 1,218.6%. The corresponding combined ratios were 75.7% for the three months ended September 30, ~~2019, a decrease of 69.6%. The corresponding combined ratios were~~2021 compared to 97.3% for the three months ended September 30, ~~2020 compared to 86.9% for the three months ended September 30, 2019.~~2020. The ~~decrease~~increase in our underwriting income in the third quarter of ~~2020~~2021 compared to the third quarter of ~~2019,~~2020, was largely due to ~~higher catastrophe losses incurred during the period, offset in part by~~ premium growth ~~quarter over quarter~~and continued rate increases from a strong underwriting environment, lower catastrophe activity and higher net favorable development of loss reserves infrom prior accident years. Net catastrophe losses incurred during the third quarter of ~~2020~~2021 were ~~$16.7~~$5.9 million compared to ~~$0.9~~$16.7 million during the third quarter of ~~2019.~~2020.

Premiums

Our gross written premiums were $197.6 million for the three months ended September 30, 2021 compared to $144.8 million for the three months ended September 30, 2020, ~~compared to $98.0 million for the three months ended September 30, 2019,~~ an increase of ~~$46.8~~$52.8 million, or ~~47.8%~~36.5%. The increase in gross written premiums for the third quarter of ~~2020~~2021 over the same period last year was due to higher submission activity from brokers and higher rates on bound accounts, resulting from favorable market conditions. The average premium on a policy written was approximately $10,700 in the third quarter of 2021 compared to approximately $9,100 in the third quarter of ~~2020 compared to approximately $8,000 in the third quarter 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 $13,000 in the third quarter of 2021 compared to $11,700 in the third quarter of ~~2020 compared to $10,400 in the third quarter of 2019.~~2020.

Net written premiums increased by ~~$35.5~~$48.4 million, or ~~40.9%~~39.6%, to $170.7 million for the three months ended September 30, 2021 from $122.2 million for the three months ended September 30, ~~2020 from $86.8 million for the three months ended September 30, 2019.~~2020. The increase in net written premiums for the third quarter of ~~2020~~2021 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 86.4% for the three months ended September 30, 2021 compared to 84.4% for the three months ended September 30, ~~2020 compared to 88.5% for the three months ended September 30, 2019.~~2020. The ~~decrease~~increase in the net retention ratio was largely due to the change in the mix of business quarter over ~~quarter.~~quarter and higher reinstatement premiums in the third quarter of 2020.

Net earned premiums increased by ~~$35.6~~$48.6 million, or ~~49.1%~~44.9%, to $156.9 million for the three months ended September 30, 2021 from $108.2 million for the three months ended September 30, 2020 ~~from $72.6 million for the three months ended September 30, 2019~~ and was directly related to growth in gross written premiums.

Loss ratio

The loss ratio was 55.7% for the three months ended September 30, 2021 compared to 76.1% for the three months ended September 30, ~~2020 compared to 61.7% for the three months ended September 30, 2019.~~2020. The ~~increase~~decrease in the loss ratio in the third quarter of ~~2020~~2021 compared to the third quarter of ~~2019~~2020 was due primarily to lower catastrophe activity, lower loss selections for the current accident year and higher favorable development on loss reserves from prior accident years. The loss selections in the current accident year were lower relative to the prior year due to favorable market conditions and continued rate increases. During the three months ended September 30, 2021, net catastrophe losses incurred ~~during~~in the ~~period related~~current accident year were primarily attributable to Hurricane ~~Laura, Hurricane Sally, and the California wildfires, offset in part by higher favorable development of loss reserves in prior accident years.~~Ida. During the three months ended September 30, 2020, ~~prior accident years developed favorably by $3.0 million, which was mostly attributable~~net catastrophe losses incurred were primarily due to Hurricanes Laura and Sally and the ~~2019 accident year. During the three months ended September 30, 2019, loss~~California wildfires.

Loss reserves for prior accident years developed favorably by ~~$0.5 million.~~$9.2 million for the three months ended September 30, 2021, of which $7.1 million was attributable to the 2020 accident year. Actuarial assumptions for the 2020 accident year reflected additional uncertainty to account for potential COVID-19 related claims. However, our current outlook is more favorable than in the prior year as no significant claims have been reported to date and, as a result, we have adjusted certain assumptions in the 2021 period. In addition, reported losses have been emerging at lower levels than expected across most lines of business. Loss reserves for prior accident years developed favorably by

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$3.0 million, for the three months ended September 30, 2020, which was primarily attributable to the 2019 accident year.

The following table summarizes the loss ratios for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,									Three Months Ended September 30,
		2020				2019					2021				2020
($ in thousands)	($ in thousands)	Losses and Loss Adjustment Expenses		% of Earned Premiums		Losses and Loss Adjustment Expenses		% of Earned Premiums		($ in thousands)	Losses and Loss Adjustment Expenses		% of Earned Premiums		Losses and Loss Adjustment Expenses		% of Earned Premiums
Loss ratio:	Loss ratio:									Loss ratio:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	$	68,764	63.5	%	$	44,459	61.2	%	Current accident year before catastrophe losses	$	90,675	57.8	%	$	68,764	63.5	%
Current year catastrophe losses	Current year catastrophe losses	16,670		15.4	%	885		1.2	%	Current year catastrophe losses	5,882		3.8	%	16,670		15.4	%
Effect of prior year development	Effect of prior year development	(3,003)		(2.8)	%	(534)		(0.7)	%	Effect of prior year development	(9,205)		(5.9)	%	(3,003)		(2.8)	%
Total	Total	$	82,431	76.1	%	$	44,810	61.7	%	Total	$	87,352	55.7	%	$	82,431	76.1	%

Expense ratio

The following table summarizes the components of the expense ratio for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,									Three Months Ended September 30,
		2020				2019					2021				2020
($ in thousands)	($ in thousands)	Underwriting Expenses		% of Earned Premiums		Underwriting Expenses		% of Earned Premiums		($ in thousands)	Underwriting Expenses		% of Earned Premiums		Underwriting Expenses		% of Earned Premiums

Commissions incurred:	Commissions incurred:									Commissions incurred:
Direct	Direct	$	18,585	17.2	%	$	12,409	17.1	%	Direct	$	26,317	16.8	%	$	18,585	17.2	%
Ceding	Ceding	(4,588)		(4.2)	%	(3,150)		(4.4)	%	Ceding	(6,902)		(4.5)	%	(4,588)		(4.2)	%
Net commissions incurred	Net commissions incurred	13,997		13.0	%	9,259		12.7	%	Net commissions incurred	19,415		12.3	%	13,997		13.0	%
Other underwriting expenses	Other underwriting expenses	8,930		8.2	%	9,065		12.5	%	Other underwriting expenses	12,050		7.7	%	8,930		8.2	%
Underwriting, acquisition and insurance expenses	Underwriting, acquisition and insurance expenses	$	22,927	21.2	%	$	18,324	25.2	%	Underwriting, acquisition and insurance expenses	$	31,465	20.0	%	$	22,927	21.2	%

The expense ratio was 20.0% for the three months ended September 30, 2021 compared to 21.2% for the three months ended September 30, ~~2020 compared to 25.2% for the three months ended September 30, 2019.~~2020. The decrease in the expense ratio was due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums. The decrease in the other underwriting expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses, as a result of management's focus on controlling ~~costs, and lower variable compensation~~ costs. The decrease in ~~variable compensation costs for~~ the ~~third quarter of 2020 compared~~net commissions incurred ratio was mostly due to ~~the same period last year was attributable to lower underwriting income~~higher ceding commissions resulting from ~~incurred catastrophe losses during~~growth in the ~~period.~~excess casualty and personal insurance lines of business and a change in the mix of business. Direct commissions paid as a percent of gross written premiums was 14.6% for both the three months ended September 30, ~~2020~~2021 and ~~14.7% for the three months ended September 30, 2019.~~2020.

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Investing results

The following table summarizes net investment income, change in the fair value of equity securities and net realized ~~and unrealized~~investment gains ~~and losses on investments~~ for the three months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Three Months Ended September 30,									Three Months Ended September 30,
($ in thousands)	($ in thousands)	2020		2019		Change		% Change		($ in thousands)	2021		2020		Change		% Change

Interest from fixed-maturity securities	Interest from fixed-maturity securities	$	6,301	$	4,937	$	1,364	27.6	%	Interest from fixed-maturity securities	$	7,345	$	6,301	$	1,044	16.6	%
Dividends from equity securities	Dividends from equity securities	1,100		406		694		170.9	%	Dividends from equity securities	979		1,100		(121)		(11.0)	%
Other	Other	—		266		(266)		NM		Other	1		—		1		NM
Gross investment income	Gross investment income	7,401		5,609		1,792		31.9	%	Gross investment income	8,325		7,401		924		12.5	%
Investment expenses	Investment expenses	(393)		(344)		(49)		14.2	%	Investment expenses	(230)		(393)		163		(41.5)	%
Net investment income	Net investment income	7,008		5,265		1,743		33.1	%	Net investment income	8,095		7,008		1,087		15.5	%
Change in the fair value of equity securities	Change in the fair value of equity securities	6,031		246		5,785		NM		Change in the fair value of equity securities	(1,012)		6,031		(7,043)		(116.8)	%
Net realized gains on investments		647		185		462		NM
Net realized investment gains										Net realized investment gains	895		647		248		38.3	%

Total	Total	$	13,686	$	5,696	$	7,990	140.3	%	Total	$	7,978	$	13,686	$	(5,708)	(41.7)	%

NM - Percentage change not meaningful.

Our net investment income increased by ~~33.1%~~15.5% to $8.1 million for the three months ended September 30, 2021 from $7.0 million for the three months ended September 30, ~~2020 from $5.3 million for the three months ended September 30, 2019.~~2020. This increase was primarily due to growth in our investment portfolio ~~balance~~ generated from the investment of ~~excess operating funds~~positive cash flow since September 30, ~~2019 and from proceeds from our equity offerings in 2020 and 2019.~~

2020. Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 2.5% for the three months ended September 30, 2021, compared to 2.9% for the three months ended September 30, ~~2020, compared to 3.1%~~2020.

The fair value of our equity investment portfolio decreased $1.0 million for the three months ended September 30, ~~2019.~~

~~Unrealized gains on our equity investment portfolio increased by~~2021 compared to an increase of $6.0 million ~~during~~for the three months ended September 30, 2020. During the third quarter of ~~2020. This increase~~2021, the change in fair value was mostly ~~related~~attributable to our exchange-traded fund ("ETF") securities, ~~which~~whose valuations are largely reflective of the broader ~~domestic capital market. The~~U.S. stock markets. During the third quarter of 2020, the fair value of ~~the~~our ETF securities ~~rebounded sharply in the second quarter of 2020~~continued to rebound from a significant decline in fair value driven by the disruption in the financial markets in March 2020 associated with the COVID-19 pandemic. ~~Consistent with the trend experienced in the second quarter of 2020, the fair values of these securities continued to increase during the third quarter of 2020, although to a lesser degree.~~

Income tax expense

Our effective tax rate was 19.8% for the three months ended September 30, 2021 compared to 7.6% for the three months ended September 30, ~~2020 compared to 14.6% for the three months ended September 30, 2019.~~2020. The effective tax rates were lower than the federal statutory rate of 21% due to the tax benefits from stock-based ~~compensation.~~

~~Table of Contents~~

~~Nine~~compensation and tax-exempt investment income. During the three months ended September 30, ~~2020 compared to nine~~2021, the level of stock options exercised was significantly lower than the comparable prior year period, which resulted in a higher effective tax rate quarter over quarter.

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Nine months ended September 30, ~~2019~~2021 compared to nine months ended September 30, 2020

The following table summarizes our results of operations for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Nine Months Ended September 30,
($ in thousands) 2020 2019 Change % Change
Gross written premiums $ 402,904 $ 277,557 $ 125,347 45.2 %
Ceded written premiums (54,996) (35,051) (19,945) 56.9 %
Net written premiums $ 347,908 $ 242,506 $ 105,402 43.5 %
Net earned premiums $ 294,962 $ 200,199 $ 94,763 47.3 %
Losses and loss adjustment expenses 194,468 118,121 76,347 64.6 %
Underwriting, acquisition and insurance expenses 67,471 50,377 17,094 33.9 %
Underwriting income (1)
33,023 31,701 1,322 4.2 %
Net investment income 19,613 14,586 5,027 34.5 %
Change in fair value of equity securities 3,709 8,050 (4,341) NM
Net realized gains on investments 1,676 230 1,446 NM
Other expense, net (428) (38) (390) NM
Income before taxes 57,593 54,529 3,064 5.6 %
Income tax expense 7,355 9,066 (1,711) (18.9) %
Net income $ 50,238 $ 45,463 $ 4,775 10.5 %
Net operating earnings (2)
$ 45,984 $ 38,922 $ 7,062 18.1 %
Loss ratio 65.9 % 59.0 %
Expense ratio 22.9 % 25.2 %
Combined ratio 88.8 % 84.2 %
Annualized return on equity 14.3 % 18.5 %
Annualized operating return on equity(2)
13.0 % 15.9 %

~~NM - Percentage change not meaningful.~~


	Nine Months Ended September 30,
($ in thousands)	2021			2020			Change		% Change

Gross written premiums	$	560,553		$	402,904		$	157,649	39.1	%
Ceded written premiums	(77,825)			(54,996)			(22,829)		41.5	%
Net written premiums	$	482,728		$	347,908		$	134,820	38.8	%

Net earned premiums	$	417,612		$	294,962		$	122,650	41.6	%
Losses and loss adjustment expenses	236,727			194,468			42,259		21.7	%
Underwriting, acquisition and insurance expenses	89,490			67,471			22,019		32.6	%
Underwriting income (1)	91,395			33,023			58,372		176.8	%
Net investment income	22,466			19,613			2,853		14.5	%
Change in fair value of equity securities	13,644			3,709			9,935		267.9	%
Net realized investment gains	2,397			1,676			721		43.0	%
Other expense, net	(1,176)			(428)			(748)		174.8	%
Income before taxes	128,726			57,593			71,133		123.5	%
Income tax expense	24,387			7,355			17,032		231.6	%
Net income	$	104,339		$	50,238		$	54,101	107.7	%

Net operating earnings (2)	$	91,666		$	45,984		$	45,682	99.3	%

Loss ratio	56.7		%	65.9		%
Expense ratio	21.4		%	22.9		%
Combined ratio	78.1		%	88.8		%

Annualized return on equity	22.5		%	14.3		%
Annualized operating return on equity(2)	19.8		%	13.0		%

(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.

Net income was $104.3 million for the nine months ended September 30, 2021 compared to $50.2 million for the nine months ended September 30, 2020, ~~compared to $45.5 million for the nine months ended September 30, 2019,~~ an increase of ~~10.5%~~107.7%. The increase in net income for the first nine months of ~~2020~~2021 over the same period last year was due to a number of factors including growth in the business from favorable market conditions and continued rate increases, higher net ~~investment~~favorable development of loss reserves from prior accident years and higher returns on equity investments as a result of a rebound in the financial markets. In addition, net income ~~and a~~for the nine months ended September 30, 2021 reflected lower effective tax rate generated from the tax benefits related to stock-based compensation activity. These increases were offset in part by higher incurred losses from catastrophes and lower unrealized gains relatedcatastrophe activity compared to the ~~change in fair value of equity securities.~~same period last year.

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Underwriting income ~~(1)~~was $91.4 million for the nine months ended September 30, 2021 compared to $33.0 million for the nine months ended September 30, 2020, ~~compared to $31.7 million~~an increase of 176.8%. The corresponding combined ratios were 78.1% for the nine months ended September 30, ~~2019, an increase of 4.2%. The corresponding combined ratios were~~2021 compared to 88.8% for the nine months ended September 30, ~~2020 compared to 84.2% for the nine months ended September 30, 2019.~~2020. The increase in underwriting income for the first nine months of ~~2020~~2021 compared to the same period last year was due to higher premium growth ~~in earned premiums period over period, offset in part by~~and continued rate increases from a favorable market environment, higher net favorable development of loss reserves from prior accident years and lower catastrophe ~~losses incurred.~~activity.

Premiums

Our gross written premiums were $560.6 million for the nine months ended September 30, 2021 compared to $402.9 million for the nine months ended September 30, 2020, ~~compared to $277.6 million for the nine months ended September 30, 2019,~~ an increase of ~~$125.3~~$157.6 million, or ~~45.2%~~39.1%. The increase in gross written premiums for the first nine months of ~~2020~~2021 over the same period last year was due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable ~~market~~ conditions in the E&S market. The average premium on a policy written was approximately $10,100 in the first nine months of 2021 compared to approximately $8,900 in the first nine months of ~~2020 compared to approximately $7,800 in the first nine 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 $12,700 for the first nine months of 2021 and approximately $11,600 for the first nine months of ~~2020 and $10,400 for the first nine months of 2019.~~2020.

Net written premiums increased by ~~$105.4~~$134.8 million, or ~~43.5%~~38.8%, to $482.7 million for the nine months ended September 30, 2021 from $347.9 million for the nine months ended September 30, ~~2020 from $242.5 million for the nine months ended September 30, 2019.~~2020. The increase in net written premiums for the first nine months of ~~2020~~2021 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was ~~86.4%~~86.1% for the nine months ended September 30, ~~2020~~2021 compared to ~~87.4%~~86.4% for the same period last year. The decrease in the net retention ratio was primarily due to a change in the mix of business.

Net earned premiums increased by ~~$94.8~~$122.7 million, or ~~47.3%~~41.6%, to $417.6 million for the nine months ended September 30, 2021 from $295.0 million for the nine months ended September 30, 2020 ~~from $200.2 million for the nine months ended September 30, 2019~~ due to growth in gross written premiums.

Loss ratio

The loss ratio was 56.7% for the nine months ended September 30, 2021 compared to 65.9% for the nine months ended September 30, ~~2020 compared to 59.0% for the nine months ended September 30, 2019.~~2020. The ~~increase~~decrease in the loss ratio in the first nine months of ~~2020~~2021 compared to the first nine months of ~~2019~~2020 was due primarily to lower catastrophe activity, higher favorable net development of reserves from prior accident years and lower loss selections for the current accident year. The loss selections in the current accident year were lower relative to the prior year due to favorable market conditions and continued rate increases. During the nine months ended September 30, 2021, net catastrophe losses incurred ~~during~~in the ~~period. Current~~current accident year ~~incurred losses~~were primarily attributable to Hurricane Ida and ~~loss adjustment expenses for~~the winter storms Uri and Viola in Texas. During the nine months ended September 30, 2020, ~~included $17.1 million of~~net catastrophe losses incurred were primarily ~~related~~due to ~~Hurricane~~Hurricanes Laura ~~Hurricane~~and Sally and the California wildfires.

During the ~~first~~ nine months ~~of 2020 and 2019, the favorable development of loss reserves in~~ended September 30, 2021, prior accident years developed favorably by $25.4 million, of which $28.9 million was ~~primarily due~~attributable to the 2020 accident year. Actuarial assumptions for the 2020 accident year reflected additional uncertainty to account for potential COVID-19 related claims. However, our current outlook is more favorable than in the prior year as no significant claims have been reported to date and, as a result, we have adjusted certain assumptions in the 2021 period. In addition, reported losses have been emerging at lower levels than ~~expected.~~ expected across most lines of business. This favorable development was offset in part by adverse development, mostly attributable to the 2015-2018 accident years as a result of modest adjustments in actuarial assumptions based on observable trends.

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During the nine months ended September 30, 2020, loss reserves from prior accident years developed favorably by $9.6 million, of which $7.8 million was attributable to the 2019 accident year. During the nine months ended September 30, 2019, loss reserves for prior accident years developed favorably by $8.4 million, of which $14.8 million was largely attributable to accident years 2016 and 2018. The favorable development ~~in 2019 was offset in part by adverse development in the accident years 2011 through 2015 of $6.4 million, which~~ resulted from ~~higher IBNR reserves to provide for emergence of~~ reported losses ~~over a longer period~~emerging at lower levels than expected across most lines of ~~time based on observed trends.~~business.

~~Table of Contents~~

The following table summarizes the loss ratios for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Nine Months Ended September 30,									Nine Months Ended September 30,
		2020				2019					2021				2020
($ in thousands)	($ in thousands)	Losses and Loss Adjustment Expenses		% of Earned Premiums		Losses and Loss Adjustment Expenses		% of Earned Premiums		($ in thousands)	Losses and Loss Adjustment Expenses		% of Earned Premiums		Losses and Loss Adjustment Expenses		% of Earned Premiums
Loss ratio:	Loss ratio:									Loss ratio:
Current accident year before catastrophe losses	Current accident year before catastrophe losses	$	186,965	63.4	%	$	124,917	62.4	%	Current accident year before catastrophe losses	$	253,348	60.7	%	$	186,965	63.4	%
Current year catastrophe losses	Current year catastrophe losses	17,131		5.8	%	1,554		0.8	%	Current year catastrophe losses	8,792		2.1	%	17,131		5.8	%
Effect of prior year development	Effect of prior year development	(9,628)		(3.3)	%	(8,350)		(4.2)	%	Effect of prior year development	(25,413)		(6.1)	%	(9,628)		(3.3)	%
Total	Total	$	194,468	65.9	%	$	118,121	59.0	%	Total	$	236,727	56.7	%	$	194,468	65.9	%

Expense ratio

The following table summarizes the components of the expense ratio for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:


		Nine Months Ended September 30,									Nine Months Ended September 30,
		2020				2019					2021				2020
($ in thousands)	($ in thousands)	Underwriting Expenses		% of Earned Premiums		Underwriting Expenses		% of Earned Premiums		($ in thousands)	Underwriting Expenses		% of Earned Premiums		Underwriting Expenses		% of Earned Premiums

Commissions incurred:	Commissions incurred:									Commissions incurred:
Direct	Direct	$	50,068	17.0	%	$	34,470	17.2	%	Direct	$	71,036	17.0	%	$	50,068	17.0	%
Ceding	Ceding	(11,234)		(3.8)	%	(9,202)		(4.6)	%	Ceding	(18,344)		(4.4)	%	(11,234)		(3.8)	%
Net commissions incurred	Net commissions incurred	38,834		13.2	%	25,268		12.6	%	Net commissions incurred	52,692		12.6	%	38,834		13.2	%
Other underwriting expenses	Other underwriting expenses	28,637		9.7	%	25,109		12.6	%	Other underwriting expenses	36,798		8.8	%	28,637		9.7	%
Underwriting, acquisition and insurance expenses	Underwriting, acquisition and insurance expenses	$	67,471	22.9	%	$	50,377	25.2	%	Underwriting, acquisition and insurance expenses	$	89,490	21.4	%	$	67,471	22.9	%

The expense ratio was 21.4% for the nine months ended September 30, 2021 compared to 22.9% for the nine months ended September 30, ~~2020 compared to 25.2% for the nine months ended September 30, 2019.~~2020. The decrease in the expense ratio was due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums. The decrease in the other underwriting expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses, as a result of management's focus on controlling ~~costs, and lower variable compensation~~ costs. The decrease in ~~variable compensation costs for~~ the ~~nine months ended September 30, 2020~~net commissions incurred ratio was ~~attributable~~due to ~~lower underwriting income~~higher ceding commissions resulting from ~~incurred catastrophe losses.~~growth in the excess casualty and personal insurance lines of business and a change in the mix of business. Direct commissions paid as a percent of gross written premiums was 14.6% for both the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020.

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Investing results

The following table summarizes net investment income, change in the fair value of equity securities and net realized investment gains for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~2020:

Nine Months Ended September 30,
($ in thousands) 2020 2019 Change % Change
Interest from fixed-maturity securities $ 17,994 $ 13,376 $ 4,618 34.5 %
Dividends from equity securities 2,554 1,493 1,061 71.1 %
Other 261 667 (406) (60.9) %
Gross investment income 20,809 15,536 5,273 33.9 %
Investment expenses (1,196) (950) (246) 25.9 %
Net investment income 19,613 14,586 5,027 34.5 %
Change in fair value of equity securities 3,709 8,050 (4,341) NM
Net realized gains on investments 1,676 230 1,446 NM
Total $ 24,998 $ 22,866 $ 2,132 9.3 %

~~NM - Percentage change not meaningful.~~


	Nine Months Ended September 30,
($ in thousands)	2021		2020		Change		% Change

Interest from fixed-maturity securities	$	20,992	$	17,994	$	2,998	16.7	%
Dividends from equity securities	2,801		2,554		247		9.7	%
Other	11		261		(250)		(95.8)	%
Gross investment income	23,804		20,809		2,995		14.4	%
Investment expenses	(1,338)		(1,196)		(142)		11.9	%
Net investment income	22,466		19,613		2,853		14.5	%
Change in fair value of equity securities	13,644		3,709		9,935		267.9	%
Net realized investment gains	2,397		1,676		721		43.0	%


Total	$	38,507	$	24,998	$	13,509	54.0	%

Our net investment income increased by ~~34.5%~~14.5% to $22.5 million for the nine months ended September 30, 2021 from $19.6 million for the nine months ended September 30, ~~2020 from $14.6 million for the nine months ended September 30, 2019.~~2020. This increase in the first nine 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 September 30, ~~2019~~2020 and proceeds from our equity ~~offerings.~~offering in the third quarter of 2020. Our fixed-maturity investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 2.5% for the nine months and ended September 30, 2021 and 3.0% for ~~both~~ the nine months ended September 30, ~~2020~~2020.

During the first nine months of 2021, the change in fair value of equity securities was comprised of unrealized gains related to ETF securities of $13.4 million and ~~2019.~~unrealized gains related to non-redeemable preferred stock of $0.2 million. The change in unrealized gains during the first nine months of 2021 attributable to ETF securities was largely reflective of the gains in the broader U.S. stock market.

During the first nine months of 2020, the change in fair value of equity securities was comprised of unrealized gains related to ETF securities of $4.5 million and unrealized losses related to preferred stock of $0.8 million. Fair values of ~~ETFs~~ETF's declined by $13.1 million during the first quarter of 2020, driven by the disruption in the financial markets associated with the COVID-19 pandemic and, subsequently, the fair value of those securities rebounded sharply during the second quarter of 2020. Consistent with the trend experienced in the second quarter of 2020, the fair values of these securities continued to increase during the third quarter of 2020, although to a lesser degree.

We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss. Management concluded that there were no credit losses ~~(previously known as other-than-temporary impairments)~~ from available-for-sale investments for the nine months ended September 30, ~~2020~~2021 or ~~2019.~~2020.

Income tax expense

Our effective tax rate was 18.9% for the nine months ended September 30, 2021 compared to 12.8% for the nine months ended September 30, ~~2020 compared to 16.6% for the nine months ended September 30, 2019.~~2020. The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income. During the nine months ended September 30, 2021, the level of stock options exercised was lower than the comparable prior year period, which resulted in a higher effective tax rate.

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Return on equity

Our annualized return on equity was 22.5% for the nine months ended September 30, 2021 compared to 14.3% for the nine months ended September 30, ~~2020 compared to 18.5%~~2020. Our annualized operating return on equity was 19.8% for the nine months ended September 30, ~~2019. Our annualized operating return on equity was~~2021 compared to 13.0% for the nine months ended September 30, ~~2020 compared to 15.9% for the nine months ended September 30, 2019.~~2020. The ~~decrease~~increase in annualized operating return on equity for the nine months ended September 30, ~~2020~~2021 compared to the ~~prior-year~~

~~Table of Contents~~

prior period was ~~due largely~~attributable primarily to ~~the proceeds received from our equity offering~~growth in the ~~third quarter~~business from continuing favorable market conditions and rate increases, lower catastrophe activity and higher net favorable development of ~~2020 and catastrophe losses incurred during the period.~~

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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On August 7, 2020, we completed an underwritten public offering and sold and issued 310,500 shares of our common stock at a price of $190 per share. After deducting underwriting discounts and commissions, we received net proceeds of $56.7 million, which ~~will be~~were used for general corporate purposes, including to fund organic growth.

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Our cash flows for the nine months ended September 30, 2021 and 2020 ~~and 2019~~ were:


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2020		2019			2021		2020
		(in thousands)					(in thousands)
Cash and cash equivalents provided by (used in):	Cash and cash equivalents provided by (used in):					Cash and cash equivalents provided by (used in):
Operating activities	Operating activities	$	206,461	$	119,100	Operating activities	$	301,881	$	206,461
Investing activities	Investing activities	(302,386)		(181,134)		Investing activities	(280,081)		(302,386)
Financing activities	Financing activities	74,213		73,253		Financing activities	(8,881)		74,213
Change in cash and cash equivalents	Change in cash and cash equivalents	$	(21,712)	$	11,219	Change in cash and cash equivalents	$	12,919	$	(21,712)

Net cash provided by operating activities was approximately ~~$206.5~~$301.9 million for the nine months ended September 30, ~~2020,~~2021, compared to ~~$119.1~~$206.5 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 $280.1 million for the nine months ended September 30, 2021, compared to $302.4 million for the nine months ended September 30, ~~2020, compared to $181.1 million for the nine months ended September 30, 2019.~~2020. Net cash used in investing activities during the first nine months of 2021 included purchases of fixed-maturity securities of $509.0 million, and were comprised primarily of corporate bonds, mortgage- and asset-backed securities, municipal securities and, to a lesser extent, U.S. Treasuries. During the first nine months of 2021, we received proceeds of $102.6 million from sales of fixed-maturity securities, largely corporate bonds, and $139.7 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the nine months ended September 30, 2021, purchases of ETF securities and non-redeemable preferred stock were $1.5 million and $10.2 million, respectively.

Net cash used in investing activities of $302.4 million during the first nine months of 2020 included purchases of fixed-maturity securities of $389.7 million, which in part reflected the investment of proceeds from the equity offering during the third quarter of 2020 and the deployment of cash equivalents held at December 31, 2019. Purchases of fixed-maturity securities were comprised primarily of corporate bonds, asset- and mortgage-backed securities, and municipal securities. During the first nine months of 2020, we received proceeds of $79.0 million from sales of fixed-maturity securities, largely corporate bonds, and $66.2 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the nine months ended September 30, 2020,, purchases of ~~ETFs~~ETF securities and non-redeemable preferred stock were $26.6 million and $7.2 million, respectively. Net cash used in investing activities included net purchases of property and equipment of $24.1 million, primarily related to the development of our new corporate ~~headquarters, previously disclosed.~~headquarters.

Net cash used in investing activities during the first nine months of 2019 reflected purchases of fixed-maturity securities of $245.3 million, and included investment of the net proceeds from the equity offering during the third quarter of 2019 of $65.9 million. Purchases of fixed-maturity securities were comprised of asset- and mortgage-backed securities, corporate bonds and municipal securities. During the first nine months of ~~2019, we~~2021, cash used in financing activities reflected dividends paid of $0.33 per common share, or $7.5 million in aggregate. In addition, payroll taxes withheld and remitted on restricted stock awards was $2.1 million, offset in part by proceeds received ~~proceeds~~from our equity compensation plans of ~~$32.5~~$0.7 million, ~~from sales of fixed-maturity securities, largely municipal bonds, and $44.5 million from redemptions of asset- and mortgage-backed securities and corporate bonds. During~~for the nine months ended September 30, 2019, purchases and sales of non-redeemable preferred stocks were $6.6 million and $7.0 million, respectively, and purchases and sales of ETFs were $14.5 million and $13.8 million, respectively. In addition, net cash used in investing activities included $12.4 million related to the development of our new corporate headquarters.2021.

During the first nine months of September 30, 2020, cash provided by financing activities reflected net proceeds from the equity offering of $56.7 million, which ~~will be~~was used for general corporate purposes, including to fund organic growth. In addition, we drew down $23.3 million on our Credit Facility, which was used to fund ~~the~~ construction of our new headquarter facilities. During the first nine months of ~~September 30,~~ 2020,, cash used in financing activities reflected dividends

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paid of $0.27 per common share, or $6.0 million in aggregate. During the first nine months of September 30, 2019, cash provided by financing activities reflected net proceeds from the equity offering of $65.9 million. In addition, we drew down $11.8 million on our Credit Facility, which was used to fund construction of our new headquarter facilities. During the first nine months of September 30, 2019, cash used in financing activities primarily reflected dividends paid of $0.24 per common share, or $5.2 million in aggregate.

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Proceeds received from our equity compensation plans were $2.1 million, offset by payroll taxes withheld and remitted on restricted stock awards of $1.8 million for the nine months ended September 30, ~~2020.~~ 2020~~Net proceeds from equity compensation totaled $1.4 million for the nine months ended September 30, 2019.~~.

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 September 30, ~~2020~~2021, there was ~~$40.1~~$42.7 million outstanding under the Credit Facility, net of debt issuance costs.

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.

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.

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The following is a summary of our significant reinsurance programs as of September 30, ~~2020~~: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~~5.75 million excess of ~~$2.0~~$3.0 million

$~~2.0~~3.0 million per occurrence

Property - personal insurance (2)

N/A

50% up to ~~$47.5~~$30.4 million per catastrophe

50% of all personal property losses

Property - catastrophe (3)

N/A

$~~45.0~~60.0 million excess of ~~$10.0~~$15.0 million

$~~10.0~~15.0 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

(1) Our property per-risk reinsurance reduces the financial impact of a large loss on a single commercial property or inland marine policy. In addition to the Company's retention, this treaty includes a deductible of the first $4.0 million of losses covered under this reinsurance treaty. This treaty also includes a reinstatement provision which requires us to pay reinstatement premiums after a loss in excess of $5 million has occurred in order to preserve coverage.

(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~~$120 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~~per-occurrence limit of $2.0 million or less.

(5) For casualty policies with a ~~per occurrence~~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.

~~Reinsuran~~ceReinsurance 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 September 30, ~~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 September 30, ~~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.

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Ratings

Kinsale Insurance Company has a financial strength rating of "A" (Excellent) with a stable outlook from A.M. Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In

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Liquidation). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer's ability to meet its obligation to policyholders and is not an evaluation directed at investors.

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

Financial condition

Stockholders' equity

At September 30, ~~2020,~~2021, total stockholders' equity was ~~$534.1~~$659.2 million and tangible stockholders' equity was ~~$531.3~~$656.4 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 increases in both total and tangible stockholders' equity over the prior year-end balances were ~~primarily~~ due to ~~proceeds received from the public equity offering,~~ profits generated during the period ~~an increase in unrealized gains on available-for-sale investments, net of taxes,~~ and activity related to stock-based compensation plans, offset in part by ~~the~~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 September 30, 2020 and December 31, 2019, reconciles~~GAAP to tangible stockholders' ~~equity as follows:~~

September 30, 2020 December 31, 2019
(in thousands)
Stockholders' equity $ 534,131 $ 405,880
Less: intangible assets, net of deferred taxes 2,795 2,795
Tangible stockholders' equity $ 531,336 $ 403,085

equity.

Investment portfolio

At September 30, ~~2020,~~2021, our cash and invested assets of ~~$1.2~~$1.6 billion consisted of fixed-maturity securities, equity securities and cash and cash equivalents. At September 30, ~~2020,~~2021, the majority of the investment portfolio was comprised of fixed-maturity securities of ~~$1.0~~$1.3 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 September 30, ~~2020,~~2021, we also held ~~$116.0~~$151.8 million of equity securities, which were comprised of ~~ETFs~~ETF securities and non-redeemable preferred stock, and ~~$78.7~~$90.0 million of cash and cash equivalents.

Our fixed-maturity securities, including cash equivalents, had a weighted average duration of ~~4.7~~4.4 years and 4.3 years at September 30, ~~2020~~2021 and ~~4.3 years at~~ December 31, ~~2019~~2020, respectively, and an average rating of "AA-" at September 30, ~~2020~~2021 and ~~"AA" at~~ December 31, ~~2019.~~2020.

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At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the amortized cost and estimated fair value on fixed-maturity securities were as follows:


		September 30, 2020						December 31, 2019							September 30, 2021						December 31, 2020
		Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value			Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value
		($ in thousands)													($ in thousands)
Fixed-maturity securities:	Fixed-maturity securities:													Fixed-maturity securities:
U.S. Treasury securities and obligations of U.S. government agencies	U.S. Treasury securities and obligations of U.S. government agencies	$	—	$	—	—	%	$	110	$	112	—	%	U.S. Treasury securities and obligations of U.S. government agencies	$	6,932	$	6,922	0.5	%	$	—	$	—	—	%
Obligations of states, municipalities and political subdivisions	Obligations of states, municipalities and political subdivisions	210,703		224,886		21.9	%	166,312		172,893		23.7	%	Obligations of states, municipalities and political subdivisions	214,776		226,061		16.8	%	216,181		230,906		21.3	%
Corporate and other securities	Corporate and other securities	317,977		337,188		32.9	%	180,287		184,768		25.3	%	Corporate and other securities	434,489		446,490		33.2	%	294,854		316,608		29.3	%
Asset-backed securities	Asset-backed securities	225,969		228,780		22.3	%	141,123		141,924		19.5	%	Asset-backed securities	298,492		301,668		22.5	%	236,813		240,661		22.2	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	62,421		67,072		6.6	%	54,627		56,046		7.7	%	Commercial mortgage-backed securities	58,579		61,440		4.6	%	66,110		70,969		6.6	%
Residential mortgage-backed securities	Residential mortgage-backed securities	162,295		166,963		16.3	%	172,358		173,789		23.8	%	Residential mortgage-backed securities	300,016		300,292		22.4	%	217,859		222,656		20.6	%
Total fixed-maturity securities	Total fixed-maturity securities	$	979,365	$	1,024,889	100.0	%	$	714,817	$	729,532	100.0	%	Total fixed-maturity securities	$	1,313,284	$	1,342,873	100.0	%	$	1,031,817	$	1,081,800	100.0	%

The table below summarizes the credit quality of our fixed-maturity securities at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Standard & Poor’s or Equivalent Designation	Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total		Standard & Poor’s or Equivalent Designation	Estimated Fair Value		% of Total		Estimated Fair Value		% of Total
		($ in thousands)									($ in thousands)
AAA	AAA	$	290,498	28.4	%	$	213,174	29.2	%	AAA	$	365,705	27.2	%	$	312,721	28.9	%
AA	AA	326,812		31.9	%	259,873		35.6	%	AA	483,381		36.0	%	382,174		35.3	%
A	A	219,420		21.4	%	176,338		24.2	%	A	229,741		17.1	%	187,970		17.4	%
BBB	BBB	150,962		14.7	%	74,872		10.3	%	BBB	183,545		13.7	%	157,777		14.6	%
Below BBB and unrated	Below BBB and unrated	37,197		3.6	%	5,275		0.7	%	Below BBB and unrated	80,501		6.0	%	41,158		3.8	%
Total	Total	$	1,024,889	100.0	%	$	729,532	100.0	%	Total	$	1,342,873	100.0	%	$	1,081,800	100.0	%

The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, were as follows:


		September 30, 2020						December 31, 2019							September 30, 2021						December 31, 2020
		Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value			Amortized Cost		Estimated Fair Value		% of Total Fair Value		Amortized Cost		Estimated Fair Value		% of Total Fair Value
		($ in thousands)													($ in thousands)
Due in one year or less	Due in one year or less	$	9,043	$	9,192	0.9	%	$	9,940	$	9,990	1.4	%	Due in one year or less	$	8,471	$	8,601	0.6	%	$	15,545	$	15,782	1.5	%
Due after one year through five years	Due after one year through five years	112,714		120,488		11.8	%	115,480		118,611		16.3	%	Due after one year through five years	172,248		178,438		13.3	%	107,150		115,390		10.7	%
Due after five years through ten years	Due after five years through ten years	169,530		181,209		17.7	%	79,235		82,314		11.3	%	Due after five years through ten years	211,736		219,098		16.3	%	156,958		169,711		15.7	%
Due after ten years	Due after ten years	237,393		251,185		24.5	%	142,054		146,858		20.1	%	Due after ten years	263,742		273,336		20.3	%	231,382		246,631		22.8	%
Asset-backed securities	Asset-backed securities	225,969		228,780		22.3	%	141,123		141,924		19.4	%	Asset-backed securities	298,492		301,668		22.5	%	236,813		240,661		22.2	%
Commercial mortgage-backed securities	Commercial mortgage-backed securities	62,421		67,072		6.5	%	54,627		56,046		7.7	%	Commercial mortgage-backed securities	58,579		61,440		4.6	%	66,110		70,969		6.5	%
Residential mortgage-backed securities	Residential mortgage-backed securities	162,295		166,963		16.3	%	172,358		173,789		23.8	%	Residential mortgage-backed securities	300,016		300,292		22.4	%	217,859		222,656		20.6	%
Total fixed-maturity securities	Total fixed-maturity securities	$	979,365	$	1,024,889	100.0	%	$	714,817	$	729,532	100.0	%	Total fixed-maturity securities	$	1,313,284	$	1,342,873	100.0	%	$	1,031,817	$	1,081,800	100.0	%

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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 September 30, ~~2020, 7.0%~~2021, 7.1% of our total cash and investments ~~were~~was invested in ~~ETFs.~~ETF securities. At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our ETF balances were comprised of the following funds:


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Fund	Fund	Fair Value		% of Total		Fair Value		% of Total		Fund	Fair Value		% of Total		Fair Value		% of Total
		($ in thousands)									($ in thousands)
Domestic stock market fund	Domestic stock market fund	$	56,437	65.9	%	$	42,873	78.7	%	Domestic stock market fund	$	74,588	66.0	%	$	64,760	66.0	%
Dividend yield equity fund	Dividend yield equity fund	29,180		34.1	%	11,590		21.3	%	Dividend yield equity fund	38,396		34.0	%	33,290		34.0	%

Total	Total	$	85,617	100.0	%	$	54,463	100.0	%	Total	$	112,984	100.0	%	$	98,050	100.0	%

As of September 30, ~~2020, 2.5%~~2021, 2.4% of our total cash and investments ~~were~~was invested in non-redeemable preferred stock. A summary of these securities by industry segment is shown below as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020:


		September 30, 2020				December 31, 2019					September 30, 2021				December 31, 2020
Industry	Industry	Fair Value		% of Total		Fair Value		% of Total		Industry	Fair Value		% of Total		Fair Value		% of Total
		($ in thousands)									($ in thousands)
Financial	Financial	$	26,744	88.0	%	$	20,369	85.5	%	Financial	$	34,845	89.8	%	$	27,744	87.8	%
Utilities	Utilities	2,939		9.7	%	2,992		12.5	%	Utilities	3,053		7.9	%	3,034		9.6	%
Industrials and other	Industrials and other	711		2.3	%	470		2.0	%	Industrials and other	910		2.3	%	834		2.6	%
Total	Total	$	30,394	100.0	%	$	23,831	100.0	%	Total	$	38,808	100.0	%	$	31,612	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 ~~$7.0~~$6.7 million and $6.9 million at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

Off-balance sheet arrangements

We do not have any material off-balance sheet arrangements at September 30, ~~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.

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Net income for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, reconciles to underwriting income as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2020		2019		2020		2019		(in thousands)	2021		2020		2021		2020

Net income	Net income	$	14,890	$	12,976	$	50,238	$	45,463	Net income	$	36,625	$	14,890	$	104,339	$	50,238
Income tax expense	Income tax expense	1,231		2,217		7,355		9,066		Income tax expense	9,054		1,231		24,387		7,355
Income before income taxes	Income before income taxes	16,121		15,193		57,593		54,529		Income before income taxes	45,679		16,121		128,726		57,593
Other expenses(1)	Other expenses(1)	1,022		—		1,022		57		Other expenses(1)	388		1,022		1,234		1,022
Net investment income	Net investment income	(7,008)		(5,265)		(19,613)		(14,586)		Net investment income	(8,095)		(7,008)		(22,466)		(19,613)
Change in the fair value of equity securities	Change in the fair value of equity securities	(6,031)		(246)		(3,709)		(8,050)		Change in the fair value of equity securities	1,012		(6,031)		(13,644)		(3,709)
Net realized gains on investments		(647)		(185)		(1,676)		(230)
Net realized investment gains										Net realized investment gains	(895)		(647)		(2,397)		(1,676)
Other income	Other income	(571)		(10)		(594)		(19)		Other income	(35)		(571)		(58)		(594)
Underwriting income	Underwriting income	$	2,886	$	9,487	$	33,023	$	31,701	Underwriting income	$	38,054	$	2,886	$	91,395	$	33,023

(1) Other expenses are comprised of interest expense on the Company's Credit Facility and other corporate expenses not allocated to our insurance operations.

Reconciliation of net operating earnings

Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized 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 and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, reconciles to net operating earnings as follows:


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(in thousands)	(in thousands)	2020			2019			2020			2019			(in thousands)	2021			2020			2021			2020

Net operating earnings:

Net income	Net income	$	14,890		$	12,976		$	50,238		$	45,463		Net income	$	36,625		$	14,890		$	104,339		$	50,238
Change in the fair value of equity securities, after taxes	Change in the fair value of equity securities, after taxes	(4,764)			(194)			(2,930)			(6,359)			Change in the fair value of equity securities, after taxes	799			(4,764)			(10,779)			(2,930)
Net realized gains on investments, after taxes		(511)			(146)			(1,324)			(182)
Net realized investment gains, after taxes														Net realized investment gains, after taxes	(707)			(511)			(1,894)			(1,324)
Net operating earnings	Net operating earnings	$	9,615		$	12,636		$	45,984		$	38,922		Net operating earnings	$	36,717		$	9,615		$	91,666		$	45,984

Operating return on equity:	Operating return on equity:													Operating return on equity:
Average stockholders' equity (1)	Average stockholders' equity (1)	$	495,123		$	348,972		$	470,006		$	327,011		Average stockholders' equity (1)	$	644,401		$	495,123		$	617,702		$	470,006
Annualized return on equity (2)	Annualized return on equity (2)	12.0		%	14.9		%	14.3		%	18.5		%	Annualized return on equity (2)	22.7		%	12.0		%	22.5		%	14.3		%
Annualized operating return on equity (3)	Annualized operating return on equity (3)	7.8		%	14.5		%	13.0		%	15.9		%	Annualized operating return on equity (3)	22.8		%	7.8		%	19.8		%	13.0		%

(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.

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(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 September 30, 2021 and December 31, 2020, reconciles to tangible stockholders' equity as follows:


	September 30, 2021		December 31, 2020
	(in thousands)
Stockholders' equity	$	659,165	$	576,238
Less: intangible assets, net of deferred taxes	2,795		2,795
Tangible stockholders' equity	$	656,370	$	573,443

Critical accounting estimates

We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities, if any. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~

2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.

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

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Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during the third quarter of ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

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

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

~~In addition to the other information set forth~~There have been no material changes in ~~this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties described under the heading “Risk Factors”~~our risk factors from those disclosed in ~~Part I, Item 1A of~~ our Annual Report on Form 10-K

for the year ended December 31, ~~2019 (our "2019 Form 10-K"), as updated and supplemented by the below risk factor. The below risk factor updates the risk factor~~captioned “Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us.” in our 2019 Form 10-K. These risks and uncertainties are not the only ones facing us. There may be additional risks and uncertainties of which we are currently unaware or currently believe to be immaterial. The occurrence of any of these risks could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.

~~Severe weather conditions, catastrophes, pandemics and similar events may adversely affect our business, results of operations and financial condition.~~

Our business is exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as severe winter weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms and fires, and other events such as explosions, war, terrorist attacks and riots. The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable. The extent of losses from catastrophes is a function of the total amount of losses incurred, the number of insureds affected, the frequency and severity of the events, the effectiveness of our catastrophe risk management program and the adequacy of our reinsurance coverage. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. Severe weather conditions and catastrophes can cause losses in our property lines and generally result in both an increase in the number of claims incurred and an increase in the dollar amount of each claim asserted, which may require us to increase our reserves, causing our liquidity and financial condition to deteriorate. In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations.

Our business is also exposed to the risk of pandemics, outbreaks, public health crises, and geopolitical and social events, and their related effects. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. In response, governmental authorities (including the U.S. federal government, states and localities) have mandated, and continue to introduce, measures to slow the transmission of the virus, including shelter-in-place orders, significant restrictions on travel, limits on gatherings, quarantines and business shutdowns. While to date we have not seen a decrease in the growth rate of our gross written premiums since the beginning of the COVID-19 pandemic and related economic downturn, the COVID-19 situation remains fluid and continues to evolve, and at this time we are unable to determine the ultimate impact of COVID-19 and related economic downturn on our business, financial condition, results of operations and cash flows. While policy terms and conditions in the lines of business written by Kinsale would be expected to preclude coverage for virus-related claims, court decisions and governmental actions may challenge the validity of any exclusions or our interpretation of how such terms and conditions operate. In addition, in response to COVID-19, legislative, regulatory and judicial actions may include,

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but are not limited to, actions prohibiting us from cancelling insurance policies in accordance with our policy terms, ordering us to provide premiums refunds, granting extended grace periods for payment of premiums and providing for extended periods of time to pay past due premiums. We are closely monitoring the impact of the COVID-19 pandemic and related economic downturn on all aspects of our business, including how it will impact premium volume, losses and the fair value of our investment portfolio as well as how it may result in other effects such as the potential for delayed reporting and settlement of claims due to limited access to business locations. During the first quarter of 2020, we experienced a significant decline in the fair value of our investment portfolio due to disruption in the global financial markets associated with COVID-19, which adversely affected our total comprehensive income (loss) for the quarter. Subsequent to the first quarter of 2020, the fair values of our investment portfolio rebounded sharply, gaining back all of the decline in fair value. If the COVID-19 pandemic continues for a significant length of time and measures put in place to stabilize the economy are not effective, or pandemics, outbreaks and other events occur or re-occur, our business, results of operations, financial condition and cash flows may be materially adversely affected.2020.

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

None.

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Item 6. Exhibits


Exhibit Number						Description
3.1						Second Amended and Restated Certificate of Incorporation of Kinsale Capital Group, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018)
3.2						Amended and Restated By-Laws of Kinsale Capital Group, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 24, 2018)
31.1						Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2						Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS **						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

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

document.

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Signatures

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


		KINSALE CAPITAL GROUP, INC.
Date: October ~~29, 2020~~28, 2021	By:	/s/ Michael P. Kehoe
		Michael P. Kehoe President and Chief Executive Officer

Date: October ~~29, 2020~~28, 2021	By:	/s/ Bryan P. Petrucelli
		Bryan P. Petrucelli Executive Vice President, Chief Financial Officer and Treasurer

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