Market dislocation pushes Kinsale’s Q3 NPW up 41% in Q3

Continued dislocation across the property casualty industry fuelled a 41 percent net premiums written (NPW) increase for Kinsale Capital Group during the third quarter, with president and CEO Michael Kehoe predicting the recent rate hardening will not peak until 2021 or possibly even later.

E&S insurer Kinsale reported net operating earnings for 2020’s third quarter of $9.6mn, down from $12.6mn in the prior year period.

Net operating earnings per diluted share for Q3 2020 were $0.42, compared with $0.57 for the same three months in 2019. This missed the $0.74 consensus analyst estimate, according to SNL.

Investors sent Kinsale’s share price tumbling in trading Friday, closing down 10 percent at $187.47.

Kinsale’s NPW for Q3 2020 increased to $122.3mn from $86.8mn in the third quarter of 2019. The Richmond, Virginia-based carrier targets small-to-medium sized accounts.

On an earnings call, the carrier’s executive vice president and chief operating officer Brian Haney detailed that growth arose across the board, although its life sciences and environment businesses were both “up significantly”, partly because of the pandemic’s influence.

Other areas of growth for the business included its new aviation, product recall and expanded commercial auto segments.

On the latter, CEO Kehoe (pictured) said Kinsale has been active in the commercial auto market since the business opened 11 years ago, albeit cautiously because of the challenges associated with the sector.

“That market’s been in shambles for a number of years now, which obviously creates opportunities,” said Kehoe, who added that, because of Kinsale’s “little bit more focused underwriting approach”, the company saw some opportunity for incremental expansion in that business during Q3.

Kehoe said the broader market continued to harden in the third quarter, and Kinsale expects that to continue into 2021.

“I don’t think either the industry or Kinsale has reached the hard market peak of rate increases yet. I think that’s probably going to happen in 2021 or later,” the executive said.

Submission growth increased by 25 percent in the quarter, Kehoe said on the earnings call with analysts.

Underwriting income of $2.9mn for the three months to 30 September 2020 left Kinsale with a combined ratio of 97.3 percent for the period. In Q3 2019, Kinsale posted underwriting income of $9.5mn and a combined ratio of 86.9 percent.

The year on year decrease in underwriting income, Kinsale explained, was largely due to higher catastrophe losses incurred, offset in part by premium growth and higher net favourable development of loss reserves in prior accident years.

Rate increases of 10-12% across the business

Kehoe said Kinsale’s pricing was up “10 percent to 12 percent in the aggregate during the quarter”. But he noted that the insurer has “a very heterogeneous book of business”, meaning that reducing all of the rate movements across the company into one single number is complicated.

“Even beyond getting pure rate, we are further tightening terms and conditions, which should contribute even more to the bottom line,” Kehoe said.

While Kinsale has been enjoying rate increases of 10 to 12 percent across its portfolio, Haney explained that loss trends have been in the 3 to 4 percent range, meaning that the business has been benefiting from a higher margin.

The hardening across the market will benefit Kinsale in various ways. On top of getting additional rate on its books, Kinsale has also been broadening its portfolio of business.

“Some of it is just accounts we wouldn’t see, [or] accounts that used to be in the [admitted] space that now are in our space. Or accounts that used to be with programs [that] are now not with programs anymore,” said Haney.

Excess casualty and commercial property books grow

In terms of specific areas of its operations that have grown significantly, Kehoe said that in the last year or two, Kinsale’s excess casualty unit “has grown at a pretty brisk pace”, while the commercial property book has also increased in size.

“During the pandemic, the life science and the environmental divisions have experienced a little bit of outsized growth [but] I think that started to abate a little bit of late,” said Kehoe.

Generally though, Kehoe said Kinsale has seen “strong double-digit growth rate across the portfolio”.

Looking ahead, Haney said commercial property and personal insurance books “are going to be outliers” in terms of growth, although the executive explained that is not just restricted to Kinsale, with the entire industry growing in those segments.