KNSL - Earnings call transcript Q1 2018 | Kinsale Capital Group, Inc.

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Operator

Before we get started, let me remind everyone, that through the course of the teleconference, Kinsale's management may make comments that reflect their intentions, beliefs and expectations for the future.

As always, these forward-looking statements are subject to certain risk factors, which would cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the 2017 annual report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its first quarter results. Kinsale's management may also reference certain non-GAAP financial measures in the call today. to which can company's is www.kinsalecapitalgroup.com. GAAP the found website of release, press available reconciliation these be measures in at A at the will Kinsale's over I the CEO, and Mr. to turn now President conference Kehoe. Michael go sir. Please ahead,

Michael Kehoe

Disciplined offer follow-up targeting inaccuracies and combine then Thank for on we making underwriting with that hard-to-place market better we you, the and Also will our drive to absolute returns. sure and means drive to Kinsale's the elements color client-handling Haney me with Kinsale even follow Brian help involves to the growth joining on is strategy we've like carefully not functions higher-margin costs Brian Petrucelli, handling stockholders, and market to some external segment everybody The the focus deliver process. have coverage the Haney, in operations. Kinsale morning It the outsourcing Bryan strategy Officer. Financial me process claim in to like ratios parties. competitive Kinsale going our attractive frequently Bryan technology are It Petrucelli low a call. this Kinsale's Chief disciplined minimize underwriting All and underwriting operator, achieved. in managing welcome Kinsale's excess enabled, lines. is returns to the quarter, risk-adjusted underwriting a to Officer; these accounts today. and of numbers loss Chief favorable starts underwriting with detail Operating those and a to over surplus the includes account, underwriting smaller and for It and control maintaining

service companies systems The over one operates significant date advantage and We This do. by the enterprise Kinsale legacy specifically back enterprise source business. like no to for by company. Kinsale expense analysts, technology at our as system that our automation and well side, our data accuracy of was and in drives competitors older Kinsale superior On our our operate using decades collection. own business built and customer many the has system end-to-end efficiency a legacy code. developers as

culture, one continue and allows Kinsale's the disciplined Kinsale XX% going on with start having expense even to providing our advantage, at improve time of of respectable system combined costs the operating time. new stockholders. that Kinsale cases every a combined and forward. first lower our functions to value over importantly, or returns return the levels end-to-end same robust to competitors. almost our more low than many written was had Combining ratio operate entrepreneurial rapid a is allows allow costs in XXXX business XXXX, while XX.X% XX.X%. features end-game XX%, customer, underwriting up up to at Low of premium This of of performance quarter operating equity were rollout to XX% an More the with offer and to winner XX.X% system for with Kinsale earnings XX%. operating Net an some gross

our CFO. financials, turn over Petrucelli, the Bryan to on I'm detail deep going Kinsale's more for So to call

Bryan Petrucelli

Mike. Thanks,

As such other this out through now associated statement. Mike accounting pointing about recorded the by Previously, our through adoption At changes we're the reported noted, to with want were the we start feel comprehensive stripping income. our new unrealized income first, equity I portfolio first standard and -- out investment losses -- gains our are quarter where just pretty of results. we're good quarter,

of reported portfolio other continue little to with bit through So our fixed-income complaints increases income. unrealized in Changes income a associated of with our volatility statement. gains losses, be this and investment

over statement. gains that Calendar comparability operating of results earning for $X.X the million -- were our income a and to and income XX% an the periods, metric year. quarter, year. million quarter $X.X net compared an in the driven introduced flowing investment So which million for company's $X.X of largely that income with the in normalizes Net increased last XXXX, the income previous first income for Increases is for now increase we unrealized reported purposes through of of we've or an XX XX.X%, $X.X net last are rate. operating in by net increase operating tax earnings, million earnings reduction by and reported effective

this increase of Haney overall representing and from quarter. for lines most XX.X generated loss development, the act benefits to that to for during XXXX, and to due ratio underwriting underwriting from December XX.X% X.X that and this XX.X% the a million, an little lower exercised compared written compared combined last for activity $X return $X.X income for compared Brian period. first year. in and no were quarter effective detail combined million a last tax company in points premiums stock million of across of XX.X%, increase of the of continues last and generated and into of tax the XXXX, reserve quarter The this ratio points XX.X% income first quarter the XX.X% year. There options of year favorable the operating enacted year get to a in Our included The last of year recognition $XX.X prior on bit. last here a was reform XX.X% to year, first Annualized Gross over first rate was in was a or increased equity business, activity was quarter to year year, meaningful tax compared last impact more were will of to year. XXXX of the first XX.X% be net

increased portfolio. growth and to was as On pass rising $X.XX With year. Annualized the -- from of perspective, rates to compared a by investment EPS our investment interest more per $X.XX taking a operating Brian respectively, and per XX.X% diluted over of XX per year, net Haney. to income to portfolio, the year. X.X% $X.X it first share, side, the investment and XXXX gross result risk million in investment investment continued that, from over last in little returns increased $X.XX million by I'll last share, an last quarter and EPS, respectively, X.X% From $X.XX EPS basic $X.X

Brian Haney

Bryan. Thanks,

earlier, XX% As first in premium almost the XX mentioned XX of quarter. substantially. grew them some of grew, our divisions

the year's property since strongly, commercial division, Our submissions we've in hurricane. particular, due to impart seen grew influx large last of

their Our quarter. Allied Health a market number lot also dislocation, has up our reunderwrite Care of the business. of with nicely was for to of This competitors books having seen a division

quarters. healthcare very soft. Submissions quarter to was the right be construction On slightly space continues where up the fourth of the at submissions indicator in hand, other where divisions. the We in XX%, market good, the were than it three in the has one been up sign very for is for as that business is every headed, submissions the quarter positive around which leading a competitive look a our and it's are less and last so XX

superior would on faster. to be We customer emphasis what compromising still in internal able very to quoting. smaller This This a is time deals our competitors down continue it write our focus without our than more on grow, allows us processes write service margins, to competitive higher-expense is allowing to economically. market. and also the drive to allows quote us and business quote It improving to us cost of

they this on selectively. general, In at in fast It's pushed on expect expected, going of and year. more be. division some more a nicely, hope in technical as space, to throughout seeing as to accounts, X% some second the property what like the pronounced. ought positive rate point. rates; we as industry, market and be changes the are rate less just flux, be in would the and quarter by to we of increase Moving We competition in to a seem areas or positive not quite are commercial does while generally not would the modest are The more think rates still don't we are but first overall. to it the needs sign, increases happen. or up that, with we more industry in commercial increases it significant good and continue over many to plus but do rates prices going Overall, the up still a property will we and turn to rate feel that eventually confident And it we have When I'll seems classes other to while up Mike. have we that quarter areas, back and but happen. lower, whole, state happens, know, in and they're will The

Michael Kehoe

field ready Thanks, to questions any Brian. Operator, now. we're

Operator

SunTrust. Your Hughes Instructions] comes first Mark of from the line [Operator with question

Mark Hughes

of because stable? is environment relatively in are bad -- there's because the lot it's of the -- Or volatile? Allied The is area, the is dislocation, that trends health Sounds like pricing? loss is the the loss

Michael Kehoe

think the accounts off been pursued. companies in that track that being lot aggressive a they there's I of got overly by

And so from cut large We've some we've or actually MGA market some programs, either withdraw seen been the respects. back companies seen canceled. in be

years, -- skilled homes. write any for of a And have where, Kinsale nursing number would didn't so been area business, one

Now space, we're that accounts we're to able to seeing people exit selectively that write. find some

So segment. large it's industry a

to there's dislocation a for opportunities in with think find business I to us rise the write. attractive

Mark Hughes

in more as down year current in definitely from that the conservative pattern. and -- QX into of you reevaluated I that, progressed, loss last a some discussion there's know perhaps, some year that then last seasonality favorable little Yes, was a substantially that being you ex-remedial year. were that in

about you taking? this out What year. Could started seeing? talk you're You've what lower you're approach

Michael Kehoe

quarter 'XX of variation is year the reported losses. Yes, most the first our I most just accident of think current versus the between 'XX -- a at end in the delta

case So in got a volatility payments again, period the the certain XX-day of of amount reserves bases time. claim a and you've and

of XXXX at quarter slightly and ended over would to expect we we first number so accident-year think, year. XX% the I around the the loss course still trend right ratio, down

Mark Hughes

than into Kind about little -- it how the QX, we got then, how are reserves? black And seeing more definitely historically, reserve pace after have back you of moderate seen development? might a

Brian Haney

bit The years detailed some older accident a of some of and our I favorably. the in movement XXXX think, in that developed we years. was There 'XX MD&A. little of

it's to probability conservative greater want think be that that course, to the I is a reiterate the to we develop be of strategy, important than there favorably how reserves reserves. post Kinsale unfavorably. We in

today. year our accident at our I think you if in we're -- ninth look

every you of company, favorably. over look the one has basis, back an the on year except inception-to-date If developed accident history

some the The bit we that about evaluation I in of fact we We doesn't and of volatility little our where see smaller stand. think So a on reserves. we're change track. of years, those earlier right feel good accident

Mark Hughes

And pricing. question on last

And lower, rate I to you'd said -- year you would think X% I you increases like you've but see or think as generally the more suggested progresses. more also to speaking. see expected

plus of think balance kind range this get in be Or better? year? would through the say a do to the X% it you that is -- could bit think You of little

Brian Haney

push more say. would the to ourselves. It's going we're and not industry -- to market definitely price comes a needs tough enough basically taker rate to to when rate to big we're say, I it like push more, drive we're the

industry up we targets. needs it's with to expect the that. our feel I we and I to is hit to along think would of that we're very The comfortable the rates rate change I expect to think, rate market So it industry. with push [indiscernible] bearing and happen, so took, more, we push -- would us the But

Michael Kehoe

us lot also of And our in expense competitive not the that reiterating at the and I lot dramatic environment it's this fairly advantage a gives to that we're fact Kinsale stockholders. think operates our of more our compromise flexibility competitors, returns operate for a Mark, -- a achieving worth

Operator

Jeff William question next with Blair. from Schmitt your And comes

Jeffrey Schmitt

million accident 'XX I for development, the $X.X were XXXX lines adverse to those? years, through guess, The be looks which about

Michael Kehoe

I got lines X X or accident think, X got We've business. -- we statutory XX have We've years. of

think, one in 'hey, an those estimates to the on of years And about general, developed that and book previous business the about of developed put that million, it give up and of I million, about.' inception-to-date to have say, really favorably. pronounced -- originally was developed size except think XXXX take. or we trend -- all those there's reserves think the As around the shift is booked time we $XX.X those unfavorably then no from in But originally caller, said year basis, on $XX.X the I year. kind I and they've at, one time. The we're concerned context, would So accident to an I on back I of

inception-to-date except very a, basis. how on reserves it's And -- there's the So They've a years it's modest are in year positive an concern one again around the developed very stated. were favorably, some those of -- all about size. very we pernicious early trends. no company's conservative But feel

Jeffrey Schmitt

of now? Aspera how was what's book besides that then, looking? And growth And

Bryan Petrucelli

in the a bit under geographic. A that's the think of It's it's rapidly Q, is growing a from, obviously, growth or X%. I little disclosed a K that base. But lot small

So, we some expanded of new think, territories, it's in products. that line of the into into plays sale is diversification business But our and in expansion growth new story of Aspera, some channel. the driving distribution I that

Jeffrey Schmitt

guess do to we you have then be lower tax going What than mean, XX%? the rate I as it forward? I And see would will that expected. closer to

Brian Haney

a little than less I think, it's to that. going be

impact stock X%. about option think, the I from was the exercises

out But XX.X%. have that think, run-rate comes stock-option you that think, So exercises that I would it some a we're difficult I basis. just predict. XX.X%, to on a about we quarter to get if going you every strip And to out know, little

Operator

question Dwelle And your from RBC comes with next Markets. Mark Capital

Mark Dwelle

mixed over if calls through went the bit, would accident you been if able be your Is -- to you that this make a that four there And different Apologize you between a year, by -- primarily talk question? I bouncing a give-or-take. are about couple picks? because loss points, process little of pricing? Or Can little current better just of Are lower I here. you have improved bit? a

Michael Kehoe

It's Mike. in the of for is around which be bit. it's a most it right? It's commercial already period that's right? property it's lines mixed, bounce is a little rapid in So a little homeowners bit book. the Yes, manufactured that's it A property, its time Mark. going reported going a just and in fairly little variation period of seeing paid may claims book, XX-day reserves some lines, homes. But losses, to a over because a of marine -- personal case be the to the is XX-day we're our growth over

So that's the most significant piece of it.

you year, a XXXX, think if just look ratio. accident XX% I at the finished we loss right around

In terms we see to we'd trend that where hope year. this of that's trending, where again

Mark Dwelle

have mean, quarters. I the question been several second over obviously, excellent the is; then growth And I has your last

to, in, range. You're million kind gross of, it, of run a mid-$XX call up premium rate kind

debt continue what you of start continue at of if sort the if Or for bit rate do a ahead, try far look triangulate capital you'd $XXX to of consider you you million whether your as any an become instrument If annual balance capital constrained as to or gross that need type other premiums, maybe the more to to a -- of premium-to-surplus be you're it growth? ratio? able to get at little a underneath point year, growth to

Michael Kehoe

our obviously, Best think, towards very A-, monitor capital eye I of that's and with critical manage carefully, we us. to Yes, maintaining A.M. the an rating

balance chance XXXX. of our I IPO a would we in think beyond proceeds raised that. there's given a some returns, even primary in middle still and the a will our financial in the rates having shape borrow of us, little in XXXX, leverage good throughout help sheet a we capital late. I we're inexpensive money think But with form that's of fairly of for rising bit We think bit little boost

Mark Dwelle

the little I Can guess you're had, you about? a and adding elaborate in bit thinking risk I to you comments question mentioned the little your And opening about forth. there about investment of a so portfolio what just last

Michael Kehoe

little a duration we took our bit. Last out year,

I years. around think where three it used to be

Bryan Petrucelli

Now, we're years. four close to

Michael Kehoe

the years four we're Now running on about duration.

still small I portfolio. stocks think very structured preferred we allocation securities. had a from to a conservative It's

of think a I be there. then X% credit on income. got, we've common AA in think And I allocation X%, fixed stocks, quality terms its the may

augment that appetite, just expansion returns risk kind little just in a the it's of So to bit. incremental trying it's

Mark Dwelle

the is Okay, a definitely your agree mean, very now duration liability Is to conservative still that's close it's I I yes. full-year pretty portfolio. that -- probably duration?

Michael Kehoe

Yes.

Bryan Petrucelli

Yes.

Operator

at And I'm remarks. turn this showing back the questions further over Michael to for to I'd time. like call Kehoe no closing

Michael Kehoe

to again forward call Okay, you months. thank joining on you, in to a for and the us Thanks operator. everybody few look speaking

Operator

gentlemen, conference. you in Ladies thank participating the all have wonderful does for day. conclude Everyone, disconnect. a today's you program, may This and and

Kinsale Capital (KNSL) 6 May 182018 Q1 Earnings call transcript