Kinsale Cap Gr Q3 2026 Earnings Call Transcript
Kinsale Cap Gr (NYSE:KNSL) reported third-quarter financial results on Friday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Kinsale Capital Group reported a 9.4% increase in diluted operating earnings per share for Q3 2026, with an annualized operating ROE of 25.6%.
Gross written premium decreased by 4.8% and net written premium by 1.5%, impacted by competitive E&S market conditions and a shift from larger to smaller accounts.
The company’s combined ratio remained strong at 75.4%, with favorable prior-year development contributing to an improved loss ratio.
Strategic focus includes continuing growth initiatives through new products, broker appointments, and leveraging technology for competitive advantage.
The company repurchased 269,000 shares for $100 million in Q3, maintaining a low debt to total capitalization ratio of 10%.
Management highlighted the importance of technology and analytics in maintaining low expense ratios and competitive pricing.
Kinsale plans to continue cautious reserve practices in long-tail lines amid competitive pressures.
Future guidance suggests maintaining a disciplined approach to growth, with an emphasis on profitability and managing competitive market conditions.
Full Transcript
OPERATOR
Before we get started, let me remind everyone that through the course of the teleconference, Kinsale Cap Gr 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, including the 2025 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. Kinsale Cap Gr’s 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 at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale Cap Gr’s Chairman, President, and CEO, Mr. Michael Kehoe.
Please go ahead, sir.
Michael Kehoe (Chief Executive Officer)
Thank you, operator, and good morning everyone. Today I’m joined by Brian Petrocelli, our Chief Financial Officer, Stuart Winston, our Chief Underwriting Officer, Salman Alabai, our Chief Analytics and Technology Officer, and Chris Tangard, our Chief Accounting Officer. Before we get into the quarterly results, I want to acknowledge and congratulate our colleague Brian Petrocelli on his just announced retirement next year and his election to the Kinsale Cap Gr Board of Directors. Brian has made significant contributions to Kinsale Cap Gr in a variety of roles, but especially as Executive Vice President and Chief Financial Officer for the last decade or so. Brian is not only a financial expert and a sound business manager, but he has great judgment and integrity and, most importantly, he’s a quality human being.
We will miss having him on the day-to-day team next year, but know that he will make a great addition to our Board, and we are grateful that he will continue contributing to Kinsale Cap Gr in that capacity. I also want to congratulate Chris Tangard, who will become Kinsale Cap Gr’s CFO in March of 2027. Chris joined the company from KPMG seven years ago. He has taken on a number of finance roles over the years, including his promotion to Chief Accounting Officer two years ago. As CFO, Chris will continue to build on our current success, and investors will have lots of opportunity to get to know him in the months ahead.
In the third quarter 2026, Kinsale Cap Gr’s diluted operating earnings per share increased 9.4% over 3Q25, generating an annualized operating ROE of 25.6% through nine months. Gross written premium was down 4.8% and net written premium was down 1.5%. Kinsale Cap Gr’s combined ratio was 75.4% for the quarter. E&S market conditions in the third quarter continued to be competitive and largely consistent with conditions in the second quarter. The level of competition and our growth rate continues to vary from one market segment to another.
As you can see from the Premium by Underwriting Division exhibit in our Q—and I’m sorry, we’ve got a fire alarm going off in the building adjacent to ours. We’re going to keep persevering here. The continued intense competition in our commercial property division weighed on our growth rate in the quarter, and excluding that one division, our gross written premium was down half a percent. It’s also important to note that even with the drop in gross written premium for the quarter, Kinsale Cap Gr’s number of submissions, quotes, and bind orders grew in the mid-single-digit range. Essentially, with the competition in the E&S market, our book shifted slightly from larger to smaller accounts.
Not only is this shift positive for maintaining best-in-class margins, but it also shows that the Kinsale Cap Gr model works and works well even in the most competitive market we’ve seen in the last 10 years. Our disciplined underwriting and low-cost business model recognizes the importance of the insurance buyer in every transaction. We deliver competitively priced insurance without compromising our margins, and we continue to grow the business and take market share subject only to a temporary written premium growth slowdown as we shift slightly away from larger transactions and write a slightly smaller average premium.
While Kinsale Cap Gr always prioritizes profit over growth, we are still working very hard to grow the business. The various growth initiatives involve new and enhanced products, appointing new brokers, a robust marketing effort, and improved customer service. Stuart Winston will have some commentary on these topics here in a moment. In this era of artificial intelligence, Kinsale Cap Gr’s long-standing strategy of making technology a core competency is allowing us to widen our lead over many competitors. Kinsale Cap Gr’s core enterprise system is custom-built for our business by our own engineers, analysts, and developers. We don’t have any legacy software applications dating back decades ago. We also have all the company data from the first policy we wrote or the first claim we received 17 years ago recorded in the same database.
Kinsale Cap Gr’s tech advantage allows for lower costs, better customer service, and more data at the transaction level to better manage the business. Further, we have built our analytics and actuarial team over the last decade to constantly evaluate our own data and data that we acquire to improve how we segment and price risk. This team of quants, combined with millions of dollars of investment and further combined with a superior tech stack, is creating underwriting and pricing algorithms superior to others in the E&S industry.
And Salman Albai is going to have some further comments on this topic in a moment as well. And with that, I’m going to turn the call over to Chris Tangard.
Chris Tangard (Chief Accounting Officer)
Thanks, Mike. Good morning everyone. Before I provide commentary on our quarterly results, I want to recap our capital allocation priorities and recent actions, particularly in light of the current competitive environment that Mike mentioned. Our first capital allocation priority is to fund growth in our high-margin insurance business. Our second priority is to return excess capital to stockholders, primarily through share repurchases. We also pay a dividend that, while modest, has increased at a 17.5% compound annual growth rate since our IPO in 2016.
We have no interest in M&A. Over the last several years, we’ve generated significant capital in excess of what we need to operate the business in the current lower-growth phase of the cycle. This excess capital generation continues today. As a result, in the third quarter we repurchased 269,000 shares at an aggregate cost of $100 million, or just under 80% of net operating earnings in the quarter. The $100 million is consistent with the second quarter and an increase from the $62.5 million in the first quarter of this year.
At this time, we expect $100 million to be a good quarterly run rate and plan to be opportunistic otherwise. Our debt to total capitalization is low at approximately 10%, and should we need additional capital in the future, we would likely look to use leverage to generate higher returns on equity. Moving on to our financial results for the quarter, diluted earnings per share declined 28.4% and diluted operating earnings per share increased 9.4% compared to the third quarter of last year. Annualized return on equity and annualized operating return on equity for the nine months ended September 30 were 26.6% and 25.6%, respectively. The decline in GAAP earnings was primarily driven by our sale of certain fixed maturity holdings in a loss position, largely offsetting our selling of certain equity investments in a gain position.
As we repositioned the investment portfolio with the proceeds from these sales, we reinvested approximately $100 million in higher-conviction equity securities and replaced approximately $130 million of bonds yielding less than 2% with bonds yielding more than 5.5%. As the unrealized appreciation of equities is recorded through earnings each quarter, the majority of the equity gains were reflected in earnings in prior periods. Conversely, the loss on the fixed maturity holdings was reflected in earnings upon sale.
The net pre-tax earnings impact of the bond sales was $37.6 million, or $1.67 per diluted share in the third quarter. The sales had no impact on book value. Stripping out the investment noise, diluted operating earnings per share improved to $5.70. Quarterly combined ratio was 75.4% compared to 74.9% in the third quarter of 2025. The loss ratio improved to 53.4% from 53.9%, largely driven by higher favorable prior-year development. The expense ratio increased 1 point to 22% from 21%, primarily due to higher net commissions resulting from higher reinsurance retentions, which results in lower ceding commissions. The higher retention is an intentional trade to retain more underwriting margin and float to generate investment income, which results in a slightly higher expense ratio.
As a result of these changes to our reinsurance program, which renewed on June 1, the retention ratio increased to 86.2% in the third quarter compared to 83.3% in the third quarter last year. The other underwriting portion of the expense ratio, which is the best measure of the operational efficiency of our business, was 10.2% for the third quarter of 2026, flat compared to the same period last year. Turning to investments, net investment income increased 17.5% to $58.3 million as a result of both a higher invested asset base and higher interest rates. Kinsale Cap Gr’s float increased to $3.5 billion at September 30, up from $3.1 billion at year-end 2025. New money yields are averaging north of 5% and the fixed maturity portfolio has an average duration of 4.4 years. Overall, we’re pleased with our third quarter performance. We continue to produce best-in-class underwriting results, attractive investing returns, and strong returns on equity while returning meaningful capital to stockholders.
And with that I’ll turn it over to Stuart.
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
Thanks, Chris. At the risk of sounding like a broken record, the soft E&S market continued in the third quarter across property and certain long tail casualty lines. However, there are some favorable areas in the market that we are turning into growth opportunities. Our goal as an underwriting organization in a soft or softening market is to grow where we can, but more importantly maintain our profitability. We will continue to be aggressive where we can, but at the same time maintain a conservative stance in areas where we feel irrational competition has taken hold.
We offer our brokers one of the broadest risk appetites in the E&S market. We will continue developing new products and adding underwriting flexibility where it makes sense, further expanding that appetite. The breadth of our underwriting appetite allows us to pivot to the areas where growth is promising and take advantage. Divisions like Agribusiness, Commercial Auto, Entertainment, Ocean Marine and Environmental all experienced double-digit growth for the quarter.
We continue to see favorable underwriting conditions in Excess Casualty, Allied Health, Products Liability, Health Care, Energy and Agribusiness property as well. Before I move on, I want to briefly address the most recent CAT activity in the quarter and we expect its impact on our results to be immaterial. Moving on, overall new business submission growth increased 6% in the third quarter, a similar rate to Q2 of this year. We continue to see a decline in new business submissions in the commercial property division that handles large shared and layered deals. Excluding the commercial property division, new business submissions were up 10% for the quarter and over half of our divisions are seeing submission growth in the double digits.
While our lines of business are experiencing varying levels of competition and pricing pressure, the combined pricing trend for Kinsale is in line with the Amwins Pricing Index which showed a decrease of 3.1% compared to a 5.9% decrease in Q2 2026. While we continue to see strong rate pressure in commercial property, other lines like Commercial Auto, Excess Casualty and Entertainment present opportunities for meaningful rate increases. Distribution and product expansion continue to drive growth. On the product side, we’re looking to finish the year by rolling out an additional five or six new offerings ranging from small package policies to a digital health offering. And Hull and P&I continue to look for opportunities in the market to roll out new offerings to broaden our appetite. We also continue to sign up new producers to drive submission growth. During the third quarter, we appointed 12 new wholesale brokers to the Kinsale platform and 124 new retail brokers to Aspera, our in-house broker through which we distribute most of our personal lines products.
The durability of our model continued to show throughout the third quarter despite an influx of competition. Submissions, quotes and binders increased across the company while renewal retention remains steady. New products in addition to our distribution network should continue to support growth. At the same time, large accounts remain under downward pressure. We will not chase business where the economics do not make sense. Instead, we will maintain our discipline and continue to focus on the small to medium enterprise space.
So to bring it all together, the market is soft and it may stay that way for a while. We aren’t going to let the market change how we operate. We will grow where the opportunity is real. We’ll hold the line where competition has outrun the risk and we will never trade profitability for volume. Soft markets don’t last forever, and neither do hard ones. What we can control is how we operate. In each, a broad risk appetite lets us find areas for growth.
Our small account focus allows for more opportunities at more favorable rates and a tremendous efficiency advantage will support returns as pricing softens. That’s our model in a nutshell, and it’s designed to perform across the whole of the market cycle. With that, I’ll turn it over to Salman.
Salman
Thanks, Stuart. On the analytics and actuarial side, our guiding philosophy is that we constantly want to improve how we segment and price risk. While many competitors cut rates across the board, our goal is to be more targeted and methodical. We will adjust rates where it makes sense, consistent with our target of a 20% return on equity or better. Two major components of our analytics strategy are third-party data and generalized linear models. Each year we acquire, analyze and incorporate more third-party data into our underwriting and pricing process.
This augments our internal data and information provided by the brokers to improve how we segment and price risk. Because all 17 years of Kinsale data resides in one database, we can perform analyses and implement improvements quickly. Generalized linear models are an increasingly important part of our pricing toolkit. They let us measure how various risk characteristics together drive loss at a granular level rather than relying on broad class level rates. We also use other machine learning algorithms to find patterns that feed back into those models, data and ultimately our rates. Our rating engine brings this all together and produces a technical price for every risk, adjusted for the coverage provided.
That tells our underwriters exactly where market pricing is relative to the actuarially sound price. The results show in our loss ratios. In today’s market, the analytics advantage we have is more important and more durable than ever and will allow us to maintain those low loss ratios while competitors with less sophisticated pricing face adverse selection. On technology, our talented engineers and developers have built our own proprietary systems. We do not have legacy software which lets us spend our effort on innovation rather than maintenance. Those proprietary systems support the fast response times our brokers expect, power our data and analytics advantage and keep our expense ratio the lowest among our competitors by a wide margin. As we’ve noted in the past, AI has been adopted broadly across the company for some time now.
Every associate has an enterprise license for two of the leading frontier models along with their agentic tools. Across the organization, we utilize over 100 agents and skills to process submissions, improve underwriting, perform analytics, intake claims, draft correspondence, and much more. For the technology team in particular, these agentic tools help our developers write and review code, which speeds up how quickly we deliver new capabilities to the business.
We’ve made meaningful progress building AI functionality into our enterprise applications and there is a lot more to be done. Kinsale is well positioned for a more competitive part of the insurance cycle and for the disruption that AI will bring to our industry. Our efficiency and pricing accuracy compound over time and we believe our lead is widening every day. And with that, I’ll hand it back over to Mike.
Michael Kehoe (Chief Executive Officer)
Thanks, Salman. Operator, we’re now ready for Q&A.
OPERATOR
We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you’d like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christian Getsoff with Wells Fargo.
Please go ahead. Your line is now open.
Christian Getsoff (Analyst)
Hi, good morning. Thanks for taking my question. As we think about the mix shift towards smaller accounts and casualty, when we look at the average premium per policy ex personal lines of 11.7k, if I exclude commercial property, I estimate it’s around 10.4k. How low are you expecting that average premium per policy to trend to? And is there any meaningful impact on loss ratios from this mix shift towards smaller accounts?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
Yeah, Christian, this is Stuart. I think the average premium ex CP was closer to 10.7 or 10.9 year to date through Q2, 10,700 through Q3. It’s probably going to remain pretty steady, but it will trend maybe slightly downward as competition picks up, but it’s not a drop off a steep cliff.
Christian Getsoff (Analyst)
Got it, thank you. And then your LAE ratios, if I look at staff lines, continue to improve meaningfully. I calculate about 200 improvement in the first half, which is offsetting a lot of the pressure on the incurred loss ratio side. As you kind of think about pricing pressure and mix shift towards casualty, can you frame how you’re thinking about that LAE improvement from here? Is the 200 bps a good bogey as we kind of think about 2027?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
I don’t know that we have that level of detail to jump into in the call. I would think it’s going to be pretty consistent. I’m not sure what’s driving the delta there. Our reinsurance retentions wouldn’t impact that.
Chris Tangard (Chief Accounting Officer)
Yeah, I wouldn’t read too much into the change. Some of that is, you know, assumption changes when we’re setting IBNR. I wouldn’t read too much into that.
OPERATOR
Thank you. Your next question comes from the line of Mike Zaremski with BMO. Your line is now open. Please go ahead. Mike, are you there? Your next question, maybe you’re—
Michael Kehoe (Chief Executive Officer)
Oh, go ahead, operator.
OPERATOR
Thank you. The next question will be from Andrew Kligerman with TD Cowen. Please go ahead.
Andrew Kligerman (Analyst)
Hey, good morning. So curious, with casualty written premium up about 0.9%, I’m curious as to what rates did with respect to that 0.9. What proportion was rates? How much were rates up actually and did pricing keep up with loss costs?
Salman
Andrew, this is Salman. I would say pricing varies across the divisions, but in general I think Stuart noted the pricing trends are kind of in line with the Amwins index. I think loss cost trends are in some divisions running slightly ahead of where rates are. But for us we think that’s okay just given the margins that we’re generating.
Andrew Kligerman (Analyst)
Okay, thank you. And then on the prior year development of four and a half percent, could you kind of give us the geography of accident years and products that went into that four and a half?
Chris Tangard (Chief Accounting Officer)
We probably won’t get too much into the detail by accident year, but I can tell you that a lot of the prior year favorable development was disproportionately the shorter tail lines of business, I think the property lines of business and some of the shorter claims-made lines of business.
Salman
And Andrew, we’ve kind of been maintaining that methodology, I think for a couple years now, allowing the short tail results to flow out to the bottom line where there’s more predictability and being a little bit more cautious holding back the reserve development on the longer tail business.
Andrew Kligerman (Analyst)
Thank you so much.
OPERATOR
Your next question is from the line of Pablo Singson with J.P. Morgan. Please go ahead.
Pablo Singson (Analyst)
Hi. How much net investment pickup do you expect from the fixed income assets you repositioned this quarter?
Chris Tangard (Chief Accounting Officer)
Pablo, this is Chris. The delta on the bonds we sold and the bonds we purchased was just shy of 400 basis points and the proceeds we reinvested were about $130 million. So you can do the math on it, probably five and a half, $6 million annually.
Pablo Singson (Analyst)
Yep. Thank you for that. And then second question. As you adapt to the more competitive market, are you still able to price at your historical expected margins in the business you choose to write? And how does investment income figure into how you price and, you know, accept or turn away business? Thanks.
Michael Kehoe (Chief Executive Officer)
Yeah, Pablo, this is Mike. We manage really all of our product lines to a 20% return or greater. And, you know, as the actuaries work through our pricing models, you know, they effectively translate the ROE into a loss ratio target for the division managers. That’s how it’s more or less handled internally. But yeah, 20% ROE or greater. So all the business we’re putting on the books is business that we think is producing really compelling margins.
Pablo Singson (Analyst)
Thanks, Mike.
OPERATOR
Your next question comes from the line of Michael Phillips with Oppenheimer. Please go ahead.
Michael Phillips (Analyst)
Thanks. Good morning. With this shift towards the smaller accounts, can you talk, I mean you already talked about the impact on the loss ratio. Can you talk about the, I guess, the puts and takes that happen on the expense ratio from that shift?
Michael Kehoe (Chief Executive Officer)
Yeah, Michael, this is Mike. I don’t know any real impact on the expense ratio. You know, I think if you look at the average premium, it’s down, I don’t know, a couple hundred dollars over the last year or something. I mean, it’s more or less steady. The reason we’ve kind of highlighted the decline kind of addresses a little bit around this idea that hey, the written premium is down and we’re trying to just emphasize the fact that yes, the written premium’s off a little bit, mostly because we’ve seen an attrition in some of the larger business we write, whereas the submission count is growing, the number of quotes, the number of bind orders, it’s all up kind of mid single digits for the quarter, which to us kind of communicates the fact that our business model, even in a very competitive market, is continuing to work quite well.
Michael Phillips (Analyst)
Okay, Mike, thanks. I mean, just the second question still on the expense ratio, trying to think about the benefits of productivity gains from tech versus slower top line growth and maybe just how to weigh those two and what that could mean in the near term for the expense ratio.
Michael Kehoe (Chief Executive Officer)
Yeah, I think, you know, I would say the rollout, the steady rollout of more and more automation in our business, not just in underwriting but in claims in our policy services area, really across the company, you know, has a positive impact. You know, you could say, well, the, you know, the decline in premium for the quarter probably had a modest negative impact, I think they largely offset. I think Chris indicated our other underwriting expense component of the expense ratio was steady at 10.2%.
You know, but I would just tell you, you know, from a higher level, you know, that low expense ratio that Kinsale Cap Gr has is a fundamental part of our business strategy. And we expect that to drift downward over time, not up, mostly because of technology.
Michael Phillips (Analyst)
Thanks, Mike.
OPERATOR
Your next question comes from the line of Andrew Anderson with Jefferies.
Andrew Anderson (Analyst)
Hey, good morning and congrats to Brian on retirement and Chris for the new role here. As we think about the business mix, should commercial property contraction moderate in 2027 or do you find the current pricing and submission trends pointing to perhaps another year of double-digit declines in premium volume there?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
Hey, Andrew, it’s Stuart. We’re always hopeful that it will moderate. There are some signs that the reductions are easing, but it’s day by day, but we are hopeful that it will moderate.
Andrew Anderson (Analyst)
Okay. And across the whole business with property and casualty here, when you talk about competition, are you seeing this more from admitted carriers pulling more business back from E&S? You know, is it competition within from existing E&S carriers and MGAs, and perhaps how far along are we in that shift if it is the admitted market being more the competitive dynamic here?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
I think the admitted market is more prevalent in the property space with the MGAs, MGAs admitted in the property space. And on the casualty side, long-tail lines, it’s the fronts and the MGAs on larger deals that are driving, you know, accounts that should be $500,000 are going for 150. It’s just not worth competing on that business. And it’s been going on for a couple years. We’ll see how long it has until it bears fruit.
Andrew Anderson (Analyst)
Thanks. And maybe last one, I think I heard a $100 million quarterly run rate. Was that just for buybacks? Was that just for the remainder of the year or you conflating that into 27 as well?
Michael Kehoe (Chief Executive Officer)
That was intended to be for the remainder of our repurchase authorization.
Andrew Anderson (Analyst)
Thank you.
OPERATOR
Your next question comes from the line of Mark Hughes with Truist.
Mark Hughes (Analyst)
Yeah, I’ll just. Thank you and congratulations to Brian and Chris. I’ll follow that up. The 100 million. Once you exhaust this authorization, presumably you’ll have another. Is 100 million beyond that a good run rate?
Michael Kehoe (Chief Executive Officer)
Well, Mark, this is Mike. We haven’t, you know, we’ll make that decision. We get down the road a little bit. But, you know, essentially our capital allocation strategies should be pretty obvious at this point. You know, growth is our biggest priority. If we can’t grow the business near term as rapidly as we want, it’s buybacks and then, you know, the small dividend is how we’re thinking about capital allocation.
Mark Hughes (Analyst)
Okay. When we think about current accident year, I think you might have touched on this. But the moving parts of decline in property, which I think has been more profitable, correct me if I’m wrong, would seem to be a headwind for accident year losses. But then the mix shift, maybe in the smaller accounts and better underwriting would be helpful. How should we think about that accident year loss number? Is it more likely to go higher than lower? How should we think about it?
Michael Kehoe (Chief Executive Officer)
Mark, we don’t. We probably can’t give you forward guidance on the accident year loss ratio, but I might, I would say looking at it simply casualty versus property, that may not be the best way to look at it. Right. Even within casualty, there are varying lines of business with differing loss ratios. I would say across the board our losses are coming in below expected. But the ultimate takeaway for us is that the business continues to generate really attractive underwriting margins again in the property space and the casualty space.
And that we continue to reserve cautiously and conservatively so that investors have a lot of confidence in the strength of our balance sheet and in the integrity of our results.
Mark Hughes (Analyst)
If I might ask one more, the submissions up mid single digits, it sounds like your retention is pretty good. I’m just sort of curious, is that reflective perhaps of more shopping behavior or are you still seeing a mix shift out of admitted into E&S?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
Hey Mark, it’s Stuart. I think there is a little more shopping, but it’s also, hey, we have a lot of new products that were rolled out this year. We have a lot of new distribution partners that we’re working with. So that all comes into play. So it’s a little bit of everything, stuff we’ve done internally and stuff happening in the market.
Mark Hughes (Analyst)
Thank you.
OPERATOR
Your next question comes from the line of Bob Huang with Morgan Stanley. Please go ahead.
Bob Huang (Analyst)
Hi, good morning. Understand that you don’t have tech legacy infrastructure. Data is modern. And you talked about with AI, your tech edge is widening versus your peers. That said, a lot of traditional carriers or maybe even a lot of the newer carriers are showcasing more complex capabilities. And so for example, right, like a sub 24 hours underwriting quote and bind is much more common these days. Can you maybe help us think about how you’re thinking about AI as a resetting mechanism for technology and competition where you feel you have the widening tech lead over others? Like, just curious if you can give us some examples as well. Is that possible?
Michael Kehoe (Chief Executive Officer)
We’ll let Salman. Why don’t you start?
Salman
Yeah. Again, I alluded to some of these comments. Right. We’re definitely able to. Our underwriters are definitely able to quote more quickly, but also handle more volume. Right. Our policy operations folks are able to process transactions more quickly. The claims examiners are more efficient. Right. They’re able to draft correspondence more quickly. On the IT side, we’re able to deliver new features and functionality to the business more quickly.
The ability to do analytics is enhanced. Right. Turning unstructured data into structured data. So I think there, you know, there are efficiencies and productivity gains across the board. And again, you know, we feel like we’re at the forefront of that.
Michael Kehoe (Chief Executive Officer)
Yeah. And Bob, this is Mike. I’m not sure we’re well positioned to do the compare and contrast. I would just say, you know, our experience over 17 years is that Kinsale Cap Gr kind of is at the lead in terms of the customer service we deliver to our brokers. The quote ratios are, I guess on new business run, about 75% of our submissions turn into quotes. And most of those quotes go out in a day or two. And then when you combine that with a tremendous underwriting flexibility in terms of risk appetite, I think our model is a little bit unique, although highly competitive market and we got 100 competitors, so.
And then, you know, on the tech specifically, I think that’s a direct line through to the expense ratio. We finished the quarter at 22% GAAP expense ratio. I don’t know how many of our competitors are at that same level, but if they’re really achieving all that we’re achieving in terms of technology, I suspect they ought to be in a similar neighborhood.
Bob Huang (Analyst)
Got it. Really appreciate that. Thank you. That’s all I have.
OPERATOR
Your next question comes from the line of Ryan Tunis with Kanter. Please go ahead.
Ryan Tunis (Analyst)
Hey, thanks. Good morning and congrats to Brian and Chris. First of all, on the mix shift, two parts to this one. First of all, is there a broader point being made that going from large account to small could be a contributing factor to the growth deceleration? And then second of all, could you just give us some idea of what percentage of your overall business is large account today versus maybe where it was five years ago?
Michael Kehoe (Chief Executive Officer)
Ryan, this is Mike. I can’t do the five-year comparison. The last time I looked was about a month ago. And I think 0.7% of our policies were $100,000 premium and up, but that represented about 12% of the overall premium. And then I forget what your first question was. Like, how the mix shift is impacting growth.
Ryan Tunis (Analyst)
Yeah, if it’s 12% of total premium, I’m guessing it isn’t, right?
Michael Kehoe (Chief Executive Officer)
Yeah, but we’re just seeing more competition on that end of our accounts. You know, we see a lower hit ratio on new business quotes. We see a lower renewal retention than we do on the smaller accounts. And so we had something last week, it was $120,000 renewal. Somebody wrote it for 30,000. You know, so it’s, you know, there’s some wild behavior out there. Obviously, we’re not going to chase that down, you know, but you got to write a handful. You got to write 10, $12,000 policies to offset the 1, 120.
So we’re doing that. That’s why we kind of highlighted those production statistics. The submissions are growing, the quotes are growing, the bind orders are growing. It’s just that we’ve got a temporary drop off in the written premium that’ll correct near term on its own.
Ryan Tunis (Analyst)
And then my follow up is just on the underlying loss ratio. And, you know, historically there’s been that seasonality where it tends to go lower in the back half of the year. We didn’t see that this quarter. Just curious if there’s any color around that.
Michael Kehoe (Chief Executive Officer)
Yeah, there’s nothing unusual. Again, the loss ratio is comprised of a variety of lines of business and underwriting divisions. You know, I think that seasonality, generally speaking, does still exist, but, yeah, I think in general, it does still exist.
OPERATOR
Your next question comes from Roland Mayer with RBC Capital Markets. Please go ahead.
Roland Mayer (Analyst)
Good morning and congrats. Brian on the planned retirement and Chris on the promotion. I wanted to start on just the yield pickup. Does that change your targeted loss ratios as you seek the 20% ROE?
Michael Kehoe (Chief Executive Officer)
Not near term, no. You know, if it persisted, you know, well into the future, at some point, it probably would impact pricing a little bit.
Roland Mayer (Analyst)
Okay, that’s great. Thank you. And Mike, I appreciate your comment on the reserve conservatism and long-tail lines. Does that feed into pricing decisions and is that weighing on growth a little bit here?
Michael Kehoe (Chief Executive Officer)
Big time. Big time. It’s weighing on growth because we’ve got some competitors that are, you know, very aggressive. We’ve got some disciplined competitors too. But there are some out there that are, you know, very aggressive in how they price risk.
Roland Mayer (Analyst)
And the reserves in those long-tail lines have been pretty stable for a couple years now. What do you need to see to kind of unwind that conservatism on that?
Michael Kehoe (Chief Executive Officer)
Well, that’s, you know, we’ve got a dozen lines of business. We’re in our, I think, 17th accident year. You know, every quarter we’re looking at actual claim activity—new claims coming in, old claims being negotiated and settled. And then we’re comparing that activity against our actuarial assumptions and making adjustments. But, you know, I mean, ultimately, I think Salman laid out the goals. We want to be very conservative in our loss picks, especially on the longer-tail business. You know, the tort system in the U.S. can be a little bit unpredictable at times. Long-tail business is a little more exposed to inflation, changes in inflation rates. And, you know, we just have always felt that it’s important to be prepared for a little bit of that unpredictability with conservative reserves.
Roland Mayer (Analyst)
Thank you. And then if I could just squeeze one more. I know it’s small, but the personal insurance business has been shrinking. Anything going on there to call out?
Stuart Winston (Executive Vice President & Chief Underwriting Officer)
Hey, Roland. Stuart. Yeah, we did some adjustment in our concentration in Louisiana, which was a driver of growth for the PI division. And there’s increased competition in California and Florida for homeowners. There’s some bright spots coming with the FAIR Plan in California, change in rates, doing a large rate increase I think at the end of this month or start in November. So hopefully there’s a little pickup there. But it’s just there’s heavy competition in the space.
Michael Kehoe (Chief Executive Officer)
But we’re also really leaning into it. I think Stuart mentioned earlier we’re appointing a lot of new brokers. So we’re kind of ramping up the distribution and the marketing in that effort. And we’re working on some system enhancements. So more to come on the personal lines. That’s, you know, it’s obviously a tiny part of our business, but longer term, we think it’s going to be more material to our growth prospects.
Roland Mayer (Analyst)
Thank you. That’s great. And glad the fire alarm stopped.
Michael Kehoe (Chief Executive Officer)
Yeah. Yeah.
OPERATOR
Your next question comes from Mike Zaremski with BMO.
Mike Zaremski (Analyst)
Hey, good morning. Sorry about that earlier. I’m not sure what happened. Maybe a couple questions on the casualty side of the business. Are you all seeing any changes in the slope of lawsuit inflation? We’ve heard one prominent E&S carrier talk about seeing an improvement in the slope of casualty tort inflation.
Salman
Mike, this is Salman. I don’t think we’re seeing anything in particular. I don’t think we have enough evidence to comment either way.
Mike Zaremski (Analyst)
Okay, got it. And sticking to casualty—feel free to bring property into it—but your core business is casualty. We’re seeing commission rates for a lot of the E&S carriers drift higher—that’s the total commission rate they’re paying to brokers. I’m not sure about the split to the wholesale broker versus the retail broker. But would you say that trend is one of the components that’s kind of causing Kinsale’s win ratio to be a bit lower?
Michael Kehoe (Chief Executive Officer)
Mike, no. Our hit ratio on new business quotes is steady, consistent with last year. Our renewal retention is the same as it was last year. The number of submissions is growing, even in this competitive market—the number of quotes, the number of bind orders. Look, I’ll acknowledge, when rates decline, it does create a little bit of a headwind for everybody in the business: the retail broker, the wholesale broker, the insurance carrier, the reinsurers. And so, yeah, there’s a natural tension where the retailers, I think this is well known, are negotiating for a larger percentage of the gross commission when they’re negotiating with the wholesalers. I think the wholesalers are looking for insurance companies to pay more—higher gross commission.
The insurance buyer wants lower costs. The business owners that we serve, they want to pay less for insurance, not more. So look, it’s an inevitable tension in the business. It’s been this way forever. It’s probably exacerbated in a more competitive period of the cycle, for sure, but it’s not new. And yeah, we acknowledge we probably lose business routinely because of the commission, but we also get business routinely because we’re the low-cost leader in an industry where you’re selling a commodity-like product.
I promise the customers want low-cost insurance. And so we manage our own costs aggressively. I think we pay reasonable commissions—they’re slightly lower than our competitors. But we also offer our brokers the best customer service in the industry. There’s nobody close to what Kinsale Cap Gr is doing. We offer the broadest risk appetite. If you’ve got a hard-to-place E&S account, I think we’re a go-to market and we can be incredibly competitive on pricing, not just because of low cost, but because of superior analytics and a better understanding of how to price risk.
So I think we like our model, but we acknowledge the headwind you’re noting.
Mike Zaremski (Analyst)
That’s helpful. And maybe just lastly, sticking with the competitive conditions and in casualty specifically, we get asked a decent amount about interest-rate tailwinds, especially in the last few months—great for Kinsale Cap Gr, but also great for your competitors. Is it fair to assume that the current levels of competition in casualty will remain the trend in terms of less growth persisting, given just how influential interest rates are on the overall ROE for the industry?
Michael Kehoe (Chief Executive Officer)
Yeah, I would look beyond interest rates. I think it’s really the flood of alternative capital that’s come into the business over the last five or ten years that is driving a much higher level of competition. But, you know, the reason we belabor this issue around submissions, quotes, and bind orders growing is it just gives, hopefully, a better understanding of the premium decline. The premium decline is principally driven by a little bit of a mix shift away from larger towards smaller accounts. I think that’ll run its course relatively quickly and I think we’ll be back to modest growth hopefully in the near term. I can’t give you a date, but I think we’re just going through a little bit of an adjustment as we lose some bigger deals.
Like the example I gave a few minutes ago: $120,000 renewal—somebody writes that for $30,000. That sounds kind of foolish, but that’s the market we’re competing in today. And so, you know, I think that’s where we are.
Mike Zaremski (Analyst)
Got it. On that point—and sorry to take up too much time—but on the 0.7% of policies being, you know, 12%-ish of premiums, I had assumed, I think many people might have assumed, that was mostly a property comment. Do you have the data on just that? It sounds like you’re saying that there’s also some large account in casualty. Is that correct, Mike?
Michael Kehoe (Chief Executive Officer)
Yeah, we’re definitely writing large accounts in casualty too. I think it’s been disproportionately property for sure, especially in that commercial property division where we wrote a lot of six-figure deals.
Mike Zaremski (Analyst)
Thank you.
OPERATOR
Your next question comes from the line of Pablo Singson with J.P. Morgan.
Pablo Singson (Analyst)
Hi, thanks for taking my follow-up. So my question is about the richness of the coverage you’re providing. Has that changed versus maybe three or four years ago? And if you’re holding the line there, how is competition acting? I guess that, look, it’s easier to see pricing trends on the outside, but I’m just wondering, if you think about limits, exclusions, etc., how are you positioned versus everyone else in the market today? Thanks.
Michael Kehoe (Chief Executive Officer)
Well, we can’t speak to everybody else. We just manage our own book to the 20% ROE or greater, and it absolutely takes into account limits, deductible, state, territory, coverage, etc. We’ve got a very quantitative approach to how we manage pricing and, you know, again, we’ve got some disciplined competitors for sure, but we’ve got some that wouldn’t fit in that category.
Pablo Singson (Analyst)
Thanks, Mike.
OPERATOR
There are no further questions at this time. We have reached the end of our Q&A session. I will now turn the call back to Mr. Kehoe for the closing remarks.
Michael Kehoe (Chief Executive Officer)
All right. Well, thanks everybody for joining us this morning, and we look forward to speaking again here in a couple months. Have a great day.
OPERATOR
This concludes today’s call. Thank you for attending. You may now disconnect.
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