Kinsale considering capital raise to take advantage of E&S opportunities

Kinsale Capital Group could look to raise “a modest” amount of equity capital before the end of the year as the carrier seeks to take advantage of the opportunities that have arisen from the widespread E&S market hardening, president and CEO Michael Kehoe told analysts on Friday.

A host of other carriers have looked to raise funds to strengthen their position in the E&S market and take advantage of the soaring rates. One of the most notable is the relaunched StarStone US, which has secured $850mn of new capital that it will put to work in the expanding E&S space.

And now Kinsale is also considering adding its name to the list of companies looking to raise capital.

“Industry dislocation is also allowing Kinsale to raise rates and in some cases, restrict coverage to further expand our profit margins,” Kehoe told analysts during a call to discuss the company’s second quarter results.

“To take full advantage of this market opportunity, there is a possibility Kinsale could raise a modest amount of equity capital before year-end,” he said.

As The Insurer reported on Thursday, Kinsale ended the second quarter of 2020 with net premiums written of $117.6mn, up 42.2 percent year on year.

Kinsale’s gross premiums written increased by 41 percent year on year to $134.1mn in 2020’s second quarter.

During the analyst call, Kehoe said that “accelerated growth” had come about due to the “growing level of dislocation within the P&C market”.

“After many years of intense competition, some competitors are experiencing adverse results and are withdrawing capacity, cancelling some programs, raising prices, et cetera,” said Kehoe.

“We expect this dislocation to continue, thereby allowing Kinsale to grow at an elevated rate perhaps through 2021.”

Kinsale has a broad book of business, and as such, chief operating officer Brian Hanley said it is difficult to average out the rate increases across its operations into one number.

But, as a guide, he said rates were up 10 to 12 percent in the aggregate during 2020’s second quarter.

What is not included in that range, however, is the tightening of terms and conditions which have also strengthened the carrier’s book.

“As the market has hardened, we have also been pushing more favourable terms and conditions. Even though that may not be reflected in rate changes, it does affect profit margins, so we expect that 10 to 12 percent might understate the change in profitability in the book,” said Hanley.

In some of Kinsale’s core business lines, Hanley said there is plenty more rate improvement to come.

The excess casualty, commercial property and Allied Health spaces “are probably in the vanguard of market hardening”, said Hanley.

Management liability is another business segment where pricing was harder than in many other lines.

Repeated years of bad underwriting and what Hanley said was “overly aggressive behaviour in the market” have led to some “seriously poor results”.

That has forced some of the more undisciplined players in the market to significantly pull back.

“Some competitors have been compelled to dramatically increase their rates, which had been inadequate for many long years of the soft market. They’ve also had to tighten terms and conditions, re-underwrite some books of business, reduce limits, exit some classes of business entirely and terminate some programs,” said Hanley.

“All of this has led to more opportunity for us. We have maintained underwriting discipline throughout the soft market, so we are not now being forced to pull back in the hardening market.”

Investors have responded positively to Kinsale’s results and Kehoe’s comments, with the company’s share price ending Friday trading at $194.90, up more than 17 percent compared with Thursday’s close.