KINSALE CAPITAL GROUP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The discussion and analysis below include certain forward-looking statements
that are subject to risks, uncertainties and other factors described in "Risk
Factors" in this Quarterly Report on Form 10-Q and in the Annual Report on Form
10-K for the year ended December 31, 2021. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of many factors.

The results of operations for the three months ended March 31, 2022 are not
necessarily indicative of the results that may be expected for the full year
ended December 31, 2022, or for any other future period. The following
discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto included in Part I, Item
1 of this Quarterly Report, and in conjunction with our audited consolidated
financial statements and the notes thereto included in the Annual Report on Form
10-K for the year ended December 31, 2021.

References to the “Company,” “Kinsale,” “we,” “us,” and “our” are to Kinsale
Capital Group, Inc.
and its subsidiaries, unless the context otherwise requires.

Overview


Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses
exclusively on the excess and surplus lines ("E&S") market in the U.S., where we
use our underwriting expertise to write coverages for hard-to-place small
business risks and personal lines risks. We market these insurance products in
all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the
U.S. Virgin Islands, primarily through a network of independent insurance
brokers.

We have one reportable segment, our Excess and Surplus Lines Insurance segment,
which offers property and casualty ("P&C") insurance products through the E&S
market. For the first three months of 2022, the percentage breakdown of our
gross written premiums was 82% casualty and 18% property. Our commercial
underwriting divisions include small business, commercial property, excess
casualty, construction, allied health, products liability, general casualty,
life sciences, professional liability, management liability, energy, health
care, environmental, entertainment, inland marine and public entity. We also
write a small amount of homeowners insurance in the personal lines market, which
in aggregate represented 3% of our gross written premiums in the first three
months of 2022 and is included within our personal insurance division.

COVID-19


Consistent with 2021, the Company's results of operations, financial position
and cash flows were not materially impacted by COVID-19 and the related economic
effects during the first three months of 2022. For further discussion, see Part
II, Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of our Annual Report on Form 10-K for the year ended
December 31, 2021.

Components of Our Results of Operations

Gross written premiums


Gross written premiums are the amounts received or to be received for insurance
policies written or assumed by us during a specific period of time without
reduction for policy acquisition costs, reinsurance costs or other deductions.
The volume of our gross written premiums in any given period is generally
influenced by:

•New business submissions;

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•Conversion of new business submissions into policies;

•Renewals of existing policies; and

•Average size and premium rate of bound policies.


We earn insurance premiums on a pro rata basis over the term of the policy. Our
insurance policies generally have a term of one year. Net earned premiums
represent the earned portion of our gross written premiums, less that portion of
our gross written premiums that is ceded to third-party reinsurers under our
reinsurance agreements.

Ceded written premiums

Ceded written premiums are the amount of gross written premiums ceded to
reinsurers. We enter into reinsurance contracts to limit our exposure to
potential large losses. Ceded written premiums are earned over the reinsurance
contract period in proportion to the period of risk covered. The volume of our
ceded written premiums is impacted by the level of our gross written premiums
and any decision we make to increase or decrease retention levels.

Losses and loss adjustment expenses


Losses and loss adjustment expenses are a function of the amount and type of
insurance contracts we write and the loss experience associated with the
underlying coverage. In general, our losses and loss adjustment expenses are
affected by:

•Frequency of claims associated with the particular types of insurance contracts
that we write;

•Trends in the average size of losses incurred on a particular type of business;

•Mix of business written by us;

•Changes in the legal or regulatory environment related to the business we
write;

•Trends in legal defense costs;

•Wage inflation; and

•Inflation in medical costs.


Losses and loss adjustment expenses are based on an actuarial analysis of the
estimated losses, including losses incurred during the period and changes in
estimates from prior periods. Losses and loss adjustment expenses may be paid
out over a period of years.

Underwriting, acquisition and insurance expenses


Underwriting, acquisition and insurance expenses include policy acquisition
costs and other underwriting expenses. Policy acquisition costs are principally
comprised of the commissions we pay our brokers, net of ceding commissions we
receive on business ceded under certain reinsurance contracts. Policy
acquisition costs also include underwriting expenses that are directly related
to the successful acquisition of those policies which are deferred. The
amortization of policy acquisition costs is charged to expense in proportion to
premium earned over the policy life.

Other underwriting expenses represent the general and administrative expenses of
our insurance business such as employment costs, telecommunication and
technology costs, and legal and auditing fees.

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Net investment income


Net investment income is an important component of our results of operations. We
earn investment income on our portfolio of cash and invested assets. Our cash
and invested assets are primarily comprised of fixed-maturity securities, and
may also include cash equivalents, equity securities and short-term investments.
The principal factors that influence net investment income are the size of our
investment portfolio and the yield on that portfolio. As measured by amortized
cost (which excludes changes in fair value), the size of our investment
portfolio is mainly a function of our invested equity capital combined with
premiums we receive from our insureds less payments on policyholder claims.

Change in fair value of equity securities

Change in fair value of equity securities represents the increase or decrease in
the fair value of equity securities held during the period.

Net realized investment gains

Net realized investment gains are a function of the difference between the
amount received by us on the sale of a security and the security’s amortized
cost.


Income tax expense

Currently, substantially all of our income tax expense relates to federal income
taxes. Our insurance subsidiary, Kinsale Insurance Company, is not subject to
income taxes in the states in which it operates; however, our non-insurance
subsidiaries are subject to state income taxes, but have not generated any
material taxable income to date. The amount of income tax expense or benefit
recorded in future periods will depend on the jurisdictions in which we operate
and the tax laws and regulations in effect.

Key metrics

We discuss certain key metrics, described below, which we believe provide useful
information about our business and the operational factors underlying our
financial performance.


Underwriting income is a non-GAAP financial measure. We define underwriting
income as net income, excluding net investment income, net change in the fair
value of equity securities, net realized gains and losses on investments, other
income, other expenses and income tax expense. See "-Reconciliation of non-GAAP
financial measures" for a reconciliation of net income in accordance with GAAP
to underwriting income.

Net operating earnings is a non-GAAP financial measure. We define net operating
earnings as net income excluding the net change in the fair value of equity
securities, after taxes, and net realized gains and losses on investments, after
taxes. See "-Reconciliation of non-GAAP financial measures" for a reconciliation
of net income in accordance with GAAP to net operating earnings.

Loss ratio, expressed as a percentage, is the ratio of losses and loss
adjustment expenses to net earned premiums.

Expense ratio, expressed as a percentage, is the ratio of underwriting,
acquisition and insurance expenses to net earned premiums.


Combined ratio is the sum of the loss ratio and the expense ratio. A combined
ratio under 100% indicates an underwriting profit. A combined ratio over 100%
indicates an underwriting loss.

Return on equity is net income expressed on an annualized basis as a percentage
of average beginning and ending total stockholders’ equity during the period.

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Operating return on equity is a non-GAAP financial measure. We define operating
return on equity as net operating earnings expressed on an annualized basis as a
percentage of average beginning and ending total stockholders' equity during the
period. See "-Reconciliation of non-GAAP financial measures" for a
reconciliation of net income in accordance with GAAP to net operating earnings.

Net retention ratio is the ratio of net written premiums to gross written
premiums.

Gross investment return is investment income from fixed-maturity and equity
securities, before any deductions for fees and expenses, expressed as a
percentage of the average beginning and ending book value of those investments
during the period.



Results of Operations

Three months ended March 31, 2022 compared to three months ended March 31, 2021

The following table summarizes our results of operations for the three months
ended March 31, 2022 and 2021:

                                                                        Three Months Ended March 31,
($ in thousands)                                      2022               2021              Change              % Change

Gross written premiums                            $ 245,513          $ 168,876          $  76,637                   45.4  %
Ceded written premiums                              (29,015)           (24,578)            (4,437)                  18.1  %
Net written premiums                              $ 216,498          $ 144,298          $  72,200                   50.0  %

Net earned premiums                               $ 178,562          $ 123,041          $  55,521                   45.1  %
Losses and loss adjustment expenses                 102,505             70,260             32,245                   45.9  %
Underwriting, acquisition and insurance
expenses                                             38,545             28,136             10,409                   37.0  %
Underwriting income (1)                              37,512             24,645             12,867                   52.2  %
Net investment income                                 9,088              6,942              2,146                   30.9  %
Change in fair value of equity securities            (7,751)             7,091            (14,842)                (209.3) %
Net realized investment gains                           295              1,198               (903)                 (75.4) %
Other expense, net                                     (272)              (437)               165                  (37.8) %
Income before taxes                                  38,872             39,439               (567)                  (1.4) %
Income tax expense                                    7,081              7,360               (279)                  (3.8) %
Net income                                        $  31,791          $  32,079          $    (288)                  (0.9) %

Net operating earnings (2)                        $  37,681          $  25,531          $  12,150                   47.6  %

Loss ratio                                             57.4  %            57.1  %
Expense ratio                                          21.6  %            22.9  %
Combined ratio                                         79.0  %            80.0  %

Annualized return on equity                            18.6  %            22.1  %
Annualized operating return on equity(2)               22.1  %            

17.6 %



(1) Underwriting income is a non-GAAP financial measure. See "-Reconciliation of
Non-GAAP Financial Measures" for a reconciliation of net income in accordance
with GAAP to underwriting income.

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(2) Net operating earnings and annualized operating return on equity are
non-GAAP financial measures. Net operating earnings is defined as net income
excluding the net change in the fair value of equity securities, after taxes,
and net realized investment gains and losses, after taxes. Annualized operating
return on equity is defined as net operating earnings expressed on an annualized
basis as a percentage of average beginning and ending total stockholders' equity
during the period. See "-Reconciliation of Non-GAAP Financial Measures" for a
reconciliation of net income in accordance with GAAP to net operating earnings.

Overview


Net income was $31.8 million for the three months ended March 31, 2022 compared
to $32.1 million for the three months ended March 31, 2021, a decrease of 0.9%.
The decrease in net income for the first three months of 2022 over the same
period last year was primarily due to a decline in the fair value of our equity
investment portfolio driven by adverse movements in the capital markets during
the quarter. This decrease was mostly offset by strong growth in the business
from favorable E&S market conditions and continued rate increases and an
increase in investment income quarter over quarter driven by higher investment
balances.

Underwriting income was $37.5 million for the three months ended March 31, 2022
compared to $24.6 million for the three months ended March 31, 2021, an increase
of 52.2%. The corresponding combined ratios were 79.0% for the three months
ended March 31, 2022 compared to 80.0% for the three months ended March 31,
2021. The increase in underwriting income for the first three months of 2022
compared to the same period last year was due to higher premium growth and
continued rate increases from a favorable E&S market environment.

Premiums


Our gross written premiums were $245.5 million for the three months ended
March 31, 2022 compared to $168.9 million for the three months ended March 31,
2021, an increase of $76.6 million, or 45.4%. The increase in gross written
premiums for the first three months of 2022 over the same period last year was
due to higher submission activity from brokers and higher rates across most
lines of business, resulting from continued favorable conditions in the E&S
market. The average premium on a policy written was $11,800 in the first three
months of 2022 compared to $9,800 in the first three months of 2021. Excluding
our personal lines insurance, which has a relatively low premium per policy
written, the average premium on a policy written was $14,200 for the first three
months of 2022 and $12,300 for the first three months of 2021.

Net written premiums increased by $72.2 million, or 50.0%, to $216.5 million for
the three months ended March 31, 2022 from $144.3 million for the three months
ended March 31, 2021. The increase in net written premiums for the first three
months of 2022 compared to the same period last year was primarily due to higher
gross written premiums. The net retention ratio was 88.2% for the three months
ended March 31, 2022 compared to 85.4% for the same period last year. The
increase in the net retention ratio was primarily due to lower reinstatement
premiums on certain property reinsurance treaties and a change in the mix of
business quarter over quarter.

Net earned premiums increased by $55.5 million, or 45.1%, to $178.6 million for
the three months ended March 31, 2022 from $123.0 million for the three months
ended March 31, 2021 due to growth in gross written premiums.

Loss ratio


The loss ratio was 57.4% for the three months ended March 31, 2022 compared to
57.1% for the three months ended March 31, 2021. The increase in the loss ratio
in the first three months of 2022 compared to the first three months of 2021 was
due primarily to lower favorable net development of reserves from prior accident
years as a percentage of earned premiums, offset in part by lower reported
losses in the current accident year as a percentage of earned premiums compared
to the same period last year.

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During the three months ended March 31, 2022, prior accident years developed
favorably by $8.3 million, of which $10.1 million was attributable to the 2021
and 2020 accident years due to lower than expected reported losses across most
lines of business. This was offset by $2.0 million of unfavorable development
from accident years 2016 and 2018 due to a few large claims.

During the three months ended March 31, 2021, loss reserves from prior accident
years developed favorably by $7.1 million. The favorable development was
primarily attributable to the 2020 accident year of $9.5 million, which resulted
from reported losses emerging at a lower level than expected across most lines
of business.

The following table summarizes the loss ratios for the three months ended
March 31, 2022 and 2021:

                                                                         Three Months Ended March 31,
                                                           2022                                               2021
                                        Losses and Loss                                    Losses and Loss
                                          Adjustment                                          Adjustment
($ in thousands)                           Expenses            % of Earned Premiums            Expenses            % of Earned Premiums
Loss ratio:
Current accident year before
catastrophe losses                     $      110,789                       62.1  %       $        77,257                       62.8  %
Current year catastrophe losses                    62                          -  %                    76                          -  %
Effect of prior year development               (8,346)                      (4.7) %                (7,073)                      (5.7) %
Total                                  $      102,505                       57.4  %       $        70,260                       57.1  %



Expense ratio

The following table summarizes the components of the expense ratio for the three
months ended March 31, 2022 and 2021:

                                                                         Three Months Ended March 31,
                                                           2022                                               2021
                                          Underwriting                                      Underwriting
($ in thousands)                            Expenses           % of Earned Premiums           Expenses            % of Earned Premiums

Commissions incurred:
Direct                                  $      29,951                       16.8  %       $       21,165                       17.2  %
Ceding                                         (7,829)                      (4.4) %               (5,355)                      (4.3) %
Net commissions incurred                       22,122                       12.4  %               15,810                       12.9  %
Other underwriting expenses                    16,423                        9.2  %               12,326                       10.0  %
Underwriting, acquisition and
insurance expenses                      $      38,545                       21.6  %       $       28,136                       22.9  %



The expense ratio was 21.6% for the three months ended March 31, 2022 compared
to 22.9% for the three months ended March 31, 2021. The decrease in the expense
ratio was due to lower other underwriting expenses and lower net commissions
incurred as a percentage of earned premiums. The decrease in the other
underwriting expense ratio was primarily due to higher net earned premiums,
without a proportional increase in the amount of other underwriting expenses, as
a result of management's focus on controlling costs. The decrease in the net
commissions incurred ratio was largely due to lower reinstatement premiums on
certain property reinsurance treaties that do not have ceding commissions, and a
change in the mix of business. Direct commissions paid as a percentage of gross
written premiums was 14.6% for both the three months ended March 31, 2022 and
2021.

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Investing results

The following table summarizes net investment income, change in the fair value
of equity securities and net realized investment gains for the three months
ended March 31, 2022 and 2021:

                                                           Three Months Ended March 31,
    ($ in thousands)                                    2022             2021         Change

Interest from fixed-maturity securities $ 8,652 $ 6,614 $ 2,038

    Dividends from equity securities                   1,030               869            161
    Other                                                 19                 1             18
    Gross investment income                            9,701             7,484          2,217
    Investment expenses                                 (613)             (542)           (71)
    Net investment income                              9,088             6,942          2,146
    Change in fair value of equity securities         (7,751)            

7,091 (14,842)

    Net realized investment gains                        295             1,198           (903)

    Total                                          $   1,632          $ 15,231      $ (13,599)



Our net investment income increased by 30.9% to $9.1 million for the three
months ended March 31, 2022 from $6.9 million for the three months ended
March 31, 2021. This increase in the first three months of 2022 compared to the
same period last year was primarily due to growth in our investment portfolio
largely generated from the investment of positive cash flow since March 31,
2021. Our fixed-maturity investment portfolio, excluding cash equivalents and
unrealized gains and losses, had an annualized gross investment return of 2.5%
for the three months and ended March 31, 2022 and 2.6% for the three months
ended March 31, 2021.

During the first three months of 2022, the change in fair value of equity
securities was comprised of unrealized losses related to exchange traded funds
("ETFs") of $4.5 million and unrealized losses related to non-redeemable
preferred stock of $3.2 million. The change in unrealized losses during the
first three months of 2022 attributable to ETFs was largely reflective of the
broader U.S. stock market. The change in unrealized losses during the first
three months of 2022 attributable to non-redeemable preferred stock was
reflective of a higher interest rate environment.

During the first three months of 2021, the change in fair value of equity
securities was comprised of unrealized gains related to ETFs of $7.5 million and
unrealized losses related to preferred stock of $0.4 million. Unrealized gains
during the first quarter of 2021 were largely reflective of the gains in the
broader U.S. stock market.

We perform quarterly reviews of all available-for-sale securities within our
investment portfolio to determine whether the decline in a security's fair value
is deemed to be a credit loss. Management concluded that there were no credit
losses from available-for-sale investments for the three months ended March 31,
2022 or 2021.

Income tax expense

Our effective tax rate was 18.2% for the three months ended March 31, 2022
compared to 18.7% for the three months ended March 31, 2021. The effective tax
rate was lower than the federal statutory rate of 21% primarily due to the tax
benefits from stock-based compensation and tax-exempt investment income.

Return on equity


Our annualized return on equity was 18.6% for the three months ended March 31,
2022 compared to 22.1% for the three months ended March 31, 2021. Our annualized
operating return on equity was 22.1% for the three months ended March 31, 2022
compared to 17.6% for the three months ended March 31, 2021. The increase in
annualized

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operating return on equity for the three months ended March 31, 2022 compared to
the prior period was attributable primarily to growth in the business from
continuing favorable market conditions and rate increases.

Liquidity and Capital Resources

Sources and uses of funds


We are organized as a Delaware holding company with our operations primarily
conducted by our wholly-owned insurance subsidiary, Kinsale Insurance Company,
which is domiciled in Arkansas. Accordingly, we may receive cash through (1)
loans from banks and other third parties, (2) issuance of equity and debt
securities, (3) corporate service fees from our insurance subsidiary, (4)
payments from our subsidiaries pursuant to our consolidated tax allocation
agreement and other transactions, and (5) dividends from our insurance
subsidiary. We may use the proceeds from these sources to contribute funds to
Kinsale Insurance Company in order to support premium growth, reduce our
reliance on reinsurance, pay dividends and taxes and for other business
purposes.

We receive corporate service fees from Kinsale Insurance Company to reimburse us
for most of the operating expenses that we incur. Reimbursement of expenses
through corporate service fees is based on the actual costs that we expect to
incur with no mark-up above our expected costs.

In August 2019, we filed a universal shelf registration statement with the SEC
that expires in 2022. We can use this shelf registration to issue an unspecified
amount of common stock, preferred stock, depositary shares and warrants. The
specific terms of any securities we issue under this registration statement will
be provided in the applicable prospectus supplements.

Management believes that the Company has sufficient liquidity available both in
Kinsale and in its insurance subsidiary, Kinsale Insurance Company, as well as
in its other operating subsidiaries, to meet its operating cash needs and
obligations and committed capital expenditures for the next 12 months.

Cash flows


Our most significant source of cash is from premiums received from our insureds,
which, for most policies, we receive at the beginning of the coverage period.
Our most significant cash outflow is for claims that arise when a policyholder
incurs an insured loss. Because the payment of claims occurs after the receipt
of the premium, often years later, we invest the cash in various investment
securities that earn interest and dividends. We also use cash to pay commissions
to insurance brokers, as well as to pay for ongoing operating expenses such as
salaries, consulting services and taxes. As described under "-Reinsurance"
below, we use reinsurance to manage the risk that we take related to the
issuance of our policies. We cede, or pay out, part of the premiums we receive
to our reinsurers and collect cash back when losses subject to our reinsurance
coverage are paid.

The timing of our cash flows from operating activities can vary among periods
due to the timing by which payments are made or received. Some of our payments
and receipts, including loss settlements and subsequent reinsurance receipts,
can be significant, so their timing can influence cash flows from operating
activities in any given period. Management believes that cash receipts from
premiums, proceeds from investment sales and redemptions and investment income
are sufficient to cover cash outflows in the foreseeable future.

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Our cash flows for the three months ended March 31, 2022 and 2021 were:

                                                                      Three Months Ended March 31,
                                                                       2022                    2021
                                                                             (in thousands)
Cash and cash equivalents provided by (used in):
Operating activities                                            $        121,929          $     91,322
Investing activities                                                    (135,710)              (33,724)
Financing activities                                                      (3,101)               (2,156)
Change in cash and cash equivalents                             $        

(16,882) $ 55,442




Net cash provided by operating activities was approximately $121.9 million for
the three months ended March 31, 2022, compared to $91.3 million for the same
period in 2021. This increase was largely driven by higher premium volume, the
timing of claim payments and reinsurance recoveries, offset in part by changes
in operating assets and liabilities.

Net cash used in investing activities was $135.7 million for the three months
ended March 31, 2022, compared to $33.7 million for the three months ended
March 31, 2021. Net cash used in investing activities during the first three
months of 2022 included purchases of fixed-maturity securities of $226.5
million, which were comprised largely of corporate bonds, mortgage-backed
securities, and to a lesser extent, asset-backed securities, sovereign and
municipal securities. During the first three months of 2022, we received
proceeds of $54.2 million from sales of fixed-maturity securities, largely
corporate bonds and mortgage- and asset-backed securities, and $37.0 million
from redemptions of asset- and mortgage-backed securities and corporate bonds.
For the three months ended March 31, 2022, purchases of ETFs were $0.5 million.

Net cash used in investing activities of $33.7 million for the three months
ended March 31, 2021 included purchases of fixed-maturity securities of $105.0
million, and were comprised primarily of corporate bonds and asset- and
mortgage-backed securities. During the first three months of 2021, we received
proceeds of $30.8 million from sales of fixed-maturity securities, largely
corporate bonds, and $45.1 million from redemptions of asset- and
mortgage-backed securities and corporate bonds. For the three months ended
March 31, 2021, purchases of ETFs and non-redeemable preferred stock were $0.5
million and $2.8 million, respectively.

During the first three months of 2022, cash used in financing activities
reflected dividends paid of $0.13 per common share, or $3.0 million in
aggregate. In addition, payroll taxes withheld and remitted on restricted stock
awards was $0.5 million, offset in part by proceeds received from our equity
compensation plans of $0.4 million, for the three months ended March 31, 2022.
During the first three months of March 31, 2021, cash used in financing
activities reflected dividends paid of $0.11 per common share, or $2.5 million
in aggregate. Proceeds received from our equity compensation plans were
$0.3 million for the three months ended March 31, 2021.

Credit agreement


In May 2019, we entered into a Credit Agreement that provided us with a $50
million Credit Facility and an uncommitted accordion feature that permits us to
increase the commitments by an additional $30 million. The Credit Facility has a
maturity of May 28, 2024. Borrowings under the Credit Facility were used to fund
construction of our new headquarters but may also be used for working capital
and general corporate purposes. Interest rates on borrowings are based on
prevailing interest rates and the applicable margin, as described in the Credit
Agreement. As of March 31, 2022, there was $42.7 million outstanding under the
Credit Facility, net of debt issuance costs.

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Reinsurance


We enter into reinsurance contracts primarily to limit our exposure to potential
large losses. Reinsurance involves an insurance company transferring ("ceding")
a portion of its exposure on a risk to another insurer, the reinsurer. The
reinsurer assumes the exposure in return for a portion of the premium. Our
reinsurance is primarily contracted under quota-share reinsurance contracts and
excess of loss contracts. In quota-share reinsurance, the reinsurer agrees to
assume a specified percentage of the ceding company's losses arising out of a
defined class of business in exchange for a corresponding percentage of
premiums, net of a ceding commission. In excess of loss reinsurance, the
reinsurer agrees to assume all or a portion of the ceding company's losses, in
excess of a specified amount. Under excess of loss reinsurance, the premium
payable to the reinsurer is negotiated by the parties based on their assessment
of the amount of risk being ceded to the reinsurer because the reinsurer does
not share proportionately in the ceding company's losses.

We renew our reinsurance treaties annually. During each renewal cycle, there are
a number of factors we consider when determining our reinsurance coverage,
including (1) plans to change the underlying insurance coverage we offer, (2)
trends in loss activity, (3) the level of our capital and surplus, (4) changes
in our risk appetite and (5) the cost and availability of reinsurance coverage.

To manage our natural catastrophe exposure, we use computer models to analyze
the risk of severe losses. We measure exposure to these losses in terms of
probable maximum loss ("PML"), which is an estimate of the amount of loss we
would expect to meet or exceed once in a given number of years (referred to as
the return period). When managing our catastrophe exposure, we focus on the
100-year and the 250-year return periods.

The following is a summary of our significant reinsurance programs as of
March 31, 2022:

Line of Business Covered            Company Policy Limit           Reinsurance Coverage              Company Retention
Property - per risk (1)           Up to $10.0 million per        $5.75
million excess of         $3.0 million per
                                  risk                           $3.0 million                    occurrence
Property - personal               N/A                            50% up to $30.4 million         50% of all personal
insurance (2)                                                    per catastrophe                 property losses
Property - catastrophe (3)        N/A                            $60.0 million excess of         $15.0 million per
                                                                 $15.0 million                   catastrophe
Primary casualty (4)              Up to $10.0 million per        $8.0 million excess of          $2.0 million per
                                  occurrence                     $2.0 million                    occurrence
Excess casualty (5)               Up to $10.0 million per        Variable quota share            $2.0 million per
                                  occurrence                                                     occurrence except as
                                                                                                 described in note (5)
                                                                                                 below


(1)  Our property per-risk reinsurance reduces the financial impact of a large
loss on a single commercial property or inland marine policy. In addition to the
Company's retention, this treaty includes a deductible of the first $4.0 million
of losses covered under this reinsurance treaty. This treaty also includes a
reinstatement provision which requires us to pay reinstatement premiums after a
loss in excess of $5 million has occurred in order to preserve coverage.

(2) Our personal insurance quota share reinsurance reduces the financial impact
of property losses on our personal insurance policies.

(3) Our property catastrophe reinsurance reduces the financial impact of a
catastrophe event involving multiple claims and policyholders. Our property
catastrophe reinsurance includes a reinstatement provision which requires us to
pay reinstatement premiums after a loss has occurred in order to preserve
coverage. Including the

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reinstatement provision, the maximum aggregate loss recovery limit is $120
million
and is in addition to the per-occurrence coverage provided by our treaty
coverages.

(4) Reinsurance is not applicable to any individual policy with a
per-occurrence limit of $2.0 million or less.


(5)  For casualty policies with a per-occurrence limit higher than $2.0 million,
the ceding percentage varies such that the retention is always $2.0 million or
less. For example, for a $4.0 million limit excess policy, our retention would
be 50%, whereas for a $10.0 million limit excess policy, our retention would be
20%. For policies for which we also write an underlying primary limit, the
retention on the primary and excess policy combined would not exceed $2.0
million.

Reinsurance contracts do not relieve us from our obligations to policyholders.
Failure of the reinsurer to honor its obligation could result in losses to us,
and therefore, we established an allowance for credit risk based on historical
analysis of credit losses for highly rated companies in the insurance industry.
In formulating our reinsurance programs, we are selective in our choice of
reinsurers and we consider numerous factors, the most important of which are the
financial stability of the reinsurer, its history of responding to claims and
its overall reputation. In an effort to minimize our exposure to the insolvency
of our reinsurers, we review the financial condition of each reinsurer annually.
In addition, we continually monitor for rating downgrades involving any of our
reinsurers. At March 31, 2022, all reinsurance contracts that our insurance
subsidiary was a party to were with companies with A.M. Best ratings of "A"
(Excellent) or better. As of March 31, 2022, we recorded an allowance for
doubtful accounts of $0.4 million related to our reinsurance balances.

Ratings


Kinsale Insurance Company has a financial strength rating of "A" (Excellent)
with a stable outlook from A.M. Best. A.M. Best assigns ratings to insurance
companies, which currently range from "A++" (Superior) to "F" (In Liquidation).
"A" (Excellent) is the third highest rating issued by A.M. Best. The "A"
(Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an
excellent ability to meet their ongoing obligations to policyholders. This
rating is intended to provide an independent opinion of an insurer's ability to
meet its obligation to policyholders and is not an evaluation directed at
investors.

The financial strength ratings assigned by A.M. Best have an impact on the
ability of the insurance companies to attract and retain agents and brokers and
on the risk profiles of the submissions for insurance that the insurance
companies receive. The "A" (Excellent) rating obtained by Kinsale Insurance
Company is consistent with our business plan and allows us to actively pursue
relationships with the agents and brokers identified in our marketing plan.

Financial Condition

Stockholders’ equity


At March 31, 2022, total stockholders' equity was $665.6 million and tangible
stockholders' equity was $662.8 million, compared to total stockholders' equity
of $699.3 million and tangible stockholders' equity $696.5 million at
December 31, 2021. The decreases in both total and tangible stockholders' equity
over the prior year-end balances were due to an increase in unrealized losses on
available-for-sale investments, net of taxes, and payment of dividends, offset
in part by profits generated during the period and activity related to
stock-based compensation plans. Tangible stockholders' equity is a non-GAAP
financial measure. See "-Reconciliation of non-GAAP financial measures" for a
reconciliation of stockholders' equity in accordance with GAAP to tangible
stockholders' equity.

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Investment portfolio


At March 31, 2022, our cash and invested assets of $1.7 billion consisted of
fixed-maturity securities, equity securities, cash and cash equivalents and
short-term investments. At March 31, 2022, the majority of the investment
portfolio was comprised of fixed-maturity securities of $1.5 billion that were
classified as available-for-sale. Available-for-sale investments are carried at
fair value with unrealized gains and losses on these securities, net of
applicable taxes, reported as a separate component of accumulated other
comprehensive income. At March 31, 2022, we also held $163.6 million of equity
securities, which were comprised of ETF securities and non-redeemable preferred
stock, $104.2 million of cash and cash equivalents and $0.8 million of
short-term investments.

Our fixed-maturity securities, including cash equivalents, had a weighted
average duration of 4.6 years and 4.3 years at March 31, 2022 and December 31,
2021, respectively, and an average rating of "AA-" at both March 31, 2022 and
December 31, 2021.

At March 31, 2022 and December 31, 2021, the amortized cost and estimated fair
value on fixed-maturity securities were as follows:

                                                                  March 31, 2022                                                     December 31, 2021
                                                                   Estimated Fair        % of Total Fair                                Estimated Fair        % of Total Fair
                                            Amortized Cost              Value                 Value              Amortized Cost              Value                 Value
                                                                                                   ($ in thousands)
Fixed-maturity securities:
U.S. Treasury securities and
obligations of U.S. government
agencies                                  $        14,544          $     13,984                   1.0  %       $         6,936          $      6,847                   0.5  %
Obligations of states,
municipalities and political
subdivisions                                      222,054               217,759                  14.9  %               216,375               228,045                  16.4  %
Corporate and other securities                    557,822               529,086                  36.2  %               450,594               458,487                  32.9  %
Asset-backed securities                           275,052               273,658                  18.7  %               299,810               301,775                  21.7  %
Residential mortgage-backed
securities                                        381,691               358,035                  24.5  %               340,804               337,685                  24.3  %
Commercial mortgage-backed
securities                                         70,629                68,893                   4.7  %                57,000                59,227                   4.2  %
Total fixed-maturity securities           $     1,521,792          $  1,461,415                 100.0  %       $     1,371,519          $  1,392,066                 100.0  %



The table below summarizes the credit quality of our fixed-maturity securities
at March 31, 2022 and December 31, 2021, as rated by Standard & Poor's Financial
Services, LLC ("Standard & Poor's"):

                                                            March 31, 2022                                   December 31, 2021
Standard & Poor's or Equivalent                Estimated Fair                                    Estimated Fair
Designation                                        Value                  % of Total                 Value                  % of Total
                                                                                    ($ in thousands)
AAA                                           $     382,784                       26.2  %       $     375,579                       27.0  %
AA                                                  521,211                       35.7  %             523,739                       37.6  %
A                                                   276,748                       18.9  %             234,547                       16.9  %
BBB                                                 209,993                       14.4  %             196,740                       14.1  %
Below BBB and unrated                                70,679                        4.8  %              61,461                        4.4  %
Total                                         $   1,461,415                      100.0  %       $   1,392,066                      100.0  %


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The amortized cost and estimated fair value of our fixed-maturity securities
summarized by contractual maturity as of March 31, 2022 and December 31, 2021,
were as follows:

                                                                  March 31, 2022                                                 December 31, 2021
                                              Amortized          Estimated Fair        % of Total Fair         Amortized          Estimated Fair        % of Total Fair
                                                 Cost                 Value                 Value                 Cost                 Value                 Value
                                                                                                 ($ in thousands)
Due in one year or less                     $     7,749          $      7,766                   0.5  %       $     6,742          $      6,822                   0.5  %
Due after one year through five years           258,045               251,927                  17.2  %           185,273               189,497                  13.6  %
Due after five years through ten
years                                           244,902               233,059                  16.0  %           226,707               232,197                  16.7  %
Due after ten years                             283,724               268,077                  18.4  %           255,183               264,863                  19.0  %
Asset-backed securities                         275,052               273,658                  18.7  %           299,810               301,775                  21.7  %
Residential mortgage-backed
securities                                      381,691               358,035                  24.5  %           340,804               337,685                  24.3  %
Commercial mortgage-backed securities            70,629                68,893                   4.7  %            57,000                59,227                   4.2  %
Total fixed-maturity securities             $ 1,521,792          $  1,461,415                 100.0  %       $ 1,371,519          $  1,392,066                 100.0  %


Actual maturities may differ from contractual maturities because some borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.


As of March 31, 2022, 6.9% of our total cash and investments was invested in
ETFs. At March 31, 2022 and December 31, 2021, our ETF balances were comprised
of the following funds:

                                           March 31, 2022                     December 31, 2021
  Fund                               Fair Value        % of Total        

Fair Value % of Total

                                                             ($ in 

thousands)

  Domestic stock market fund      $       76,981           64.5  %    $         81,384           66.0  %
  Dividend yield equity fund              42,307           35.5  %              42,005           34.0  %

  Total                           $      119,288          100.0  %    $        123,389          100.0  %


As of March 31, 2022, 2.6% of our total cash and investments was invested in
non-redeemable preferred stock. A summary of these securities by industry
segment is shown below as of March 31, 2022 and December 31, 2021:

                                        March 31, 2022                     December 31, 2021
     Industry                     Fair Value        % of Total         Fair Value         % of Total
                                                          ($ in thousands)
     Financial                  $      40,568           91.6  %    $         45,331           92.1  %
     Utilities                          2,882            6.5  %               2,993            6.1  %
     Industrials and other                836            1.9  %                 898            1.8  %
     Total                      $      44,286          100.0  %    $         49,222          100.0  %



Restricted investments

In order to conduct business in certain states, we are required to maintain
letters of credit or assets on deposit to support state-mandated insurance
regulatory requirements and to comply with certain third-party agreements.
Assets held on deposit or in trust accounts are primarily in the form of
high-grade securities. The fair value of our restricted assets was $6.5 million
and $6.7 million at March 31, 2022 and December 31, 2021, respectively.

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Reconciliation of Non-GAAP Financial Measures

Reconciliation of underwriting income


Underwriting income is defined as net income excluding net investment income,
the net change in the fair value of equity securities, net realized investment
gains, other income, other expenses and income tax expense. The Company uses
underwriting income as an internal performance measure in the management of its
operations because the Company believes it gives management and users of the
Company's financial information useful insight into the Company's results of
operations and underlying business performance. Underwriting income should not
be viewed as a substitute for net income calculated in accordance with GAAP, and
other companies may define underwriting income differently.

Net income for three months ended March 31, 2022 and 2021, reconciles to
underwriting income as follows:

                                                                    Three Months Ended
                                                                         March 31,
($ in thousands)                                                              2022                    2021

Net income                                                              $       31,791          $       32,079
Income tax expense                                                               7,081                   7,360
Income before income taxes                                                      38,872                  39,439
Other expenses (1)                                                                 396                     448
Net investment income                                                           (9,088)                 (6,942)
Change in the fair value of equity securities                                    7,751                  (7,091)
Net realized investment gains                                                     (295)                 (1,198)
Other income                                                                      (124)                    (11)
Underwriting income                                                     $       37,512          $       24,645

(1) Other expenses are comprised of interest expense on the Company’s Credit
Facility and corporate expenses not allocated to our insurance operations.

Reconciliation of net operating earnings


Net operating earnings is defined as net income excluding the effects of the net
change in the fair value of equity securities, after taxes, and net realized
investment gains and losses, after taxes. Management believes the exclusion of
these items provides a more useful comparison of the Company's underlying
business performance from period to period. Net operating earnings and
percentages or calculations using net operating earnings (e.g., diluted
operating earnings per share and annualized operating return on equity) are
non-GAAP financial measures. Net operating earnings should not be viewed as a
substitute for net income calculated in accordance with GAAP, and other
companies may define net operating earnings differently.

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Net income for three months ended March 31, 2022 and 2021, reconciles to net
operating earnings as follows:

                                                                     Three Months Ended
                                                                          March 31,
($ in thousands)                                                               2022                    2021

Net income                                                               $       31,791          $       32,079
Adjustments:
Change in the fair value of equity securities, before
taxes                                                                             7,751                  (7,091)
Income tax expense (1)                                                           (1,628)                  1,489

Change in the fair value of equity securities, after
taxes

                                                                             6,123                  (5,602)

Net realized investment gains, before taxes                                        (295)                 (1,198)
Income tax expense (1)                                                               62                     252
Net realized investment gains, after taxes                                         (233)                   (946)
Net operating earnings                                                   $  

37,681 $ 25,531


Operating return on equity:
Average stockholders' equity (2)                                         $      682,453          $      581,902
Annualized return on equity (3)                                                    18.6  %                 22.1  %
Annualized operating return on equity (4)                                          22.1  %                 17.6  %


(1) Income taxes on adjustments to reconcile net income to net operating
earnings use an effective tax rate of 21%.

(2) Computed by adding the total stockholders’ equity as of the date indicated
to the prior year-end total and dividing by two.


(3) Annualized return on equity is net income expressed on an annualized basis
as a percentage of average beginning and ending stockholders' equity during the
period.

(4) Annualized operating return on equity is net operating earnings expressed on
an annualized basis as a percentage of average beginning and ending
stockholders’ equity during the period.

Reconciliation of tangible stockholders’ equity


Tangible stockholders' equity is defined as total stockholders' equity less
intangible assets, net of deferred taxes. Our definition of tangible
stockholders' equity may not be comparable to that of other companies, and it
should not be viewed as a substitute for stockholders' equity calculated in
accordance with GAAP. We use tangible stockholders' equity internally to
evaluate the strength of our balance sheet and to compare returns relative to
this measure.






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Stockholders’ equity at March 31, 2022 and December 31, 2021, reconciles to
tangible stockholders’ equity as follows:

($ in thousands)                                          March 31, 2022             December 31, 2021

Stockholders' equity                                   $          665,570          $          699,335
Less: intangible assets, net of deferred taxes                      2,795                       2,795
Tangible stockholders' equity                          $          662,775          $          696,540



Critical Accounting Estimates

We identified the accounting estimates which are critical to the understanding
of our financial position and results of operations. Critical accounting
estimates are defined as those estimates that are both important to the
portrayal of our financial condition and results of operations and require us to
exercise significant judgment. We use significant judgment concerning future
results and developments in applying these critical accounting estimates and in
preparing our condensed consolidated financial statements. These judgments and
estimates affect our reported amounts of assets, liabilities, revenues and
expenses and the disclosure of our material contingent assets and liabilities,
if any. Actual results may differ materially from the estimates and assumptions
used in preparing the condensed consolidated financial statements. We evaluate
our estimates regularly using information that we believe to be relevant. Our
critical accounting policies and estimates are described in our annual
consolidated financial statements and the related notes in our Annual Report on
Form 10-K for the year ended December 31, 2021.

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