Q3 2024 Kinsale Capital Group Inc Earnings Call
Thank you for standing by my name is Brianna and I will be your conference operator today.
At this time I'd like to welcome everyone to the Kinsale Capital Group, Inc. Third quarter 'twenty 'twenty four earnings conference call.
Please note that this call is being recorded at this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. Please press star followed by the number one on your telephone keypad to withdraw your question Press Star one a second time.
Before we get started let me remind everyone that through the course of the teleconference. Kinsale 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 Companys, various SEC filings, including the 2023 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 that contains the press release announcing its third quarter results.
And sales management May also reference 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 at Www Dot Kinsale capital group Dotcom.
Speaker Change: I will now turn the conference over to Kim sells chairman and CEO, Mr. Michael Kehoe. Please go ahead Sir.
Michael Kehoe: Thank you operator, and good morning, everyone.
As usual Bryan Petrucelli, <unk>, CFO and Brian Haney, our president and CFO are joining me on the call. This morning.
Michael Kehoe: In the third quarter 2024 can sales operating earnings per share increased 27%.
Michael Kehoe: Gross written premium grew by 19%.
Michael Kehoe: Over the third quarter of 2023.
Michael Kehoe: For the quarter the company posted a combined ratio of 75, 7%.
And at nine months annualized operating return on equity of 28, 2%.
Can sales business strategy is the principal driver of these results.
Michael Kehoe: And we believe this strategy materially differentiates us from our competitors.
Michael Kehoe: We control our own underwriting absolutely.
Michael Kehoe: Driving a more accurate process.
We provide the best customer service and the broadest risk appetite in the E&S marketplace.
Michael Kehoe: We operate at an enormous expense advantage in a business, where our customers care intensely about price.
Michael Kehoe: Our expertise in technology, not only results in lower costs.
Michael Kehoe: But it also allows can sale to drive.
Michael Kehoe: The highly quantitative approach to managing the business.
These advantages, we believe have real durability to them and they inspire confidence about our ability to generate strong returns and continue to grow the business in all market environments.
Speaker Change: The overall E&S market in the third quarter was generally steady, but with a continued increase in competition.
Speaker Change: As usual there is not one overall E&S market.
Speaker Change: But instead, a series of smaller sub markets each with its own unique level of competition.
Speaker Change: As a consequence rate changes in growth rates and intensity of competition for can sail varies by quite a bit by underwriting division.
Speaker Change: Generally we continue to see strong growth in new business submission activity slightly positive overall rate changes across the book of business and.
Speaker Change: And rational, but increasing levels of competition.
Brian Haney will have some additional commentary on this topic here in a moment.
Speaker Change: Sales natural catastrophe losses in the quarter were modest.
Quarterly loss activity includes both hurricanes, Francine and Helene as well as well as a variety of smaller events.
As a reminder, we target cat exposed property because the margins on that business are generally attractive.
Speaker Change: But we are also mindful of the potential volatility and you.
Use our cautious risk management strategy to keep that volatility under control.
Speaker Change: Hurricane Milton struck the West Coast of Florida early in the fourth quarter as a category three storm.
Speaker Change: Although it is still early in the loss adjustment process, we estimate our total after tax Milton losses to be under $10 million.
Speaker Change: In our press release last night, we announced that our board of directors had approved a $100 million share buyback program.
Speaker Change: We are mindful that can sales shares trade at a relatively high price to earnings multiple.
Speaker Change: But we are also confident in our business strategy and our ability to drive best in class results and take market share in the years ahead.
Speaker Change: Accordingly, we believe modest repurchases each quarter with the possibility of larger more opportunistic purchases from time to time.
Speaker Change: We're in the best interest of our stockholders, who like us expect to hold the shares for the long term.
Speaker Change: And with that I'm going to turn the call over to Bryan Petrucelli. Thanks, Mike another strong quarter from a profitability perspective, with net income and net operating earnings increasing by 51% and 26, 8% respectively.
Bryan Petrucelli: The 75, 7% combined ratio for the quarter included two eight points from net favorable prior year loss reserve development compared to $3 two points last year with three eight points in cat losses, this year compared to less than a half point in Q3 last year.
Bryan Petrucelli: We produced a 19, 6% expense ratio in the third quarter.
Paired to 29% last year.
Bryan Petrucelli: The expense ratio continues to benefit from seeding commissions generated on the Companys casualty and commercial property quota share reinsurance agreements and.
And from the Companys intense focus on managing expenses on a daily basis.
Bryan Petrucelli: On the investment side net investment income increased by 46, 4% in the third quarter over last year.
Bryan Petrucelli: As a result of continued growth in the investment portfolio <unk>.
Bryan Petrucelli: <unk> generated from strong operating cash flows and higher interest rates.
Bryan Petrucelli: The annualized gross return was four 3% for the year, so far compared to three 9% last year.
Bryan Petrucelli: New money yields are averaging in the mid to high 4% range and average duration slightly over three years.
Bryan Petrucelli: Diluted operating earnings per share continues to improve and was $4 20 per share for the quarter compared to $3 31 per share for the third quarter of 2023.
Speaker Change: A couple of comments regarding the share buyback program that Mike just touched on.
Speaker Change: We view the repurchase program as an addition to our capital allocation strategy.
Speaker Change: Along with our quarterly dividends as a reminder, we really have no interest in M&A and no plans for extraordinary dividends in the near term.
Speaker Change: Additionally, the plan will have no exploration and we would expect routine modest buybacks each quarter in part to minimize the dilutive effect of share based awards and larger purchases to be made opportunistically from time to time.
Speaker Change: With that I'll pass it over to Brian Haney.
Speaker Change: Thanks, Brian.
Brian Haney: Mentioned earlier premium grew 19% in the third quarter down from 21% growth in this.
Brian Haney: And 26.
Brian Haney: Present in the first <unk>.
Brian Haney: This modest slowdown in growth has occurred in part because we are seeing increased competition, particularly on some larger accounts and our commercial property division as well as certain professional liability and product liability lines.
Brian Haney: That being said the majority of our divisions, including commercial property are still growing.
Brian Haney: Growth in our casualty business overall has been steady and it's particularly strong in our general casualty and excess casualty divisions.
Brian Haney: There has been some commentary among reinsurers and in the press that casualty reserves for the industry maybe deficient.
Brian Haney: That's for the industry not can sale.
Brian Haney: So this gives us some optimism about this space in the medium term as unfavorable development may cause some stress for our competitors.
And for some of them to enter book correction.
Brian Haney: Overall property growth in the quarter was favorable with our commercial property division slowing.
Brian Haney: Slowing somewhat while the small business property division continues to grow at a more rapid clip. It looks at this point like Hurricane Milton maybe a top 10 historical loss so that may arrest the downward trend in property for some time.
Brian Haney: That remains to be seen.
Brian Haney: The specialty and professional lines areas are among the most competitive particularly management liability.
Brian Haney: But there are some pockets that are more favorable than others.
Brian Haney: We have not yet seen as an industry the deterioration in reserves for those lines yet.
Brian Haney: We may at some point see the same reserving issues in those lines. We are now seeing in casualty.
Brian Haney: For the industry I'm not speaking about can sale.
Brian Haney: We work really hard to maintain our track record of reserves that are more likely to develop favorably than adversely.
Brian Haney: The transportation divisions are growing nicely, especially our commercial auto division.
Brian Haney: Growth in the personal lines space, especially our high value homeowners division.
Brian Haney: As more homeowners business moves to the E&S space, there's a lot of room for us.
Brian Haney: For future growth.
Brian Haney: Those two areas.
Brian Haney: New business submission growth continues to be strong around 23% for the quarter, a very slight acceleration from the second quarter.
Brian Haney: Number is subject to some variability, but in general we view submissions as a leading indicator of growth and so we see the submission growth is a positive signal.
Brian Haney: Turning to rates, we see rates being around 3% on a nominal basis down modestly from around 6% last quarter.
Speaker Change: It's Keith it's important to keep in mind, the market isn't a monolith and some areas where rates are going up higher.
Speaker Change: They're going up lower and some target areas, we may cut rates because the margins are so high that we feel the trade off between rate and growth is worthwhile, but overall, we feel that the business were putting on the books.
Speaker Change: Very strongly priced and the margins are really good.
Speaker Change: Overall, we remain optimistic the results are good our gross prospects are good and as the low cost provider in our space. We have a durable competitive advantage that should allow us to continually.
Speaker Change: And gradually take market share from our higher expense competitors, while continuing to deliver strong returns and build wealth for our investors and with that I'll hand, it back over to Mike.
Michael Kehoe: Thanks, Brian Operator, we're now ready for any questions.
Speaker Change: In the on the call.
Speaker Change: Thank you.
Speaker Change: Dialed in and we'd like to ask a question. Please press star followed by the number one on your telephone keypad to raise your hand and joined the Q2.
Speaker Change: To withdraw your question. Please press star one a second time.
Speaker Change: If you are dialed in and listening via loud speaker on your device. Please pickup your handset and ensure that your phone is not on mute when asking a question.
Speaker Change: Our first question comes from the line of Bill Carrick with Wolfe Research. Please go ahead.
Bill Carrick: Hi, Good morning, Thank you for taking my questions.
Bill Carrick: Great to see the buyback announcement.
Bill Carrick: Maybe wanted to start off with a clarification on <unk>.
Bill Carrick: Sort of how we should think about the share repurchase program.
Bill Carrick: It would be great. If you could perhaps give a little bit more color on the magnitude that we should be thinking about you had a little bit of modest upward drift in your share count over the years. So is this something that we should think of as sort of just maintaining the share count where it is or does it actually come down I'm just wondering given your average daily.
Bill Carrick: Volume in your shares does that pose any sort of constraint.
Bill Carrick: Anything kind of more sizeable happening maybe if you could just give a little bit more context, there that would be great.
Bill Carrick: Yes, Bill this is Mike.
Mike: The overall $100 million authorization.
Bill Carrick: As a.
Speaker Change: It's a very modest buyback overall, and we would expect to use a very small percentage of that on a quarterly basis.
So it won't offset the dilution from the restricted shares but it will minimize it.
Speaker Change: Yeah.
Speaker Change: Its just a its.
Speaker Change: Kind of a gradual start.
Speaker Change: To this new capital allocation strategy.
Speaker Change: It's essentially a function of our growth rate, having slowed down a little bit, whereas the margins are.
Speaker Change: Quite strong and.
Speaker Change: We like the idea of maintaining a high level of capital efficiency, we wanted to have enough capital to <unk>.
Speaker Change: Operate the business and protect our financial rating, but we don't want to add a lot of extra.
Speaker Change: Yeah.
Speaker Change: That makes a lot of sense. Thank you.
Speaker Change: Also a follow up on.
Your comments was hoping that you could.
Speaker Change: We discussed the competitive.
Speaker Change: The landscape.
Speaker Change: The impact that you're expecting on the competitive landscape in the aftermath of the hurricanes.
Speaker Change: Okay.
Speaker Change: I think the short answer is it's too soon to tell.
Speaker Change: The industry.
Speaker Change: Loss estimates I think very from the high teens up to $50 billion or so.
Speaker Change: The significant.
Speaker Change: Man of insured loss.
Speaker Change: Wouldn't it wouldn't shock us arrested.
Speaker Change: Some of the increased competition, we've seen on some of the larger property schedules in the southeast.
Speaker Change: I think we just have to wait to HSA.
Speaker Change: Okay.
Speaker Change: Helpful. If I could squeeze in one more here and then I'll get back in the queue.
Speaker Change: It would be helpful. If maybe you could characterize the flow of business that you see migrating between E&S and shattered markets. It feels like it's a question every quarter, but any.
Speaker Change: It's sort of perspective that you could provide.
Speaker Change: Yeah I know, it's also again, probably still too early but to the extent there could be any changes there as a result of this quarter's cat events.
Speaker Change: Yes, I would say that the I think the E&S market continues to grow at a healthy clip.
Speaker Change: If you look at some of the surplus lines tax data that's published in the Big E&S States like California and whatnot.
Speaker Change: That seems to support the.
That idea.
Speaker Change: Our submission.
Speaker Change: Our flow of new business submissions continues to grow at a good color.
Speaker Change: I would just note that.
Speaker Change: That is a little bit offset by just the general uptick in the level of competition, it's not uniform across the book.
Speaker Change: Consistent with Brian Haney comments in mind earlier in the call.
Speaker Change: There's a lot of smaller submarkets and so we have some areas where the competition is quite intense other areas, where we're still seeing very strong double digit growth.
Speaker Change: But if you had to kind of generalize across the whole E&S marketplace I would just say.
Speaker Change: There has been a relative uptick in the level of competition and I think thats reflected in the <unk>.
Speaker Change: Our growth rate dropped I think from 21% down <unk> 19 from the second to the third quarter.
Very helpful. Mike. Thank you.
Bill Carrick: Thanks Bill.
Speaker Change: Our next question comes from the line of Michael <unk> with BMO capital markets. Please go ahead.
Speaker Change: Hey, Good morning. This is Dan on for Mike just the first question on pricing continues to take a downward trend for you all about three to four points.
Speaker Change: Over quarter, just wondering is this still above loss trend for the quarter could you just unpack what lines areas, maybe the biggest movers underlying that change. Thanks.
Speaker Change: Yes, Dan we've got some divisions, where we're getting double digit rate increases.
Speaker Change: We've got some divisions that are getting.
Speaker Change: Single digits.
Speaker Change: Well above loss cost trend rate increases thats in particular on longer tail casualty lines. So if you think FERC can sale that would be excess casualty excess professional liability.
Speaker Change: Construction related liability business.
Speaker Change: And then we have some divisions, where we're cutting rates.
Speaker Change: Below trend.
I would.
Speaker Change: Kind of just remind everybody. If you look at our operating return on equity for the quarter.
Speaker Change: It was 20, just over 28% and means half of our book of business is producing returns in excess of that.
Speaker Change: And so we think it's prudent to trade away if you will some of that.
Excess profitability in order to maintain.
Speaker Change: Better growth rates in certain segments of our book of business.
Okay.
3% nominal rate increase for the quarter is a.
Speaker Change: That's across the whole book of business, we don't really manage the book Monolithically, we manage it one product.
Speaker Change: Time, but that would be the average across the book.
Speaker Change: Okay.
Speaker Change: Great. Thank you makes sense and then just switching over to cats and specifically on Milton can you just take a step back and walk us through how.
Speaker Change: Your exposure to Milton winds up.
Speaker Change: Ian was about $20 million and we think we've grown more property specifically in Florida since and then just on that same year would you expect the overall business mix of property of fall into 2025.
Speaker Change: Okay.
So those in reverse order.
Speaker Change: We're seeing.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: A much more competitive market on the larger property schedules, so where the brokers have to layer the.
Speaker Change: The placement of the coverage you are seeing some companies offer bigger.
Speaker Change: Bigger primary lines and theirs.
Speaker Change: Some downward pressure on rates, there now theyre coming off a 20 year high sooner.
Thank very still very attractive rates.
Speaker Change: Pre Milton there was an uptick in competition there.
Speaker Change: On the smaller property, we're still seeing very strong growth rates.
Speaker Change: And strong rate increases so again, it depends where you are in the marketplace.
Speaker Change: The level of competition, you might expect and then given with the Milton loss and some of the other smaller hurricanes will so we'll see where the market goes here in the near term, it's really I think a little bit too soon to tell.
Speaker Change: In terms of comparing our <unk> loss in the third quarter of 'twenty.
'twenty two with Milton.
Speaker Change: The Big difference there is we had.
Speaker Change: A much larger personal lines loss in <unk> and <unk>.
Speaker Change: And we took a lot of corrective action there too.
Speaker Change: Yeah.
Speaker Change: Kind of reform that book of business.
Speaker Change: I think thats part of the reason why.
Speaker Change: We saw a much more modest loss in.
Speaker Change: In Melbourne.
Speaker Change: I'm not positive, but I think melon actually hit as a category three Ian may have been a little bit more intensive storm.
Speaker Change: But I'm not positive about that.
Speaker Change: Okay. Thank you.
Yeah.
Speaker Change: Our next question comes from the line of Mark Hughes with Truest. Please go ahead.
Thanks, Good morning.
Speaker Change: Good morning, Mike comment on the trajectory of the competition as you went through the quarter and maybe extending into October do you think that is.
Speaker Change: Stabilized or is it.
Speaker Change: Got it.
Speaker Change: Little more severe as the quarter progressed, how do you see that.
Speaker Change: Okay.
Speaker Change: I don't really have anything to offer on the progression of competition across the quarter, Mark, but I would just remind you that can sale targets.
Speaker Change: For the most part small commercial accounts.
Speaker Change: And so we see.
Speaker Change: Over the year, and we're probably going to see <unk>.
Speaker Change: 900000, new business submissions give or take.
I don't know what that works out to on a monthly basis, but it's a very high volume of small transactions as I said before the level of competition varies quite a bit by line of business.
Speaker Change: <unk>.
Speaker Change: We have some competitors that are disciplined.
Speaker Change: Underwriting companies that have long histories of underwriting to a profit.
Speaker Change: Obviously, that's what we aspire to do here and can sale.
Speaker Change: We have other competitors that are hyper aggressive.
Speaker Change: Not unusual we see somebody quoting a policy and 50% of our tactical price.
Speaker Change: So it's a mixed bag.
Speaker Change: Hi, Jeff.
Speaker Change: I don't really have anything to offer one intra corner.
Speaker Change: Yes.
Speaker Change: Casualty, if we look at just kind of broad brush property versus casualty casualty.
Decelerated, a little bit it was high teens that had been kind of running in the mid twenties.
Speaker Change: Is there any particular areas you would highlight I think you've touched on a lot of this.
Excuse me if this is redundant, but just kind of approaching it from a different direction.
Speaker Change: The slowdown this quarter and is there potential for that to.
Speaker Change: Bounce back in subsequent quarters or is this.
Kind of where the market is at this point.
Speaker Change: Well I mean, I think our casualty business just like all of our business I mean, it does ebb and flow a little bit month by month week by week.
Speaker Change: I would say in general casualty, it's been fairly steady over the last.
Speaker Change: In a year or so.
Speaker Change: Our.
Speaker Change: <unk>.
Speaker Change: In terms of where the market goes from here I think the things that would give us.
<unk> of optimism in the near term would be the.
The volume of Cat losses in the last couple of months at the industry has had to absorb.
Speaker Change: Brian Haney made some comments around.
A lot of reinsurers are discussing.
Speaker Change: Kind of a perceived reserve weakness in casualty lines across the industry not can sale, but for the industry.
Speaker Change: To the extent that that's accurate that could cause the market to tighten a little bit on the casualty side.
Speaker Change: I mean loss trends continue to be pernicious.
<unk> financing in nuclear verdicts, I mean, theres all sorts of reasons why.
Speaker Change: The market could be a little bit more favorable.
Speaker Change: Down the road than it is today.
Speaker Change: It's just we don't have any special insight into where the market will be.
Speaker Change: For now I would say very competitive but relatively static.
And then any way to characterize the competition I assume this is.
Speaker Change: Impacting your bind rate submissions are up.
Speaker Change: New business, presumably is.
Speaker Change: <unk>.
Speaker Change: So youre not sure.
Speaker Change: Getting as many binds on a percentage basis.
Speaker Change: Okay.
Speaker Change: The business.
Mark It can also be mix of business right. So the commercial property is one of our 25 underwriting divisions that happens to target.
Speaker Change: A little bit larger accounts than average.
Speaker Change: And so the uptick in competition there is probably shifting the mix of business in a way that makes it look like our growth right now it makes it look I mean, it is impacting our growth rate.
Speaker Change: More so than maybe hit ratios.
Speaker Change: Yeah and then.
Speaker Change: Any way to characterize.
Speaker Change: Who is acting as being more competitive is that across the board.
Speaker Change: And for all players Mga's.
Yes, I would look at the some of the scheduled P exhibits in your big front end companies.
Speaker Change: They are kind of interesting.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Alright, Thank you very much.
Speaker Change: You bet.
Speaker Change: Our next question comes from the line of Andrew Anderson with Jefferies. Please go ahead.
Andrew Anderson: Hey, good morning, the underlying loss ratio of 55% improved quite a bit year over year.
Andrew Anderson: But at the same time, you mentioned, the 3% rate increase again, so what I think was a high 5% loss trend last quarter. So I'm just trying to think about how the the improvement kind of materialized here against a challenging rate first trend environment.
Mike: Andrew This is Mike.
Mike: Our.
Michael Kehoe: Financials at the end of a given quarter or a composite of actual claim activity.
Michael Kehoe: Versus actuarial assumptions and alike and so.
I mean, the easiest explanation is that we continue to over perform in terms of our loss activity against actuarial assumptions we.
Michael Kehoe: We did highlight in the queue.
Michael Kehoe: Maybe the one exception to that is we have seen.
Michael Kehoe: For some of those older accident years.
Michael Kehoe: <unk>.
Michael Kehoe: Construction related liability business drift up to a little bit higher loss ratios in leaf.
Michael Kehoe: Address that in all sorts of ways higher prices.
Michael Kehoe: On a tighter coverage different geographic mix of business in our construction area. We've.
Michael Kehoe: We've been booking those construction related loss ratios.
Michael Kehoe: Higher level salads.
Michael Kehoe: A big mix of activity, but I would just say that.
Michael Kehoe: This quarter and this is consistent going back a number of years, our actual loss activity came in below our expectations.
Okay could we maybe size within the 55% how much of the improvement is coming from the property book, which you've been growing quite a bit versus the casualty book, which is maybe an area I would think youre still booking relatively conservatively.
Speaker Change: Yes, I think we book conservatively across the board, but obviously.
Speaker Change: Casualties much longer tailed in property, but.
Speaker Change: I can't really kind of break that apart for you on a conference call, but I would say this the property business with Britain, even including the recent.
Speaker Change: Recent cat activity has been.
Quite profitable for can sell.
Speaker Change: Thank you.
Speaker Change: You bet.
Speaker Change: Our next question comes from the line of Scott <unk> with RBC. Please go ahead.
Yes. Thanks, Good morning, just the expense ratio was down quite a bit.
Speaker Change: Below 20%.
Speaker Change: That's been running in the past few quarters I know you get a benefit from seeding commissions, but.
Speaker Change: Any sense of what kind of run rate to use for the next next few quarters is it going to be kind of in the 19.
Speaker Change: Around 20% or is it is it going to drift higher or is this just kind of a sustainable run rate you think.
Speaker Change: Yes, it does bounce around a little bit quarter to quarter, but I think you know.
Speaker Change: Youre looking at sort of our our nine months <unk>.
Speaker Change: Expense ratio was 25, that's probably as good a gauge with any.
Okay.
Speaker Change: And I wanted to ask about the high value homeowners I know you mentioned that last quarter you mentioned it again just.
Just talk about how the opportunity is there and what kind of growth you might you might see over the next few years in that business. It does seem like a lot of it is migrating all continue to and how you are you going to mitigate the risk on that type of business.
Speaker Change: Yes.
High value homeowners is.
Speaker Change: It's a geographic mix is western states, where there's.
Speaker Change: <unk>.
Uh huh.
Speaker Change: Homes exposed to wildfire.
Speaker Change: Coastal southeastern business.
Et cetera.
Speaker Change: It's a cat exposed book.
Speaker Change: In large part and we manage cat risk whether its residential or.
Speaker Change: Our commercial business the same way through very good underwriting.
Speaker Change: We have strict controls on concentration of business we.
Speaker Change: And a lot of reinsurance we model the portfolio every month et cetera.
Speaker Change: I would say high value homeowners is growing rapidly from a small base.
Speaker Change: So I think personal lines business for can sale overall is maybe two 5% of our book.
Speaker Change: But we are optimistic that that will continue to grow nicely and be a nice profit center for the company.
Speaker Change: In the years ahead there is.
Speaker Change: Of course.
Speaker Change: Interesting shift of some homeowners business into the E&S market I think some of that is driven by.
Speaker Change: Cat exposures I think some of it's driven by.
Speaker Change: Regulatory issues for standard lines companies.
Speaker Change: So, we'll see where that plays out but we are cautiously optimistic.
Speaker Change: Okay.
Speaker Change: Is that also going to be and you mentioned Western California is also going to be in Texas, Florida, and New York and some of those other big markets as well or is it or is it mostly focused in the west at this point.
I think it's kind of a split and I can't remember the exact status as of today, but.
Speaker Change: Turn states plus southeast.
Speaker Change: Ultimately, we will be writing personal lines business throughout the country.
Speaker Change: Okay. Thanks, a lot.
Beth.
Speaker Change: Our next question comes from the line of Roland Mayer with Oppenheimer. Please go ahead.
Roland Mayer: Hi, Good morning, and the 10-Q, you call out some adverse development and construction defects.
Roland Mayer: Any chance you could size that and talk to your sort of lines of business, where we still see favorable prior year development.
Speaker Change: I think we're seeing favorable development across almost the whole book construction.
Speaker Change: Like I talked about a little while ago, we've done all sorts of things over the last five years.
Speaker Change: To make sure that we're driving.
Speaker Change: Very.
Speaker Change: Strong returns there I would say this our property business has been profitable I think throughout our company's history has.
Speaker Change: Has just lagged a little bit and I think in large part of that's due to the uptick in inflation.
Speaker Change: And given the long tail nature of some of the property claims, particularly around construction defect water intrusion type claims so.
Speaker Change: And again, we've pushed out pricing dramatically over the years, we've tightened coverage we've changed the geographic mix of business, we're booking those losses at a much higher level.
Speaker Change: But you make a bunch of changes and because its long tail business you don't know definitively.
Speaker Change: How that's going to impact the margin. So we just have to see how that business develops in the years ahead.
Speaker Change: In General I think we're doing the right thing there.
Speaker Change: Thanks, and then a number of your standard lines peers as you've referenced had taken some commercial casualty charges in the last 12 months as you look at sort of your reserves today and loss development are you layering in any extra caution or <unk>.
Speaker Change: Extending the timeline when you do your reserve reviews.
Speaker Change: Have you ever quantified.
Speaker Change: What are your loss trend assumption for the casualty business.
Speaker Change: Tom I don't know that we have or have not.
Speaker Change: I think we have our.
Speaker Change: I think it's around 6%, but it's going to vary quite a bit by line of business.
Speaker Change: Well does this was the first question.
Speaker Change: Just as a setting reserves today, given sort of the industry backdrop and sort of standard lines carriers, taking charges are you, putting any extra conservatism in there or extending sort of the timeline for your views.
Speaker Change: Yes, we have addressed that a number of times over the last couple of years, starting about I think five or six years ago.
Speaker Change: We started to get of course, the acceleration in premium growth, but at the same time, we are getting rate increases ahead of loss cost trend not for one year, but for year after year after year for year et cetera.
Speaker Change: So I think we've been fairly vocal about the fact that in.
Speaker Change: In addition to producing really compelling margins. We've also been adding to the level of conservatism in our reserves and that's why we've said a number of times over the years.
Speaker Change: We're confident that our reserves are in the most conservative position they have ever been at now.
Speaker Change: And I think there's all sorts of reasons why that's warranted.
Speaker Change: Not so much our competitors, but more just the uptick in inflation.
Speaker Change: High loss cost trend nuclear verdicts litigation financing social inflation.
Speaker Change: The tort system is very dynamic.
Speaker Change: I think conservatism is warranted, but I do think our investors should have a lot of confidence in the integrity of our balance sheet.
Speaker Change: Great. Thank you and then just one more on the balance sheet.
Speaker Change: I know you haven't actually done any buybacks, yet, but should be announcement, there would be taken as a sign of future growth expectations or is it just the capital generation has gotten so high that you have the opportunity to do an authorization now.
Speaker Change: Well I think.
Speaker Change: Been vocal about the fact that.
Speaker Change: We think our long term growth opportunity is best estimated in the 10% to 20% range.
Speaker Change: We're producing at least through nine months, just over 28% operating return on equity.
Speaker Change: With.
Speaker Change: With that growth expectation against.
Speaker Change: That level of profitability.
We are sitting on some excess capital today and that will continue to grow.
Speaker Change: And a pretty healthy clip so that's really the driver.
Speaker Change: Thanks for the answers and congrats on the quarter.
Speaker Change: Thanks, Rob.
Speaker Change: Our next question comes from the line of Casey Alexander with Compass point. Please go ahead.
Casey Alexander: Yes, hi, good morning, and thank you for taking my questions.
Brian Haney: Brian Haney here.
As you said.
The business is not a model that theres a lot of different slices to the business and I'm. Just wondering when you talk about your conversations with the reinsurers regarding some casualty reserve insufficiency across the industry not kinsale recognizing that there's a lot of different slices to casualty are they giving you.
Brian Haney: Any indication as to where in some of those slices. It maybe we ought to have a finger in the wind as we think about.
Brian Haney: Other companies in this space.
Speaker Change: Yes, the two biggest areas within casualty is a hall, where I think you would see the worst of that.
Speaker Change: For the industry, our excess casualty and.
Speaker Change: Commercial auto.
Speaker Change: That's the short answer.
Okay well. Thank you. Thank you for that I really appreciate it and.
Speaker Change: Brian.
Bryan Petrucelli: Petrocelli I'll just this is minor.
Bryan Petrucelli: But I'm just kind of wondering because fee income.
Bryan Petrucelli: Generally follows the cadence of the overall business.
Bryan Petrucelli: And yet in this quarter fee income was down quarter over quarter relative to our business at a book that grew quarter over growth I was just wondering.
It is kind of curious to me.
Bryan Petrucelli: I don't think Theres anything.
Speaker Change: Significant there Casey I think if you look at fee income as a percentage of gross written premium over a period of time that will give you a pretty good gauge as to where to look going forward.
Casey Alexander: Okay Alright. Thank you very much I appreciate you taking my questions.
Thanks Casey.
Speaker Change: Our next question comes from the line of Pablo <unk> with Jpmorgan. Please go ahead.
Hi, good morning.
Speaker Change: So for mortgage REIT.
Michael Kehoe: Good morning, Mike.
Speaker Change: Recent premium growth in the high teens to low twenties.
Speaker Change: Youre going to closer to the long term growth that you spoke about right I'll, just like mid teens down to 'twenty.
Speaker Change: So should we think about that growth through the cycle through the cycle target as you know.
Speaker Change: Good potentially fall below it I think in 2015 2016. For example, you grew high single digits low teens are this.
Speaker Change: The business in a different position today like clearly a much bigger right, but maybe at scale or a number of products you have where you can put that should be a bit more aggressive on the growth margin trade off.
Pablo Youre, breaking up a little bit there, but I think you were asking.
Like our growth expectations.
Speaker Change: Yes, yes, yes.
Speaker Change: So.
Speaker Change: Hi, everyone.
Speaker Change: <unk> sorry about that so.
Speaker Change: Your recent growth heightening slow 2000, and that's much closer to your long term growth target right.
Speaker Change: So yes, youre welcome growth target should we think about that as a through the cycle target right, meaning you could potentially fall below mid teens and I think in the past you did grow high single digits or low teens.
Speaker Change: 2016 or is the business in a different position today, where maybe its size or scale or a number of products you have where you can be a bit more aggressive in terms of the growth margin trade off right. So maybe you don't follow the law.
Speaker Change: Teens right because you can grow faster just given where you are today just wanted to get your thoughts on Sir.
Speaker Change: Are you thinking about that for sure.
Speaker Change: Okay I would start by saying this we don't actually know blended growth rate is going to look like.
It's a function of again.
Speaker Change: The intensity of the competition, how aggressive the competition is and pricing risk.
Speaker Change: The mix of business et cetera, but I would say the 10% to 20% is a good faith estimate.
Speaker Change: <unk>.
Speaker Change: What we think we can grow over the long term.
Speaker Change: In a very big mature industry like PNC.
Speaker Change: E&S tends to grow a little bit quicker than the overall P&C market and we think because of the variety of competitive advantages. We have we can outgrow.
The E&S market and so I think that 10% to 20% is a good estimate is a possible we could go above that or below it on any given quarter yeah sure. It is but.
I think given the size of the company the diversity of our product line.
The competitive advantages, we have the margins in our business and allow us.
Speaker Change: To be a little bit more.
Speaker Change: Competitively, if we want to be on certain lines.
Speaker Change: I think Thats I think thats a good estimate.
Speaker Change: Gotcha.
Speaker Change: And then second question.
Speaker Change: With the market getting more competitive as you reference.
Speaker Change: I was curious have you seen any change in retention in your book right I don't think Thats a metric that we've.
That's really been discussed on your calls, but I think E&S is naturally lower retention than admitted business and I'm just curious to hear Sir.
Speaker Change: How that's trended for you over the last hard market now where things are getting more competitive.
Speaker Change: Yes, my experience going back 25, plus years at three different E&S companies as we tend to retain about two thirds of our policies year over year.
Speaker Change: Yeah.
Speaker Change: In a hard market, where youre getting dramatic rate increases sometimes the premium retention can go above that quite a bit.
Speaker Change: But in general I think that two thirds.
Speaker Change: He is a good benchmark.
Speaker Change: For Kinsale, and probably a lot of our competitors both in terms of policy count and premium.
Speaker Change: Okay.
Speaker Change: And then.
Speaker Change: Third question I think if I remember correctly in the first quarter of this year you bumped up your casualty loss picks to reflect just the general environment or your views on loss trends et cetera.
Speaker Change: Is that a formal process that takes place every quarter or is that something that could pop up in any given period, just depending on your views of the market at that time.
Speaker Change: Yes, I mean every quarter, we look at actual claim activity.
Speaker Change: Ported losses settled claims et cetera.
Speaker Change: Change in case reserves.
Speaker Change: And then we compare that actual activity against all the actuarial assumptions, we have in terms of.
Speaker Change: Reporting patterns payout patterns expected loss ratios by accident year by line of business.
Speaker Change: It's obviously, it's a very extensive analysis and then of course, you are making adjustments.
Speaker Change: Two year assumptions.
To of course put forth your best estimate, but tempered with a strong measure of conservatism.
Speaker Change: We do that every quarter I think every insurance company to us.
Speaker Change: Maybe youre addressing pattern in our reserving where the current accident year tends to start out higher in over the course of the year, depending on again actual.
Speaker Change: Loss activity.
Speaker Change: Those loss ratios kingdom come down across the calendar year.
Speaker Change: But.
Speaker Change: We're constantly looking at and evaluating and adjusting.
Speaker Change: Our reserve assumptions to make sure we're on track.
Speaker Change: Gotcha that makes us I'll just squeeze in one more if you will so I just wanted to hear you.
Speaker Change: Talk about the thought process of choosing share buybacks over other forms of capital return you know maybe like a special dividend.
And you did mentioned that.
Speaker Change: You recognize that your stock trades other than <unk> multiple and no I'm sure share buybacks in your analysis provided some benefits, but if you start after the thought process.
Speaker Change: On share buybacks versus other forms of Saskatchewan.
Speaker Change: As Brian said, we're not interested in acquisitions.
Speaker Change: And.
Speaker Change: We appreciate that the stock trades at a high price to earnings.
Speaker Change: I think a lot of people look at price to book, that's that's not a metric that we tend to put much confidence in.
Speaker Change: Because every insurance company has different levels of redundant capital and so you end up with an apples and Orange comparison.
If you look at our stock, we evaluate where we think our share price is going in the future against the S&P.
Speaker Change: We have since we've been public back in 2016, we beat the S&P seven out of eight years.
Speaker Change: And if you were to include.
Speaker Change: Include 2024, and that is the eight out of nine.
Speaker Change: We think we've got a very interesting business model with some competitive advantages that have real durability to them.
Speaker Change: We're long term holders right. So I think it's a little bit easier for us.
Speaker Change: Two.
Speaker Change: Comfortable with buying back our own stock.
Speaker Change: And then maybe other people to kind of.
Speaker Change: Our skeptical around the valuation okay.
Speaker Change: It's a judgment call.
Speaker Change: But I would also say this.
Speaker Change: The buybacks were talking about are very modest so I am not sure theyre going to move the needle one way or the other here in the near term, but for people like us that expect to hold these shares well into the future I think over time, it will be material and.
Speaker Change: I think long term, it's going to be quite positive for the for the stockholders of Kinsale.
Got it thank you.
Speaker Change: Thanks Pablo.
Speaker Change: Seeing no further questions at this time I will now turn the call back to Mike for any closing remarks.
Michael Kehoe: Okay, well. Thank you everybody for joining us today, and we look forward to speaking with you again soon have a great day.
Speaker Change: This concludes today's conference call. Thank you all for your participation you may now disconnect.
Okay.
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