Kinsale Capital Group, Inc. (KNSL) Earnings

Management highlights

- Market Environment • The E&S market remains competitive and soft, consistent with first quarter 2026 conditions, with varying competition and growth across segments. Commercial property (large layered accounts) is a buyer's market with aggressive underpricing from competitors. • Overall industry pricing declined 5.9% in the quarter per the AMWINS pricing index, a steeper decline than the 3.3% drop in the first quarter of 2026, with severe rate pressure concentrated in large commercial property. - Core Strategic Priorities • Profitability is prioritized over top-line growth; management will not underprice risk or sacrifice long-term portfolio health for short-term volume growth. The firm targets 20%+ return on equity across all lines. • Technology and data analytics are core competitive advantages. The combined analytics and technology team operates from a unified strategic roadmap, leveraging 17 years of internal company data and expanding third-party data to refine underwriting and pricing models. • Excess capital is primarily allocated to share repurchases, with a new $250 million expansion of buyback authorization bringing total current authorization to $337 million. - Product and Distribution Growth • 9 new product offerings or enhancements have launched in 2026 to date, with 5 more imminent and 10 additional products in development. New growth is concentrated in the SME segment, which remained active through the soft market. • The firm added 24 new wholesale brokers to its platform and 176 new retail brokers to Aspera, its in-house personal lines broker, expanding geographic footprint and product offerings for homeowners insurance. - Technology and Efficiency • Kinsale owns a custom-built enterprise system with no legacy software, allowing the firm to focus on innovation rather than system maintenance. All employees have enterprise licenses for leading frontier AI models, with custom AI tools integrated directly into underwriting workflows to boost productivity, accuracy, and service speed. Operational efficiency improved, with the core other underwriting expense ratio falling to 10.3% from 10.6% YoY.

Guidance

- Management maintained its core target of 20% or greater return on equity across all business lines, and confirmed that most lines currently exceed this target. - No material changes to full-year 2026 profitability or expense outlooks are provided; management noted that the second quarter 2026 expense ratio is a good indicator for expected performance for the remainder of the year, with any slight uptick in commission ratios expected to be offset by AI-driven operating efficiency gains. - Management expects YoY GWP growth comparisons to become modestly easier in the second half of 2026, as 60% of 2025's first half commercial property premium was written in the first half of the year. - Share repurchases will remain the primary capital allocation strategy while top-line growth is constrained by soft market conditions; if growth accelerates in the future, organic growth will become the first priority for capital.

Segment performance

Overall: Gross written premium (GWP) decreased 5% year-over-year (YoY); net written premium decreased 1.4% YoY; net earned premium increased 8.9% YoY. The combined ratio for the quarter was 75.5%, with 4.5 points from net favorable prior year loss reserve development and 1.3 points from catastrophe (CAT) losses. Net investment income increased 19.9% YoY, and diluted operating earnings per share increased 15.9% YoY to $5.54, generating an annualized operating return on equity of 24.4%. Commercial Property Division (large layered property accounts): This segment is experiencing the most intense market competition, with material rate declines and expanding coverage, leading to shrinking business volume. It contributed 100% of the firm's overall GWP decline; excluding this segment, Kinsale's GWP grew 3.7% YoY for the quarter and 4.8% YoY for the first half of 2026. Small to Medium Enterprise (SME) Segment (average premium ~$12,000, accounts <$25,000 premium): This core focus segment saw strong growth, with increases in new business submissions, quotes, and bound accounts. Excluding Commercial Property, new business submissions grew 8% YoY, with over half of divisions posting double-digit submission growth. Other Lines (commercial auto, excess casualty, entertainment, agribusiness property, small business property, Inland Marine): These segments present opportunities for meaningful rate increases and stable growth. Niche property sub-segments (agribusiness, small business) have more stable market conditions than large layered commercial property.

Risks & headwinds

- Intense competition in the large layered commercial property market has led to material rate declines, expanding coverage, and competitors underpricing risk, resulting in shrinking volume for Kinsale's commercial property division. Pressure from MGAs and London markets continues to keep this segment highly competitive. - Soft market conditions have created tension around broker commission splits, as lower overall rates put pressure on broker economics, and brokers are increasingly shifting more business to the admitted market where economics are more favorable. - Kinsale is less exposed than peer insurers to social inflation due to its focus on smaller accounts and lower limits, but casualty loss cost trends still run at mid-single digits, with growing competition starting to impact pricing for general casualty and long-tail liability lines. - Forward-looking results are subject to general risk factors detailed in the company's SEC filings, including unpredictable catastrophe losses that could impact future profitability.

Analyst Q&A

• Q: What drove the better-than-expected improvement in the current year accident loss ratio, which outperforms peer commercial insurers? Was it driven by lower losses, business mix, or reserve changes? /

  A: Losses for the quarter came in below expectations, continuing a multi-quarter trend. The improvement stems from normal business variability and mix across the firm's dozen statutory lines of business. Reserves remain as conservative as they have ever been in the company's history, with slower IBNR releases for long-tail casualty business and faster releases for more predictable short-tail lines, where losses have performed especially well. (3-4 sentences)

• Q: Commercial property pricing is rapidly softening, with large competitors pulling out of the market. Is Q2 2026 the trough for this segment, and will pricing become less negative in 2027, allowing Kinsale to return to growth in large shared placements? /

  A: There is no way to reliably forecast when the commercial property market will stabilize. While some large competitors have pulled back, ongoing pricing pressure from MGAs and London markets keeps the segment extremely competitive. Kinsale will maintain discipline to meet its return thresholds, and is comfortable shrinking the segment if needed to preserve profitability. (3-4 sentences)

• Q: With the recent expansion of share buyback authorization, will buybacks remain a core capital allocation going forward if moderate top-line growth continues? /

  A: Share repurchases will remain the primary capital allocation strategy in the current environment of constrained growth. Organic growth will return to being the first priority if growth accelerates in the future. Management views Kinsale shares as strong value at current prices, given the company's competitive advantages, so buybacks are a wise use of excess capital at this time. (3-4 sentences)

• Q: What is Kinsale's current view of social inflation and casualty loss cost trends, which have been a concern for peer insurers? /

  A: Kinsale estimates current casualty loss cost trends are around mid-single digits, varying by line of business. Because Kinsale focuses primarily on smaller accounts with lower limits, it has far less exposure to social inflation than many larger peer carriers, and management does not see meaningful social inflation pressure impacting the company's portfolio currently. (3 sentences)