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Kinsale Capital Group, Inc.

Kinsale Capital Group, Inc.KNSLEarnings & Financial Report

NYSE · commercial bank

Flagstar Bank, N.A. (FLG), is an American regional financial services holding company headquartered in Hicksville, New York. In 2023, the bank operated 395 branches However, they rebranded all of these under the Flagstar name on February 21, 2024.

What changed in Kinsale Capital Group, Inc.'s 10-K — 2022 vs 2023

Top changes in Kinsale Capital Group, Inc.'s 2023 10-K

279 paragraphs added · 282 removed · 245 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+12 added−4 removed144 unchanged
Transactions between insurance subsidiaries and their parents and affiliates generally must be disclosed to the state regulators, and notice to or prior 14 Table of Contents approval of the applicable state insurance regulator generally is required for any material or extraordinary transaction.
Transactions between insurance 14 Table of Contents subsidiaries and their parents and affiliates generally must be disclosed to the state regulators, and notice to or prior approval of the applicable state insurance regulator generally is required for any material or extraordinary transaction.
As an insurance company that was founded in 2009, we have the benefit of having built a proprietary technology platform that reflects the best practices our management team has learned from its extensive prior experience. We operate on an integrated digital platform with a data warehouse that collects an array of statistical data.
As an insurance company that was founded in 2009, we have the benefit of having built a proprietary technology platform that reflects the best practices our management team has learned from its extensive experience. We operate on an integrated digital platform with a data warehouse that collects an array of statistical data.
We believe that our technology is scalable and will allow us to maintain a low expense ratio as we continue to organically grow our business. Maintain a strong balance sheet. In order to maintain the confidence of policyholders, brokers, reinsurers, investors, regulators and rating agencies, we seek to establish and maintain a conservative balance sheet.
We believe that our technology approach is scalable and will allow us to maintain a low expense ratio as we continue to organically grow our business. Maintain a strong balance sheet. In order to maintain the confidence of policyholders, brokers, reinsurers, investors, regulators and rating agencies, we seek to establish and maintain a conservative balance sheet.
Our commercial lines offerings include commercial property, small business casualty, construction, excess casualty, allied health, general casualty, products liability, life sciences, professional liability, energy, management liability, entertainment, environmental, health care, small property, public entity, inland marine, commercial auto, aviation, product recall and ocean marine.
Our commercial lines offerings include commercial property, excess casualty, small business casualty, construction, general casualty, allied health, products liability, small business property, life sciences, entertainment, energy, professional liability, management liability, environmental, excess professional, health care, public entity, commercial auto, inland marine, aviation, ocean marine, product recall, and railroad.
We believe our systems and technology are at the digital forefront of the insurance industry and allow us to quickly collect and analyze data, thereby improving our ability to manage our business and reduce our response times for our customers.
We believe our systems and technology are at the digital forefront of the insurance industry and allow us to quickly collect and analyze data, thereby improving our ability to manage our business and reduce our response times to our customers.
Short-term investments, if any, are reported at amortized cost and include investments that are both readily convertible to known amounts of cash and have maturities of 12 months or less upon acquisition by us. In December of 2022, we acquired real estate investment property adjacent to our current headquarters for $76.6 million.
Short-term investments, if any, are reported at amortized cost and include investments that are both readily convertible to known amounts of cash and have maturities of 12 months or less upon acquisition by us. In December of 2022, we acquired real estate adjacent to our current headquarters for $76.6 million.
On December 9, 2020, the NAIC adopted the Group Capital Calculation (“GCC”) template and instructions, as well as corresponding amendments to NAIC model insurance holding company system laws. The amendments require, subject to certain exemptions, that the ultimate controlling person of each insurance group file a GCC on an annual basis with such insurance group’s lead state commissioner.
On December 9, 2020, the NAIC initially adopted the Group Capital Calculation ("GCC") template and instructions, as well as corresponding amendments to NAIC model insurance holding company system laws. The amendments require, subject to certain exemptions, that the ultimate controlling person of each insurance group file a GCC on an annual basis with such insurance group’s lead state commissioner.
In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At December 31, 2022, all reinsurance contracts that our insurance subsidiary was party to were with companies with A.M.
In an effort to minimize our exposure to the insolvency of our reinsurers, we review the financial condition of each reinsurer annually. In addition, we continually monitor for rating downgrades involving any of our reinsurers. At December 31, 2023, all reinsurance contracts that our insurance subsidiary was party to were with companies with A.M.
We have an anti-nepotism policy in place to ensure fairness and business decisions are based on individual qualifications, skills, ability, and performance. We value the diverse perspectives, talent, and experience that our employees bring to our organization. We believe the best business decisions are reached by listening to diverse views and opinions.
We have an anti-nepotism policy to ensure fairness and business decisions are based on individual qualifications, skills, ability, and performance. We value the diverse perspectives, talent, and experience that our employees bring to our organization. We believe the best business decisions are reached by listening to diverse views and opinions.
Trade Representative announced their intention to exercise their authority under the Dodd-Frank Act to negotiate a “covered agreement” with the European Union (the “Covered Agreement”). After a number of private negotiating sessions, on January 13, 2017, the U.S. Department of the Treasury and the Office of the U.S.
Trade Representative announced their intention to exercise their authority under the Dodd-Frank Act to negotiate a “covered agreement” with the European Union (the "Covered Agreement"). After a number of private negotiating sessions, on January 13, 2017, the U.S. Department of the Treasury and the Office of the U.S.
Additionally, we do not contract out our underwriting to program managers or general agents which typically requires a higher commission level to compensate the third party for its work on behalf of the carrier. 5 Table of Contents We sell policies in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
Additionally, we do not contract out our underwriting to program managers or general agents which typically requires a higher commission level to compensate the third party for its work on behalf of the carrier. We sell policies in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands.
In order to attract and retain high-performing talent, we offer and maintain market-competitive compensation and benefit programs to all our employees. Our compensation program includes base salary, performance-based bonuses and equity grants for certain management-level employees. The mix of these rewards varies depending on the employee’s role at the Company and our longstanding pay-for-performance philosophy.
In order to attract and retain high-performing talent, we offer and maintain market-competitive compensation and benefit programs to all our employees. Our compensation program includes base salary, performance-based bonuses and equity grants for all management-level and select other employees. The mix of these rewards varies depending on the employee’s role at the Company and our longstanding pay-for-performance philosophy.
Some states prohibit an insurer from withdrawing from one or more lines of business in the state except pursuant to a plan approved by the state insurance regulator, which may disapprove a plan that may lead to market disruption. 15 Table of Contents Some state statutes may explicitly or by interpretation apply these restrictions to insurers operating on a surplus lines basis.
Some states prohibit an insurer from withdrawing from one or more lines of business in the state except pursuant to a plan approved by the state insurance regulator, which may disapprove a plan that may lead to market disruption. Some state statutes may explicitly or by interpretation apply these restrictions to insurers operating on a surplus lines basis.
We believe that 3 Table of Contents automation also reduces human error in our underwriting, policy processing, accounting, collections, and claims adjusting processes. Additionally, we are able to track quotes, monitor historical loss experience and reserve development, and measure other relevant metrics at a granular level of detail.
We believe that automation also reduces human error in our underwriting, policy processing, accounting, collections, and claims adjusting processes. Additionally, we are able to track quotes, monitor historical loss experience and reserve development, and measure other relevant metrics at a granular level of detail.
Department of the Treasury and vested the FIO with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities 16 Table of Contents and consumers have access to affordable non-health insurance products, and to represent the United States on prudential aspects of international insurance matters, including at the International Association of Insurance Supervisors (the "IAIS").
Department of the Treasury and vested the FIO with the authority to monitor all aspects of the insurance sector, monitor the extent to which traditionally underserved communities and consumers have access to affordable non-health insurance products, and to represent the United States on prudential aspects of international insurance matters, including at the International Association of Insurance Supervisors (the "IAIS").
Aspera is domiciled in Virginia and is authorized to conduct business in Virginia, Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont and Washington. 4 Table of Contents On December 3, 2018, we incorporated Kinsale Real Estate, Inc.
Aspera is domiciled in Virginia and is authorized to conduct business in Virginia, Alabama, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, South Carolina, Texas, Vermont and Washington. On December 3, 2018, we incorporated Kinsale Real Estate, Inc.
Regulation Insurance regulation We are regulated by insurance regulatory authorities in the states in which we conduct business. State insurance laws and regulations generally are designed to protect the interests of policyholders, consumers and claimants rather than 13 Table of Contents stockholders or other investors.
R. Berkley Corporation. Regulation Insurance regulation We are regulated by insurance regulatory authorities in the states in which we conduct business. State insurance laws and regulations generally are designed to protect the interests of policyholders, consumers and claimants rather than 13 Table of Contents stockholders or other investors.
Our insurance company subsidiary operates in a digital environment, which eliminates the costs of printing, storing and handling thousands of documents each week.
Our insurance company subsidiary operates in a digital environment, which reduces the costs of printing, storing and handling thousands of documents each week.
In particular, our efficient platform allows us to provide a higher level of service to our brokers and to target smaller accounts which we believe are generally subject to less competition. For the year ended December 31, 2022, our expense ratio was 20.2%. Fully integrated claims management.
In particular, our efficient platform allows us to provide a higher level of service to our brokers and to target smaller accounts which we believe are generally subject to less competition. For the year ended December 31, 2023, our expense ratio was 20.8%. Fully integrated claims management.
Commissions are an important part of that relationship, but brokers will also typically consider the ultimate price to the insured, and the service and expertise offered by the carrier when determining where to place their business. In 2022, we paid an average commission to our brokers of 14.6% of gross written premiums.
Commissions are an important part of that relationship, but brokers will also typically consider the ultimate price to the insured, and the service and expertise offered by the carrier when determining where to place their business. In 2023, we paid an average commission to our brokers of 14.5% of gross written premiums.
Moreover, by maintaining electronic files on each account, we have been able to facilitate clear communication among personnel responsible for handling matters related to underwriting, servicing and claims as each has access to the necessary information regarding an account. We use a browser-based platform approach to processing business.
Moreover, by maintaining electronic files on each account, we have been able to facilitate clear communication among personnel responsible for handling matters related to underwriting, servicing and claims as each has access to the necessary information regarding an account. We use a browser-based platform approach to develop applications.
However, as of December 31, 2022, Kinsale Insurance maintained RBC levels significantly in excess of amounts that would require any corrective actions.
However, as of December 31, 2023, Kinsale Insurance maintained RBC levels significantly in excess of amounts that would require any corrective actions.
The following tables show our gross written premiums by state for the years ended December 31, 2022, 2021 and 2020.
The following tables show our gross written premiums by state for the years ended December 31, 2023, 2022 and 2021.
For example, our "defense inside the limits" clause, which we applied to more than 99.5% of our professional liability premiums written in 2022, means that funds we expend defending an insured against a claim are counted against the total policy limit.
For example, our "defense inside the limits" clause, which we applied to more than 99.8% of our professional liability premiums written in 2023, means that funds we expend defending an insured against a claim are counted against the total policy limit.
Our main catastrophe risk arises from hurricanes and we manage this exposure through: • careful and disciplined underwriting, • purchasing extensive reinsurance protection from financially strong counterparties, • analyzing results of catastrophe modeling for our business portfolio on monthly basis, and • limiting the concentration of property business by geographic area to reduce loss exposure from extreme events.
We manage catastrophe exposure through: • careful and disciplined underwriting, • purchasing extensive reinsurance protection from financially strong counterparties, • analyzing results of catastrophe modeling for our business portfolio on monthly basis, and • limiting the concentration of property business by geographic area to reduce loss exposure from extreme events.
Best") domestic professional surplus lines composite produced an average net loss and loss adjustment expense ratio of 69.5% and grew direct premiums written by 9.1% annually, versus 73.5% and 4.0% respectively for the property and casualty ("P&C") industry. Underwriting expertise across a broad spectrum of hard-to-place risks .
Best") domestic professional surplus lines composite produced an average net loss and loss adjustment expense ratio of 69.3% and grew direct premiums written by 9.6% annually, versus 73.6% and 4.2%, respectively for the property and casualty ("P&C") industry. Underwriting expertise across a broad spectrum of hard-to-place risks.
We continually monitor and adjust our reserves as necessary using new information on reported claims and a variety of statistical techniques. Anticipated inflation is reflected implicitly in the reserving process through analysis of cost trends and the review of historical development. We do not discount our reserves for unpaid losses and loss adjustment expenses to reflect estimated present value.
We continually monitor and adjust our reserves as necessary using new information on reported claims and a variety of statistical techniques. Anticipated inflation is reflected implicitly in the reserving process through analysis of cost trends and the review of historical development. We do not discount our reserves to reflect the estimated present value.
We are committed to fostering a diverse and inclusive work environment free from discrimination of any kind and one that supports the communities we serve. Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the SEC.
We are committed to fostering a diverse and inclusive work environment free from discrimination of any kind. Available Information We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other information with the SEC.
Additionally, our systems enable us to rapidly respond to brokers, allowing our underwriters to reply to the majority of submissions within 24 hours, a significant benefit to our brokers.
Additionally, our systems enable us to rapidly respond to brokers, allowing our underwriters to reply to many of our submissions within 24 hours, a significant benefit to our brokers.
Our customized proprietary system helps us to reduce the risk of administrative errors in our policy forms and include all of the necessary exclusions for the specified risk, and provides for the efficient and accurate handling of claims.
Our customized proprietary systems help us to reduce the risk of administrative errors in our policy forms and include all of the necessary exclusions for the specified risk, and provides for the efficient and accurate handling of claims.
We believe we do not have any material exposure to claims from asbestos, lead paint, silica, mold or nuclear, biological or chemical terrorism. Claims Our claims department consisted of approximately 60 claims professionals who had an average of 13 years of claims experience in the industry as of December 31, 2022.
We believe we do not have any material exposure to claims from asbestos, lead paint, silica, mold or nuclear, biological or chemical terrorism. Claims Our claims department consisted of approximately 80 claims professionals who had an average of 9 years of claims experience in the industry as of December 31, 2023.
Human Capital As of December 31, 2022, we had 466 employees, of which 457 were full-time employees, and all of whom were located at our headquarters in Richmond, Virginia. Compensation and Benefits We believe that our employees are our most valuable asset and paying our employees well is the foundation of our performance-based culture.
Human Capital As of December 31, 2023, we had 574 employees, of which 561 were full-time employees, and all of whom were located at our headquarters in Richmond, Virginia. Compensation and Benefits We believe that our employees are our most valuable asset and paying our employees well is the foundation of our performance-based culture.
The design of our data warehouse permits us to capture an array of statistical data, collected by the policy management systems at Kinsale. The data warehouse is easily searchable, collects and labels information in a consistent format and contains most of the underwriting and claims information we collect at every level.
We refer to this repository as our data warehouse. The design of our data warehouse permits us to capture an array of statistical data, collected by the policy management systems at Kinsale. The data warehouse is easily searchable, collects and labels information in a consistent format and contains key underwriting and claims information we collect at every level.
In excess of loss reinsurance, the reinsurer agrees to assume all or a portion of the ceding company's losses, in excess of a specified amount.
In excess of loss reinsurance, the reinsurer agrees to assume all or a 8 Table of Contents portion of the ceding company's losses, in excess of a specified amount.
As of December 31, 2022, our fixed-maturity portfolio, including cash equivalents, had an average duration of 3.5 years and had an average rating of "AA-." 11 Table of Contents The following table sets forth the composition of our portfolio of fixed-maturity securities by rating as of December 31, 2022: AAA AA A BBB Below BBB Total ($ in thousands) U.S.
As of December 31, 2023, our fixed-maturity portfolio, including cash equivalents, had an average duration of 2.8 years and had an average rating of "AA-." 11 Table of Contents The following table sets forth the composition of our portfolio of fixed-maturity securities by rating as of December 31, 2023: AAA AA A BBB Below BBB Total ($ in thousands) U.S.
We believe that we have differentiated ourselves from our competitors by effectively leveraging technology, vigilantly controlling expenses and maintaining control over our underwriting and claims operations. We have significantly grown our business and have generated strong returns. During 2022, our gross written premiums increased by 44.2%, to $1.1 billion for the year ended December 31, 2022.
We believe that we have differentiated ourselves from our competitors by effectively leveraging technology, vigilantly controlling expenses and maintaining control over our underwriting and claims operations. We have significantly grown our business and have generated strong returns. During 2023, our gross written premiums increased by 42.3%, to $1.6 billion for the year ended December 31, 2023.
Best ratings of "A-" (Excellent) or better. At December 31, 2022, we recorded an allowance for credit losses of $0.5 million related to our reinsurance balances.
Best ratings of "A-" (Excellent) or better. At December 31, 2023, we recorded an allowance for credit losses of $0.7 million related to our reinsurance balances.
Unlike many of our competitors, we do not extend underwriting authority to brokers, agents or other third parties. For the year ended December 31, 2022, our loss and loss adjustment expense ratio was 57.7%. Technology is a core competency.
Unlike many of our competitors, we do not extend underwriting authority to brokers, agents or other third parties. For the year ended December 31, 2023, our loss and loss adjustment expense ratio was 54.6%. Technology is a core competency.
The E&S, or non-admitted, market has historically operated at lower loss ratios and higher margins, and has grown direct premiums written more quickly than the standard, or admitted, market. From 2001 to 2021, A.M. Best Company's ("A.M.
The E&S, or non-admitted, market has historically operated at lower loss ratios and higher margins, and has grown direct premiums written more quickly than the standard, or admitted, market. From 2001 2 Table of Contents to 2022, A.M. Best Company's ("A.M.
No other broker accounted for more than 10% of our gross written premiums in the year ended December 31, 2022. It is important to us that we maintain excellent relationships with the group of brokers who present business to us.
No other broker accounted for more than 10% of our gross written premiums in the year ended December 31, 2023. It is important to us that we maintain excellent relationships with our brokers.
Our investment policy does not permit us to own any interest only, principal only or residual tranches of RMBS. 12 Table of Contents At December 31, 2022 , our portfolio of fixed-maturity securities contained corporate bonds with a fair value of $832.9 million.
Our investment policy does not permit us to own any interest only, principal only or residual tranches of RMBS. 12 Table of Contents At December 31, 2023 , our portfolio of fixed-maturity securities contained corporate bonds with a fair value of $1.4 billion.
We believe that our proprietary technology platform coupled with our expense management allow us to process quotes, underwrite policies and operate with a substantial cost advantage over our direct competitors.
We believe that the combination of our proprietary technology platform and our expense management allows us to process quotes, underwrite policies and operate with a substantial cost advantage over our direct competitors.
We believe that our technology platform will provide us with an enduring competitive advantage as it allows us to quickly respond to market opportunities, and will continue to scale as our business grows. 2 Table of Contents Significantly lower expense ratio than our competitors. Expense management is ingrained in our business culture.
We believe that our approach to technological advancement will provide us with an enduring competitive advantage as it allows us to quickly respond to market opportunities, and will continue to scale as our business grows. Significantly lower expense ratio than our competitors. Expense management is ingrained in our business culture.
Collectively, our board members bring decades of experience from their prior roles operating and working in insurance and other financial services companies. Our Strategy We believe that our approach to our business will allow us to achieve our goals of both growing our business and generating attractive returns. Our approach involves: Expand our presence in the E&S market .
Collectively, our board members bring decades of experience from their prior roles operating and working in insurance and other financial services companies. 3 Table of Contents Our Strategy We believe that our approach to our business will allow us to achieve our goals of both growing our business and generating attractive returns.
Ratings for an insurance company are based on its ability to pay policyholder obligations and are not directed toward the protection of investors. Today, our primary competitors in the E&S sector inc lude Arch Capital Group, Ltd., Argo Group International Holdings, Ltd., James River Group Holdings, Ltd., Lloyds of London, Markel Corporation, RLI Corp. and W. R. Berkley Corporation.
Ratings for an insurance company are based on its ability to pay policyholder obligations and are not directed toward the protection of investors. Today, our primary competitors in the E&S sector inc lude American International Group, Inc., Berkshire Hathaway Inc ., Fairfax Financial Holdings Limited, James River Group Holdings, Ltd., Lloyds of London, Markel Group Inc., RLI Corp. and W.
In particular, the NRRA gives regulators in the home state of an insured exclusive authority to regulate and tax surplus lines insurance transactions, and regulators in a ceding insurer’s state of domicile the sole responsibility for regulating the balance sheet credit that the ceding insurer may take for reinsurance recoverables. The Dodd-Frank Act also established the FIO in the U.S.
In particular, the NRRA gives regulators in the home state of an insured exclusive authority to regulate and tax surplus lines insurance 16 Table of Contents transactions, and regulators in a ceding insurer’s state of domicile the sole responsibility for regulating the balance sheet credit that the ceding insurer may take for reinsurance recoverables.
Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligation could result in losses to us, and therefore, we established an allowance for credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry.
Failure of the reinsurer to honor its obligation could result in losses to us, and therefore, we established an allowance for credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry.
We also believe that our digital environment allows us to engage fewer employees in policy administration. We aim to issue quotes for the majority of new business submissions we receive.
We also believe that our digital environment allows us to engage fewer employees in policy administration. 6 Table of Contents We aim to issue quotes for the majority of new business submissions we receive. For certain submissions, we preemptively offer additional quotes for additional coverage.
As of December 31, 2022, we have never had a write-off for uncollectible reinsurance. 9 Table of Contents We had reinsurance recoverables on unpaid losses of $177.0 million at December 31, 2022, and recoverables on paid losses of $43.4 million at December 31, 2022.
As of December 31, 2023, we have never had a write-off for uncollectible reinsurance. 9 Table of Contents We had reinsurance recoverables on unpaid losses of $241.4 million at December 31, 2023, and recoverables on paid losses of $6.5 million at December 31, 2023.
As of December 31, 2022, our fixed-maturity security portfolio contained $294.0 million (16.7%) of residential mortgage-backed securities ("RMBS"). RMBS, including collateralized mortgage obligations, are subject to prepayment risks that vary with, among other things, interest rates.
As of December 31, 2023, our fixed-maturity security portfolio contained $417.1 million (15.4%) of residential mortgage-backed securities ("RMBS"). RMBS, including collateralized mortgage obligations, are subject to prepayment risks that vary with, among other things, interest rates.
We currently average 104 open claims per claims adjuster (98 open claims per claims adjuster excluding catastrophe claims), which we believe is lower than industry average. As of December 31, 2022, our reserves for claims incurred but not reported were approximately 87.0% of our total net loss reserves.
We currently average 93 open claims per claims adjuster (92 open claims per claims adjuster excluding catastrophe claims), which we believe is lower than industry average. As of December 31, 2023, our reserves for claims incurred but not reported were approximately 90.5% of our total net loss reserves.
Our proprietary technology platform is comprised of multiple applications and services linked together in an integrated system. Key applications and services supporting the core business were developed in-house. We designed the architecture for our information systems in a fashion that would allow us to reduce our administrative costs and quickly provide us with useful information.
Key applications and services supporting the core business were developed in-house. We designed the architecture for our information systems in a fashion that would allow us to reduce our administrative costs and quickly provide us with useful information.
See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income to net operating earnings and calculations using net operating earnings (e.g., operating return on equity).
See "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income to net operating earnings and calculations using net operating earnings (e.g., operating return on equity). The following table compares stockholder returns of Kinsale to those of the S&P 500.
Of the total open claims as of December 31, 2022, only 40.7% were open for accident years 2020 and prior. Entrepreneurial management team with a track record of success.
Of the total open claims as of December 31, 2023, 16.1% were open for accident years 2019 and prior. Entrepreneurial management team with a track record of success.
For the year ended December 31, 2022, our largest brokers were RSG Specialty, LLC, which produced $203.3 million, or 18.4%, of our gross written premiums, AmWINS Brokerage, which produced $178.6 million, or 16.2% of our gross written premiums and CRC Commercial Solutions, which produced $118.0 million, or 10.7%, of our gross written premiums.
For the year ended December 31, 2023, our largest brokers were RSG Specialty, LLC, which produced $316.5 million, or 20.2%, of our gross written premiums, AmWINS Brokerage, which produced $286.8 million, or 18.3% of our gross written premiums and CRC Commercial Solutions, which produced $178.7 million, or 11.4%, of our gross written premiums.
Our Chief Information Officer has over 30 years of experience in the technology field. Our information technology staff utilizes an agile methodology and cloud strategy to develop best-in-class software solutions and to attract and retain quality staff. We have built a proprietary technology platform that reflects the best practices our management team has learned from its extensive prior experiences.
Our information technology staff utilizes an agile methodology and cloud strategy to develop best-in-class software solutions and to attract and retain quality staff. We have built a proprietary technology platform that reflects the best practices our management team has learned from its extensive experience. Our platform is comprised of multiple applications and services which comprise an integrated system.
In addition to competitive compensation, we offer comprehensive and flexible benefit options to support the health and wellness needs of our employees including: 19 Table of Contents • Company-matched 401(k) plan • Educational assistance program • Medical insurance • Company-paid insurance benefits • Health savings accounts with large employer contributions and flexible spending accounts • Paid time off, family leave, and employee assistance programs.
Our executives, who are responsible for the development and execution of our strategic and financial plans, have the largest portion of their compensation tied to equity-based incentives to ensure financial alignment with our stockholders. 19 Table of Contents In addition to competitive compensation, we offer comprehensive and flexible benefit options to support the health and wellness needs of our employees including: • Company-matched 401(k) plan • Educational assistance program • Medical insurance • Company-paid insurance benefits • Health savings accounts with large employer contributions and flexible spending accounts • Paid time off, family leave, and employee assistance programs.
According to A.M. Best, the total E&S market was approximately $82.7 billion of direct written premiums in 2021. Based on our 2022 gross written premiums of $1.1 billion, our current market share is approximately 1.3%.
Our approach involves: Expand our presence in the E&S market . According to A.M. Best, the total E&S market was approximately $98.5 billion of direct written premiums in 2022. Based on our 2023 gross written premiums of $1.6 billion, our current market share is approximately 1.6%.
Treasury securities and obligations of U.S. government agencies $ 16,741 0.8 % $ 6,847 0.4 % Obligations of states, municipalities and political subdivisions 204,632 9.4 % 228,045 13.5 % Corporate and other securities 832,892 38.1 % 458,487 27.2 % Asset-backed securities 353,006 16.1 % 301,775 17.9 % Residential mortgage-backed securities 293,962 13.4 % 337,685 20.0 % Commercial mortgage-backed securities 58,867 2.7 % 59,227 3.6 % Total fixed maturities 1,760,100 80.5 % 1,392,066 82.6 % Equity securities - at fair value: Exchange traded funds 104,202 4.8 % 123,389 7.3 % Non-redeemable preferred stock 38,162 1.7 % 49,222 2.9 % Common stock 10,107 0.5 % — — % Total equity securities 152,471 7.0 % 172,611 10.2 % Short-term investments, at amortized cost 41,337 1.9 % — — % Real estate investment, net 76,387 3.5 % — — % Cash and cash equivalents 156,274 7.1 % 121,040 7.2 % Total $ 2,186,569 100.0 % $ 1,685,717 100.0 % Our policy is to invest primarily in high-quality fixed-maturity securities with a primary focus on preservation of capital and a secondary focus on maximizing our risk-adjusted investment returns.
Treasury securities and obligations of U.S. government agencies $ 27,254 0.9 % $ 16,741 0.8 % Obligations of states, municipalities and political subdivisions 171,044 5.5 % 204,632 9.4 % Corporate and other securities 1,387,693 44.9 % 832,892 38.1 % Asset-backed securities 641,760 20.7 % 353,006 16.1 % Residential mortgage-backed securities 417,106 13.5 % 293,962 13.4 % Commercial mortgage-backed securities 66,902 2.1 % 58,867 2.7 % Total fixed maturities 2,711,759 87.6 % 1,760,100 80.5 % Equity securities - at fair value: Exchange traded funds 106,300 3.4 % 104,202 4.8 % Non-redeemable preferred stock 33,173 1.1 % 38,162 1.7 % Common stock 95,340 3.1 % 10,107 0.5 % Total equity securities 234,813 7.6 % 152,471 7.0 % Short-term investments, at amortized cost 5,589 0.2 % 41,337 1.9 % Real estate investment, net 14,791 0.5 % 76,387 3.5 % Cash and cash equivalents 126,694 4.1 % 156,274 7.1 % Total $ 3,093,646 100.0 % $ 2,186,569 100.0 % Our policy is to invest primarily in high-quality fixed-maturity securities with a primary focus on preservation of capital and a secondary focus on maximizing our risk-adjusted investment returns.
A summary of these securities by industry segment is shown below as of December 31, 2022 : December 31, 2022 Industry Fair Value % of Total ($ in thousands) Financial 34,828 91.3 % Utilities 2,637 6.9 % Industrials and other $ 697 1.8 % Total $ 38,162 100 % Competition The P&C insurance industry is highly competitive.
A summary of these securities by industry segment is shown below as of December 31, 2023 : December 31, 2023 Industry Fair Value % of Total ($ in thousands) Financial $ 31,782 95.8 % Industrials and other 755 2.3 % Utilities 636 1.9 % Total $ 33,173 100.0 % Competition The P&C insurance industry is highly competitive.
We also sell policies through our wholly-owned broker, Aspera. Aspera distributes 3.2% of Kinsale’s premiums, primarily personal lines, through independent brokers. Kinsale does not grant its independent brokers any underwriting or claims authority. We select our brokers based on management's review of the experience, knowledge and business plan of each broker.
We also sell policies through our wholly-owned broker, Aspera. In 2023, Aspera distributed 5 Table of Contents 1.9% of Kinsale’s premiums, primarily manufactured housing risks within our personal insurance division. Kinsale does not grant its independent brokers any underwriting or claims authority. We select our brokers based on management's review of the experience, knowledge and business plan of each broker.
We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2.8% of our gross written premiums in 2022 and is included within our personal insurance division. 1 Table of Contents The following table provides a summary of gross premiums written by division for the years ended December 31, 2022, 2021 and 2020.
We also write homeowners' coverage in the personal lines market, which in aggregate represented 2.5% of our gross written premiums in 2023. The following table provides a summary of gross premiums written by division for the years ended December 31, 2023, 2022 and 2021.
Year Ended December 31, 2022 % of Total 2021 % of Total 2020 % of Total ($ in thousands) Gross written premiums by state: California $ 221,994 20.1 % $ 168,694 22.1 % $ 128,448 23.3 % Florida 186,891 17.0 % 118,736 15.5 % 78,412 14.2 % Texas 136,309 12.4 % 88,679 11.6 % 63,312 11.5 % New York 42,427 3.9 % 31,495 4.1 % 27,234 4.9 % Washington 40,546 3.7 % 31,167 4.1 % 23,960 4.3 % Colorado 32,406 2.9 % 26,250 3.4 % 19,600 3.5 % Louisiana 30,981 2.8 % 14,507 1.9 % 9,217 1.7 % New Jersey 30,425 2.8 % 22,125 2.9 % 16,823 3.0 % Georgia 23,539 2.1 % 14,920 1.9 % 11,014 2.0 % Pennsylvania 23,396 2.1 % 16,518 2.2 % 11,184 2.0 % All other states 333,178 30.2 % 231,282 30.3 % 163,610 29.6 % $ 1,102,092 100.0 % $ 764,373 100.0 % $ 552,814 100.0 % Underwriting Our underwriting department consisted of approximately 240 employees as of December 31, 2022.
Year Ended December 31, 2023 % of Total 2022 % of Total 2021 % of Total ($ in thousands) Gross written premiums by state: California $ 295,242 18.8 % $ 221,994 20.1 % $ 168,694 22.1 % Florida 266,153 17.0 % 186,891 17.0 % 118,736 15.5 % Texas 198,758 12.7 % 136,309 12.4 % 88,679 11.6 % New York 66,489 4.2 % 42,427 3.9 % 31,495 4.1 % Louisiana 49,970 3.2 % 30,981 2.8 % 14,507 1.9 % Washington 46,507 3.0 % 40,546 3.7 % 31,167 4.1 % Colorado 43,852 2.8 % 32,406 2.9 % 26,250 3.4 % New Jersey 42,061 2.7 % 30,425 2.8 % 22,125 2.9 % Georgia 36,585 2.3 % 23,539 2.1 % 14,920 1.9 % Pennsylvania 33,333 2.1 % 23,396 2.1 % 16,518 2.2 % All other states 489,865 31.2 % 333,178 30.2 % 231,282 30.3 % $ 1,568,815 100.0 % $ 1,102,092 100.0 % $ 764,373 100.0 % Underwriting Our underwriting department consisted of approximately 280 employees as of December 31, 2023.
Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets in the states in which we are licensed to sell insurance policies for purposes of measuring statutory surplus and, in some instances, would require us to sell those investments.
Failure to comply with these laws and regulations would cause non-conforming investments to be treated as non-admitted assets in the states in which we are licensed to sell insurance policies for purposes of measuring statutory surplus and, in some instances, would require us to sell those investments. 15 Table of Contents Restrictions on cancellation, non-renewal or withdrawal Many states have laws and regulations that limit the ability of an insurance company licensed by that state to exit a market.
Our return on equity and combined ratios were 22.0% and 77.9%, respectively, for the year ended December 31, 2022. Our operating return on equity, a non-GAAP financial measure, was 25.0% for the year ended December 31, 2022.
Our return on equity and combined ratios were 33.6% and 75.4%, respectively, for the year ended December 31, 2023. Our operating return on equity, a non-GAAP financial measure, was 31.8% for the year ended December 31, 2023.
We utilize a personal lines quota-share reinsurance treaty combined with a catastrophe reinsurance treaty as an efficient and cost-effective way to manage the total loss exposure on our property coverages. 8 Table of Contents The following is a summary of our significant reinsurance programs as of December 31, 2022: Line of Business Covered Company Policy Limit Reinsurance Coverage Company Retention Property - commercial insurance (1) N/A 42.5% up to $93.3 million per catastrophe 57.5% of all commercial property losses Property - personal insurance (2) N/A 50% up to $35.5 million per catastrophe 50% of all personal property losses Property - catastrophe (3) N/A $75.0 million excess of $25.0 million $25.0 million per catastrophe Primary casualty (4) Up to $10.0 million per occurrence $8.0 million excess of $2.0 million $2.0 million per occurrence Excess casualty (5) Up to $10.0 million per occurrence Variable quota share $2.0 million per occurrence except as described in note (5) below (1) Our commercial property quota-share reinsurance reduces the financial impact of property losses on our commercial property, small property and inland marine policies.
The following is a summary of our significant reinsurance programs as of December 31, 2023: Line of Business Covered Company Policy Limit Reinsurance Coverage Company Retention Property - commercial insurance (1) Up to $10.0 million per occurrence 50% up to $247.3 million per catastrophe 50% of commercial property losses Property - catastrophe (2) N/A $127.5 million excess of $47.5 million $47.5 million per catastrophe Primary casualty (3) Up to $10.0 million per occurrence $8.0 million excess of $2.0 million $2.0 million per occurrence Excess casualty (4) Up to $10.0 million per occurrence Variable quota share $2.0 million per occurrence as described in note (4) below (1) Our commercial property quota-share reinsurance reduces the financial impact of property losses on our commercial property, small business property and inland marine policies up to a loss recovery of $123.7 million for an event.
Our Structure The chart below displays our corporate structure: Kinsale Capital Group, Inc. (Delaware corporation) Kinsale Management, Inc. (Delaware corporation; management services company) Kinsale Insurance Company (Arkansas corporation; stock insurance company) Aspera Insurance Services, Inc. (Virginia corporation; insurance broker) Kinsale Real Estate, Inc.
(Delaware corporation; management services company) Kinsale Insurance Company (Arkansas corporation; stock insurance company) Aspera Insurance Services, Inc. (Virginia corporation; insurance broker) Kinsale Real Estate, Inc.
When managing our 7 Table of Contents catastrophe exposure, we focus on the 100-year and the 250-year return periods.
When managing our catastrophe exposure, we focus on the 100-year and the 250-year return periods. Our main catastrophe risk arises from hurricanes.
For the year ended December 31, 2022, we received approximately 605,000 new business submissions, and of those submissions, we issued approximately 419,000 quotes for a new quote ratio of 69.3% and bound 43,000 policies for a new policy to new submission ratio of 7.1%.
For the year ended December 31, 2023, we processed approximately 735,000 new business submissions, and of those submissions, we issued approximately 489,000 quotes for a new quote ratio of 66.5% and bound 53,000 policies for a new policy to new submission ratio of 7.2%.
(4) Reinsurance is not applicable to any individual policy with a per-occurrence limit of $2.0 million or less. (5) For casualty policies with a per-occurrence limit higher than $2.0 million, the ceding percentage varies such that the retention is always $2.0 million or less.
(4) For casualty policies with a per-occurrence limit higher than $2.0 million, the ceding percentage varies such that the retention is always $2.0 million or less. For example, for a $4.0 million limit excess policy, our retention would be 50%, whereas for a $10.0 million limit excess policy, our retention would be 20%.
The GCC uses a risk-based capital aggregation approach intended to provide regulators with an additional group supervisory tool. Changes of control Before a person can acquire control of a U.S. domestic insurer, prior written approval must be obtained from the insurance commissioner of the state where the insurer is domiciled.
Changes of control Before a person can acquire control of a U.S. domestic insurer, prior written approval must be obtained from the insurance commissioner of the state where the insurer is domiciled.
The following table provides a summary of our top ten reinsurers, based on the amount recoverable, at December 31, 2022: Reinsurers A.M. Best Rating Reinsurance Recoverable ($ in thousands) Munich Reinsurance America, Inc. A+ $ 54,963 Swiss Reinsurance America Corp. A+ 32,717 SCOR Reinsurance Co. A+ 24,553 Allied World Reinsurance Co. A 19,022 General Reinsurance Corp.
The following table provides a summary of our top ten reinsurers, based on the amount recoverable, at December 31, 2023: Reinsurers A.M. Best Rating Reinsurance Recoverable ($ in thousands) Munich Reinsurance America, Inc. A+ $ 64,128 Swiss Reinsurance America Corp. A+ 31,046 SCOR Reinsurance Co. A 27,254 General Reinsurance Corporation A++ 23,417 Odyssey Reinsurance Co.
In addition, our claim examiners work closely with members of the underwriting staff to keep them apprised of claim trends. Vendor management is also important, and our claim examiners work closely with our vendors to manage expenses and costs. Information Technology Our information technology department consisted of approximately 90 employees and contractors as of December 31, 2022.
Vendor management is also important, and our claim examiners work closely with our vendors to manage expenses and costs. Information Technology Our information technology department consisted of approximately 120 employees and contractors as of December 31, 2023. Our Chief Information Officer has over 30 years of experience in the technology field.
For example, for a $4.0 million limit excess policy, our retention would be 50%, whereas for a $10.0 million limit excess policy, our retention would be 20%. For policies for which we also write an underlying primary limit, the retention on the primary and excess policy combined would not exceed $2.0 million.
For policies for which we also write an underlying primary limit, the retention on the primary and excess policy combined would not exceed $2.0 million. Reinsurance contracts do not relieve us from our obligations to policyholders.
Since inception, we have been intent on capturing and analyzing our data and building, over time, a robust repository of information that we can use to improve our decision making. We refer to this repository as our data warehouse.
This eliminates costly data-entry steps in our underwriting process and permits the underwriter to focus on underwriting the account accurately and rapidly. 7 Table of Contents Since inception, we have been intent on capturing and analyzing our data and building, over time, a robust repository of information that we can use to improve our decision making.
We mitigate our risk associated with natural catastrophes with respect to our property insurance business primarily by purchasing reinsurance from only highly-rated reinsurers.
As previously discussed, when managing our catastrophe exposure, we focus on the 100-year and the 250-year return periods. We mitigate our risk associated with natural catastrophes with respect to our property insurance business primarily by purchasing reinsurance from only highly-rated reinsurers.
This process is achieved by extending low reserve and settlement authority levels to our front-line claim examiners; keeping the adjuster-to-supervisor ratios low to allow for greater supervision over the adjusting process; and monitoring the number of claims handled by each claims examiner. 6 Table of Contents This method ensures that two or more members of the department participate in the decision-making process when appropriate; our claim examiners recognize and address key issues; and reserves are adjusted to the appropriate amount as necessary.
This process is achieved by extending low reserve and settlement authority levels to our front-line claim examiners; keeping the adjuster-to-supervisor ratios low to allow for greater supervision over the adjusting process; and monitoring the number of claims handled by each claims examiner.
Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation. 10 Table of Contents Our cash and invested assets totaled $2.2 billion at December 31, 2022 and $1.7 billion at December 31, 2021, and are summarized as follows: December 31, 2022 December 31, 2021 Carrying Value % of Portfolio Carrying Value % of Portfolio ($ in thousands) Fixed maturities - at fair value: U.S.
The remaining $14.8 million represents the portion of such assets we held at December 31, 2023 for investment purposes. 10 Table of Contents Our cash and invested assets totaled $3.1 billion at December 31, 2023 and $2.2 billion at December 31, 2022, and are summarized as follows: December 31, 2023 December 31, 2022 Carrying Value % of Portfolio Carrying Value % of Portfolio ($ in thousands) Fixed maturities - at fair value: U.S.
A+ 3,379 Total for top ten reinsurers 206,770 All others 13,684 Total reinsurance recoverable $ 220,454 We did not have reinsurance recoverables greater than $3.4 million at December 31, 2022 from any individual reinsurer other than the ten listed above.
A+ 10,525 Total for top ten reinsurers 233,739 All others, net of allowance for credit losses 14,097 Total reinsurance recoverable $ 247,836 We did not have reinsurance recoverables greater than $4.6 million at December 31, 2023 from any individual reinsurer other than the ten listed above.
We seek to manage the number of claims per claims examiner to allow our claim examiners sufficient time to review and investigate claims submitted. Moreover, prior to any scheduled mediation or trial, claims personnel conduct further peer review to ensure that issues and exposures have been adequately analyzed.
Moreover, prior to any scheduled mediation or trial, claims personnel conduct further peer review to ensure that issues and exposures have been adequately analyzed. In addition, our claim examiners work closely with members of the underwriting staff to keep them apprised of claim trends.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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In addition, some of these systems include or rely on third-party systems not located on our premises or under our control. Events such as natural catastrophes, terrorist attacks, industrial accidents, third-party system or network outages or computer malware may cause our systems to fail or be inaccessible for extended periods of time.
In addition, some of these systems include or rely on third-party systems not located on our premises or under our direct control. Events such as natural catastrophes, terrorist attacks, industrial accidents, third-party system or network outages or computer malware may cause our systems to fail or be inaccessible for extended periods of time.
As we expand our use of cloud-based services, we will increasingly rely on third-party cloud providers to maintain appropriate controls and safeguards to protect confidential information we receive, including personal, personally identifiable, sensitive, confidential or proprietary data, and the integrity and continuous operation of our proprietary technology platform.
As we use cloud-based services, we will rely on third-party cloud providers to maintain appropriate controls and safeguards to protect confidential information we receive, including personal, personally identifiable, sensitive, confidential or proprietary data, and the integrity and continuous operation of our proprietary technology platform.
Dividend payments are further limited to that part of available policyholder surplus which is derived from net profits on our business. The maximum amount of dividends Kinsale Insurance could pay us during 2023 without regulatory approval is $153.3 million.
Dividend payments are further limited to that part of available policyholder surplus which is derived from net profits on our business. The maximum amount of dividends Kinsale Insurance could pay us during 2023 without regulatory approval is $257.3 million.
A downgrade or withdrawal of our rating could result in any of the following consequences, among others: • causing our current and future brokers and insureds to choose other, more highly-rated competitors; • increasing the cost or reducing the availability of reinsurance to us; or • severely limiting or preventing us from writing new and renewal insurance contracts.
A downgrade or withdrawal of our rating could result in any of the following consequences, among others: 25 Table of Contents • causing our current and future brokers and insureds to choose other, more highly-rated competitors; • increasing the cost or reducing the availability of reinsurance to us; or • severely limiting or preventing us from writing new and renewal insurance contracts.
The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair 31 Table of Contents value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur. We also invest in marketable equity securities.
The valuation of investments is more subjective when markets are illiquid, thereby increasing the risk that the estimated fair value (i.e., the carrying amount) of the securities we hold in our portfolio does not reflect prices at which actual transactions would occur. We also invest in marketable equity securities.
A breach of any of these covenants could result in acceleration of 32 Table of Contents our obligations to repay our outstanding indebtedness under such agreements if we are unable to obtain a waiver or amendment from our lenders, and otherwise could impair our ability to borrow funds or result in higher borrowing costs.
A breach of any of these covenants could result in acceleration of our obligations to repay our outstanding indebtedness under such agreements if we are unable to obtain a waiver or amendment from our lenders, and otherwise could impair our ability to borrow funds or result in higher borrowing costs.
However, assessing the risk of loss and damage and the range of approaches to address the adverse effects of climate change, including impacts related to extreme weather events and slow onset events, remains a challenge and may materially adversely impact our business, financial condition and results of operations.
However, assessing the risk of loss 24 Table of Contents and damage and the range of approaches to address the adverse effects of climate change, including impacts related to extreme weather events and slow onset events, remains a challenge and may materially adversely impact our business, financial condition and results of operations.
Sales could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities. Our credit agreements contain financial and other covenants, the breach of any of which could result in acceleration of payment of amounts due under our borrowings.
Sales could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities. 32 Table of Contents Our credit agreements contain financial and other covenants, the breach of any of which could result in acceleration of payment of amounts due under our borrowings.
Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business. See also "Regulation — Required licensing." 33 Table of Contents We may become subject to additional government or market regulation.
Failure to maintain our risk-based capital at the required levels could adversely affect the ability of our insurance subsidiary to maintain regulatory authority to conduct our business. See also "Regulation — Required licensing." We may become subject to additional government or market regulation.
As of December 31, 2022, we had $263.4 million of aggregate reinsurance balances on paid and unpaid losses and ceded unearned premiums. These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition. We may act based on inaccurate or incomplete information regarding the accounts we underwrite.
As of December 31, 2023, we had $300.4 million of aggregate reinsurance balances on paid and unpaid losses and ceded unearned premiums. These risks could cause us to incur increased net losses, and, therefore, adversely affect our financial condition. We may act based on inaccurate or incomplete information regarding the accounts we underwrite.
If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected. We are subject to reinsurance counterparty credit risk.
If we are unable to collect premiums from our brokers in the future, our underwriting profits may decline and our financial condition and results of operations could be materially and adversely affected. 28 Table of Contents We are subject to reinsurance counterparty credit risk.
In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all.
In addition, integration of new third-party software may require significant work and require substantial investment of our time and resources. Our use of additional or alternative third-party software would require us to enter into license agreements with third parties, which may not be available on commercially reasonable terms or at all, and add complexity to the environment.
Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating. 25 Table of Contents These and other factors could result in a downgrade of our financial strength rating.
Best alters its capital adequacy assessment methodology in a manner that would adversely affect our rating. These and other factors could result in a downgrade of our financial strength rating.
Approximately 78.1% of our net casualty loss reserves were associated with "occurrence" policies as of December 31, 2022. • Even when a claim is received (irrespective of whether the policy is a "claims made" or "occurrence" basis form), it may take considerable time to fully appreciate the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time. • New theories of liability are enforced retroactively from time to time by courts.
Approximately 79.6% of our net casualty loss reserves were associated with "occurrence" policies as of December 31, 2023. • Even when a claim is received (irrespective of whether the policy is a "claims made" or "occurrence" basis form), it may take considerable time to fully recognize the extent of the covered loss suffered by the insured and, consequently, estimates of loss associated with specific claims can increase over time. • New theories of liability are enforced retroactively from time to time by courts.
These securities are carried on the consolidated balance sheet at fair value and are subject to potential losses and declines in value, which may never recover. Our equity investments totaled $152.5 million as of December 31, 2022.
These securities are carried on the consolidated balance sheet at fair value and are subject to potential losses and declines in value, which may never recover. Our equity investments totaled $234.8 million as of December 31, 2023.
We 24 Table of Contents attempt to manage this exposure by using sophisticated computer models to help assess our exposure to catastrophic events, purchasing extensive reinsurance protection from financially strong counterparties and limiting the concentration of property business by geographic area.
We attempt to manage this exposure through careful and disciplined underwriting, using sophisticated computer models to help assess our exposure to catastrophic events, purchasing extensive reinsurance protection from financially strong counterparties and limiting the concentration of property business by geographic area.
As of December 31, 2022, we had outstanding borrowings of $195.7 million, net of debt issuance costs, in the aggregate under our two bank credit agreements.
As of December 31, 2023, we had outstanding borrowings of $183.8 million, net of debt issuance costs, in the aggregate under our two bank credit agreements.
Our success depends on our ability to accurately assess the risks related to the businesses and people that we insure. We establish loss and loss adjustment expense reserves for the ultimate payment of all claims that have been incurred, and the related costs of adjusting those claims, as of the date of our financial statements.
Our success depends on our ability to accurately assess the risks related to the businesses and people that we insure. We establish loss and loss adjustment expense reserves for the ultimate payment of all claims and the related costs of adjusting those claims, as of the date of our financial statements. Reserves do not represent an exact calculation of liability.
Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the absence of related premiums being paid to us. 28 Table of Contents The possibility of these events occurring depends in large part on the financial condition and internal operations of our brokers.
Although the failure by any of our brokers to remit premiums to us has not been material to date, there may be instances where our brokers collect premiums but do not remit them to us and we may be required under applicable law to provide the coverage set forth in the policy despite the absence of related premiums being paid to us.
If the wholesale distribution model were to be significantly altered by changes in the way E&S insurance were marketed, including, without limitation, through use of the internet, it could have a material adverse effect on our premiums, underwriting results and profits. 27 Table of Contents We may not be able to continue to compete successfully in the insurance markets.
We currently depend largely on the wholesale distribution model. If the wholesale distribution model were to be significantly altered by changes in the way E&S insurance is marketed, including, without limitation, through use of the internet, it could have a material adverse effect on our premiums, underwriting results and profits.
Like other insurance companies, we rely on estimates and assumptions in setting our premium rates. Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses and other underwriting costs and to earn a profit.
Establishing adequate premium rates is necessary, together with investment income, to generate sufficient revenue to offset losses, loss adjustment expenses and other underwriting costs and to earn a profit.
As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section titled "Business" or elsewhere in this Annual Report on Form 10-K.
As a result, we may make fundamental changes to our operations without stockholder approval, which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in the section titled "Business" or elsewhere in this Annual Report on Form 10-K. 30 Table of Contents If actual renewals of our existing contracts do not meet expectations, our written premiums in future years and our future results of operations could be materially adversely affected.
We cannot be certain that advances in criminal 29 Table of Contents capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business.
We cannot be certain that advances in criminal capabilities, discovery of new vulnerabilities, attempts to exploit vulnerabilities in our systems, data thefts, physical system or network break-ins or inappropriate access, or other developments will not compromise or breach the technology or other security measures protecting the networks and systems used in connection with our business. 29 Table of Contents We employ third-party and open-source licensed software for use in our business, and the inability to maintain these licenses, errors in the software we license or the terms of open-source licenses could result in increased costs, or reduced service levels, which would adversely affect our business.
Of our 2022 gross written premiums, 58.5%, or $644.6 million, were distributed through five of our approximately 179 brokers, three of which accounted for 45.4%, or $500.0 million, of our 2022 gross written premiums. Our relationship with any of these brokers may be discontinued at any time.
Of our 2023 gross written premiums, 63.4%, or $994.6 million, were distributed through five of our approximately 187 brokers, three of which accounted for 49.8%, or $781.9 million, of our 2023 gross written premiums. Our relationship with any of these brokers may be discontinued at any time.
Increased competition in these markets could result in a change in the supply and demand for insurance, affect our ability to price our products at risk-adequate rates and retain existing business, or underwrite new business on favorable terms. If this increased competition so limits our ability to transact business, our operating results could be adversely affected.
We may not be able to continue to compete successfully in the insurance markets. Increased competition in these markets could result in a change in the supply and demand for insurance, affect our ability to price our products at risk-adequate 27 Table of Contents rates and retain existing business, or underwrite new business on favorable terms.
The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments.
Other fixed-maturity securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected. 31 Table of Contents The value of our investment portfolio is subject to the risk that certain investments may default or become impaired due to deterioration in the financial condition of one or more issuers of the securities we hold, or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments.
Our employees could take excessive risks, which could negatively affect our financial condition and business. As an insurance enterprise, we are in the business of binding certain risks.
These cyclical patterns cause our revenues and net income to fluctuate, which may cause the price of our common stock to be volatile. Our employees could take excessive risks, which could negatively affect our financial condition and business. As an insurance enterprise, we are in the business of binding certain risks.
Conversely, hard markets occur when there is not enough insurance capital capacity in the market to meet the 26 Table of Contents needs of potential insureds, causing insurance prices to generally rise and policy terms and conditions to become more favorable to the insurers.
Conversely, hard markets occur when there is not enough insurance capital capacity in the market to meet the needs of potential insureds, causing insurance prices to generally rise and policy terms and conditions to become more favorable to the insurers. 26 Table of Contents Although an individual insurance company's financial performance depends on its own specific business characteristics, the profitability of most P&C insurance companies tends to follow this cyclical market pattern.
Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what we expect the ultimate settlement and administration of claims will cost us, and our ultimate liability may be greater or less than our estimate.
Rather, reserves represent an estimate of ultimate settlement cost and our ultimate liability may be greater or less than our estimate.
Such risk could be difficult or impossible to eliminate, and such an event could adversely affect our business, financial condition and results of operations. Cloud provider service failure or control weakness could adversely affect our business. We employ cloud-based services to host many of our applications and intend to expand our use.
Cloud provider service failure or control weakness could adversely affect our business. We employ cloud-based services to host the majority of our applications and intend to continue and expand our use.
We seek to hold a high-quality, diversified portfolio of investments that is largely managed by professional investment advisory management firms in accordance with our investment policy and routinely reviewed by our Investment Committee. However, our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities.
Our results of operations depend, in part, on the performance of our investment portfolio. We seek to hold a high-quality, diversified portfolio of investments that is largely managed by professional investment advisory management firms in accordance with our investment policy and routinely reviewed by our Investment Committee.
Although we are not currently involved in any material litigation with our customers, other members of the insurance industry are the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable.
We could become involved in litigation with our customers, or become the target of class action lawsuits and other types of litigation, some of which involve claims for substantial or indeterminate amounts, and the outcomes of which are unpredictable. This litigation may be based on a variety of issues, including insurance and claim settlement practices.
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business.
Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with our operations and require us to bear additional costs of compliance, which could adversely affect our ability to operate our business. 33 Table of Contents The NAIC has adopted a system to test the adequacy of statutory capital of insurance companies, known as "risk-based capital." This system establishes the minimum amount of risk-based capital necessary for a company to support its overall business operations.
This litigation may be based on a variety of issues, including insurance and claim settlement practices. We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business.
We cannot predict with any certainty whether we will be involved in such litigation in the future or what impact such litigation would have on our business. Risks Related to Our Investment Portfolio Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results.
Our primary market risk exposures are to changes in interest rates and equity prices.
However, our investments are subject to general economic conditions and market risks as well as risks inherent to particular securities. Our primary market risk exposures are to changes in interest rates and equity prices.
Our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations and prospects. We must accurately and timely evaluate and pay claims that are made under our policies.
We must accurately and timely evaluate and pay claims that are made under our policies.
Some fixed-maturity securities have call or prepayment options, which create possible reinvestment risk in declining rate environments. Other fixed-maturity securities, such as mortgage-backed and asset-backed securities, carry prepayment risk or, in a rising interest rate environment, may not prepay as quickly as expected.
Some fixed-maturity securities have call or prepayment options, which create possible reinvestment risk in declining rate environments.
The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price. If actual renewals do not meet expectations or if we choose not 30 Table of Contents to write a renewal because of pricing conditions, our written premiums in future years and our future operations would be materially adversely affected.
If actual renewals do not meet expectations or if we choose not to write a renewal because of pricing conditions, our written premiums in future years and our future operations would be materially adversely affected. Our failure to accurately and timely pay claims could materially and adversely affect our business, financial condition, results of operations and prospects.
If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be adversely affected. In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known.
If this increased competition so limits our ability to transact business, our operating results could be adversely affected. If we are unable to underwrite risks accurately and charge competitive yet profitable rates to our policyholders, our business, financial condition and results of operations will be adversely affected.
When the standard insurance market hardens, the E&S market typically hardens, and growth in the E&S market can be significantly more rapid than growth in the standard insurance market. Similarly, when conditions begin to soften, many customers that were previously driven into the E&S market may return to the admitted market, exacerbating the effects of rate decreases.
Similarly, when conditions begin to soften, many customers that were previously driven into the E&S market may return to the admitted market, exacerbating the effects of rate decreases. We cannot predict the timing or duration of changes in the market cycle because the cyclicality is due in large part to the actions of our competitors and general economic factors.
If actual renewals of our existing contracts do not meet expectations, our written premiums in future years and our future results of operations could be materially adversely affected. Many of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts.
Many of our contracts are written for a one-year term. In our financial forecasting process, we make assumptions about the rates of renewal of our prior year’s contracts. The insurance and reinsurance industries have historically been cyclical businesses with intense competition, often based on price.
Although an individual insurance company's financial performance depends on its own specific business characteristics, the profitability of most P&C insurance companies tends to follow this cyclical market pattern. Further, this cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market.
Further, this cyclical market pattern can be more pronounced in the E&S market than in the standard insurance market. When the standard insurance market hardens, the E&S market typically hardens, and growth in the E&S market can be significantly more rapid than growth in the standard insurance market.
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If pandemics, outbreaks and other events occur or re-occur for a significant length of time, and measures that are put into place by various governmental authorities to stabilize the economy are not effective, our business, financial condition, results of operations and cash flows may be materially adversely affected.
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In general, the premiums for our insurance policies are established at the time a policy is issued and, therefore, before all of our underlying costs are known. Like other insurance companies, we rely on estimates and assumptions in setting our premium rates.
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We cannot predict the timing or duration of changes in the market cycle because the cyclicality is due in large part to the actions of our competitors and general economic factors. These cyclical patterns cause our revenues and net income to fluctuate, which may cause the price of our common stock to be volatile.
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The possibility of these events occurring depends in large part on the financial condition and internal operations of our brokers.
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We currently depend largely on the wholesale distribution model.
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Such risk could be difficult or impossible to eliminate, and such an event could adversely affect our business, financial condition and results of operations. Artificial intelligence is an evolving and rapidly growing technology. The rapid evolution of artificial intelligence ("AI") could exacerbate the information technology related risks described above, as well as alter the competitive landscape.
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In addition, the trend toward general public notification of such incidents could exacerbate the harm to our business, financial condition and results of operations. Even if we successfully protect our technology infrastructure and the confidentiality of sensitive data, we could suffer harm to our business and reputation if attempted security breaches are publicized.
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While we anticipate that we will continue to research and implement AI-based technology solutions to both mitigate risk and increase automation in our environment, it is possible that bad actors and/or competitors will leverage AI solutions more effectively to either exploit vulnerabilities or take market share. Either outcome could negatively impact our business.
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We employ third-party and open source licensed software for use in our business, and the inability to maintain these licenses, errors in the software we license or the terms of open source licenses could result in increased costs, or reduced service levels, which would adversely affect our business.
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Risks Related to Our Investment Portfolio Performance of our investment portfolio is subject to a variety of investment risks that may adversely affect our financial results. Our results of operations depend, in part, on the performance of our investment portfolio.
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The NAIC has adopted a system to test the adequacy of statutory capital of insurance companies, known as "risk-based capital." This system establishes the minimum amount of risk-based capital necessary for a company to support its overall business operations.

Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties We own our executive and insurance offices located in Richmond, Virginia, and we currently occupy approximately 80,000 square feet of the 137,000 square feet of available office space. We believe that our facilities are adequate for our current needs.
Item 2. Properties We own our executive and insurance offices located in Richmond, Virginia, and we currently occupy approximately 110,000 square feet of the 137,000 square feet of available office space. We believe that our facilities are adequate for our current needs. 35 Table of Contents

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Refer to Note 12 of the notes to the consolidated financial statements for further information regarding legal proceedings.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Effective January 3, 2022, the Company transferred its common stock listing from the Nasdaq to the New York Stock Exchange ("NYSE") and continued to trade under its current symbol "KNSL." As of February 17, 2023, we had 102 stockholders of record of our common stock.
Effective January 3, 2022, the Company transferred its common stock listing from the Nasdaq to the New York Stock Exchange ("NYSE") and continued to trade under its current symbol "KNSL." As of February 16, 2024, we had 120 stockholders of record of our common stock.
See "Risk Factors – Risks Related to Our Business and Our Industry – Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends and service our debt obligations depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources." Performance Graph Our 2021 Annual Report on Form 10-K included a comparison of the 5-year cumulative total return of our common stock with the Nasdaq Composite index and the Nasdaq Insurance index.
See "Risk Factors – Risks Related to Our Business and Our Industry – Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends and service our debt obligations depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources." 37 Table of Contents Performance Graph The performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to S&P 500 and (3) the cumulative total returns to the S&P 500 P&C Index for the period from December 31, 2018 through December 31, 2023.
Such returns are based on historical results and are not indicative of future performance.
The graph assumes an initial investment of $100 and the reinvestment of dividends, if any. Such returns are based on historical results and are not indicative of future performance.
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As a result of the transfer of our common stock listing from Nasdaq to the NYSE in 2021, we believe that S&P 500 and S&P 500 P&C index are more appropriate indices for comparison of our stock performance.
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December 31, 2018 2019 2020 2021 2022 2023 Kinsale Capital Group, Inc. $ 100.00 $ 183.67 $ 362.33 $ 431.74 $ 475.64 $ 610.12 S&P 500 $ 100.00 $ 131.49 $ 155.68 $ 200.37 $ 164.08 $ 207.21 S&P 500 P&C Index $ 100.00 $ 125.87 $ 134.63 $ 160.58 $ 190.89 $ 211.53 38 Table of Contents Item 6.
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If a company selects a different index from that used in the immediately preceding fiscal year, the company’s stock performance must be compared with both the newly-selected index and the index used in the immediately preceding year.
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Accordingly, the performance graph compares the cumulative total shareholder return of an investment in (1) our common stock, (2) the cumulative total returns to S&P 500, (3) the cumulative total returns to the S&P 500 P&C Index, (4) the cumulative total returns to the Nasdaq Composite Index and (5) the cumulative total returns to the Nasdaq Insurance Index for the period from December 31, 2017 through December 31, 2022. 36 Table of Contents The graph assumes an initial investment of $100 and the reinvestment of dividends, if any.
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December 31, 2017 2018 2019 2020 2021 2022 Kinsale Capital Group, Inc. $ 100.00 $ 124.09 $ 227.91 $ 449.61 $ 535.74 $ 590.21 S&P 500 $ 100.00 $ 95.62 $ 125.72 $ 148.85 $ 191.58 $ 156.88 S&P 500 P&C Index $ 100.00 $ 95.31 $ 119.97 $ 128.31 $ 153.05 $ 181.93 Nasdaq Composite Index $ 100.00 $ 97.16 $ 132.81 $ 192.47 $ 235.15 $ 158.65 Nasdaq Insurance Index $ 100.00 $ 94.35 $ 113.85 $ 113.20 $ 145.44 $ 157.93 37 Table of Contents Item 6.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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During the year ended December 31, 2022, the decrease in fair value of equity securities of $(27.7) million was comprised of higher unrealized losses related to ETF securities of $(19.6) million and higher unrealized losses related to non-redeemable preferred stock of $(8.1) million.
During the year ended December 31, 2022, the decrease in the fair value of equity securities of $(27.7) million was comprised of higher unrealized losses related to ETF securities of $(19.6) million and higher unrealized losses related to non-redeemable preferred stock of $(8.1) million.
(2) Computed by adding the total stockholders' equity as of the date indicated to the prior year-end total and dividing by two. (3) Return on equity is net income expressed as a percentage of average beginning and ending stockholders’ equity during the period.
(2) Average equity is computed by adding the total stockholders' equity as of the date indicated to the prior year-end total and dividing by two. (3) Return on equity is net income expressed as a percentage of average beginning and ending stockholders’ equity during the period.
Our commercial lines offerings include commercial property, small business casualty, excess casualty, construction, general casualty, allied health, products liability, life sciences, professional liability, energy, management liability, entertainment, small property, environmental, health care, public entity, inland marine, commercial auto, aviation, product recall and ocean marine.
Our commercial lines offerings include commercial property, excess casualty, small business casualty, construction, general casualty, allied health, products liability, small business property, life sciences, entertainment, energy, professional liability, management liability, environmental, excess professional, health care, public entity, commercial auto, inland marine, aviation, ocean marine, product recall, and railroad.
Our insurance subsidiary, Kinsale Insurance Company, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes but have not generated any material taxable income to date.
Our insurance subsidiary, Kinsale Insurance, is not subject to income taxes in the states in which it operates; however, our non-insurance subsidiaries are subject to state income taxes but have not generated any material taxable income to date.
While we believe that loss reserves at December 31, 2022 are adequate, new information, events, or circumstances may result in ultimate losses that are materially greater or less than our estimates. As previously noted, there are many factors that may cause reserves to increase or decrease, particularly those related to catastrophe losses and long-tailed lines of business.
While we believe that loss reserves at December 31, 2023 are adequate, new information, events, or circumstances may result in ultimate losses that are materially greater or less than our estimates. As previously noted, there are many factors that may cause reserves to increase or decrease, particularly those related to catastrophe losses and long-tailed lines of business.
Refer to Note 7 to the consolidated financial statements for discussion on our reserve development for the years ended December 31, 2022 and 2021. Fair value measurements Like other accounting estimates, fair value measurements may be based on subjective information and generally involve uncertainty and judgment.
Refer to Note 7 to the consolidated financial statements for discussion on our reserve development for the years ended December 31, 2023 and 2022. Fair value measurements Like other accounting estimates, fair value measurements may be based on subjective information and generally involve uncertainty and judgment.
In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by Kinsale Insurance may adopt statutory provisions more restrictive than those currently in effect. Kinsale Insurance did not pay dividends to us during 2022.
In the future, state insurance regulatory authorities that have jurisdiction over the payment of dividends by Kinsale Insurance may adopt statutory provisions more restrictive than those currently in effect. Kinsale Insurance did not pay dividends to us during 2023.
During the year ended December 31, 2022, prior accident years developed favorably by $35.9 million, of which $41.8 million was attributable to the 2020 and 2021 accident years due to lower emergence of reported losses than expected across most lines of business.
During the year ended December 31, 2022, loss reserves for prior accident years developed favorably by $35.9 million, of which $41.8 million was attributable to the 2020 and 2021 accident years due to lower emergence of reported losses than expected across most lines of business.
Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other income, other expenses and income tax expense.
Underwriting income is a non-GAAP financial measure. We define underwriting income as net income, excluding net investment income, net change in the fair value of equity securities, net realized investment gains and losses, change in allowance for credit losses on investments, interest expense, other income, other expenses and income tax 41 Table of Contents expense.
In December 2022, we drew down 49 Table of Contents $73.0 million from our revolving credit facility to finance the purchase of our real estate investment property. Financing activities also reflected dividends of $0.52 per common share, or $11.9 million in the aggregate.
In December 2022, we drew down $73.0 million from our revolving credit facility to finance the purchase of our real estate investment property. Financing activities also reflected dividends of $0.52 per common share, or $11.9 million in the aggregate.
As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take on our 48 Table of Contents policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.
As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take on our policies. We cede, or pay out, part of the premiums we receive to our reinsurers and collect cash back when losses subject to our reinsurance coverage are paid.
At December 31, 2022, we recorded an allowance for credit losses of $0.5 million related to our reinsurance balances. Ratings Kinsale Insurance has a financial strength rating of "A" (Excellent) from A.M. Best. A.M. Best assigns ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). "A" (Excellent) is the third highest rating issued by A.M.
At December 31, 2023, we recorded an allowance for credit losses of $0.7 million related to our reinsurance balances. Ratings Kinsale Insurance has a financial strength rating of "A" (Excellent) from A.M. Best. A.M. Best assigns ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In Liquidation). "A" (Excellent) is the third highest rating issued by A.M.
As of December 31, 2022 , Kinsale Insurance has only contracted with reinsurers with A.M. Best financial strength rati ngs of "A-" (Ex cellent) or better. At December 31, 2022, the net reinsurance receivable, defined as the sum of paid and unpaid reinsurance recoverables, ceded unearned premiums less reinsurance payables, from five reinsurers represented 67.8% of the total balance.
As of December 31, 2023 , Kinsale Insurance has only contracted with reinsurers with A.M. Best financial strength rati ngs of "A-" (Ex cellent) or better. At December 31, 2023, the net reinsurance receivable, defined as the sum of paid and unpaid reinsurance recoverables, ceded unearned premiums less reinsurance payables, from five reinsurers represented 67.7% of the total balance.
See "Forward-Looking Statements." Year ended December 31, 2021 compared to year ended December 31, 2020 For a comparison of years ended December 31, 2021 and December 2020, see “Part II, Item 7.
See "Forward-Looking Statements." Year ended December 31, 2022 compared to year ended December 31, 2021 For a comparison of years ended December 31, 2022 and December 2021, see “Part II, Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2021, which was filed with the SEC on February 25, 2022. Overview Founded in 2009, we are an established and growing specialty insurance company.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 24, 2023. Overview Founded in 2009, we are an established and growing specialty insurance company.
Tangible stockholders’ equity is a non-GAAP financial measure. 51 Table of Contents See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity. See Note 9 to the consolidated financial statements for further details regarding our stock-based compensation plans.
Tangible stockholders’ equity is a non-GAAP financial measure. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of stockholders' equity in accordance with GAAP to tangible stockholders' equity. See Note 9 to the consolidated financial statements for further details regarding our stock-based compensation plans.
See also "Risk Factors — Risks Related to Our Business and Our Industry — A decline in our financial strength rating may adversely affect the amount of business we write." 50 Table of Contents The financial strength ratings assigned by A.M.
See also "Risk Factors — Risks Related to Our Business and Our Industry — A decline in our financial strength rating may adversely affect the amount of business we write." The financial strength ratings assigned by A.M.
Proceeds received from our equity compensation plans were $1.0 million, offset by payroll taxes withheld and remitted on restricted stock awards of $2.1 million for the year ended December 31, 2021 . Reinsurance We enter into reinsurance contracts to limit our exposure to potential large losses. Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties.
Proceeds received from our equity compensation plans were $1.1 million, offset by payroll taxes withheld and remitted on restricted stock awards of $3.3 million for the year ended December 31, 2022 . Reinsurance We enter into reinsurance contracts to limit our exposure to potential large losses. Our reinsurance is primarily contracted under quota-share reinsurance treaties and excess of loss treaties.
We perform several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2022, including (1) obtaining and reviewing the internal control report from our investment accounting vendor that obtain fair values from third party pricing services, (2) discussing with our investment accounting vendor their process for reviewing and validating pricing obtained from outside pricing services and (3) reviewing the security pricing received from our investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level.
We perform several procedures to ascertain the reasonableness of investment values included in the consolidated financial statements at December 31, 2023, including (1) obtaining and reviewing the internal control report from our investment accounting vendor that obtains fair values from third party pricing services, (2) discussing with our investment accounting vendor its process for reviewing and validating pricing obtained from outside pricing services and (3) reviewing the security pricing received from our investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level.
Best financial strength ratings of "A-" (Excellen t) or better. Based on our evaluation of the factors discussed above, the allowance for credit losses related to reinsuran ce balances was $0.5 million at December 31, 2022.
Best financial strength ratings of "A-" (Excellen t) or better. Based on our evaluation of the factors discussed above, the allowance for credit losses related to reinsuran ce balances was $0.7 million at December 31, 2023.
The fair value of our restricted assets was $5.9 million and $6.7 million at December 31, 2022 and 2021, respectively. 54 Table of Contents Reconciliation of Non-GAAP Financial Measures Reconciliation of underwriting income Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income.
The fair value of our restricted assets was $5.8 million and $5.9 million at December 31, 2023 and 2022, respectively. 54 Table of Contents Reconciliation of Non-GAAP Financial Measures Reconciliation of underwriting income Underwriting income is a non-GAAP financial measure that we believe is useful in evaluating our underwriting performance without regard to investment income.
The Arkansas statute also requires that dividends and other distributions be paid out of positive unassigned surplus without prior approval. The maximum amount of dividends Kinsale Insurance can pay us during 2023 without regulatory approval is $153.3 million.
The Arkansas statute also requires that dividends and other distributions be paid out of positive unassigned surplus without prior approval. The maximum amount of dividends Kinsale Insurance can pay us during 2024 without regulatory approval is $257.3 million.
The increase in gross written premiums for the year ended December 31, 2022 over the prior year was due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable conditions in the E&S market. The average premium per policy written by us was $12,400 in 2022 compared to $10,400 in 2021.
The increase in gross written premiums for the year ended December 31, 2023 was primarily due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable conditions in the E&S market. The average premium per policy written by us was $15,200 in 2023 compared to $12,400 in 2022.
This dividend was paid on June 13, 2022 to all stockholders of record on May 31, 2022. On August 15, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock. This dividend was paid on September 13, 2022 to all stockholders of record on August 29, 2022.
This dividend was paid on June 13, 2023 to all stockholders of record on May 31, 2023. On August 16, 2023, the Company’s Board of Directors declared a cash dividend of $0.14 per share of common stock. This dividend was paid on September 12, 2023 to all stockholders of record on August 29, 2023.
In excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses. For the year ended December 31, 2022, property insurance represented 22.8% of our gross written premiums.
In excess of loss reinsurance, the premium payable to the reinsurer is negotiated by the parties based on their assessment of the amount of risk being ceded to the reinsurer because the reinsurer does not share proportionately in the ceding company's losses. 50 Table of Contents For the year ended December 31, 2023, property insurance represented 32.7% of our gross written premiums.
Dividend declarations On February 14, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock. This dividend was paid on March 14, 2022 to all stockholders of record on March 2, 2022. On May 10, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock.
Dividend declarations On February 15, 2023, the Company’s Board of Directors declared a cash dividend of $0.14 per share of common stock. This dividend was paid on March 13, 2023 to all stockholders of record on February 28, 2023. On May 15, 2023, the Company’s Board of Directors declared a cash dividend of $0.14 per share of common stock.
Excluding our personal lines insurance, which has relatively low premiums per policy written, the average premium per policy written was $14,700 in 2022 compared to $12,900 in 2021. The increase in the average premium per policy written was due to changes in the mix of business and higher rates on bound accounts during 2022 compared to the prior year.
Excluding our personal insurance division, which has relatively low premiums per policy written, the average premium per policy written was $16,400 in 2023 compared to $14,700 in 2022. The increase in the average premium per policy written was due to changes in the mix of business and higher rates on bound accounts during 2023 compared to the prior year.
Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had a gross investment return of 3.0% as of December 31, 2022, compared to 2.5% as of December 31, 2021.
Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had a gross investment return of 4.0% as of December 31, 2023, compared to 3.0% as of December 31, 2022.
A 5% change in net IBNR reserves would equate to a $46.1 million change in the reserve for losses and loss adjustment expenses at such date, as well as a $36.5 million change in net income, a 4.9% change in both stockholders' equity and tangible stockholders' equity, in each case at or for the year ended December 31, 2022.
A 5% change in net IBNR reserves would equate to a $65.7 million change in the reserve for losses and loss adjustment expenses at such date, as well as a $51.9 million change in net income, a 4.8% change in both stockholders' equity and tangible stockholders' equity, in each case at or for the year ended December 31, 2023.
Our reserves for losses and loss adjustment expenses, net of reinsurance, at December 31, 2022 were $1.1 billion, and of this amount, 87.0% related 57 Table of Contents to IBNR.
Our reserves for losses and loss adjustment expenses, net of reinsurance, at December 31, 2023 were $1.5 billion, and of this amount, 90.5% related 57 Table of Contents to IBNR.
Effective June 1, 2022, we purchased catastrophe reinsurance coverage of $75.0 million per event in excess of our $25.0 million per event retention. Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage.
Effective June 1, 2023, we purchased catastrophe reinsurance coverage of $127.5 million per event in excess of our $47.5 million per event retention. Our property catastrophe reinsurance includes a reinstatement provision which requires us to pay reinstatement premiums after a loss has occurred in order to preserve coverage.
The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income. 46 Table of Contents Return on equity Our return on equity was 22.0% for the year ended December 31, 2022 compared to 23.9% for the year ended December 31, 2021.
The effective tax rate was lower than the federal statutory rate of 21% primarily due to the tax benefits from stock-based compensation and tax-exempt investment income. Return on equity Our return on equity was 33.6% for the year ended December 31, 2023 compared to 22.0% for the year ended December 31, 2022.
We categorize our reserves for unpaid losses and loss adjustment expenses into two types: case reserves and reserves for incurred but not reported losses ("IBNR"). Our gross reserves for losses and loss adjustment expenses at December 31, 2022 were $1.2 billion, and of this amount, 85.6% related to IBNR.
We categorize our reserves for unpaid losses and loss adjustment expenses into two types: case reserves and reserves for incurred but not reported losses ("IBNR"). Our gross reserves for losses and loss adjustment expenses at December 31, 2023 were $1.7 billion, and of this amount, 90.4% related to IBNR.
This favorable development was offset in part by adverse development, mostly attributable to the 2016 and 2018 accident years due to modest adjustments in actuarial assumptions. On an inception-to-date basis as of December 31, 2022, all accident years have developed favorably, with the exception of the 2011 accident year.
This favorable development was offset in part by adverse development largely from the 2016 and 2018 accident years due to routine variability in reported losses and modest adjustments in actuarial assumptions. On an inception-to-date basis as of December 31, 2023, all accident years have developed favorably, with the exception of the 2011 accident year.
Stockholders' equity at December 31, 2022 and 2021 reconciles to tangible stockholders' equity as follows: December 31, ($ in thousands) 2022 2021 Stockholders' equity $ 745,449 $ 699,335 Less: Intangible assets, net of deferred taxes 2,795 2,795 Tangible stockholders' equity $ 742,654 $ 696,540 Critical Accounting Estimates We identified the accounting estimates which are critical to the understanding of our financial position and results of operations.
Stockholders' equity at December 31, 2023 and 2022 reconciles to tangible stockholders' equity as follows: December 31, ($ in thousands) 2023 2022 Stockholders' equity $ 1,086,832 $ 745,449 Less: Intangible assets, net of deferred taxes 2,795 2,795 Tangible stockholders' equity $ 1,084,037 $ 742,654 Critical Accounting Estimates We identified the accounting estimates which are critical to the understanding of our financial position and results of operations.
We can use this shelf registration to issue an unspecified amount of common stock, preferred stock, depositary shares and warrants. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.
Shelf registration In August 2022, we filed a universal shelf registration statement with the SEC that expires in 2025. We can use this shelf registration to issue an unspecified amount of common stock, preferred stock, depositary shares and warrants. The specific terms of any securities we issue under this registration statement will be provided in the applicable prospectus supplements.
In general, our losses and loss adjustment expenses are affected by: • Frequency of claims associated with the particular types of insurance contracts that we write; • Trends in the average size of losses incurred on a particular type of business; • Mix of business written by us; • Changes in the legal or regulatory environment related to the business we write; • Trends in legal defense costs; • Wage inflation; • Social inflation; • Inflation in material costs, and • Inflation in medical costs.
In general, our losses and loss adjustment expenses are affected by: • Frequency of claims associated with the particular types of insurance contracts that we write; • Trends in the average size of losses incurred on a particular type of business; • Mix of business written by us; • Changes in the legal or regulatory environment related to the business we write; • Trends in legal defense costs; • Wage inflation; • Social inflation; • Inflation in material costs, and • Inflation in medical costs. 40 Table of Contents Losses and loss adjustment expenses are based on an actuarial analysis of the estimated losses, including losses incurred during the period and changes in estimates from prior periods.
During the year ended December 31, 2022, current year incurred losses and loss adjustment expenses included $26.6 million of net catastrophe losses primarily related to Hurricane Ian. During the year ended December 31, 2021, current year incurred losses and loss adjustment expenses included $8.6 million of net catastrophe losses primarily attributable to Hurricane Ida and the winter storms in Texas.
During the year ended December 31, 2022, current year incurred losses and loss adjustment expenses included $26.6 million of net catastrophe losses primarily attributable to Hurricane Ian.
Including the reinstatement provision, the maximum aggregate loss recovery limit is $150 million and is in addition to the per-occurrence coverage provided by our treaty coverages. Reinsurance contracts do not relieve us from our obligations to policyholders.
Including the reinstatement provision, the maximum aggregate loss recovery limit is $255.0 million and is in addition to the coverage provided by our other property reinsurance. Reinsurance contracts do not relieve us from our obligations to policyholders.
We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers P&C insurance products through the E&S market. In 2022, the percentage breakdown of our gross written premiums was 77.2% casualty and 22.8% property.
We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers P&C insurance products through the E&S market. In 2023, the percentage breakdown of our gross written premiums was 67.3% casualty and 32.7% property.
Return on equity is net income as a percentage of average beginning and ending total stockholders’ equity during the period. Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed as a percentage of average beginning and ending stockholders’ equity during the period.
Operating return on equity is a non-GAAP financial measure. We define operating return on equity as net operating earnings expressed as a percentage of average beginning and ending stockholders’ equity during the period. See "—Reconciliation of Non-GAAP Financial Measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.
These increases were offset in part by higher catastrophe losses incurred during 2022. Liquidity and Capital Resources Sources and uses of funds We are organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary, Kinsale Insurance, which is domiciled in Arkansas.
Liquidity and Capital Resources Sources and uses of funds We are organized as a Delaware holding company with our operations primarily conducted by our wholly-owned insurance subsidiary, Kinsale Insurance, which is domiciled in Arkansas.
The increase in cash provided by operating activities in 2022 compared to 2021 was due primarily to growth in business and the timing of claim payments and reinsurance recoverable balances. For the year ended December 31, 2022, net cash used in investing activities of $708.6 million reflected growth in our business operations.
The increase in cash provided by operating activities in 2023 compared to 2022 was due primarily to growth in business and the timing of claim payments and reinsurance recoveries. 49 Table of Contents For the year ended December 31, 2023, net cash used in investing activities of $860.9 million reflected growth in our business operations.
The variation discussed is not meant to be a worst-case scenario and, therefore, it is possible that future variation may be greater than the amounts shown below. 59 Table of Contents The impact of reasonably likely changes in the two key assumptions used to estimate net loss reserves at December 31, 2022 is as follows: Development Pattern Expected Loss Ratio Property 10% lower Unchanged 10% higher ($ in millions) 2 months slower $ 10.2 $ 15.8 $ 21.4 Unchanged (3.6) — 3.6 2 months faster (11.0) (8.5) (6.1) Casualty Occurrence 5% lower Unchanged 5% higher 6 months slower $ 25.2 $ 79.1 $ 133.1 Unchanged (48.3) — 48.3 6 months faster (121.1) (78.4) (35.6) Casualty Claims-Made 5% lower Unchanged 5% higher 6 months slower $ 21.1 $ 41.8 $ 62.5 Unchanged (17.1) — 17.1 6 months faster (51.9) (38.0) (24.1) Reserve development The amount by which estimated losses differ from those originally reported for a period is known as "development." Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
The variation discussed is not meant to be a worst-case scenario and, therefore, it is possible that future variation may be greater than the amounts shown below. 59 Table of Contents The impact of reasonably likely changes in the two key assumptions used to estimate net loss reserves at December 31, 2023 is as follows: Development Pattern Expected Loss Ratio Property 10% lower Unchanged 10% higher ($ in millions) 2 months slower $ 20.1 $ 31.5 $ 42.9 Unchanged (7.5) — 7.5 2 months faster (22.8) (17.5) (12.2) Casualty Occurrence 5% lower Unchanged 5% higher 6 months slower $ 36.2 $ 109.7 $ 183.1 Unchanged (66.2) — 66.2 6 months faster (168.5) (109.6) (50.8) Casualty Claims-Made 5% lower Unchanged 5% higher 6 months slower $ 30.6 $ 55.8 $ 81.1 Unchanged (20.8) — 20.8 6 months faster (65.9) (49.1) (32.3) Reserve development The amount by which estimated losses differ from those originally reported for a period is known as "development." Development is unfavorable when the losses ultimately settle for more than the amount reserved or subsequent estimates indicate a basis for reserve increases on unresolved claims.
Pursuant to the Note Purchase Agreement, on July 22, 2022 we issued $125.0 million aggregate principal amount of 5.15% senior promissory notes (the “Series A Notes”), the proceeds of which were used to fund surplus at Kinsale Insurance Company, refinance indebtedness and for general corporate purposes. See Note 11 for further information regarding the Note Purchase Agreement.
Pursuant to the Note Purchase Agreement, on July 22, 2022 we issued $125.0 million aggregate principal amount of 5.15% senior promissory notes (the "Series A Notes") and on September 18, 2023 we issued a $50.0 million aggregate principal amount 6.21% senior promissory note (the "Series B Note"), the proceeds of which were used to fund surplus at Kinsale Insurance, refinance indebtedness and for general corporate purposes.
On July 22, 2022, we entered into an Amended and Restated Credit Agreement, which extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to certain conditions.
See Note 11 for further information regarding the Note Purchase Agreement. 48 Table of Contents In July 2022, we entered into an Amended and Restated Credit Agreement, which extended the maturity date to July 22, 2027, and increased the aggregate commitment to $100.0 million, with the option to increase the aggregate commitment by $30.0 million, subject to certain conditions.
Our cash flows for the years ended December 31, 2022 and 2021 were: Year Ended December 31, 2022 2021 (in thousands) Cash and cash equivalents provided by (used in): Operating activities $ 557,815 $ 407,042 Investing activities (708,573) (351,955) Financing activities 185,992 (11,140) Change in cash and cash equivalents $ 35,234 $ 43,947 We have historically generated positive operating cash flows allowing our cash and invested assets to grow.
Our cash flows for the years ended December 31, 2023 and 2022 were: Year Ended December 31, 2023 2022 (in thousands) Cash and cash equivalents provided by (used in): Operating activities $ 859,835 $ 557,815 Investing activities (860,892) (708,573) Financing activities (28,523) 185,992 Change in cash and cash equivalents $ (29,580) $ 35,234 We have historically generated positive operating cash flows allowing our cash and invested assets to grow.
We file a consolidated federal income tax return with our subsidiaries, and under our corporate tax allocation agreement, each participant is charged or refunded taxes according to the amount that the participant would have paid or received had it filed on a separate return basis with the Internal Revenue Service.
Reimbursement of expenses through corporate service fees is based on the actual costs that we expect to incur with no mark-up above our expected costs. 47 Table of Contents We file a consolidated federal income tax return with our subsidiaries, and under our corporate tax allocation agreement, each participant is charged or refunded taxes according to the amount that the participant would have paid or received had it filed on a separate return basis with the Internal Revenue Service.
As of December 31, 2022, we had $72.5 million outstanding, net of debt issuance costs, under the Amended and Restated Credit Agreement, which has a maturity of July 22, 2027. Interest on the outstanding amounts is based on 3-month Adjusted Term SOFR plus a margin of 1.625%.
As of December 31, 2023, we had $11.0 million outstanding under the Amended and Restated Credit Agreement, which has a maturity of July 22, 2027. Interest on the outstanding amounts is based on 3-month Adjusted Term SOFR plus a margin of 1.625%. Interest accrues over the term of the interest rate and is payable in arrears.
On November 15, 2022, the Company’s Board of Directors declared a cash dividend of $0.13 per share of common stock. This dividend was paid on December 13, 2022 to all stockholders of record on November 30, 2022. On February 15, 2023, the Company’s Board of Directors declared a cash dividend of $0.14 per share of common stock.
This dividend was paid on December 13, 2023 to all stockholders of record on November 29, 2023. 52 Table of Contents On February 12, 2024, the Company’s Board of Directors declared a cash dividend of $0.15 per share of common stock. This dividend is payable on March 13, 2024 to all stockholders of record on February 27, 2024.
Net income for the years ended December 31, 2022 and 2021 reconciles to underwriting income as follows: Year Ended December 31, ($ in thousands) 2022 2021 Net income $ 159,114 $ 152,659 Income tax expense 36,450 36,142 Income before taxes 195,564 188,801 Net investment income (51,282) (31,048) Change in the fair value of equity securities 27,723 (22,812) Net realized investment gains (1,191) (2,828) Change in allowance for credit losses on investments 366 — Interest expense 4,284 994 Other expenses (1) 721 669 Other income (697) (212) Underwriting income $ 175,488 $ 133,564 (1) Other expenses are comprised of corporate expenses not allocated to our insurance operations. 55 Table of Contents Reconciliation of net operating earnings Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and the change in allowance for credit losses on investments, after taxes.
Net income for the years ended December 31, 2023 and 2022 reconciles to underwriting income as follows: Year Ended December 31, ($ in thousands) 2023 2022 Net income $ 308,093 $ 159,114 Income tax expense 75,924 36,450 Income before taxes 384,017 195,564 Net investment income (102,335) (51,282) Change in the fair value of equity securities (15,277) 27,723 Net realized investment gains (6,040) (1,191) Change in allowance for credit losses on investments 187 366 Interest expense 10,301 4,284 Other expenses (1) 942 721 Other income (1,421) (697) Underwriting income $ 270,374 $ 175,488 (1) Other expenses are corporate expenses not allocated to our insurance operations. 55 Table of Contents Reconciliation of net operating earnings Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, net realized investment gains and losses, after taxes, and the change in allowance for credit losses on investments, after taxes.
At December 31, 2022, we also held $152.5 million of equity securities, which were comprised of ETFs, common stocks and non-redeemable preferred stock, $156.3 million of cash and cash equivalents, $76.4 million of real estate investments and $41.3 million of short-term investments.
At December 31, 2023, we also held $234.8 million of equity securities, which were comprised of ETFs, common stocks and non-redeemable preferred stock, $126.7 million of cash and cash equivalents, $14.8 million of real estate investments and $5.6 million of short-term investments.
Net income for the years ended December 31, 2022 and 2021 reconciles to net operating earnings as follows: Year Ended December 31, ($ in thousands) 2022 2021 Net income $ 159,114 $ 152,659 Adjustments: Change in the fair value of equity securities, before taxes 27,723 (22,812) Income tax (benefit) expense (1) (5,822) 4,791 Change in the fair value of equity securities, after taxes 21,901 (18,021) Net realized investment gains, before taxes (1,191) (2,828) Income tax expense (1) 250 594 Net realized investment gains, after taxes (941) (2,234) Change in allowance for credit losses on investments, before taxes 366 — Income tax benefit (1) (77) — Change in allowance for credit losses on investments, after taxes 289 — Net operating earnings $ 180,363 $ 132,404 Operating return on equity: Average equity (2) $ 722,392 $ 637,787 Return on equity (3) 22.0 % 23.9 % Operating return on equity (4) 25.0 % 20.8 % (1) Income taxes on adjustments to reconcile net income to net operating earnings use an effective tax rate of 21%.
Net income for the years ended December 31, 2023 and 2022 reconciles to net operating earnings as follows: Year Ended December 31, ($ in thousands) 2023 2022 Net income $ 308,093 $ 159,114 Adjustments: Change in the fair value of equity securities, before taxes (15,277) 27,723 Income tax expense (benefit) (1) 3,208 (5,822) Change in the fair value of equity securities, after taxes (12,069) 21,901 Net realized investment gains, before taxes (6,040) (1,191) Income tax expense (1) 1,268 250 Net realized investment gains, after taxes (4,772) (941) Change in allowance for credit losses on investments, before taxes 187 366 Income tax benefit (1) (39) (77) Change in allowance for credit losses on investments, after taxes 148 289 Net operating earnings $ 291,400 $ 180,363 Operating return on equity: Average equity (2) $ 916,141 $ 722,392 Return on equity (3) 33.6 % 22.0 % Operating return on equity (4) 31.8 % 25.0 % (1) Income taxes on adjustments to reconcile net income to net operating earnings use an effective tax rate of 21%.
Reinsurance balances recoverable on reserves for losses and loss adjustment expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not discharge us of our liability to policyholders.
See Note 7 of the notes to the consolidated financial statements and "—Critical Accounting Estimates" for a discussion of estimates and assumptions related to the reserves for unpaid losses and loss adjustment expenses. 51 Table of Contents Reinsurance balances recoverable on reserves for losses and loss adjustment expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not discharge us of our liability to policyholders.
The following tables summarize our reserves for unpaid losses and loss adjustment expenses, on a gross basis and net of reinsurance, at December 31, 2022 and 2021: December 31, 2022 Gross % of Total Net % of Total ($ in thousands) Case reserves $ 178,216 14.4 % $ 138,486 13.0 % IBNR 1,060,186 85.6 % 922,877 87.0 % Total $ 1,238,402 100.0 % $ 1,061,363 100.0 % December 31, 2021 Gross % of Total Net % of Total ($ in thousands) Case reserves $ 133,748 15.2 % $ 107,340 14.1 % IBNR 747,596 84.8 % 656,443 85.9 % Total $ 881,344 100.0 % $ 763,783 100.0 % Case reserves are established for individual claims that have been reported to us.
The following tables summarize our reserves for unpaid losses and loss adjustment expenses, on a gross basis and net of reinsurance, at December 31, 2023 and 2022: December 31, 2023 Gross % of Total Net % of Total ($ in thousands) Case reserves $ 162,679 9.6 % $ 137,581 9.5 % IBNR 1,530,196 90.4 % 1,313,937 90.5 % Total $ 1,692,875 100.0 % $ 1,451,518 100.0 % December 31, 2022 Gross % of Total Net % of Total ($ in thousands) Case reserves $ 178,216 14.4 % $ 138,486 13.0 % IBNR 1,060,186 85.6 % 922,877 87.0 % Total $ 1,238,402 100.0 % $ 1,061,363 100.0 % Case reserves are established for individual claims that have been reported to us.
Loss ratio , expressed as a percentage, is the ratio of losses and loss adjustment expenses to earned premiums, net of the effects of reinsurance.
Loss ratio , expressed as a percentage, is the ratio of losses and loss adjustment expenses to the sum of net earned premiums and fee income. Expense ratio , expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to the sum of net earned premiums and fee income.
We seek to accomplish this by generating consistent and strong underwriting profits while managing our capital prudently. We believe that we have built a company that is entrepreneurial and highly efficient, using our proprietary technology platform and leveraging the expertise of our highly-experienced employees in our daily operations.
We believe that we have built a company that is entrepreneurial and highly efficient, using our proprietary technology platform and leveraging the expertise of our highly-experienced employees in our daily operations.
During the year ended December 31, 2021, the increase in the fair value of equity securities of $22.8 million was comprised of unrealized gains related to ETF securities of $23.2 million and unrealized losses related to non-redeemable preferred stock of $0.4 million.
During the year ended December 31, 2023, the increase in the fair value of equity securities of $15.3 million was comprised of unrealized gains related to ETFs and common stocks of $12.8 million and unrealized gains related to non-redeemable preferred stock of $2.5 million.
Net written premiums increased by $276.6 million, or 41.9%, to $936.8 million for the year ended December 31, 2022 from $660.2 million for the year ended December 31, 2021. The increase in net written premiums was largely due to higher gross written premiums for the year ended December 31, 2022.
Net written premiums increased by $327.8 million, or 35.0%, to $1.3 billion for the year ended December 31, 2023 from $936.8 million for the year ended December 31, 2022. The increase in net written premiums was largely due to higher gross written premiums for the year ended December 31, 2023.
As previously discussed, the increase was due to growth in gross written premiums in 2022 compared to 2021. 43 Table of Contents Loss ratio Our loss ratio was 57.7% for the year ended December 31, 2022 compared to 55.7% for the year ended December 31, 2021.
As previously discussed, the increase was due to growth in gross written premiums in 2023 compared to 2022. Loss ratio Our loss ratio was 54.6% for the year ended December 31, 2023 compared to 56.3% for the year ended December 31, 2022.
At December 31, 2022, the majority of the investment portfolio was comprised of fixed-maturity securities of $1.8 billion that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on those securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.
Available-for-sale investments are carried at fair value with unrealized gains and losses on those securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income.
Net investment income Net investment income is an important component of our results of operations. We earn investment income on our portfolio of cash and invested assets. Our cash and invested assets are primarily comprised of fixed-maturity securities, and may also include equity securities, investments in real estate, cash equivalents, and short-term investments.
Our cash and invested assets are primarily comprised of fixed-maturity securities, and may also include equity securities, investments in real estate, cash equivalents, and short-term investments. The principal factors that influence the level of net investment income are the size of our investment portfolio and the yield on that portfolio.
Principal payments are required annually beginning on July 22, 2030 in equal installments of $25.0 million through July 22, 2034, the maturity date. Interest accrues quarterly and is payable in arrears.
Interest accrues quarterly and is payable in arrears. As of December 31, 2023, we had $50.0 million of the 6.21% Series B Senior Note outstanding. Principal payments are required annually beginning on July 22, 2030 in equal installments of $10.0 million through July 22, 2034, the maturity date. Interest accrues quarterly and is payable in arrears.
Debt On July 22, 2022, we entered into a Note Purchase and Private Shelf Agreement (the “Note Purchase Agreement”), which provides for the issuance of senior promissory notes with an aggregate principal amount of up to $150.0 million.
The remaining $14.8 million presented on the consolidated balance sheet represents the portion of remaining real estate assets held for investment purposes. Debt In July 2022, we entered into a Note Purchase and Private Shelf Agreement (the "Note Purchase Agreement"), which provides for the issuance of senior promissory notes with an aggregate principal amount of up to $150.0 million.
The corresponding combined ratios were 77.9% for the year ended December 31, 2022 compared to 77.1% for the year ended December 31, 2021. Premiums Gross written premiums were $1.1 billion for the year ended December 31, 2022 compared to $764.4 million for the year ended December 31, 2021, an increase of $337.7 million, or 44.2%.
The corresponding combined ratios were 75.4% for the year ended December 31, 2023 compared to 78.5% for the year ended December 31, 2022. Premiums Gross written premiums were $1.6 billion for the year ended December 31, 2023 compared to $1.1 billion for the year ended December 31, 2022, an increase of $466.7 million, or 42.3%.
See also "Risk Factors — Risks Related to Our Business and Our Industry — Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary." As of December 31, 2022, our holding company had $34.8 million in cash and investments, compared to $14.6 million as of December 31, 2021 . 47 Table of Contents Management believes there is sufficient liquidity available at the holding company and in its insurance subsidiary, Kinsale Insurance, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations for the next 12 months.
See also "Risk Factors — Risks Related to Our Business and Our Industry — Because we are a holding company and substantially all of our operations are conducted by our insurance subsidiary, our ability to pay dividends depends on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary." As of December 31, 2023, our holding company had $17.1 million in cash and investments, compared to $34.8 million as of December 31, 2022 .
Gross written premiums increased across substantially all of our lines of business for the year ended December 31, 2022 and were most notable in the following lines of business: • Commercial Property, which represented approximately 16.8% of our gross written premiums in 2022, increased by $112.3 million, or 154.8%, for the year ended December 31, 2022 over the prior year; • Small Business Casualty, which represented approximately 13.6% of our gross written premiums in 2022, increased by $36.8 million, or 32.7%, for the year ended December 31, 2022 over the prior year; • Excess Casualty, which represented approximately 13.4% of our gross written premiums in 2022, increased by $39.0 million, or 35.9%, for the year ended December 31, 2022 over the prior year; • Construction, which represented approximately 11.1% of our gross written premiums in 2022, increased by $21.1 million, or 20.8%, for the year ended December 31, 2022 over the prior year, and • General Casualty, which represented approximately 6.3% of our gross written premiums in 2022, increased by $33.7 million, or 93.6%, for the year ended December 31, 2022 over the prior year.
Gross written premiums increased across substantially all of our underwriting divisions for the year ended December 31, 2023 and were most notable in the following lines of business: • Commercial Property, which represented approximately 26.3% of our gross written premiums in 2023, increased by $230.5 million, or 127.0%, for the year ended December 31, 2023; • General Casualty, which represented approximately 7.5% of our gross written premiums in 2023, increased by $49.0 million, or 70.2%, for the year ended December 31, 2023; • Excess Casualty, which represented approximately 12.4% of our gross written premiums in 2023, increased by $46.6 million, or 31.6%, for the year ended December 31, 2023; • Small Business Casualty, which represented approximately 11.1% of our gross written premiums in 2023, increased by $24.7 million, or 16.5%, for the year ended December 31, 2023 and • Construction, which represented approximately 8.8% of our gross written premiums in 2023, increased by $15.4 million, or 12.5%, for the year ended December 31, 2023.
The increase in the loss ratio for the year ended December 31, 2022 was due primarily to higher catastrophe losses incurred and lower net favorable development of loss reserves from prior accident years as a percentage of earned premiums.
The decrease in the loss ratio for the year ended December 31, 2023 was due primarily to lower catastrophe losses incurred during the period, offset in part by lower relative net favorable development of loss reserves from prior accident years.
We also write a small amount of homeowners insurance in the personal lines market, which in aggregate represented 2.8% of our gross written premiums in 2022. Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns.
We also write homeowners' coverage in the personal lines market, which in aggregate represented 2.5% of our gross written premiums in 2023. Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns. We seek to accomplish this by generating consistent and strong underwriting profits while managing our capital prudently.
Losses and loss adjustment expenses Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage.
See Note 17 of the notes to the consolidated financial statements for further information regarding fee income. Losses and loss adjustment expenses Losses and loss adjustment expenses are a function of the amount and type of insurance contracts we write and the loss experience associated with the underlying coverage.
For the year ended December 31, 2021 , net cash used in investing activities was $352.0 million. For the year ended December 31, 2021, these funds were used to purchase fixed-maturity securities, particularly corporate bonds and asset- and mortgage-backed securities of $633.6 million, and to a lesser extent, municipal bonds of $14.4 million and sovereigns of $6.9 million.
For the year ended December 31, 2023, funds from operations were used to purchase fixed-maturity securities, particularly corporate bonds and asset- and mortgage-backed securities of $1.3 billion, and to a lesser extent, sovereigns and government agency bonds of $26.3 million and municipal bonds of $4.9 million.
Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 3.5 years and an average rating of "AA-" at December 31, 2022.
Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 2.8 years and an average rating of "AA-" at December 31, 2023. Our investment portfolio, excluding cash equivalents and real estate investments, had a gross investment return of 4.0% as of December 31, 2023, compared to 3.0% as of December 31, 2022.
See Note 8 to the consolidated financial statements and "—Critical Accounting Estimates" for a discussion of reinsurance recoverables. Debt As of December 31, 2022, we had $125 million of 5.15% Series A Senior Notes outstanding, net of debt issuance costs.
See Note 8 to the consolidated financial statements and "—Critical Accounting Estimates" for a discussion of reinsurance recoverables. Debt As of December 31, 2023, we had $125.0 million of 5.15% Series A Senior Notes outstanding. Principal payments are required annually beginning on July 22, 2030 in equal installments of $25.0 million through July 22, 2034, the maturity date.
During the year ended December 31, 2021, loss reserves for prior accident years developed favorably by $32.0 million, of which $33.7 million was attributable to the 2020 accident year and was related to a lower-than-expected levels of reported losses.
During the year ended December 31, 2023, prior accident years developed favorably by $35.8 million, of which $49.0 million was attributable to the 2021 and 2022 accident years due to lower emergence of reported losses than expected across most lines of business.
Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts. Policy acquisition costs also include deferred underwriting expenses that are directly related to the successful acquisition of policies.
Losses and loss adjustment expenses may be paid out over a period of years. Underwriting, acquisition and insurance expenses Underwriting, acquisition and insurance expenses include policy acquisition costs and other underwriting expenses. Policy acquisition costs are principally comprised of the commissions we pay our brokers, net of ceding commissions we receive on business ceded under certain reinsurance contracts.
Income tax expense Our effective tax rate was approximately 18.6% for the year ended December 31, 2022 compared to 19.1% for the year ended December 31, 2021.
See Note 2 of the notes to the consolidated financial statements for further information regarding credit losses. Income tax expense Our effective tax rate was approximately 19.8% for the year ended December 31, 2023 compared to 18.6% for the year ended December 31, 2022.
Our investment portfolio, excluding cash equivalents and real estate investments, had a gross investment return of 3.0% as of December 31, 2022, compared to 2.5% as of December 31, 2021. 52 Table of Contents At December 31, 2022, the amortized cost and estimated fair value of our fixed-maturity, equity, and short-term investments were as follows: December 31, 2022 Amortized Cost Estimated Fair Value % of Total Fair Value ($ in thousands) Fixed maturities: U.S.
At December 31, 2023, the amortized cost and estimated fair value of our fixed-maturity, equity, and short-term investments were as follows: December 31, 2023 Amortized Cost Estimated Fair Value % of Total Fair Value ($ in thousands) Fixed maturities: U.S.
The increase in the fair value of our ETF portfolio largely reflected the performance in the broader domestic stock markets. We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss.
We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in a security's fair value is deemed to be a credit loss. Based on our review, we recorded credit loss expense of $0.2 million and $0.4 million for the year ended December 31, 2023 and 2022, respectively.
The following table summarizes the effect of the factors indicated above on the loss ratios for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 ($ in thousands) Losses and Loss Adjustment Expenses % of Earned Premiums Losses and Loss Adjustment Expenses % of Earned Premiums Loss ratio: Current accident year $ 467,182 58.8 % $ 347,761 59.7 % Current accident year - catastrophe losses 26,618 3.4 % 8,640 1.5 % Effect of prior year development (35,887) (4.5) % (31,986) (5.5) % Total $ 457,913 57.7 % $ 324,415 55.7 % 44 Table of Contents Expense ratio The following table summarizes the components of the expense ratio for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 ($ in thousands) Underwriting Expenses % of Earned Premiums Underwriting Expenses % of Earned Premiums Commissions incurred: Direct $ 138,451 17.4 % $ 98,847 16.9 % Ceding (44,695) (5.6) % (25,702) (4.4) % Net commissions incurred 93,756 11.8 % 73,145 12.5 % Other underwriting expenses 66,962 8.4 % 51,755 8.9 % Underwriting, acquisition, and insurance expenses $ 160,718 20.2 % $ 124,900 21.4 % The expense ratio was 20.2% for the year ended December 31, 2022 compared to 21.4% for the year ended December 31, 2021.
The following table summarizes the effect of the factors indicated above on the loss ratios for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 ($ in thousands) Losses and Loss Adjustment Expenses % of Sum of Earned Premiums and Fee Income Losses and Loss Adjustment Expenses % of Sum of Earned Premiums and Fee Income Loss ratio: Current accident year $ 631,407 57.4 % $ 467,182 57.4 % Current accident year - catastrophe losses 4,586 0.4 % 26,618 3.3 % Effect of prior year development (35,774) (3.2) % (35,887) (4.4) % Total $ 600,219 54.6 % $ 457,913 56.3 % 45 Table of Contents Expense ratio The following table summarizes the components of the expense ratio for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 ($ in thousands) Underwriting Expenses % of Sum of Earned Premiums and Fee Income Underwriting Expenses % of Sum of Earned Premiums and Fee Income Net commissions incurred 113,717 10.3 % 93,756 11.5 % Other underwriting expenses 115,253 10.5 % 86,566 10.7 % Underwriting, acquisition, and insurance expenses $ 228,970 20.8 % $ 180,322 22.2 % The expense ratio was 20.8% for the year ended December 31, 2023 compared to 22.2% for the year ended December 31, 2022.
Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending book values of those investments during the period. 41 Table of Contents Results of Operations Year ended December 31, 2022 compared to year ended December 31, 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021: Year Ended December 31, ($ in thousands) 2022 2021 Change % Change Gross written premiums $ 1,102,092 $ 764,373 $ 337,719 44.2 % Ceded written premiums (165,282) (104,164) (61,118) 58.7 % Net written premiums $ 936,810 $ 660,209 $ 276,601 41.9 % Net earned premiums $ 794,119 $ 582,879 $ 211,240 36.2 % Losses and loss adjustment expenses 457,913 324,415 133,498 41.2 % Underwriting, acquisition and insurance expenses 160,718 124,900 35,818 28.7 % Underwriting income (1) 175,488 133,564 41,924 31.4 % Net investment income 51,282 31,048 20,234 65.2 % Change in fair value of equity securities (27,723) 22,812 (50,535) (221.5) % Net realized investment gains 1,191 2,828 (1,637) (57.9) % Change in allowance for credit losses on investments (366) — (366) NM Interest expense (4,284) (994) (3,290) 331.0 % Other expenses, net (24) (457) 433 (94.7) % Income before taxes 195,564 188,801 6,763 3.6 % Income tax expense 36,450 36,142 308 0.9 % Net income $ 159,114 $ 152,659 $ 6,455 4.2 % Net operating earnings (2) $ 180,363 $ 132,404 $ 47,959 36.2 % Loss ratio 57.7 % 55.7 % Expense ratio 20.2 % 21.4 % Combined ratio 77.9 % 77.1 % Return on equity 22.0 % 23.9 % Operating return on equity (2) 25.0 % 20.8 % NM - Percentage change is not meaningful (1) Underwriting income is a non-GAAP financial measure.
Gross investment return is investment income from fixed-maturity and equity securities (and short-term investments, if any), before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending book values of those investments during the period. 42 Table of Contents Results of Operations Year ended December 31, 2023 compared to year ended December 31, 2022 The following table summarizes our results of operations for the years ended December 31, 2023 and 2022: Year Ended December 31, ($ in thousands) 2023 2022 Change % Change Gross written premiums $ 1,568,815 $ 1,102,092 $ 466,723 42.3 % Ceded written premiums (304,185) (165,282) (138,903) 84.0 % Net written premiums $ 1,264,630 $ 936,810 $ 327,820 35.0 % Net earned premiums $ 1,072,537 $ 794,119 $ 278,418 35.1 % Fee income 27,026 19,604 7,422 37.9 % Losses and loss adjustment expenses 600,219 457,913 142,306 31.1 % Underwriting, acquisition and insurance expenses 228,970 180,322 48,648 27.0 % Underwriting income (1) 270,374 175,488 94,886 54.1 % Net investment income 102,335 51,282 51,053 99.6 % Change in fair value of equity securities 15,277 (27,723) 43,000 NM Net realized investment gains 6,040 1,191 4,849 407.1 % Change in allowance for credit losses on investments (187) (366) 179 NM Interest expense (10,301) (4,284) (6,017) 140.5 % Other income (expenses), net 479 (24) 503 NM Income before taxes 384,017 195,564 188,453 96.4 % Income tax expense 75,924 36,450 39,474 108.3 % Net income $ 308,093 $ 159,114 $ 148,979 93.6 % Net operating earnings (2) $ 291,400 $ 180,363 $ 111,037 61.6 % Loss ratio 54.6 % 56.3 % Expense ratio 20.8 % 22.2 % Combined ratio (3) 75.4 % 78.5 % Return on equity 33.6 % 22.0 % Operating return on equity (2) 31.8 % 25.0 % NM - Percentage change is not meaningful (1) Underwriting income is a non-GAAP financial measure.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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The table below illustrates the sensitivity of the fair value of our fixed-maturity securities and non-redeemable preferred stock to selected hypothetical changes in interest rates as of December 31, 2022 and 2021.
The table below illustrates the sensitivity of the fair value of our fixed-maturity securities and non-redeemable preferred stock to selected hypothetical changes in interest rates as of December 31, 2023 and 2022.
A portion of our portfolio is invested in ETF securities and common stock, which have historically produced higher long-term returns relative to fixed-maturity investments. As of December 31, 2022, approximately 5.4% of the fair value of our investment portfolio (including cash and cash equivalents) was invested in ETF securities and common stocks.
A portion of our portfolio is invested in ETF securities and common stock, which have historically produced higher long-term returns relative to fixed-maturity investments. As of December 31, 2023, approximately 6.5% of the fair value of our investment portfolio (including cash and cash equivalents) was invested in ETFs and common stocks.
Our policy is to invest in investment grade securities and to minimize investments in fixed maturities that are unrated or rated below investment grade. At December 31, 2022, approximately 3.6% of our fixed-maturity portfolio, excluding cash equivalents, was unrated or rated below investment grade. We monitor the financial condition of all of the issuers of fixed-maturity securities in our portfolio.
Our policy is to invest in investment grade securities and to minimize investments in fixed maturities that are unrated or rated below investment grade. At December 31, 2023, approximately 2.5% of our fixed-maturity portfolio, excluding cash equivalents, was unrated or rated below investment grade. We monitor the financial condition of all of the issuers of fixed-maturity securities in our portfolio.
The effective weighted-average duration of the portfolio, including cash equivalents, was 3.5 years as of December 31, 2022. 63 Table of Contents We had fixed-maturity securities and non-redeemable preferred stock with a fair value of $1.8 billion at December 31, 2022 and $1.4 billion at December 31, 2021 that were subject to interest rate risk.
The effective weighted-average duration of the portfolio, including cash equivalents, was 2.8 years as of December 31, 2023. 63 Table of Contents We had fixed-maturity securities and non-redeemable preferred stock with a fair value of $2.7 billion at December 31, 2023 and $1.8 billion at December 31, 2022 that were subject to interest rate risk.
At December 31, 2022, our fixed-maturity portfolio, including cash equivalents, had an average rating of "AA-." Additionally, at December 31, 2022, approximately 78.6% of our fixed-maturity portfolio, excluding cash equivalents, was rated "A-" or better by at least one nationally recognized rating organization.
At December 31, 2023, our fixed-maturity portfolio, including cash equivalents, had an average rating of "AA-." Additionally, at December 31, 2023, approximately 83.3% of our fixed-maturity portfolio, excluding cash equivalents, was rated "A-" or better by at least one nationally recognized rating organization.
December 31, 2022 December 31, 2021 Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value ($ in thousands) 200 basis points increase $ 1,674,481 $ (123,781) (6.9) % $ 1,308,401 $ (132,887) (9.2) % 100 basis points increase $ 1,734,021 $ (64,241) (3.6) % $ 1,373,259 $ (68,029) (4.7) % No change $ 1,798,262 $ — — % $ 1,441,288 $ — — % 100 basis points decrease $ 1,867,189 $ 68,927 3.8 % $ 1,500,093 $ 58,805 4.1 % 200 basis points decrease $ 1,940,279 $ 142,017 7.9 % $ 1,531,801 $ 90,513 6.3 % Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income.
December 31, 2023 December 31, 2022 Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value Estimated Fair Value Estimated Change in Fair Value Estimated % Increase (Decrease) in Fair Value ($ in thousands) 200 basis points increase $ 2,596,163 $ (148,769) (5.4) % $ 1,674,481 $ (123,781) (6.9) % 100 basis points increase $ 2,668,387 $ (76,545) (2.8) % $ 1,734,021 $ (64,241) (3.6) % No change $ 2,744,932 $ — — % $ 1,798,262 $ — — % 100 basis points decrease $ 2,824,874 $ 79,942 2.9 % $ 1,867,189 $ 68,927 3.8 % 200 basis points decrease $ 2,907,181 $ 162,249 5.9 % $ 1,940,279 $ 142,017 7.9 % Changes in interest rates will have an immediate effect on comprehensive income and stockholders’ equity but will not ordinarily have an immediate effect on net income.

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