Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Operating earnings per share increased by 30.2% year-over-year.
- Gross written premium grew by 20.9% over the second quarter of 2023.
- Combined ratio of 77.7% and a six-month operating return on equity of 28.8%.
- Conservative investment strategy with a focus on fixed income and gradual increase in common stock allocation.
- Strong growth in new business submission activity and positive overall rate changes across the book of business.
Negative Points
- Increased retention on excess casualty treaty from $2 million to $2.5 million, which could impact future loss ratios.
- Continued cautious approach to releasing reserves, potentially affecting short-term profitability.
- Exposure to natural catastrophe losses, although managed conservatively, remains a risk.
- Increased competition in the professional lines segment, leading to selective rate cuts.
- Inflation and expanding tort system pose ongoing challenges to maintaining favorable loss trends.
Q & A Highlights
Q: Despite comping against over 60% revenue growth in the second quarter of last year, your top line growth this quarter was stronger than most expected. What should we expect from here in terms of steady-state growth rate for Kinsale?
A: We don't forecast growth because we don't have perfect clarity on it. However, we have enormous confidence in our business model and expect to continue growing and taking market share. The best reference point would be our growth rate in Q1 and Q2.
Q: Investors have expressed concern over your susceptibility to higher cat losses given the increase in your property exposure. Are you doing anything differently to manage your catastrophe exposure?
A: Our strategy has been consistent with a combination of expert underwriting, strict limits on concentration, monthly portfolio modeling, and a robust reinsurance program. This approach aims to capture significant margins while minimizing volatility.
Q: Can you discuss the extent to which you've been using pricing as a lever to manage growth, especially in the context of strong submission growth and pricing?
A: Each division is in its own market position. Some divisions with high ROE and growth can push rates, while others with high ROE but flat growth might not hold the line on rates. We aim to maximize growth and book value, making decisions based on market conditions.
Q: What are you seeing in your casualty books for current loss trends, and how does that compare to prior quarters?
A: Loss trend is slightly below our nominal rate increase, around the high 5% range. We have slowed the release of casualty reserves over the last several years, offset by the increase in our property business, which is a short-tail line.
Q: Are you seeing any changes in the property market competition in Q2 versus Q1?
A: It's more of the same. Competition is more evident on larger placements involving multiple carriers. However, our small property division is growing fast, and we are not seeing as much competition there.
Q: Can you talk about the trade-off between capital and growth, especially in a more normal environment?
A: We strive to be capital efficient and avoid having an excess of capital beyond what we need. Most likely, we would allocate excess capital through dividends or share buybacks, with a bias toward buybacks.
Q: Do you expect any changes in your investment portfolio positioning ahead of potential rate cuts?
A: We actively manage our investment strategy based on interest rate changes and Fed policy. However, we do not expect any significant changes in the near term.
Q: Can you provide more details on the high-value homeowners line and its growth potential?
A: While not one of our largest lines, high-value homeowners is a big opportunity due to the shift of business into the E&S space. It has shown rapid growth and high demand since its launch.
Q: How are you thinking about the expense ratio going forward, especially with the likely slowdown in earned premiums?
A: The expense ratio can vary quarter to quarter, but over a 12-month period, it should be flat. Longer term, we aim to drive it downward through automation and economies of scale.
Q: How do you view the persistence of E&S market growth trends, and is there any indication of a reversal?
A: We are bullish on the E&S market, especially on the commercial side. The personal side has also accelerated in recent years. We expect these trends to continue.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
