Q3 2024 Earnings Summary
- Kinsale continues to outperform in terms of loss activity against actuarial assumptions, leading to an improved underlying loss ratio of 55% and demonstrating strong underwriting performance.
- Operating return on equity exceeds 28%, generating excess capital and enabling share buybacks, reflecting financial strength and confidence in future growth prospects of 10-20% over the long term.
- Kinsale has durable competitive advantages, including a low-cost structure and a diverse product line, allowing it to outgrow the E&S market and consistently outperform the S&P 500, with expectations to maintain growth of 10-20% over the long term.
- Increased competition in certain lines of business, including Commercial Property, professional liability, and product liability lines, could pressure premium growth and profitability. The company noted that premium grew 19% in the third quarter, down from 21% and 26% in the prior quarters, partly due to increased competition, especially on larger accounts. , ,
- Higher loss ratios in older accident years for construction-related liability business, combined with the long-tail nature of claims and an uptick in inflation, introduce uncertainty in future margins despite corrective actions taken by the company. The company has observed that construction-related liability loss ratios have drifted higher, and the ultimate impact on margins is uncertain due to the long-tail nature of these claims. , ,
- Industry-wide challenges such as casualty reserve deficiencies in excess casualty and commercial auto lines could impact the company. While Kinsale believes its reserves are adequate and in a conservative position, the overall industry trend of casualty reserve deficiencies may cause stress in the market and could have indirect effects on the company. , ,
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +33% YoY | Strong premium growth from higher broker submissions and improved rates in the E&S market drove underwriting income, while investment income also rose due to higher interest rates and expanded portfolios. Favorable equity market valuations added incremental gains, contributing to the overall revenue rise. |
Net Earned Premiums | +24% YoY | Increased gross written premiums flowed through to net earned premiums, supported by favorable E&S market conditions and disciplined underwriting. Continued submission growth from brokers and rate increases supported premium volume relative to prior periods. |
Net Investment Income | +46% YoY | Larger investment balances from profit retention and higher operating cash flows, combined with rising interest rates, boosted returns. The portfolio expansion since prior periods further contributed to the improved investment income. |
Change in Fair Value of Equity Securities | Increased to $20.66M from -$5.53M | Improved equity market conditions led to favorable revaluations of holdings. Compared to the negative fair value adjustments in prior periods, stable or rising stock prices and increased valuations of held ETFs, common stocks, and preferred securities drove positive unrealized gains this year. |
Net Income | +50% YoY | Profitable underwriting growth and strong investment returns were key drivers, while improved market pricing and increased efficiency helped control losses and expenses. The favorable equity revaluations also contributed significantly to boosting net income relative to the prior year. |
Diluted EPS | +50% YoY | Higher net income and disciplined share management led to the significant EPS increase. With improved profitability across underwriting and investments compared to earlier periods, the company delivered strong earnings growth on a per-share basis. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Long-term growth rate | Q3 2024 | no prior guidance | 10% to 20% | no prior guidance |
Retention rate | Q3 2024 | no prior guidance | two-thirds of policies | no prior guidance |
Operating return on equity | Q3 2024 | no prior guidance | 28.2% | no prior guidance |
Rate changes | Q3 2024 | no prior guidance | up around 3% (down from 6%) | no prior guidance |
Share buyback program | Q3 2024 | no prior guidance | $100 million | no prior guidance |