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Kinsale Capital (KNSL) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Kinsale's operating earnings per share increased by 30.2% year-over-year, and gross written premium grew by 20.9% compared to Q2 2023 [6] - The company reported a combined ratio of 77.7% and a six-month operating return on equity of 28.8% [6][115] - Net income and net operating earnings increased by 27.2% and 30.2% respectively [115] - Net investment income rose by 48.3% in Q2 compared to the previous year, driven by strong operating cash flows and higher interest rates [117] Business Line Data and Key Metrics Changes - Premium grew by 21% in the second quarter, with strong growth in small property, entertainment, general casualty, and newer divisions like high-value homeowners and commercial auto [121] - The excess casualty business is also experiencing significant growth, while the professional line segment is facing increased competition [122] - Submission growth remained strong in the low 20s, indicating a positive signal for future growth [123] Market Data and Key Metrics Changes - The overall E&S market remained steady, with strong growth in new business submissions and positive rate changes across the book of business [8][9] - Rates increased by approximately 6% on a nominal basis, down slightly from around 7% in the previous quarter [124] - The property market is experiencing a normalization, with rates continuing to grow but at a slower pace [20][71] Company Strategy and Development Direction - Kinsale's strategy focuses on smaller accounts within the E&S market, maintaining strict underwriting control, and leveraging technology to manage costs [7] - The company aims to gradually increase its allocation to common stocks from 8% to 10% over the next several quarters [10] - The investment strategy remains conservative, primarily allocated to fixed income with a focus on maintaining a strong balance sheet [10][14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's prospects for profitability and growth across various market environments [8] - The company is cautious about loss cost trends and inflation, particularly in longer-tailed lines, and aims to maintain conservative reserving practices [88] - Management noted that the competitive landscape remains rational, with a focus on disciplined underwriting [13][14] Other Important Information - The company renewed its reinsurance program with modest changes, including increased retention on certain treaties [11][12] - Management highlighted the importance of maintaining a balance between premium growth and return on equity, with a minimum ROE threshold to ensure wealth generation for investors [87] Q&A Session Summary Question: What is the outlook for growth given the strong performance against last year's high growth? - Management does not provide specific growth forecasts but expresses confidence in the business model and expects to continue taking market share [96] Question: How is pricing being used to manage growth? - Pricing varies by division, with some divisions able to push rates while others may not, depending on their ROE and market conditions [100] Question: Are there any changes in managing catastrophe exposure with increased property business? - The company maintains a consistent strategy of expert underwriting and strict limits on concentration, modeling the portfolio monthly to manage catastrophe exposure [105] Question: What are the current loss trends in the casualty books? - Current loss trends are slightly below nominal rate increases, with a focus on conservative reserving practices [110] Question: How is the company addressing the competitive landscape in the professional lines segment? - The company is selectively more aggressive in the professional lines segment due to its high profitability and margin potential [122]