Q3 2023 Kinsale Capital Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
My name is Brent and I will be your conference operator today.
At this time I would like to welcome everyone to the third quarter 2023 Kinzel Capital Group, Inc Earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question at that time simply press star followed by the number one on your telephone keypad.
If he would like to withdraw your question again press Star one.
<unk>.
Before we get started let me remind everyone that through the course of the teleconference.
Sales management may make comments that reflect their intentions beliefs and expectations for the future.
As always these forward looking statements are subject to certain risk factors, which could cause actual results to differ materially.
These risk factors are listed in the company's various SEC filings.
Excluding the 'twenty to 'twenty two annual report on Form 10-K, which should be reviewed carefully.
The company has furnished a form 8-K with the Securities and Exchange Commission.
It contains the press release announcing its third quarter results.
Kinsale management May also reference certain non-GAAP financial measures in the call today.
A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website.
W. W. W Dot Kinsale capital group Dot com.
I will now turn the conference over to Kim <unk>, President and CEO, Mr. Michael Kehoe. Please go ahead Sir.
Thank you operator, and good morning, everyone.
Brian Krebs for Sally, our CFO and Brian Haney <unk>.
And I will each make a few comments and then move on to any questions that you may have.
In the third quarter 2023 can sales operating earnings per share increased by 103, 6%.
Gross written premium grew by 33% over the third quarter 2022.
For the quarter the company posted a combined ratio of 74.8%.
Posted an operating ROE.
<unk> 32, 1% for nine months.
The company's strategy of disciplined E&S underwriting and technology enabled low costs drive these results and allows us to generate attractive returns and take market share from competitors at the same time.
We believe these advantages have real durability to them and consequently, we are optimistic about future prospects for both profitability and growth.
The E&S market continues to benefit from the inflow of business from standard companies.
And from rate increase is driven by inflation and tighter underwriting conditions.
Brian Haney will offer some commentary on underwriting conditions in a moment.
But on the topic of topline premium growth I will note that the fluctuation in our growth rate from the second to the third quarter. This year was due to normal quarterly variability and also due to a change in the flow of south Eastern wind driven property accounts from the second to the.
Third quarter.
Our growth rate through nine months of almost 46%. This year is largely consistent with what we've experienced for the last five years kind of plus or minus 40% growth year over year.
Our near term view of the E&S market continues to be bullish of course, we also like to remind investors that extraordinary growth rates that we've experienced for the last five years are an anomaly in a mature industry like property casualty insurance.
Although we are optimistic about E&S market conditions for the balance of 2023 and heading into 2024, we believe the longer term growth rate for Kinsale will moderate.
So the 10% to 20% range as.
As market competition returns to normal in the years ahead.
Chris.
It should always be a concern for investors.
P&C insurance company and as we have stated in the past and can sale, we strive to set reserves for future claims in a conservative fashion.
We are more likely to have set aside more than enough and are likely to see a steady flow of reserve redundancy.
Claims are resolved over the years ahead.
This focus on conservative reserving is especially important at a time of high inflation, which can stress prior year reserve adequacy as we've experienced a bit in our 2016 to 2018 accident years on some of our longer tail lines of business.
We believe can sales reserves are more conservatively positioned now than at any time in our company's history.
Investors should have a high level of confidence in the can sell balance sheet.
Finally, a quick update on our real estate project as you recall, we purchased two office buildings in vacant land adjacent to our existing headquarters building for.
For $77 $5 million in December of 2022.
We closed on the sale of one of those two buildings in the third quarter for $62 million.
Realizing a small gain in the process.
We will begin renovations on the other largely vacant buildings soon and expect to occupy that within two years.
Additionally, we expect to sell other development sites on the adjacent property over the next several years generating additional return on our investment.
That I will turn the call over to Bryan Petrucelli.
Thanks, Mike.
Other solid quarter with 33% growth in written premiums very low cat activity and net income and net operating earnings increasing by 138%.
103, 6% respectively.
I commented on the 32, 1% operating return on equity for the nine months, we do have around $155 million in unrealized losses net of taxes on our fixed income portfolio Jenny.
Generated from the higher interest rate environment and that temporarily temporarily reduces our cap equity operating return on equity is 27, 4% for the nine months when holding our fixed income investments at cost again as we stated in the past, we intend to and have the ability to hold our fixed income investments to maturity.
This 74, 8% combined ratio for the quarter included three two points from net favorable prior year loss Reserve development.
Compared to five one points last year.
With less than a half point coming from cat losses, this quarter compared to $12 two points in the third quarter of last year, primarily from hurricane in the.
The 29% quarterly expense ratio continues to benefit from higher ceding commissions from the Companys casualty and commercial property proportional reinsurance agreements as a result in growth in both of those areas.
This benefit was offset slightly by higher variable compensation.
Accruals during the quarter.
To support the continued strong top line growth, we secured an additional $50 million in fixed rate debt during the quarter that will be used as capital at the insurance company level.
This should put us in good a good capital position for the remainder of 2023 and then into 2024.
Additionally, we used the proceeds from the real estate sale that Mike previously mentioned to pay down a good chunk of our revolving credit facility.
As a result, our debt to total cap ratio decreased to approximately 17, 8% from approximately 21% at the end of 2022.
On the investment side net investment income and income increased by 95, 5% over the third quarter last year.
As a result of continued growth in the investment portfolio and higher interest rates with a gross return of three 9% for the year to.
To date, so far compared to two 7% last year.
We're continuing to invest new money in shorter duration securities with new money yields averaging between five 5% and 6% and duration decreasing slightly to $2 nine years down from three and a half years at the end of 2022.
And lastly, diluted operating earnings per share continues to improve and was $3 31 per share for the quarter compared to $1 64 per share last year.
With that I'll pass it over to Brian Haney, Thanks, Brian.
As Mike mentioned earlier premium grew 33% in the third quarter and 46% year to date.
Also the growth rate for the quarter was affected by seasonality in the market for hurricane exposed property insurance tend to avoid effective dates during wind season, if there are major exposures to hurricane.
That being said the E&S market remains favorable with strong growth across much of our product line.
In addition to our commercial property Division, we are seeing strong growth in our entertainment general casualty excess casualty and commercial auto divisions product liability and management liability lag somewhat partly due to more intense competition, particularly.
Particularly from <unk> and partly due to the effects of the economy and higher interest rates.
Submission growth continues to be strong again in the low 20% range slightly higher than the first and second quarters.
Submissions as a leading indicator of growth. So we see that submission growth rate is a positive signal.
We sell a wide array of products and the rates on those products don't move in lockstep, but if we bought down to one number we see real rates being up around 6%. The property market is still facing that overall number the rate changes or property that would be well higher than average rate changes for the casualty visions vary, but overall would be about flat.
It's important to stress the rate adequacy in rate change are two different things as our results demonstrate our rates are more than adequate.
We are continually reviewing our rates and adjusting them based on number of considerations such as our target return on equity the market opportunity and shifts in the competition.
In any event, we feel the business, we're putting on the books today is the most adequately priced business, we have seen in our history.
Inflation has moderated somewhat which has good and bad side effects. Good in that lower inflation makes it easier to achieve our goal of conservative reserves that are more likely to develop favorably that adversely but bad in that it reduces the tailwind we get from higher underlying exposures in higher audit premiums.
We feel good about the market conditions through the end of the year and into 2024. After that we expect at some point the market will revert more to normal. However, we believe our unique model will continue to drive superior returns in any market hard soft or in between.
Overall, a good quarter and we are happy with the results and with that I'll hand, it back to Mike.
Thanks, Brian.
Operator, we're now ready for any questions in the queue.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
Your first question comes from the line of Bill car cash with Wolfe Research. Your line is open.
Thank you good morning, I wanted to follow up on the decline in your loss ratio do you see room for favorable development tailwind relating to that 2021 'twenty two accident years due to persist just wondering how much.
And if it is last if those lower loss emergence trends continue.
Yes. Good morning. This is Mike I think the big shift in loss ratio from this quarter to the third quarter.
Last year was the absence of a major catastrophe.
I think in general we booked.
Slightly higher.
Loss ratio.
If you look at it on an ex cat basis, and I think thats, just a little bit of perspective additional conservatism.
Especially thinking about inflation in the economy.
Unpredictability.
But yes, we are very confident.
In terms of future redundancy that should come out.
For the years ahead, as we incrementally adjust losses on on.
These accident years.
Understood. That's helpful. Thank you and separately can you give us a little bit more color.
Your view of pricing adequacy in the industry versus the loss cost trends that we're seeing I think you'd previously suggested that the combination of inflationary pressures.
The historical under pricing and standard lines could potentially extend the hard market as some carriers seek to course correct. There pricing just your updated thoughts around those dynamics would be helpful.
Yes, I think we've talked in the past about theres a lot of conversation, especially among reinsurers.
They tend to see a broad array of ceding company business that there is a reserve adequacy issue for the industry on the casualty side right. So we're just kind of.
Repeating commentary, we get from others, we're very confident in our own reserve position.
And in terms of pricing adequacy across the industry I would just note that it's a very large industry. There are a lot of players in it.
We see some competitors that are very disciplined and smart about how they manage their businesses and we see a lot that are quite robust.
I would echo those comments I would say.
I don't think we've seen all the pain there is for the industry.
And it would shock me if there werent any more competitors that we're going to run into some sort of a difficult thing with our reserves at some point.
Mike said, we feel great about ours.
That's helpful. Thank you if I could squeeze in one last one there's been some chatter surrounding unfavorable experiences that some carriers have had recently with a delegated underwriting authority without saying anything specific can you speak to what youre seeing in the marketplace.
Whether you expect any kind of changes in the proliferation of <unk>.
Based on.
Some of some of what we're seeing.
Yes, I will.
Just say I think I think our investors understand that were.
A big Contrarians on that topic, we think underwriting should be a core competency of an insurance company.
And so we're not.
Believers in outsourcing that to external parties.
As we've said in the past there are some delegated arrangements that have been around for decades.
That are well managed and quite profitable, but there has been an unusual.
Explosion, if you will in the number of delegated authorities the number of fronting companies that have been created in the last <unk>.
Five or seven years and.
Invariably some of that new capacity is probably not well managed and.
We see a lot of bad behavior in the marketplace.
Just say anecdotally.
<unk>.
On a regular basis.
Yes.
That's very helpful. Thank you for taking my questions.
Thanks Bill.
Your next question is from the line of Mark Hughes with <unk> Securities. Your line is open.
Okay.
Yes, thank you very much.
Brian Haney, you had mentioned that one impact with lower inflation is less exposure growth do you think that had any impact in the quarter or whats the magnitude of that effect.
A little bit but.
And we've got to focus on the property.
Seasonality component was that was the big driver, but yes, it had a little effect.
And then.
The ceded premium ratio, 22% this quarter is that a good number on a go forward basis.
Mark I think it's as good as any.
It varies a little bit depending on mix of business, we seed off 50% of our.
Commercial property business, so as that business grows youll see.
The ceding ratio go up if that.
Scales back relative to other lines then it could go the other way, but I think.
What youre seeing right now is as good a guess as I can give you.
Okay.
And then the.
<unk> developed in the quarter.
So help me down a little bit from last year, and Mike you mentioned.
Reserve development in 16 through 18, I don't know whether that was it.
More timely continent, or whether youre, just referring generally to older accident years.
Had been more problematic I think across the whole space are those two connected.
Little lower reserve development 16 through 18.
Well.
Our 2016 to 18 years have all developed favorably.
On an inception to date basis.
But we've made the comment in the past that inflation has impacted the level of conservatism.
On the longer tail lines.
Those years are getting us today, a little bit older. So a lot of the claims have already been closed out.
But.
Inflation does have an impact and so I think it.
Reinforces the wisdom of trying to take a cautious or conservative position.
Upfront because it allows for things like inflation to happen it was unanticipated.
And yet those years have still developed favorably for can sales.
The fact that there is a little bit less favorable development.
That's the comment I made on an earlier question is it was just a little bit of prospective additional conservatism that just offsets.
The environment, we're in right, there's a lot more uncertainty today around inflation and where it may be in the next year or two.
As Brian Haney mentioned, it's definitely come down considerably from a year ago, but theres all sorts of economic commentary out there that may be.
Could could come down further or could could tick back up.
But he really knows definitively so.
As we always do we take a conservative position and then we're well prepared for whatever comes down the road.
I think that the net takeaway for our investors should be there.
I should have a lot of confidence in the <unk> balance sheet.
And then.
Finally any.
Way to characterize the trend in the casualty book you said the property certainly influence.
Trajectory from <unk> growth the <unk> growth, how would you say the casualty book progressed across.
Q2 <unk>.
It's been up.
In the 20% range all year it.
It bounces around quarter to quarter, but it's.
It's Brian Haney mentioned, we've got some divisions like products liability and management liability there.
Flat.
We've got other divisions that are growing.
Really phenomenal right.
But overall, it's kind of in that 20% mid 20% range through nine months.
Thank you.
Your next question is from the line of Casey Alexander with Compass point. Your line is open.
Hi, Good morning, and thank you for taking my questions. My first question is.
In your discussion of the reversion of the long term growth rate to 10% to 20% range, how much to interest rates factor into that.
Kind of general forecast and by that I mean that historically.
In the insurance business when rates sort of go to a higher for longer base, you find folks who are willing to underwrite at liar higher loss ratios in order to get premiums on the books that they can invest at higher interest rates.
Does that have any impact on your forecast.
Yes, Casey this is Mike.
I'd say its not really a forecast it's really more just a general observation that in a large mature industry like property casualty insurance.
40% growth is unusual okay. So.
Eventually there'll be a mean reversion, where we grow in a more modest clip we're big believers in our business model, we operate a very disciplined.
Getting operation.
We're targeting the small account E&S market, which historically has grown faster than the broader P&C industry.
We provide the best customer service in the industry in terms of quote ratios and response times to our brokers.
We've got the most efficient business model.
Body, we compete with our expense ratio is quite a bit lower than the competition. So for.
For all these reasons, we're very bullish on growth to just.
I think were up 46% year to date.
We will give away.
Something more modest.
I do think it's a good point interest rates.
A big driver of our business in terms of investment returns.
Eventually that will.
We will have maybe more impact in the market keep in mind, though it takes a while for those higher rates tended to kind of leg into portfolios.
We've seen our interest rate go up from like two five to what was the returned $3 93, 9% this quarter, but.
It does take a couple of years for that to.
Have its full impact.
Okay. Great. My second question is actually related to the portfolio because you've actually during the course of this year.
Bill rates have gone up you've pulled the duration in.
Is there a point in time, where.
You extend that duration in order to capture the rise in interest rates for a longer period of time considering.
Considering the fact that it's usually likely at some point in time that the yield curve normalizes.
Yes, yes is the short answer.
Right now the yield curve is still inverted slightly not as much as it was couple of months ago.
Where it goes from here, obviously is uncertain with.
No.
Fiscal policy, a little bit out of control at the <unk>.
Government level.
All sorts of geopolitical uncertainty.
You know where oil prices go.
Is there a recession in the immediate future.
So we're comfortable focusing on that two year duration with new money at the moment, but absolutely at some point will probably extend that back.
We were about four five.
<unk> duration prior to.
Making the shift about a year and a half or two years ago.
Okay. Thank you for that and then lastly, when when you say changes in Hello in southeast property accounts can.
Can you give a little more granularity on what that actually means.
Yes. So this is Brian Haney.
If your major exposure.
To let's say southeast Hurricane.
It's problematic for you to try to buy Youll recover with an effective date during wind season because of a storm.
Arms and there is a risk that it will hit you the insurers won't.
I won't quote our quota excluding that event.
So you find yourself you would find yourself exposed to a possible uncovered loss so what.
The big account or the accounts tend to do in those areas by it in the second quarter, which is.
While we saw a lot of growth.
That's a big property quarter for us.
Not in the third quarter.
Then you would then therefore expect that to pick up in the fourth quarter post the cat season.
I would say that the third quarters and arguably the lowest I don't know if the top of my head whats. The other three quarters of the biggest I get the sense that the first and second quarters are the biggest.
Okay, great. Thank you for taking my questions I really appreciate it.
Thanks Casey.
Your next question comes from the line of Andrew Anderson with Jefferies. Your line is open.
Hey, good morning, recognizing that industry stamping office data isn't perfect, but was surprised to hear submission growth rate increase quarter over quarter has the company's product offerings suite increased and these are newer lines or has the appetite and willingness to compete on price changing in the same lines.
Ah.
We do expand our product line, but that's not what's driving it the semester ground. So it's been pretty steady all year and it's been very gradually accelerating I'm not sure why we would be at variance with what the staffing offers are saying, but that's pretty stable.
Okay, and maybe if we could just get a bit more color on the type of property that is.
Ben being underwritten this year, just given industry cat losses year to date are pretty high but for Kinsale, It's Ben.
Half a percentage point.
And maybe with that as our cat load target or what we should be thinking about.
Andrew This is Mike.
We don't have a cat load to offer you could just look back over the years.
And come up with an average I guess.
But our property book is I've taken a nice.
Mix of fire driven business tough E&S occupancies manufacturers recyclers.
Et cetera, where fire is the predominant apparel you are underwriting for and then.
Southeast wind.
We write a fair amount of.
A lot of our commercial property is written on an excess basis. So we don't get a steady flow of attritional losses tends to require a large event in order to trigger coverage and.
We had a handful of policies in Hawaii that were exposed to the wildfire there, but I don't think any of them got to our attachment point. So we didn't have any claims come out of that Dahlia, which had kind of a rural section of Florida again, we had a handful of claims there but.
Nothing material so.
I think our strategy if you look back over the years like Hurricane Ian.
That was a powerful storm and a very populated area, where we run a lot of business and yet I think our loss net of reinsurance and tax was somewhere in the low to mid twenty's.
And we still have.
Like a mid <unk> combined ratio in the third quarter of 2022.
And so we like our property strategy, we think it's.
It's.
We're definitely leaning into that area because the margins are phenomenal that market is still in a bit of a crisis.
But we underwrite it and in a careful manner we.
We buy a lot of reinsurance to spread the risk.
And we think thats, giving us the right.
The right outcome.
Great. Thank you.
Your next question is from the line of Scott <unk> with RBC capital markets. Your line is open.
Yes, good morning.
Accident year loss ratio for the third quarter was was lower than the first half and that was true last year and I was just wondering if there's anything behind that any anything seasonal or anything to kind of call out behind that.
In most years its developed down slightly as we go through the accident year.
I think it's just starting a little bit more conservative and then as the year unfolds.
We have a little bit more visibility into the performance of the book.
Okay.
Specific 10, okay.
And then the.
You mentioned the E&S market conditions favorable when you have a lot of quote activity, but I'm just wondering if you.
If you can touch a little bit on just any.
Any update on competition I know you mentioned, a little bit about <unk> and you've mentioned that before but are you seeing any any newer players maybe you haven't seen a year ago or is it just it was just kind of steady and not that much different this year than it had.
Ben.
So I'd say, it's pretty steady I mean, we do see people come and go but.
It's fairly similar to how it's been all year.
There's no there's no major significant either.
New competitors, we're saying, we're making a huge grab for market share, but it's good to keep in mind too there are hundreds and hundreds of MGH with delegated underwriting.
And they come and go on a regular basis. In addition to all the risk bearing entities, we compete with.
There are a lot of.
Individual entities competing in the market.
Yes, okay.
Yeah and then.
Yes, and just my final question too I was just curious on.
That's fair in your personal lines business I guess, we haven't heard about it in a while just just an update on.
What kind of growth that business is seeing and your appetite to expand that and kind of where the profitability has been.
Yes.
In reverse order I would say the profitability. This year has been quite positive.
As you recall, we had a loss that was larger than expected and hurricane and last year.
And so we've been repositioning and basic.
Basically de risking certain areas to make sure that when the wind does blow the size of our loss is consistent with our expectations. So.
We're kind of taking a step back. We're also working on some technological changes to that business to allow for direct bill payment.
Payment plans for the customers and.
Probably in the next several quarters, we would expect to pivot from reducing the premium volume to increasing it.
Getting a better geographic spread et cetera, we're committed to the.
So the personal lines space the homeowner space.
We're just kind of revamping that that strategy as we speak.
Okay that.
Makes sense. Thanks.
Okay.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad.
Your next question comes from the line of Tableau sings on with J P. Morgan Your line is open.
Hi, Good morning first question is I was wondering if you could talk through conditions in various segments.
Market. So D&O Atkinson goes out by many as a competitive product today, but I was wondering if you could talk through your own lines in.
Maybe outside of <unk> sales like major pockets in E&S casualty, where things are more or less competitive.
Well.
Let us more competitive in management liability products liability.
Okay.
No.
Yeah.
I think in.
Construction tends to be fairly competitive that's a long tail line, where we.
Raised rates repeatedly in the last couple of years so.
I think given our pricing strategy, we are probably less competitive navy.
We're still growing that area.
Make a nice clip, but it's not dramatic.
And then you touched on a number of areas where there.
Very strong growth.
Yes, our excess casualty doing while our entertainment, which is a relatively newer divisions doing well cortisol.
Newer division doing well.
Okay. Thanks.
And then the second question was on the loss ratio right. So can sales loss ratio, that's been running close to 60%.
I think most of that reflects your mix on casualty lines, which in hindsight have been conservative.
As you grew in property I was just hoping to get perspective.
How that loss ratio might change right just given that property coverage tends to have lower loss ratios and I think you mentioned that you guys write excess which place even lower loss ratio. So I'm just trying to understand how the mix might change.
The run rates exceeded <unk> always had.
Yes, it's hard Pablo this is Mike it's hard to give you a number.
We reserve all of our lines of business conservatively at the start.
Long tail lines that that that <unk> positioned drifts down slowly over the years ahead as the call.
Claims get reported in <unk>.
Salten negotiated et cetera.
<unk> properties are shorter tail lines of business. So that the <unk>, we put up there tends to come down fairly quickly.
But I don't think we can give you a specific <unk>.
Number I mean, we're always adjusting IV in our numbers based on all sorts of things, including our.
Experience.
Inflation.
Right right changes in the marketplace et cetera.
Okay.
Okay.
The next question I had was just on.
Development right I think reserve development I think it's pretty clear at this point that.
You guys have good underwriting margins embedded in.
Accident years 2020 and forward.
So if I look at that.
<unk> accident year for casualty occurrence for example, I think from your 10.
<unk> K and grid losses are running at 15% below your initial fix so I.
I guess, that's what I'm trying to size the benefit that's still embedded in your balance sheet right.
Just a couple of questions like one how long would it take for a casualty book to Bill the season right.
When he was like three years in.
Entirely there, but maybe getting closer to the yen.
And then would you say qualitatively that the pricing spread in the business. He put in 'twenty, one 'twenty two and maybe even this year is better than what you put in 2020.
Yes, I think I think the current year is probably the best ever but the last several years have been really attractive.
Levels of pricing for Kinsale as a risk bearing entity.
Unequivocally.
Well paid for the risk we take.
In terms of the.
When when the I forget how you characterize it as a <unk>.
<unk> are seasoned or whatever yes.
Right.
Say that again Pablo.
No I was just confirming what you said, Mike Yeah, just when when the book when these books will fully seasoned right. It's not three years, maybe closer to five or six but I just wanted to get an answer from you.
I would just remind you we write a lot of different lines of business short medium and long tail.
And so the property is where you know pretty definitively within a year or two or three.
The excess casually.
Some of the construction business related to construction defect claims can drag on for quite some time, which is great from an investment standpoint, we get to invest those reserves at higher interest rate cut.
You are more exposed to things like inflation.
Brian.
The former actuary.
Careers.
I guess I would say.
As the outside probably.
Hi.
Three or four years I would say for the average of the book, we have a pretty good idea and then frame and the longest tail.
Five year, six or seven we have a very good idea but.
But when you get four or five years out most of the claims have been closed right.
With a dwindling number of claims but they happened debate.
Yeah.
So it's.
Yes, that's helpful. And this is my last question it'll be the simplest one.
Reinsurance.
With updated program Youre getting less premium, but I was wondering if there is a benefit on the ceding commissions that you earn from the higher quota shares. Thank you.
Well the.
The benefit is we get a 27, 5% ceding commission on our property quota share.
On the business, we see it away. So if you look at that and say Hey, we don't really take.
Much in the way of any underwriting risk on the premium we see it away and there is de minimis amount of capital required for that business.
We get a 27, 5% ceding commission, we tend to pay direct commissions to our brokers on 14 or 15%. So the net it is a nice addition to our bottom line without a lot of risk.
On the casualty, it's a little bit different.
We see it away.
It's a variable quota share so it depends on the limits, but I think in general it's about 60% of the excess casualty.
The higher limit casualty business, we see the way about 60% of that we can a commission of.
35%.
We tend to pay 14 or 15%.
Commissions to our brokers, so we net about 19% or 20% pre tax on.
The business, we see the way again with minimal underwriting risk and minimal capital paying required so.
It's a nice complement.
To our business from a profitability standpoint, and allows us to write higher limits than maybe we otherwise wouldnt want to retain net.
Those are some of the ways, we think about it.
But theres no theres no.
Contingency embedded in that business, it's just a straightforward.
The split of the economics, that's negotiated upfront.
Yep.
That's helpful. Thanks for your answers guys.
Yes.
Your next question comes from the line of Mike <unk> with BMO. Your line is open.
Hey, good morning.
I guess as a follow up on some of our along lines of Pablo.
Questions on on reserving.
Our guidance for Q late so give me a short answer you guys already walked through this but.
If we look at reserve release levels year to date, obviously extremely healthy.
But down fairly materially year over year, not just the <unk> issue.
And just your wide phenomenon from what we can see.
Curious if you have any just thoughts on weather.
It's too that causes.
Changing.
Business mix simply.
Or youre seeing slight changes to loss trend.
That are kind of just.
Meaning that there is going to be a little bit less.
Good Guy.
There has been little less reserve releases and any color would be great.
Yes, Mike This is Mike.
I would say.
This is what we said earlier in the call.
Yes.
The drop in redundancy was.
I would look at it as a prospective additional amount of conservatism.
We're reporting phenomenal results in terms of profitability.
But we're also mindful that we're in an uncertain era in terms of inflation and where it might be going in the years ahead and again, our book is a mix of short medium and long tail business the longer tail business can be more exposed.
To inflation and.
And so.
We're doing what we always do which is we have a very quantitative process with how we set reserves.
But theres also some judgment that's brought to bear and we're always looking to set aside more dollars. Today. Then we think we're going to need to resolve claims over the years ahead so that.
Or.
Never going back to the well just to take a big reserve charge, we want to continue to have that redundancy drift out year after year and.
And I think it's one of the things that makes this a phenomenal business and a great way to create wealth.
Year after year by having conservative reserves upfront that developed favorably over time. So that's all of this we're just.
Setting aside.
A little bit more incrementally.
And lastly.
Detailed.
This arbitrage.
Until you have on your on seating.
Especially some of your casualty.
Buck in terms of kind of what your expense ratios versus the <unk>.
Net commissions.
Just a couple of reinsurers have just very recently talked about.
The the dynamics in the reinsurance space, allowing them to potentially.
Continue to you.
But to change the seeding commission ratio back into more into their favor just curious.
Oh.
Im assuming youre reinsurers are making good money so.
But Q is that a dynamic that we should be thinking about over the coming year that could just.
Incrementally impact Kingsdale, if the reinsurers are able to to kind of a <unk>.
Move in that direction.
I would say that would be highly unlikely for can sail mostly because of the reason you you touched on which is our book of business.
Has been very profitable for us certainly, but for our reinsurers as well.
And so we think that.
<unk> sales are very attractive account for the reinsurance market.
We're.
We're a seeding company, that's always put a high value on continuity in that reinsurance program.
So a lot of the carriers that did share with us the risk they have been on our accounts since we opened the business back in March of 2010.
And so we've got it I think very positive relationships with our reinsurers.
And Jeremy we've produced very attractive business for them over the years and we think it will be a steady process going forward, it's not to say that.
Rates and prices can fluctuate a little bit year by year.
In general it should be relatively static.
Thank you.
There are no further questions at this time I will now turn the call back over to Mr. Michael <unk>.
Okay, well I just want to thank everybody for participating this morning, and we look forward to.
I mean, some more good news after the fourth quarter in a couple of months have a great day.
Okay.
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Yes.
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Okay.