Good morning, and welcome to Kinsale Capital Group's Second Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded. Before we begin, I want to remind everyone that Kinsale's management may share comments that reflect their intentions, beliefs, and expectations for the future. These forward-looking statements are subject to various risk factors that could cause actual results to differ significantly. These risk factors are detailed in the company’s SEC filings, including the 2024 annual report on Form 10-K, which should be reviewed carefully. The company has provided a Form 8-K to the Securities and Exchange Commission that includes the press release announcing its second quarter results. Kinsale's management may also discuss certain non-GAAP financial measures during the call today. A reconciliation of GAAP to these measures can be found in the press release, which is available on the company's website. I will now hand it over to Kinsale's Chairman and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Bryan Petrucelli, our CFO; and Brian Haney, our President and COO are both joining me on the call this morning. In the second quarter of 2025, Kinsale's operating earnings per share increased by 27.5% and gross written premium grew by 4.9% over the second quarter of 2024. For the quarter, the company posted a combined ratio of 75.8% and a 6-month operating return on equity of 24.7%. Our book value per share increased by 16% since the year-end 2024. In both hard markets and soft, Kinsale's differentiated strategy and execution allow us to drive both profit and growth. We focus on small E&S accounts. We maintain absolute control over our underwriting. We provide exceptional customer service and offer the broadest risk appetite in the business. We have advanced technology and no legacy software, a strong emphasis on data and analytics. And by far, we have the lowest costs in the industry. This strategy and the skill and experience of our almost 700 full-time employees give us confidence in our prospects for both profitability and growth in the years ahead in all types of market environments. The E&S market in the second quarter was consistent with the first quarter. Overall, it is a competitive market with the level of competition varying quite a bit from one industry segment to another. Our Commercial Property division saw premium drop by 16.8% in the second quarter due to high levels of competition and rate declines. Absent this division, Kinsale's premium grew by 14.3% in the second quarter. Brian Haney will offer some more in-depth commentary on the market here in a moment. We renewed our reinsurance program on June 1. Given the strong returns we have generated for our reinsurers over many years, the overall program was slightly more favorable for Kinsale upon renewal. Some of the modest changes in the program include a $3 million retention on our casualty treaty, up from a $2.5 million retention on the expiring. On our commercial property quota share contract, the ceding commission we received from reinsurers increased slightly, reflecting favorable historical results and our retention increased to 60% from 50% on the expiring program. On the catastrophe excess of loss treaty, we increased our retention from $60 million to $75 million and purchased some additional limit at the top of the tower. As we have stated many times over the years, we endeavor to post loss reserves with some measure of conservatism, so that they are more likely to develop favorably than unfavorably over time. Our 16-year track record bears out our commitment to cautious reserving and building a strong balance sheet. At a time when there are substantial questions around the reserve adequacy of the broader P&C industry, it's important for investors in Kinsale to know that our loss reserves have never been more conservatively stated than they are right now. And with that, I'll turn the call over to Bryan Petrucelli.

Thanks, Mike. Again, just another strong quarter with net income and net operating earnings increasing by 44.9% and 27.4%, respectively. The 75.8% combined ratio for the quarter included 3.9 points from net favorable prior year loss reserve development compared to 2.8 points last year with less than 1 point in cat losses this year compared to 1 point in Q2 of 2024. As Mike mentioned, we continue to take a cautious approach to releasing reserves. We produced a 20.7% expense ratio in the second quarter compared to 21.1% last year. The expense ratio continues to benefit from ceding commissions generated on the company's casualty and commercial property quota share reinsurance agreements and from the company's intense focus on managing expenses on a daily basis. On the investment side, net investment income increased by 29.6% in the second quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows. Kinsale's float, mostly on paid losses and unearned premium, grew to $2.9 billion at June 30 of this year, up from $2.5 billion at the end of 2024. Annualized gross return was 4.3% for the first half of the year and consistent with last year. Other than the modest increase in the allocation of common stock that we mentioned last quarter, we haven't made any significant changes to our investment strategy and continue to monitor inflation, interest rates and related Fed policy commentary and will adjust as circumstances change. New money yields are averaging in the low to mid-5% range with an average duration of 3.1 years. And lastly, diluted operating earnings per share continues to improve and was $4.78 per share for the quarter compared to $3.75 per share for the second quarter of 2024. And with that, I'll pass it over to Brian Haney.

Thanks, Bryan. The E&S market remains competitive, though the intensity varies by division. We're seeing robust premium growth in small business property, high-value homeowners, commercial auto, entertainment, and general casualty. Meanwhile, commercial property, construction, life sciences, and management liability are facing tougher competition and in some cases, declining premiums. The market is clearly more competitive than a year ago. However, much of the aggressive pricing is coming from MGAs and front-end companies. While there are some highly regarded MGAs out there with long track records of success, the model as a whole is challenged by a misalignment of interest. Some front-end companies are posting unsustainable gross loss ratios of 100% or higher signaling capital destruction. Notably, on our largest reserve line, other liability occurrence, the top 6 E&S fronting carriers are projecting 2024 gross loss ratios well below ours despite consistently worse experience in older accident years and consistently worse loss development. Either they, as a group, have experienced a miraculous turnaround where they are under-reserving. Eventually, loss reserves turn into paid claims and posting inadequate reserves only pushes the problem down the road for a time. The situation is reminiscent, on a smaller scale, of the mortgage crisis of 2008 where you had a misalignment of interest between the originators and carriers of risk, which resulted in a fundamental mispricing of that risk. Given the size of the problem, this will not be as significant for the economy as the mortgage crisis, but it will be very significant for the insurance industry and for some players in particular. And it's encouraging to us because ultimately, under-reserving is a self-correcting problem. We continue expanding our product suite to capture market opportunity. In Q2, we broadened our agribusiness vertical to include property coverage and launched a new homeowners product in Texas, Louisiana, Colorado, and California with more states on the way. Submission growth was 9% for the quarter, which is down slightly from the 10% in the first quarter. Our Commercial Property division experienced a decline in submissions, which depressed the company's overall submission growth rate. Without that, the submission growth rate would have been in the low double digits. Pricing trends aligned with the Amwins Index, which reported a 2.4% overall decrease. Commercial property, especially in Southeastern Wind zones, was down 20%. Casualty pricing was mixed, but modestly positive. Some professional and management liability lines were slightly negative. Finally, we continue to be cautious around loss cost trends; headline inflation is above the Fed's 2% target. And with various our reserves. Overall, we remain optimistic. Our loss results are good. Our growth prospects are good. And as the low-cost provider in our space, we have a durable competitive advantage. And with that, I'll hand it back over to Mike.

Thanks, Brian. Operator, we're ready for Q&A.

Our first question comes from Andrew Kligerman from TD Cowen.

We're experiencing some loss cost trends and headline inflation is above the Fed's 2% target. However, we remain optimistic. Our loss results and growth prospects are strong. As the low-cost provider in our industry, we have a sustainable competitive edge. Now, I'll turn it back over to Mike.

Andrew, this is Mike. We've got a very poor connection, so we weren't able to understand your question. Do you want to try one more time?

Andrew, this is Mike. We've got a very poor connection, so we weren't able to understand your question. Do you want to try one more time?

Operator, let's drop that call and just go to the next one.

Certainly, our next question comes from Michael Zaremski from BMO Capital Markets.

It's Dan on for Mike. Maybe first just on your longer-term growth target. One of your peers recently lowered their near-term growth target due to the heightened pricing environment competition? With 2 quarters below 10% to 20% that you've guided to, is there any thought to recalibrating the near-term number? Or is there still a belief in that 10% to 20% number?

Yes. We don't provide a specific growth projection because we aren't certain about what that figure will ultimately be. I believe estimating a growth rate of 10% to 20% over the cycle is a reasonable and conservative assumption. One challenge in predicting near-term growth is the significant variability we expect over the years. Currently, we are facing heightened competition, particularly in our commercial property division, especially in larger southeastern wind accounts, which is where we are observing a notable market correction. We have reported that, excluding the Commercial Property division, our growth was in the mid-teens. This indicates the strength of our business model, the accuracy of our risk assessment, the market segment we focus on, and our substantial cost advantage over competitors. We are optimistic about the future, but we acknowledge that there are immediate challenges due to competition. Additionally, the year-over-year comparison in our Commercial Property division will be somewhat more favorable in the latter half of the year than in the first half because we underwrote a larger share of that business early last year, which should relieve some of the pressure.

That's helpful. And then switching gears to the underlying margin. Just with rates being negative in the first half of '25 and higher casualty mix. Can you just help us reconcile to source the underlying margin improvement year-over-year?

We explained everything in the release. It's the current accident year, and I believe the catastrophe losses were down a bit.

Sorry, I just meant the underlying current accident year, yes.

The current accident year is a composite of a variety of lines of business. I think kind of the general movement within that number would be, we continue to be very cautious around long-tail casualty. Brian Haney mentioned the fact that inflation is still higher than the Fed's target. I think longer-tail casualty lines are a little bit more exposed to that. So we're being conservative on the longer-tail casualty and to the extent that we're over-performing, it's probably disproportionately due to our shorter tail lines like property, where the experience has been really quite compelling.

Our next question comes from Pablo Singzon from JPMorgan.

First question I have is about the commercial property business. I was curious to get your sense of the positive gap between expected profitability and technical pricing today? Or put another way, right, how much do you think prices can drop before the market sort of throws up its hands and says this is as far as it will go? Any sort of sense you had around that?

Yes, Pablo, this is Mike. I want to remind you that we write property coverage across various underwriting divisions within our company. The Commercial Property division is experiencing the most intense competition, which includes not only dropping rates but also changes in terms and conditions and line sizes. It's a combination of factors. We have a small property division, as well as marine coverage and high-value homeowners. Our regular homeowners book is also strong. Other areas appeal to us more than the larger southeastern wind accounts. Overall, while there is a mix of market dynamics, we do not have any particular insight into where the market is headed from here.

Okay. Switching to capital return, with premium growth increasing from recent levels, even if there has been some improvement in the trend, your return on equity will likely decline. You are coming off several years of high growth, and you will accumulate capital. Is there a specific return on equity level at which you might consider increasing capital return?

Yes, I think we expect our ROEs in the low to mid-20s or better. The returns are always a function of the pricing we get. It's loss cost trends. It's the amount of conservatism in our IBNR that drifts out over time, right? So there's a lot of things that go into the returns. In terms of returning capital, it's something we look at every year, and we'll continue to adjust. But we want to maintain a healthy capital position, but we don't ever want to hold an excessive amount of redundant capital either. So right now, we address that in a very small way through the dividend and the share buybacks and we'll continue to evaluate that on a go-forward basis.

Our next question comes from Michael Phillips from Oppenheimer.

I wanted to get some additional insight on Brian's comments regarding the pricing in the casualty sector. You mentioned it was a mixed but positive situation. Could you elaborate on what you meant by that? Additionally, could you specifically discuss the trends in pricing within the excess casualty book?

Yes. If you examine the casualty line, some of the higher return, lower growing areas like product liability are seeing rate increases at the lower end or rate decreases. Meanwhile, the longer tail lines, such as construction or excess casualty, are experiencing higher rates.

Okay. And then I guess sticking with construction, it's not the first time you've mentioned so much as actual adjustments on the reserves for construction defect and liability. I guess, can you say what you're seeing for trends there? What trends there and any certain geographies that are more conducive to kind of those adjustments you made?

California used to be a significant market for us in construction, but we have shifted our focus from that. Therefore, any unusually high loss development that necessitated adjustments was primarily observed in that area. As we modified the loss development patterns, we also updated our rates, which allowed us to expand our business outside of California, which is a positive outcome.

Our next question comes from Bob Huang from Morgan Stanley.

My question is on growth and specifically new business. Not sure if you touched this already, so apologies. Just curious how much of the premium growth for the quarter was driven by new business growth? And broadly speaking, I understand that we're facing challenges in property, but is there a way to think about the new business and the renewal business dynamics going forward? Are there lines of business that are more exciting than others? Just curious to your view on that.

I don't think we have the stats in front of us to kind of bifurcate the growth between the renewal book and the new business book. But I would say, generally, it would probably be driven mostly by new business because the pricing environment we're in today, we're not seeing dramatic changes. And then what was the second part of the question?

Yes, just in terms of like if we think about just the growth going forward, is there any specific line of business where you think new business would be more exciting?

Brian Haney mentioned several underwriting divisions where we continue to see strong top-line growth, which usually aligns with a more favorable pricing environment and some dislocation within the industry. For example, in entertainment and high-value homeowners, we are launching a new homeowners product across various states. Our small business property unit continues to grow at a solid rate, and the pricing there remains favorable. While we consider ourselves a boutique insurance company, we offer a relatively wide range of products and engage in multiple industry segments. It's important to note that these segments do not all move together, but overall, we maintain a positive outlook on the market.

Okay. I really appreciate that. Maybe just like one follow-up on that comment. Specifically, homeowner, right? 2.7% of your total premium year-to-date is homeowner. You talked about the excitement of that going forward. Is that purely just driven by what's going on in California that's resulting in homeowner now growing? Like I'm guessing that business should be growing exponentially from here, does that change your 70-30 split on casualty and property going forward? Like how should I think about the growth trajectory there?

Homeowners is a volatile business segment, as the broader property and casualty industry has experienced consistent underwriting losses in this area for about five to seven years. Traditionally, this market has been dominated by standard insurers, but we are now seeing a shift towards more business being funneled into the excess and surplus (E&S) market. Kinsale is actively pursuing this opportunity, particularly in regions like California and the Southeastern states, including Texas and the Mid-Atlantic, largely influenced by coastal wind risks. Additionally, as mentioned earlier, we've introduced a new homeowners product in Colorado. Therefore, we view this as a growing opportunity across various states. While I don't foresee any immediate changes in the current 70-30 ratio of casualty to property, future success may lead to a slight adjustment in that balance.

Our next question comes from Andrew Andersen from Jefferies.

Just looking at the OpEx ratio, it looks like it's been about 8% year-to-date. And I think you were doing some technology investments that I think have ended. So is that 8% kind of a good run rate for the near term?

Yes, I think that is.

Okay. The session ratio for this quarter has come in, and comparing it to a few years ago, it was in the mid-teens range. This was prior to your increased focus on the property business, so it may not reach the mid-teens again. Should we be considering around 17% in the near term?

It's going to depend on the mix of business. When we renewed our reinsurance program, we increased our net on casualty and property and raised our cat retention slightly. As a result, the reinsurance program will lead to a shift towards a lower ceding ratio. Over time, the rest will depend on the mix of business. To be honest, I don't have a specific number to provide, but you can reasonably expect it to decrease a bit.

Our next question comes from Joe Tumillo from Bank of America.

My first question is regarding the buying commit ratio. I believe historically, this has ranged from like 9% to 11%, 12%. But I was just curious to see where we are on that today. And generally this year, has that ratio remained relatively steady for most positions, excluding commercial property?

Yes. It's been relatively stable.

Okay. All right. Great. And then the other question is kind of just kind of furthering on the conversation regarding the competition for MGAs. It seems like some of your competitors have also joined that competition, even one mentioning being approached by acquisitions. I'm kind of curious to see where you guys think we are in the cycle with MGAs given kind of the loss ratios in the history they've been putting up. Like is this something that we kind of expect coming to ahead in the near term? I know it's in a way to predict it, but just kind of curious on your thoughts on this.

Joe, this is Mike. We don't really have an opinion on that. You guys are in the business of analyzing companies and prognosticating. So we'll leave that in your capable hands.

Our next question comes from Mark Hughes from Truist.

The commercial property pricing, how would you describe it sequentially? I think last quarter and this quarter, you said down 20%. Does that mean stable sequentially?

Yes, I would say that's fair.

Very good. How about the current accident year trajectory? I think historically, you've started out the year, I think being a little more conservative, a little higher current accident year loss picks. Anything that you have seen through the 6 months that might interfere with that historical pattern of improvement in the back half?

No, I don't think so. I mentioned earlier that we evaluate and analyze our loss development every quarter. In response to a prior question, we continue to be cautious around the long-tail casualty. Any positive developments are largely driven by the short-tail business like property.

Mike, any more thoughts on this dynamic in Florida, where it seems like more business is going into the E&S market even as the pricing is softening up, why that would be? How long that might last? Is that something you've seen in prior cycles?

I think we don't have anything definitive to share. However, I would like to note that the Excess and Surplus (E&S) market is achieving record highs, not only in Florida but across the entire country, in terms of its share of overall premiums. As more people become familiar with E&S markets, there is a growing acceptance of E&S products. This trend is becoming increasingly common, making it a healthier approach for managing an insurance company, especially considering the dynamic Tort system in the United States. Florida, in particular, has experienced many changes in Tort law over the years. Additionally, the property sector has been responding to natural disasters, with a noticeable increase in catastrophic activity over the last five to seven years. E&S companies have the flexibility in pricing and policy terms to react much faster to these situations compared to standard companies. Overall, this appears to be a positive trend.

Very good. And then one more, if I can. Bryan Petrucelli, the cash flow is up a little bit through 6 months. What kind of top line growth do you need in order to keep the cash flow positive and increasing year-over-year? If you get 5% growth, will cash from operations still move up? Or is there some point at which payout and losses start to dampen that? Any general thought would be helpful.

I think that's a fair assumption, Mark.

And I think one thing that's probably depressed it a little bit is paying out all the cat losses from the Palisades wildfire. But these are short-term short tail claims that get resolved quickly, especially when you have a limits loss. So I think that's probably depressed the growth rate there on a temporary basis.

So as long as the top line is moving up then cash from operations should likewise move up?

Yes. But it's always a function of your loss experience. And again, I think we're good underwriters. We're establishing very conservative loss reserves. So I'd be optimistic.

Our next question comes from Andrew Kligerman from TD Cowen.

Can you hear me this time, so sorry for the bad line before.

You're crystal clear.

So I've been hearing so much about a lot of these start-ups in kind of small, mid E&S. What are you seeing in terms of that competition? Are you seeing a big pickup? And how is that affecting pricing?

The small start-up balance sheet businesses are not having much impact because they are overshadowed by what the MGAs are doing. The six E&S front-end companies I mentioned are generating around $6 billion in gross written premium. Therefore, it will take a significant amount of time for the newer balance sheet businesses to make a noticeable difference.

Interesting. And then following up on an earlier question about sessions and ceding off, I think the number is like 17%. And this quarter, I noticed that gross written was up 5%, but net written was up close to 7%. So over time, let's look out maybe 5, 10 years from now. Do you see that session declining to as low as 10%? Do you need to cede that much over time?

We cede more premium on the property side, where we have significant natural catastrophe exposure and where the limits are higher. So what the ceding ratio looks down the road is really going to be a function of the mix of business more than anything. I think on a homeowner's policy, the ceding ratio would be modest. If it's a hotel in the beach in Florida, it's going to be more significant.

Our next question comes from Pablo Singzon from JPMorgan.

So you go through this in the 10-Q, but I was wondering if you could provide more commentary on the reserve releases you booked this quarter. I think in the 10-Q, you mentioned accident year 2020, 2024. But I was more curious about the balance of releases between casualty and property. I think in Q1, you highlighted property more. I'm wondering if that's the case or if there's any material change this quarter?

Wait, Pablo, you're asking for some commentary on the reserve movements in 2020 through 2024?

No, no, no. What you booked this quarter, right? I think it was from accident years 2020 to 2024. But I was just curious about any color on the lines of business where you release the reserves, right? I think in Q1, you highlighted property a bit more. But anyway, any sort of commentary on the release you booked this quarter?

Yes, we have about a dozen statutory lines of business that we operate. This marks our 16th year in business, and there are no open claims from the first couple of years. Generally, we have significant activity in our reserves each quarter. We prefer not to go into specifics on a conference call since it gets too technical. However, it's crucial for investors to know that we are being very conservative in setting aside reserves today to cover future claims, particularly in light of rising inflation. Additionally, we are adopting a more cautious approach regarding the long-tail casualty lines, where we see the most uncertainty, making us slower to release reserves there. On a more positive note, any good news from our results is mainly in our short-tail business, particularly property, which accounts for 30% of our operations. Those claims are usually reported and resolved more quickly than casualty claims. This reinforces our commitment to building a solid balance sheet.

Our last question comes from Andrew Andersen from Jefferies.

Just wanted to go back to the pricing commentary on casualty and the modestly positive. I guess that sounds a little low. It could be partly that you're in small commercial, but it could also be interpreted that you're just competing more to win business. So I guess, is that the case? And do you feel that you're more competitive pricing between the competition and the spread there is growing in your favor?

Andrew, I think we said we saw in our book something similar to the Amwins index, which I think was pricing rate and exposure down about 2.4%. Our large commercial property deals, Southeastern wind accounts were down about 20%. Everything else is a little bit of a mix up or down slightly.

I would say getting back to my comment about the MGA front-end business. I think it's true that our casualty experience has been better than the industry. And so I think there's more of an opportunity for us. Or there's less of a need for us to increase rates than there is for the industry.

We have no further questions at this time. I'd like to turn the call back to Michael Kehoe for any closing remarks.

Okay. Well, thank you, everybody, for listening, and we look forward to speaking with you again down the road a little bit.

This concludes today's conference call. Thank you for your participation. You may now disconnect.