UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 20202021
☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______ to _______

Commission File Number: 001-37848
KINSALE CAPITAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Delaware98-0664337
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)
2221 Edward Holland Drive2035 Maywill Street
Suite 600100
Richmond, Virginia 23230
(Address of principal executive offices, including zip code)
(804) 289-1300
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01KNSLNasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐     No  ☒
Number of shares of the registrant's common stock outstanding at July 24, 2020: 22,303,44323, 2021: 22,805,592

Table of Contents
KINSALE CAPITAL GROUP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
4
Consolidated Balance Sheets at June 30, 20202021 (Unaudited) and December 31, 20192020
4
5
6
7
Notes to Condensed Consolidated Financial Statements (Unaudited)
8
Item 2.
2422
Item 3.
4442
Item 4.
4442
PART II. OTHER INFORMATION
Item 1.
4643
Item 1A.
4643
Item 2.
4743
Item 6.
4843
4944
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Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that does not directly relate to historical or current fact. These statements may discuss, among others, our future financial performance, our business prospects and strategy, our anticipated financial position, liquidity and capital, dividends and general market and industry conditions. You can identify forward-looking statements by words such as "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," "believes," "seeks," "outlook," "future," "will," "would," "should," "could," "may," "can have" andhave," "prospects" or similar terms. Forward-looking statements are based on management’s current expectations and assumptions about future events, which are subject to uncertainties, risks and changes in circumstances that are difficult to predict. These statements are only predictions and are not guarantees of future performance. Actual results may differ materially from those contemplated by a forward-looking statement. Factors that may cause such differences include, without limitation:
•the possibility that our loss reserves may be inadequate to cover our actual losses, which could have a material adverse effect on our financial condition, results of operations and cash flows;
•the inherent uncertainty of models resulting in actual losses that are materially different than our estimates;
•the failure of any of the loss limitations or exclusions we employ, or change in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;
•the inability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;
•the possibility that severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us;
•adverse economic factors, including recession, inflation, periods of high unemployment or lower economic activity resulting in the sale of fewer policies than expected or an increase in frequency or severity of claims and premium defaults or both, affecting our growth and profitability;
•a decline in our financial strength rating adversely affecting the amount of business we write;
•the potential loss of one or more key executives or an inability to attract and retain qualified personnel adversely affecting our results of operations;
•our reliance on a select group of brokers;
•the failure of any of the loss limitations or exclusions we employ, or change in other claims or coverage issues, having a material adverse effect on our financial condition or results of operations;
•the performance of our investment portfolio adversely affecting our financial results;
•the changing market conditions of our excess and surplus lines ("E&S") insurance operations, as well as the cyclical nature of our business, affecting our financial performance;
•extensive regulation adversely affecting our ability to achieveemployees taking excessive risks;
•the intense competition for business in our business objectives or industry;
•the failure to comply with these regulationseffects of litigation having an adverse effect on our business;
•the performance of our investment portfolio adversely affecting our financial condition and results of operations;results;
•the ability to pay dividends being dependent on our ability to obtain cash dividends or other permitted payments from our insurance subsidiary;
•being forced to sell investments to meet our liquidity requirements;
•the inability to obtain reinsurance coverage at reasonable prices and on terms that adequately protect us;
•our employees taking excessive risks;
•the possibility that severe weather conditions, catastrophes, pandemics and similar events may adversely affect our business, results of operations and financial condition;
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•the inabilityextensive regulation adversely affecting our ability to manageachieve our growth effectively;
•the intense competition for business in our industry;
•the effects of litigation having an adverse effect on our business;
•objectives or the failure to maintain effective internal controls in accordancecomply with the Sarbanes-Oxleythese regulations adversely affecting our financial condition and results of 2002 (the "Sarbanes-Oxley Act"); andoperations;
•the other risks and uncertainties discussed in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2019.2020.
Forward-looking statements speak only as of the date on which they are made. Except as expressly required under federal securities laws or the rules and regulations of the Securities and Exchange Commission ("SEC"), we do not assume any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
June 30,
2020		December 31,
2019
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities available for sale, at fair value (amortized cost: $856,136 in 2020; $714,817 in 2019)$893,364  $729,532  
Equity securities, at fair value (cost: $96,178 in 2020 $64,245 in 2019)107,905  78,294  
Total investments1,001,269  807,826  
Cash and cash equivalents62,976  100,408  
Investment income due and accrued6,174  4,743  
Premiums receivable, net50,866  34,483  
Reinsurance recoverables73,123  72,574  
Ceded unearned premiums19,399  16,118  
Deferred policy acquisition costs, net of ceding commissions28,942  23,564  
Intangible assets3,538  3,538  
Deferred income tax asset, net—  3,374  
Other assets43,061  23,922  
Total assets$1,289,348  $1,090,550  
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$525,801  $460,058  
Unearned premiums229,599  187,374  
Payable to reinsurers14,407  7,151  
Accounts payable and accrued expenses9,936  12,366  
Credit facility33,107  16,744  
Deferred income tax liability, net61  —  
Other liabilities20,323  977  
Total liabilities833,234  684,670  
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,302,943 and 22,205,665 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively223  222  
Additional paid-in capital230,265  229,229  
Retained earnings194,323  162,911  
Accumulated other comprehensive income31,303  13,518  
Total stockholders’ equity456,114  405,880  
Total liabilities and stockholders’ equity$1,289,348  $1,090,550  

June 30,
2021		December 31,
2020
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $1,187,603 – 2021; $1,031,817 – 2020)
$1,224,879 $1,081,800 
Equity securities, at fair value (cost: $105,322 – 2021; $98,758 – 2020)
150,882 129,662 
Total investments1,375,761 1,211,462 
Cash and cash equivalents128,005 77,093 
Investment income due and accrued7,070 6,637 
Premiums receivable, net65,727 48,641 
Reinsurance recoverables105,496 93,215 
Ceded unearned premiums29,431 24,265 
Deferred policy acquisition costs, net of ceding commissions38,801 31,912 
Intangible assets3,538 3,538 
Other assets52,448 50,133 
Total assets$1,806,277 $1,546,896 
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$753,324 $636,013 
Unearned premiums317,462 260,986 
Payable to reinsurers20,229 12,672 
Accounts payable and accrued expenses11,694 13,651 
Credit facility42,633 42,570 
Deferred income tax liability, net2,559 4,648 
Other liabilities28,740 118 
Total liabilities1,176,641 970,658 
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,805,592 and 22,757,251 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively228 228 
Additional paid-in capital292,050 291,315 
Retained earnings306,017 243,315 
Accumulated other comprehensive income31,341 41,380 
Total stockholders’ equity629,636 576,238 
Total liabilities and stockholders’ equity$1,806,277 $1,546,896 
See accompanying notes to condensed consolidated financial statements.
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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income (Unaudited)
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands, except per share data)(in thousands, except per share data)
Revenues:Revenues:Revenues:
Gross written premiumsGross written premiums$134,091  $94,947  $258,127  $179,573  Gross written premiums$194,061 $134,091 $362,937 $258,127 
Ceded written premiumsCeded written premiums(16,484) (12,260) (32,467) (23,819) Ceded written premiums(26,308)(16,484)(50,886)(32,467)
Net written premiumsNet written premiums117,607  82,687  225,660  155,754  Net written premiums167,753 117,607 312,051 225,660 
Change in unearned premiumsChange in unearned premiums(20,650) (16,600) (38,942) (28,176) Change in unearned premiums(30,053)(20,650)(51,310)(38,942)
Net earned premiumsNet earned premiums96,957  66,087  186,718  127,578  Net earned premiums137,700 96,957 260,741 186,718 
Net investment incomeNet investment income6,645  4,806  12,605  9,321  Net investment income7,429 6,645 14,371 12,605 
Change in the fair value of equity securitiesChange in the fair value of equity securities13,839  1,909  (2,322) 7,804  Change in the fair value of equity securities7,565 13,839 14,656 (2,322)
Net realized investment gains (losses)253  (235) 1,029  45  
Net realized investment gainsNet realized investment gains304 253 1,502 1,029 
Other incomeOther income13  5  23  9  Other income12 13 23 23 
Total revenuesTotal revenues117,707  72,572  198,053  144,757  Total revenues153,010 117,707 291,293 198,053 
Expenses:Expenses:Expenses:
Losses and loss adjustment expensesLosses and loss adjustment expenses58,304  39,579  112,037  73,311  Losses and loss adjustment expenses79,115 58,304 149,375 112,037 
Underwriting, acquisition and insurance expensesUnderwriting, acquisition and insurance expenses22,961  16,437  44,544  32,053  Underwriting, acquisition and insurance expenses29,889 22,961 58,025 44,544 
Other expensesOther expenses—  21  —  57  Other expenses398 0 846 0 
Total expensesTotal expenses81,265  56,037  156,581  105,421  Total expenses109,402 81,265 208,246 156,581 
Income before income taxesIncome before income taxes36,442  16,535  41,472  39,336  Income before income taxes43,608 36,442 83,047 41,472 
Total income tax expenseTotal income tax expense6,180  2,768  6,124  6,849  Total income tax expense7,973 6,180 15,333 6,124 
Net incomeNet income30,262  13,767  35,348  32,487  Net income35,635 30,262 67,714 35,348 
Other comprehensive income:Other comprehensive income:Other comprehensive income:
Change in unrealized gains on available-for-sale investments, net of taxes of $7,180 and $4,728 in 2020 and $1,743 and $3,544 in 201927,008  6,555  17,785  13,335  
Change in net unrealized gains on available-for-sale investments, net of taxesChange in net unrealized gains on available-for-sale investments, net of taxes9,583 27,008 (10,039)17,785 
Total comprehensive incomeTotal comprehensive income$57,270  $20,322  $53,133  $45,822  Total comprehensive income$45,218 $57,270 $57,675 $53,133 
Earnings per share:Earnings per share:Earnings per share:
BasicBasic$1.37  $0.65  $1.60  $1.53  Basic$1.57 $1.37 $2.99 $1.60 
DilutedDiluted$1.33  $0.63  $1.56  $1.49  Diluted$1.55 $1.33 $2.94 $1.56 
Weighted-average shares outstanding:Weighted-average shares outstanding:Weighted-average shares outstanding:
BasicBasic22,153  21,210  22,131  21,190  Basic22,678 22,153 22,665 22,131 
DilutedDiluted22,707  21,832  22,694  21,803  Diluted23,054 22,707 23,055 22,694 

See accompanying notes to condensed consolidated financial statements.
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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
Other
Compre-
hensive
Income		Total
Stock-
holders' Equity		Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
 Other
Compre-
hensive
Income		Total
Stock-
holders' Equity
(in thousands)(in thousands, except per share data)
Balance at December 31, 201922,206  $222  $229,229  $162,911  $13,518  $405,880  
Adoption of new accounting standard for credit losses, net—  —  —  78  —  78  
Balance at December 31, 2020Balance at December 31, 202022,757 $228 $291,315 $243,315 $41,380 $576,238 
Issuance of common stock under stock-based compensation planIssuance of common stock under stock-based compensation plan48  1  701  —  —  702  Issuance of common stock under stock-based compensation plan55 0 339 — — 339 
Stock-based compensation expenseStock-based compensation expense—  —  812  —  —  812  Stock-based compensation expense— — 1,036 — — 1,036 
Dividends declared ($0.09 per share)—  —  —  (2,001) —  (2,001) 
Dividends declared ($0.11 per share)Dividends declared ($0.11 per share)— — — (2,504)— (2,504)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax—  —  —  —  (9,223) (9,223) Other comprehensive loss, net of tax— — — — (19,622)(19,622)
Net incomeNet income—  —  —  5,086  —  5,086  Net income— — — 32,079 — 32,079 
Balance at March 31, 202022,254  223  230,742  166,074  4,295  401,334  
Balance at March 31, 2021Balance at March 31, 202122,812 228 292,690 272,890 21,758 587,566 
Issuance of common stock under stock-based compensation planIssuance of common stock under stock-based compensation plan61  —  395  —  —  395  Issuance of common stock under stock-based compensation plan7 0 163 — — 163 
Stock-based compensation expenseStock-based compensation expense—  —  931  —  —  931  Stock-based compensation expense— — 1,279 — — 1,279 
Restricted shares withheld for taxesRestricted shares withheld for taxes(12) —  (1,803) —  —  (1,803) Restricted shares withheld for taxes(13)— (2,082)— — (2,082)
Dividends declared ($0.09 per share)—  —  —  (2,013) —  (2,013) 
Dividends declared ($0.11 per share)Dividends declared ($0.11 per share)— — — (2,508)— (2,508)
Other comprehensive income, net of taxOther comprehensive income, net of tax—  —  —  27,008  27,008  Other comprehensive income, net of tax— — — — 9,583 9,583 
Net incomeNet income—  —  —  30,262  —  30,262  Net income— — — 35,635 — 35,635 
Balance at June 30, 202022,303  $223  $230,265  $194,323  $31,303  $456,114  
Balance at June 30, 2021Balance at June 30, 202122,806 $228 $292,050 $306,017 $31,341 $629,636 
Balance at December 31, 201821,242  $212  $158,485  $106,545  $(1,256) $263,986  
Issuance of common stock under stock-based compensation plan43  1  597  —  —  598  
Stock-based compensation expense—  —  507  —  —  507  
Dividends declared ($0.08 per share)—  —  —  (1,702) —  (1,702) 
Other comprehensive income, net of tax—  —  —  —  6,780  6,780  
Net income—  —  —  18,720  —  18,720  
Balance at March 31, 201921,285  213  159,589  123,563  5,524  288,889  
Issuance of common stock under stock-based compensation plan78  1  393  —  —  394  
Stock-based compensation expense—  —  621  —  —  621  
Restricted shares withheld for taxes(7) —  (617) —  —  (617) 
Dividends declared ($0.08 per share)—  —  —  (1,702) —  (1,702) 
Other comprehensive income, net of tax—  —  —  —  6,555  6,555  
Net income—  —  —  13,767  —  13,767  
Balance at June 30, 201921,356  $214  $159,986  $135,628  $12,079  $307,907  

Balance at December 31, 201922,206 $222 $229,229 $162,911 $13,518 $405,880 
Adoption of new accounting standard for credit losses, net— — — 78 — 78 
Issuance of common stock under stock-based compensation plan48 1 701 — — 702 
Stock-based compensation expense— — 812 — — 812 
Dividends declared ($0.09 per share)— — — (2,001)— (2,001)
Other comprehensive loss, net of tax— — — — (9,223)(9,223)
Net income— — — 5,086 — 5,086 
Balance at March 31, 202022,254 223 230,742 166,074 4,295 401,334 
Issuance of common stock under stock-based compensation plan61 0 395 — — 395 
Stock-based compensation expense— — 931 — — 931 
Restricted shares withheld for taxes(12)— (1,803)— — (1,803)
Dividends declared ($0.09 per share)— — — (2,013)— (2,013)
Other comprehensive income, net of tax— — — — 27,008 27,008 
Net income— — — 30,262 — 30,262 
Balance at June 30, 202022,303 $223 $230,265 $194,323 $31,303 $456,114 

See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(in thousands)(in thousands)
Operating activities:Operating activities:Operating activities:
Net cash provided by operating activitiesNet cash provided by operating activities$132,587  $71,292  Net cash provided by operating activities$194,948 $132,587 
Investing activities:Investing activities:Investing activities:
Purchase of property and equipmentPurchase of property and equipment(20,113) (5,999) Purchase of property and equipment(2,946)(20,113)
Sale of property and equipmentSale of property and equipment4,999  —  Sale of property and equipment0 4,999 
Purchases – fixed-maturity securitiesPurchases – fixed-maturity securities(231,112) (115,356) Purchases – fixed-maturity securities(315,152)(231,112)
Purchases – equity securitiesPurchases – equity securities(31,985) (3,593) Purchases – equity securities(8,283)(31,985)
Sales – fixed-maturity securitiesSales – fixed-maturity securities54,525  31,441  Sales – fixed-maturity securities87,681 54,525 
Sales – equity securitiesSales – equity securities—  2,869  Sales – equity securities1,583 0 
Maturities and calls – fixed-maturity securitiesMaturities and calls – fixed-maturity securities42,079  25,699  Maturities and calls – fixed-maturity securities99,683 42,079 
Net cash used in investing activitiesNet cash used in investing activities(181,607) (64,939) Net cash used in investing activities(137,434)(181,607)
Financing activities:Financing activities:Financing activities:
Proceeds from credit facilityProceeds from credit facility16,300  —  Proceeds from credit facility0 16,300 
Debt issuance costs—  (284) 
Payroll taxes withheld and remitted on share-based paymentsPayroll taxes withheld and remitted on share-based payments(1,803) (617) Payroll taxes withheld and remitted on share-based payments(2,082)(1,803)
Proceeds from stock options exercisedProceeds from stock options exercised1,097  991  Proceeds from stock options exercised502 1,097 
Dividends paidDividends paid(4,006) (3,401) Dividends paid(5,022)(4,006)
Net cash provided by (used in) financing activities11,588  (3,311) 
Net cash (used in) provided by financing activitiesNet cash (used in) provided by financing activities(6,602)11,588 
Net change in cash and cash equivalentsNet change in cash and cash equivalents(37,432) 3,042  Net change in cash and cash equivalents50,912 (37,432)
Cash and cash equivalents at beginning of yearCash and cash equivalents at beginning of year100,408  75,089  Cash and cash equivalents at beginning of year77,093 100,408 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$62,976  $78,131  Cash and cash equivalents at end of period$128,005 $62,976 


See accompanying notes to condensed consolidated financial statements.

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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

1.    Summary of significant accounting policies
Basis of presentation
The accompanyingunaudited condensed consolidated financial statements and notes have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP") for interim financial information and do not contain all of the information and footnotes required by U.S. GAAP for complete financial statements. For a more complete description of Kinsale Capital Group, Inc. and its wholly owned subsidiaries' (the "Company") business and accounting policies,As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements of Kinsale Capital Group, Inc. and its subsidiaries ("the CompanyCompany") included in the Annual Report on Form 10-K for the year ended December 31, 2019.2020. In the opinion of management, all adjustments necessary for a fair presentation of the condensed consolidated financial statements have been included. Such adjustments consist only of normal recurring items. All significant intercompany balances and transactions have been eliminated in consolidation. Interim results are not necessarily indicative of results of operations for the full year.
Use of estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management periodically reviews its estimates and assumptions.
Recently adopted accounting pronouncements
Accounting StandardsStandard Update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326)2019-12, Income Taxes - Simplifying the Accounting for Income Taxes
On June 16, 2016,In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326)"updated guidance for the accounting for income taxes. The updated guidance is intended to provide more useful information aboutsimplify the expected credit losses on financial instruments. The update requires a financial asset measured at amortized costaccounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income. Credit losses relating to available-for-sale debt securities must also be recorded through an allowance for credit losses. However, the amendments limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under previous GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down. The FASB has issued additional ASUs on Topic 326 that do not change the core principle of the guidance in ASU 2016-13 but clarify certain aspects of it.
simplify several other income tax accounting matters. Effective January 1, 2020, the Company adopted this ASU using the modified-retrospective approach and recorded a cumulative effect adjustment to beginning retained earnings. The adoption of this ASU resulted in the recognition of an allowance for credit loss related to the Company’s reinsurance recoverables. However, since the Company enters into contracts with reinsurers that have A.M. Best ratings of “A” (Excellent) or better, the allowance was not material to the Company’s consolidated financial statements.
ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
On August 29, 2018, the FASB issued new guidance on a customer's accounting for implementation, set-up and other up-front costs incurred in a cloud computing arrangement hosted by the vendor. The new guidance requires an
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entity to determine the stage of a project that the implementation activity relates to and the nature of the associated costs in order to determine whether those costs should be expensed as incurred or capitalized. The new guidance also requires the entity to amortize the capitalized implementation costs as an expense over the term of the hosting arrangement. Effective January 1, 2020,2021, the Company adopted ASU 2018-15 using a modified-retrospective approach. The adoption of ASU 2018-152019-12, which did not have a material impact on the Company's condensed consolidated financial statements.
There are no other prospective accounting standards which, upon their effective date, would have a material impact on the Company's condensed consolidated financial statements.
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2.     Investments
Available-for-sale investments
The following tables summarize the available-for-sale investments at June 30, 20202021 and December 31, 2019:2020:
June 30, 2020June 30, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAmortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)(in thousands)
Fixed maturities:Fixed maturities:Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$1,130  $—  $(17) $1,113  
Obligations of states, municipalities and political subdivisionsObligations of states, municipalities and political subdivisions178,620  11,939  (15) 190,544  Obligations of states, municipalities and political subdivisions$211,296 $13,547 $(204)$224,639 
Corporate and other securitiesCorporate and other securities277,485  17,968  (1,120) 294,333  Corporate and other securities412,687 16,646 (1,001)428,332 
Commercial mortgage and asset-backed securities261,734  6,916  (2,763) 265,887  
Asset-backed securitiesAsset-backed securities274,514 3,735 (86)278,163 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities60,119 3,414 (74)63,459 
Residential mortgage-backed securitiesResidential mortgage-backed securities137,167  4,500  (180) 141,487  Residential mortgage-backed securities228,987 2,893 (1,594)230,286 
Total available-for-sale investments$856,136  $41,323  $(4,095) $893,364  
Total fixed-maturity investmentsTotal fixed-maturity investments$1,187,603 $40,235 $(2,959)$1,224,879 

December 31, 2019
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$110  $2  $—  $112  
Obligations of states, municipalities and political subdivisions166,312  7,542  (961) 172,893  
Corporate and other securities180,287  4,736  (255) 184,768  
Commercial mortgage and asset-backed securities195,750  2,930  (710) 197,970  
Residential mortgage-backed securities172,358  1,819  (388) 173,789  
Total available-for-sale investments$714,817  $17,029  $(2,314) $729,532  

December 31, 2020
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions$216,181 $14,792 $(67)$230,906 
Corporate and other securities294,854 21,840 (86)316,608 
Asset-backed securities236,813 4,230 (382)240,661 
Commercial mortgage-backed securities66,110 4,886 (27)70,969 
Residential mortgage-backed securities217,859 4,938 (141)222,656 
Total fixed-maturity investments$1,031,817 $50,686 $(703)$1,081,800 
Available-for-sale securities in a loss position
The Company regularly reviews all its available-for-sale investments with unrealized losses to assess whether the decline in the fair value is deemed to be a credit loss. The Company considers a number of factors in completing its
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review of credit losses, including the extent to which a security's fair value has been below cost and the financial condition of an issuer. In addition to specific issuer information, the Company also evaluates the current market and interest rate environment. Generally, a change in a security’s value caused by a change in the market or interest rate environment does not constitute a credit loss.
For fixed-maturity securities, the Company also considers whether it intends to sell the security or, if it is more likely than not that it will be required to sell the security before recovery, and theits ability to recover all amounts outstanding when contractually due. When assessing whether it intends to sell a fixed-maturity security or, if it is likely to be required to sell a fixed-maturity security before recovery of its amortized cost, the Company evaluates facts and circumstances including, but not limited to, decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and potential sales of investments to capitalize on favorable pricing.
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For fixed-maturity securities where a decline in fair value is below the amortized cost basis and the Company intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, an impairment is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security.assessment. For fixed-maturity securities that the Company hasdoes not intend to sell or for which it is more likely than not that the intent and abilityCompany would not be required to hold,sell before recovery of its amortized cost, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the impairment, which is recognized in net income through an allowance for credit losses. Any remaining decline in fair value represents the noncredit portion of the impairment, which is recognized in other comprehensive income. Beginning on January 1, 2020, credit losses are recognized through an allowance account. See Note 1 - Recently adopted accounting pronouncements - ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) for additional information.
The Company reports investment income due and accrued separately from fixed-maturity securities, available for sale,available-for-sale investments and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments at the time the issuer of the bond defaults or is expected to default on payments.
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The following tables summarize gross unrealized losses and estimated fair value for available-for-sale investments by length of time that the securities have continuously been in an unrealized loss position:
June 30, 2020June 30, 2021
Less than 12 Months12 Months or LongerTotalLess than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)(in thousands)
Fixed maturities:Fixed maturities:Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$573  $(17) $—  $—  $573  $(17) 
Obligations of states, municipalities and political subdivisionsObligations of states, municipalities and political subdivisions2,007  (15) —  —  2,007  (15) Obligations of states, municipalities and political subdivisions$13,538 $(204)$0 $0 $13,538 $(204)
Corporate and other securitiesCorporate and other securities32,899  (1,120) —  —  32,899  (1,120) Corporate and other securities74,696 (1,001)0 0 74,696 (1,001)
Commercial mortgage and asset-backed securities86,355  (1,912) 23,256  (851) 109,611  (2,763) 
Asset-backed securitiesAsset-backed securities57,943 (62)9,403 (24)67,346 (86)
Commercial mortgage-backed securitiesCommercial mortgage-backed securities9,659 (74)0 0 9,659 (74)
Residential mortgage-backed securitiesResidential mortgage-backed securities12,716  (162) 276  (18) 12,992  (180) Residential mortgage-backed securities127,396 (1,549)4,212 (45)131,608 (1,594)
Total available-for-sale investments$134,550  $(3,226) $23,532  $(869) $158,082  $(4,095) 
Total fixed-maturity investmentsTotal fixed-maturity investments$283,232 $(2,890)$13,615 $(69)$296,847 $(2,959)

At June 30, 2020,2021, the Company held 89121 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $158.1$296.8 million and gross unrealized losses of $4.1$3.0 million. Of these securities, 127 were in a continuous unrealized loss position for greater than one year. As discussed above, the Company regularly reviews all fixed-maturity securities within its investment portfolio to determine whether a credit loss has occurred. Based on the Company's review as of June 30, 2020,2021, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At June 30, 2020, 82.6%2021, 80.0% of the Company’s fixed-maturity securities were rated "A-" or better and all of the Company’s fixed-maturity securities made expected coupon payments under the contractual terms of the securities. For the six months ended June 30, 2020,2021, the Company concluded that there were 0 credit losses from fixed-maturity securities with unrealized losses.
December 31, 2019
Less than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions$28,997  $(961) $254  $—  $29,251  $(961) 
Corporate and other securities22,409  (251) 1,509  (4) 23,918  (255) 
Commercial mortgage and asset-backed securities37,723  (303) 46,623  (407) 84,346  (710) 
Residential mortgage-backed securities36,986  (148) 24,815  (240) 61,801  (388) 
Total available-for-sale investments$126,115  $(1,663) $73,201  $(651) $199,316  $(2,314) 
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December 31, 2020
Less than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)
Fixed maturities:
Obligations of states, municipalities and political subdivisions$6,412 $(67)$0 $0 $6,412 $(67)
Corporate and other securities3,829 (86)0 0 3,829 (86)
Asset-backed securities57,750 (149)23,825 (233)81,575 (382)
Commercial mortgage-backed securities4,971 (27)0 0 4,971 (27)
Residential mortgage-backed securities46,869 (129)266 (12)47,135 (141)
Total fixed-maturity investments$119,831 $(458)$24,091 $(245)$143,922 $(703)

Contractual maturities of available-for-sale fixed-maturity securities
The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at June 30, 20202021 are summarized, by contractual maturity, as follows:
June 30, 2020June 30, 2021
AmortizedEstimatedAmortizedEstimated
CostFair ValueCostFair Value
(in thousands)(in thousands)
Due in one year or lessDue in one year or less$11,926  $12,047  Due in one year or less$8,024 $8,103 
Due after one year through five yearsDue after one year through five years114,967  122,401  Due after one year through five years168,151 175,444 
Due after five years through ten yearsDue after five years through ten years142,571  152,692  Due after five years through ten years198,812 207,615 
Due after ten yearsDue after ten years187,771  198,850  Due after ten years248,996 261,809 
Commercial mortgage and asset-backed securities261,734  265,887  
Asset-backed securitiesAsset-backed securities274,514 278,163 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities60,119 63,459 
Residential mortgage-backed securitiesResidential mortgage-backed securities137,167  141,487  Residential mortgage-backed securities228,987 230,286 
Total fixed-maturity securitiesTotal fixed-maturity securities$856,136  $893,364  Total fixed-maturity securities$1,187,603 $1,224,879 

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties, and the lenders may have the right to put the securities back to the borrower.
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Net investment income
The following table presents the components of net investment income for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands)(in thousands)
Interest:Interest:Interest:
Taxable bondsTaxable bonds$5,259  $3,476  $9,870  $6,543  Taxable bonds$6,156 $5,259 $11,885 $9,870 
Tax exempt municipal bondsTax exempt municipal bonds908  888  1,823  1,896  Tax exempt municipal bonds877 908 1,762 1,823 
Cash equivalents and short-term investmentsCash equivalents and short-term investments11  156  261  401  Cash equivalents and short-term investments9 11 10 261 
Dividends on equity securitiesDividends on equity securities879  566  1,454  1,087  Dividends on equity securities953 879 1,822 1,454 
Gross investment incomeGross investment income7,057  5,086  13,408  9,927  Gross investment income7,995 7,057 15,479 13,408 
Investment expensesInvestment expenses(412) (280) (803) (606) Investment expenses(566)(412)(1,108)(803)
Net investment incomeNet investment income$6,645  $4,806  $12,605  $9,321  Net investment income$7,429 $6,645 $14,371 $12,605 
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Realized investment gains and losses
The following table presents realized investment gains and losses for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands)(in thousands)
Fixed-maturity securities:Fixed-maturity securities:Fixed-maturity securities:
Realized gainsRealized gains$320  $25  $1,107  $396  Realized gains$442 $320 $1,641 $1,107 
Realized lossesRealized losses(67) —  (90) (79) Realized losses(1)(67)(2)(90)
Net realized gains from fixed-maturity securitiesNet realized gains from fixed-maturity securities253  25  1,017  317  Net realized gains from fixed-maturity securities441 253 1,639 1,017 
Equity securities:Equity securities:Equity securities:
Realized gains—  30  —  34  
Realized lossesRealized losses—  (290) —  (306) Realized losses(137)0 (137)0 
Net realized losses from equity securitiesNet realized losses from equity securities—  (260) —  (272) Net realized losses from equity securities(137)0 (137)0 
Realized gains from the sales of short-term investmentsRealized gains from the sales of short-term investments—  —  12  —  Realized gains from the sales of short-term investments0 0 0 12 
Net realized investment gains (losses)$253  $(235) $1,029  $45  
Net realized investment gainsNet realized investment gains$304 $253 $1,502 $1,029 

Change in net unrealized gains (losses) on fixed-maturity securities
For the three and six months ended June 30, 2021, the changes in net unrealized gains (losses) for fixed-maturity securities were $12.1 million and $(12.7) million, respectively. For the three and six months ended June 30, 2020, the changes in net unrealized gains for fixed-maturity securities were $34.2 million and $22.5 million, respectively. For the three and six months ended June 30, 2019, the changes in net unrealized gains for fixed-maturity securities were $8.3 million and $16.9 million, respectively.
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Insurance – statutory deposits
The Company had invested assets with a carrying value of $6.8 million and $6.9 million on deposit with state regulatory authorities at both June 30, 20202021 and December 31, 2019.2020, respectively.
Payable for investments purchased
The Company recorded a payable for investments purchased, not yet settled, of $7.3$28.6 million at June 30, 2020.2021. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet and treated as a non-cash transaction for purposes of cash flow presentation. 

sheet.
3.     Fair value measurements
Fair value is estimated for each class of financial instrument for which it iswas practical to estimate fair value. Fair value is defined as the price in the principal market that would be received in exchange for an asset or paid to transfer a liability to facilitate an orderly transaction between market participants on the measurement date. Market participants are assumed to be independent, knowledgeable, able and willing to transact an exchange and not acting under duress. Fair value hierarchy disclosures are based on the quality of inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
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measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Adjustments to transaction prices or quoted market prices may be required in illiquid or disorderly markets in order to estimate fair value.
The three levels of the fair value hierarchy are defined as follows:
Level 1 - Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.
Level 2 - Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.
Level 3 - Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement.
Fair values of the Company's investment portfolio are estimated using unadjusted prices obtained by its investment manageraccounting vendor from third partynationally recognized third-party pricing services, where available. Values for exchange traded funds are generally based on Level 1 inputs, which use quoted prices in active markets for identical assets. For other fixed-maturity securities whereand non-redeemable preferred stock, the Company is unable to obtain fair values frompricing vendors use a pricing servicemethodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or broker,securities with similar characteristics to establish a valuation. The estimates of fair valuesvalue of these investments are estimated using information obtained fromincluded in the amounts disclosed as Level 2. For those investments where significant inputs are unobservable, the Company's investment manager. accounting vendor obtains valuations from pricing vendors or brokers using the market approach and income approach valuation techniques and are disclosed as Level 3.
Management performs several procedures to ascertain the reasonableness of investment values included in the condensed consolidated financial statements, including 1) obtaining and reviewing internal control reports from the Company's investment manageraccounting vendor that obtainsassess fair values from third party pricing services, 2) discussing with the Company's investment manageraccounting vendor its process for reviewing and validating pricing obtained from outsidethird party pricing services and 3) reviewing the security pricing received from the Company's investment manageraccounting vendor and monitoring changes in unrealized gains and losses.losses at the individual security level. The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs.
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The following tables present the balances of assets measured at fair value on a recurring basis as of June 30, 20202021 and December 31, 2019,2020, by level within the fair value hierarchy.hierarchy:
June 30, 2020
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$1,113  $—  $—  $1,113  
Obligations of states, municipalities and political subdivisions—  190,544  —  190,544  
Corporate and other securities—  294,333  —  294,333  
Commercial mortgage and asset-backed securities—  265,887  —  265,887  
Residential mortgage-backed securities—  141,487  —  141,487  
Total fixed-maturity securities1,113  892,251  —  893,364  
Equity securities:
Exchange traded funds79,818  —  —  79,818  
Nonredeemable preferred stock—  28,087  —  28,087  
Total equity securities79,818  28,087  —  107,905  
Total$80,931  $920,338  $—  $1,001,269  
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December 31, 2019June 30, 2021
Level 1Level 2Level 3TotalLevel 1Level 2Level 3Total
(in thousands)(in thousands)
AssetsAssetsAssets
Fixed maturities:Fixed maturities:Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$112  $—  $—  $112  
Obligations of states, municipalities and political subdivisionsObligations of states, municipalities and political subdivisions—  172,893  —  172,893  Obligations of states, municipalities and political subdivisions$0 $224,639 $0 $224,639 
Corporate and other securitiesCorporate and other securities—  184,768  —  184,768  Corporate and other securities0 428,332 0 428,332 
Commercial mortgage and asset-backed securities—  197,970  —  197,970  
Asset-backed securitiesAsset-backed securities0 278,163 0 278,163 
Commercial mortgage-backed securitiesCommercial mortgage-backed securities0 63,459 0 63,459 
Residential mortgage-backed securitiesResidential mortgage-backed securities—  173,789  —  173,789  Residential mortgage-backed securities0 230,286 0 230,286 
Total fixed-maturity securitiesTotal fixed-maturity securities112  729,420  —  729,532  Total fixed-maturity securities0 1,224,879 0 1,224,879 
Equity securities:Equity securities:Equity securities:
Exchange traded fundsExchange traded funds54,463  —  —  54,463  Exchange traded funds113,248 0 0 113,248 
Nonredeemable preferred stock—  23,831  —  23,831  
Non-redeemable preferred stockNon-redeemable preferred stock0 37,634 0 37,634 
Total equity securitiesTotal equity securities54,463  23,831  —  78,294  Total equity securities113,248 37,634 0 150,882 
TotalTotal$54,575  $753,251  $—  $807,826  Total$113,248 $1,262,513 $0 $1,375,761 

December 31, 2020
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
Obligations of states, municipalities and political subdivisions$0 $230,906 $0 $230,906 
Corporate and other securities0 316,608 0 316,608 
Asset-backed securities0 240,661 0 240,661 
Commercial mortgage-backed securities0 70,969 0 70,969 
Residential mortgage-backed securities0 222,656 0 222,656 
Total fixed-maturity securities0 1,081,800 0 1,081,800 
Equity securities:
Exchange traded funds98,050 0 0 98,050 
Non-redeemable preferred stock0 31,612 0 31,612 
Total equity securities98,050 31,612 0 129,662 
Total$98,050 $1,113,412 $0 $1,211,462 
There were no assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 20202021 or December 31, 2019.2020.

The carrying value of cash equivalents approximates its fair value at June 30, 20202021 and December 31, 2019,2020, due to the short-term maturities of these assets. In addition, the estimated fair value of the Credit Facility approximated its
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carrying value as of June 30, 20202021 and December 31, 2019.2020. See Note 12 for further information regarding the Credit Facility.

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4.     Deferred policy acquisition costs
The following table presents the amounts of policy acquisition costs deferred and amortized for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands)(in thousands)
Balance, beginning of periodBalance, beginning of period$26,005  $16,314  $23,564  $14,801  Balance, beginning of period$34,741 $26,005 $31,912 $23,564 
Policy acquisition costs deferred:Policy acquisition costs deferred:Policy acquisition costs deferred:
Direct commissionsDirect commissions19,496  13,880  37,574  26,243  Direct commissions28,253 19,496 52,903 37,574 
Ceding commissionsCeding commissions(3,891) (3,258) (7,763) (6,514) Ceding commissions(6,990)(3,891)(13,194)(7,763)
Other underwriting and policy acquisition costsOther underwriting and policy acquisition costs1,282  849  2,469  1,814  Other underwriting and policy acquisition costs1,572 1,282 2,940 2,469 
Policy acquisition costs deferredPolicy acquisition costs deferred16,887  11,471  32,280  21,543  Policy acquisition costs deferred22,835 16,887 42,649 32,280 
Amortization of net policy acquisition costsAmortization of net policy acquisition costs(13,950) (9,133) (26,902) (17,692) Amortization of net policy acquisition costs(18,775)(13,950)(35,760)(26,902)
Balance, end of periodBalance, end of period$28,942  $18,652  $28,942  $18,652  Balance, end of period$38,801 $28,942 $38,801 $28,942 

Amortization of net policy acquisition costs is included in the line item "Underwriting, acquisition and insurance expenses" in the accompanying consolidated statements of income and comprehensive income.

5.     Property and equipment, net
Property and equipment are included in "other assets" in the accompanying consolidated balance sheets and consists of the following:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
(in thousands)(in thousands)
BuildingBuilding$31,675 $31,675 
Parking deckParking deck5,072 5,072 
LandLand3,068 3,068 
EquipmentEquipment$2,444  $2,353  Equipment2,891 2,770 
SoftwareSoftware3,733  2,356  Software6,052 4,815 
Furniture and fixturesFurniture and fixtures1,699  1,025  Furniture and fixtures2,143 1,731 
Leasehold improvements984  984  
Land improvementsLand improvements326 317 
Construction in progress - corporate headquartersConstruction in progress - corporate headquarters37,803  19,789  Construction in progress - corporate headquarters1,200 0 
46,663  26,507  52,427 49,448 
Accumulated depreciationAccumulated depreciation(4,273) (3,873) Accumulated depreciation(4,353)(3,262)
Total property and equipment, netTotal property and equipment, net$42,390  $22,634  Total property and equipment, net$48,074 $46,186 

Construction in progress includesDuring the purchasedfirst quarter of 2020, the Company sold a portion of both its land and capitalized expenses relatedparking deck for approximately $6.5 million to a real estate developer for the constructiondevelopment of an apartment building. As of June 30, 2021, the Company had received $5.0 million of the new corporate headquarters' buildingproceeds from the sale and parking deck. Construction is expected to be completed inreceive the third quarter of 2020.

remaining
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$1.5 million upon completion of the apartment building. This receivable is included in "other assets" on the accompanying consolidated balance sheet.

6.     Underwriting, acquisition and insurance expenses
Underwriting, acquisition and insurance expenses for the three and six months ended June 30, 20202021 and 20192020 consist of the following:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands)(in thousands)
Underwriting, acquisition and insurance expenses incurred:Underwriting, acquisition and insurance expenses incurred:Underwriting, acquisition and insurance expenses incurred:
Direct commissionsDirect commissions$16,341  $11,387  $31,483  $22,061  Direct commissions$23,554 $16,341 $44,719 $31,483 
Ceding commissionsCeding commissions(3,463) (3,114) (6,646) (6,052) Ceding commissions(6,087)(3,463)(11,442)(6,646)
Other operating expensesOther operating expenses10,083  8,164  19,707  16,044  Other operating expenses12,422 10,083 24,748 19,707 
TotalTotal$22,961  $16,437  $44,544  $32,053  Total$29,889 $22,961 $58,025 $44,544 

Other operating expenses within underwriting, acquisition and insurance expenses include salaries, bonus and employee benefits expenses of $9.2$12.0 million and $7.1$9.2 million for the three months ended June 30, 20202021 and 2019,2020, respectively. Salaries, bonuses, and employee benefit expenses were $18.0$23.3 million and $13.9$18.0 million for the six months ended June 30, 20202021 and 2019,2020, respectively.

7.    Stock-based compensation
On July 27, 2016, the Kinsale Capital Group, Inc. 2016 Omnibus Incentive Plan (the "2016 Incentive Plan") became effective. The 2016 Incentive Plan, which is administered by the Compensation, Nominating and Corporate Governance Committee of the Company'sCompany’s Board of Directors, provides for grants of stock options, restricted stock, restricted stock units and other stock-based awards to officers, employees, directors, independent contractors and consultants. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832.
The total compensation cost that has been charged against income for share-based compensation arrangements was $1.7$2.3 million and $1.1$1.7 million for the six months ended June 30, 20202021 and 2019,2020, respectively.
Restricted Stock Awards
During the six months ended June 30, 2020,2021, the Company granted restricted stock awards under the 2016 Incentive Plan. The restricted stock awards were valued on the date of grant and will vest over a period of 1 to 4 years. The fair value of restricted stock awards was determined based on the closing trading price of the Company’s shares on the grant date or, if no shares were traded on the grant date, the last preceding date for which there was a sale of shares. Except for restrictions placed on the transferability of restricted stock, holders of unvested restricted stock have full stockholder’s rights, including voting rights and the right to receive dividends. Unvested shares of restricted stock awards and accrued dividends, if any, are forfeited upon the termination of service to or employment with the Company.
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A summary of all restricted stock activity under the 2016 Incentive Plan for the six months ended June 30, 20202021 is as follows:
For the Six Months Ended
June 30, 2020		For the Six Months Ended
June 30, 2021
Number of SharesWeighted Average Grant Date Fair Value per ShareNumber of SharesWeighted Average Grant Date Fair Value per Share
Non-vested outstanding at the beginning of the periodNon-vested outstanding at the beginning of the period122,723  $67.01  Non-vested outstanding at the beginning of the period108,392 $97.40 
GrantedGranted41,217  $145.46  Granted35,870 $185.00 
VestedVested(41,010) $63.86  Vested(40,733)$86.79 
ForfeitedForfeited(559) $68.13  Forfeited(6,098)$128.15 
Non-vested outstanding at the end of the periodNon-vested outstanding at the end of the period122,371  $94.48  Non-vested outstanding at the end of the period97,431 $132.15 

Employees surrender shares to pay for withholding tax obligations resulting from any vesting of restricted stock awards. During the six months ended June 30, 2020,2021, shares withheld for taxes in connection with the vesting of restricted stock awards totaled 11,966.

12,839.
The weighted average grant-date fair value of the Company's restricted stock awards granted during the six months ended June 30, 2021 and 2020 was $185.00 and 2019 was $145.46, and $80.59, respectively. The fair value of restricted stock awards that vested during the six months ended June 30, 2021 and 2020 and 2019 was $5.8$6.8 million and $2.1$5.8 million, respectively. As of June 30, 2020,2021, the Company had $11.0$11.8 million of total unrecognized stock-based compensation expense expected to be charged to earnings over a weighted-average period of 3.22.9 years.

Stock Options
On July 27, 2016, the Board of Directors approved, and the Company granted, 1,036,916 stock options with an exercise price equal to the Initial Public Offeringinitial public offering price of $16.00 per share and a weighted-average grant-date fair value of $2.71 per share. The options have a maximum contractual term of 10 years and vestvested in 4 equal annual installments following the date of the grant.
The value of the options granted was estimated at the date of grant using the Black-Scholes pricing model using the following assumptions:
Risk-free rate of return1.26 %
Dividend yield1.25 %
Expected share price volatility(1)
18.50 %
Expected life in years(2)
6.3 years
(1)     Expected volatility was based on the Company’s competitors within the industry.
(2)     Expected life was calculated using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period, as the Company did not have sufficient historical data for determining the expected term of our stock option awards.
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A summary of option activity as of June 30, 2020,2021, and changes during the period then ended is presented below:
Number of SharesWeighted-average exercise priceWeighted-average remaining years of contractual termAggregate intrinsic value (in thousands)Number of SharesWeighted-Average Exercise PriceWeighted-Average Remaining Years of Contractual TermAggregate Intrinsic Value (in thousands)
Outstanding at January 1, 2020614,345  $16.00  
Outstanding at January 1, 2021Outstanding at January 1, 2021387,738 $16.00 
GrantedGranted—  —  Granted0 0 
ForfeitedForfeited(234) 16.00  Forfeited0 0 
ExercisedExercised(68,586) 16.00  Exercised(31,408)16.00 
Outstanding at June 30, 2020545,525  $16.00  6.1$75,943  
Exercisable at June 30, 2020325,028  $16.00  6.1$45,247  
Outstanding at June 30, 2021Outstanding at June 30, 2021356,330 $16.00 5.1$53,011 
Exercisable at June 30, 2021Exercisable at June 30, 2021356,330 $16.00 5.1$53,011 

The total intrinsic value of options exercised was $7.6$5.1 million and $3.4$7.6 million during the six months ended June 30, 2021 and 2020, and 2019, respectively. Since stock options are fully vested on July 27, 2020, the amount of unrecognized compensation is not material at June 30, 2020.

8.    Earnings per share
The following represents a reconciliation of the numerator and denominator of the basic and diluted earnings per share computations contained in the condensed consolidated financial statements:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands, except per share data)(in thousands, except per share data)
Net incomeNet income$30,262  $13,767  $35,348  $32,487  Net income$35,635 $30,262 $67,714 $35,348 
Weighted average common shares outstanding - basicWeighted average common shares outstanding - basic22,153  21,210  22,131  21,190  Weighted average common shares outstanding - basic22,678 22,153 22,665 22,131 
Effect of potential dilutive securities:Effect of potential dilutive securities:Effect of potential dilutive securities:
Conversion of stock optionsConversion of stock options490  583  500  579  Conversion of stock options327 490 335 500 
Conversion of restricted stockConversion of restricted stock64  39  63  34  Conversion of restricted stock49 64 55 63 
Weighted average common shares outstanding - dilutedWeighted average common shares outstanding - diluted22,707  21,832  22,694  21,803  Weighted average common shares outstanding - diluted23,054 22,707 23,055 22,694 
Earnings per common share:Earnings per common share:Earnings per common share:
BasicBasic$1.37  $0.65  $1.60  $1.53  Basic$1.57 $1.37 $2.99 $1.60 
DilutedDiluted$1.33  $0.63  $1.56  $1.49  Diluted$1.55 $1.33 $2.94 $1.56 

There were approximately32 thousand anti-dilutive stock awards for the three and six months ended June 30, 2021 and 37 thousand anti-dilutive stock awards for the three and six months ended June 30, 2020 and approximately 55 thousand anti-dilutive stock awards for the three and six months ended June 30, 2019.2020.

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9. Income taxes
The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company's best estimate of the effective tax rate expected for the full year. The estimated annual effective tax rate typically differs from the U.S. statutory tax rate, primarily as a result of tax-exempt investment income and any discrete items recognized during the period. The Company's effective tax rates were
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18.5% and 14.8% and 17.4% for the six months ended June 30, 20202021 and 2019,2020, respectively. The effective tax rates were lower than the federal statutory rate of 21% due to the tax benefits from stock-based compensation and from income generated by certain tax-advantagedtax-exempt investments.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted on March 27, 2020. The purpose of the CARES Act is to provide emergency assistance and health care response for individuals, families, and businesses affected by the 2020 coronavirus pandemic. The CARES Act builds on and clarifies a number of changes in corporate tax law implemented by the Tax Cuts and Jobs Act. The Company does not expect that the CARES Act will have a significant impact on its financial statements.

10.     Reserves for unpaid losses and loss adjustment expenses
The following table presents a reconciliation of consolidated beginning and ending reserves for unpaid losses and loss adjustment expenses:
June 30June 30,
2020201920212020
(in thousands)(in thousands)
Gross reserves for unpaid losses and loss adjustment expenses, beginning of yearGross reserves for unpaid losses and loss adjustment expenses, beginning of year$460,058  $369,152  Gross reserves for unpaid losses and loss adjustment expenses, beginning of year$636,013 $460,058 
Less: reinsurance recoverable on unpaid lossesLess: reinsurance recoverable on unpaid losses69,792  55,389  Less: reinsurance recoverable on unpaid losses83,730 69,792 
Adoption of new accounting standard for credit losses(282) —  
Adoption of accounting standard for credit lossesAdoption of accounting standard for credit losses0 (282)
Net reserves for unpaid losses and loss adjustment expenses, beginning of yearNet reserves for unpaid losses and loss adjustment expenses, beginning of year390,548  313,763  Net reserves for unpaid losses and loss adjustment expenses, beginning of year552,283 390,548 
Incurred losses and loss adjustment expenses:Incurred losses and loss adjustment expenses:Incurred losses and loss adjustment expenses:
Current yearCurrent year118,662  81,127  Current year165,583 118,662 
Prior yearsPrior years(6,625) (7,816) Prior years(16,208)(6,625)
Total net losses and loss adjustment expenses incurredTotal net losses and loss adjustment expenses incurred112,037  73,311  Total net losses and loss adjustment expenses incurred149,375 112,037 
Payments:Payments:Payments:
Current yearCurrent year3,245  5,530  Current year4,398 3,245 
Prior yearsPrior years42,259  36,100  Prior years48,199 42,259 
Total paymentsTotal payments45,504  41,630  Total payments52,597 45,504 
Net reserves for unpaid losses and loss adjustment expenses, end of periodNet reserves for unpaid losses and loss adjustment expenses, end of period457,081  345,444  Net reserves for unpaid losses and loss adjustment expenses, end of period649,061 457,081 
Reinsurance recoverable on unpaid lossesReinsurance recoverable on unpaid losses68,720  61,989  Reinsurance recoverable on unpaid losses104,263 68,720 
Gross reserves for unpaid losses and loss adjustment expenses, end of periodGross reserves for unpaid losses and loss adjustment expenses, end of period$525,801  $407,433  Gross reserves for unpaid losses and loss adjustment expenses, end of period$753,324 $525,801 

During the six months ended June 30, 2021, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2020 developed favorably by $16.2 million, of which $21.8 million was attributable to the 2020 accident year and reflected lower emergence of reported losses than expected across most lines of business. This favorable development was offset in part by adverse development, mostly attributable to the 2018 accident year as a result of modest adjustments in actuarial assumptions.
During the six months ended June 30, 2020, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2019 developed favorably by $6.6 million. The favorable development was primarily attributable to
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the 2019 accident year of $5.0 million, which resulted from reported losses emerging at a lower level than expected across most statutory lines of business.
During the six months ended June 30, 2019, the reserves for unpaid losses and loss adjustment expenses held at December 31, 2018 developed favorably by $7.8 million. The favorable development was primarily attributable to the 2017 through 2018 accident years
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Table of $14.1 million, which mostly resulted from reported losses emerging at a lower level than expected across most statutory lines of business. This favorable development was offset in part by adverse development from the 2011 through 2016 accident years of $6.2 million, which primarily resulted from higher incurred but not yet reported ("IBNR") losses to provide for uncertainty associated with the emergence of reported losses over a longer period of time.

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11.     Reinsurance
The following table summarizes the effect of reinsurance on premiums written and earned for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
20202019202020192021202020212020
(in thousands)(in thousands)
Premiums written:Premiums written:Premiums written:
DirectDirect$134,091  $94,885  $258,127  $179,448  Direct$194,061 $134,091 $362,937 $258,127 
AssumedAssumed—  62  —  125  Assumed0 0 0 0 
CededCeded(16,484) (12,260) (32,467) (23,819) Ceded(26,308)(16,484)(50,886)(32,467)
Net writtenNet written$117,607  $82,687  $225,660  $155,754  Net written$167,753 $117,607 $312,051 $225,660 
Premiums earned:Premiums earned:Premiums earned:
DirectDirect$112,149  $77,920  $215,883  $149,998  Direct$161,431 $112,149 $306,462 $215,883 
AssumedAssumed6  16  21  73  Assumed0 6 0 21 
CededCeded(15,198) (11,849) (29,186) (22,493) Ceded(23,731)(15,198)(45,721)(29,186)
Net earnedNet earned$96,957  $66,087  $186,718  $127,578  Net earned$137,700 $96,957 $260,741 $186,718 

The following table summarizes ceded losses and loss adjustment expenses for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Ceded incurred losses and loss adjustment expenses$4,453  $9,440  $10,905  $13,745  
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in thousands)
Ceded incurred losses and loss adjustment expenses$10,912 $4,453 $23,413 $10,905 



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The following table presents reinsurance recoverables on paid and unpaid losses as of June 30, 20202021 and December 31, 2019:2020:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
(in thousands)(in thousands)
Reinsurance recoverables on paid lossesReinsurance recoverables on paid losses$4,403  $2,782  Reinsurance recoverables on paid losses$1,233 $9,485 
Reinsurance recoverables on unpaid lossesReinsurance recoverables on unpaid losses68,720  69,792  Reinsurance recoverables on unpaid losses104,263 83,730 
Reinsurance recoverablesReinsurance recoverables$73,123  $72,574  Reinsurance recoverables$105,496 $93,215 

12.     Credit Agreement
On May 28, 2019, the Company entered into a Credit Agreement (the “Credit Agreement”) that provided the Company with a $50.0 million senior unsecured revolving credit facility (the “Credit Facility”) and an uncommitted accordion feature that permits the Company to increase the commitments by an additional $30.0 million. The Credit Facility has a maturity of May 28, 2024. Borrowings under the Credit Facility will bewere used to fund construction of the Company’s new headquarters andbut may also be used for working capital and general corporate purposes.
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Loans under the Credit Facility may be subject to varying rates of interest depending on whether the loan is a Eurodollar loan or an alternate base rate (ABR)("ABR") loan, at the Company's election. Eurodollar loans bear an interest rate per annum equal to adjusted LIBOR for the applicable interest period plus a margin of 1.75%. ABR loans bear an interest rate per annum equal to (a) the higher of the prime rate, the New York Federal Reserve Board Rate plus 0.50% or the one-month adjusted LIBOR plus 1%, plus (b) the applicable margin of 0.75%. During the six months ended June 30, 2020, the Company drew down $16.3 million on its Credit Facility. As of June 30, 2020,2021, there was $33.1$42.6 million outstanding under the Credit Facility, net of debt issuance cost of $0.5$0.4 million, with a weighted average interest rate of 2.33%1.91%.
The Credit Agreement also contains representations and warranties and affirmative and negative covenants customary for financings of this type, as well as customary events of default provisions. As of June 30, 2020,2021, the Company was in compliance with all of its financial covenants under the Credit Facility.

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13.     Other comprehensive income (loss)
The following table summarizes the components of other comprehensive income (loss) for the three and six months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
(in thousands)
Unrealized gains on fixed-maturity securities arising during the period, before income taxes$34,323  $8,323  $23,412  $17,196  
Income taxes(7,208) (1,748) (4,917) (3,611) 
Unrealized gains arising during the period, net of income taxes27,115  6,575  18,495  13,585  
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes135  25  899  317  
Income taxes(28) (5) (189) (67) 
Reclassification adjustment included in net income, net of income taxes107  20  710  250  
Other comprehensive income$27,008  $6,555  $17,785  $13,335  
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
(in thousands)
Unrealized gains (losses) on fixed-maturity securities arising during the period, before income taxes$12,482 $34,323 $(11,168)$23,412 
Income tax (expense) benefit(2,621)(7,208)2,345 (4,917)
Unrealized gains (losses) arising during the period, net of income taxes9,861 27,115 (8,823)18,495 
Less reclassification adjustment:
Net realized gains on fixed-maturity securities, before income taxes351 135 1,539 899 
Income tax expense(73)(28)(323)(189)
Reclassification adjustment included in net income, net of income taxes278 107 1,216 710 
Other comprehensive income (loss)$9,583 $27,008 $(10,039)$17,785 

The sale of an available-for-sale fixed-maturity security results in amounts being reclassified from accumulated other comprehensive income (loss) to realized gains or losses in current period earnings. The related tax effect of the reclassification adjustment is recorded in income tax expense in current period earnings. See Note 2 for additional information.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors described in "Risk Factors" in this Quarterly Report on Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2019.2020. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of many factors.
The results of operations for the three and six months ended June 30, 20202021 are not necessarily indicative of the results that may be expected for the full year ended December 31, 2020,2021, or for any other future period. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report, and in conjunction with our audited consolidated financial statements and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2019.2020.
References to the "Company," "Kinsale," "we," "us," and "our" are to Kinsale Capital Group, Inc. and its subsidiaries, unless the context otherwise requires.

Overview
Founded in 2009, Kinsale is a specialty insurance company. Kinsale focuses exclusively on the excess and surplus lines ("E&S") market in the U.S., where we use our underwriting expertise to write coverages for hard-to-place small business risks and personal lines risks. We market these insurance products in all 50 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, primarily through a network of independent insurance brokers.
We have one reportable segment, our Excess and Surplus Lines Insurance segment, which offers property and casualty ("P&C") insurance products through the E&S market. For the first six months of 2020,2021, the percentage breakdown of our gross written premiums was 87%86% casualty and 13%14% property. Our underwriting divisions include construction, small business, construction, excess casualty, commercial property, allied health, product liability, general casualty, life sciences, general casualty, professional liability, management liability, energy, environmental, health care, environmental, inland marine, public entity, and commercial insurance and public entity.insurance. We also write a small amount of homeowners insurance in ourthe personal lines division,market, which in aggregate represented 4% of our gross written premiums in the first six months of 2020,2021, and is included inwithin our property business.personal insurance division.
COVID-19
We arehave been closely monitoring the impact of the COVID-19 pandemic and related economic effects on all aspects of our business, including how it will impact premium volume, losses and the fair value of our investment portfolio.

To date, management has not seen a significant decrease in the growth rate of its gross written premiums since the beginning of the COVID-19 pandemic and the related economic downturn.pressure in certain sectors of the U.S. economy. Over the past year,few years, including a time period preceding COVID-19, the E&S segment of the P&C market has been experiencing rapid growth due to dislocation in the overall property and casualty market and management expects premium growth to continue throughout the remainder of 2020.

2021.
With respect to reported claims, Kinsale does not write lines of business with heightened exposure to COVID-19 related claims. Specifically, Kinsale does not write event cancellation, mortgage insurance, trade credit or surety, workers' compensation or reinsurance business. Lines of business written by Kinsale that could be subject to COVID-19 related claims include general liability, management liability, healthcare-related professional liability
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and commercial property. In each case, policy terms and conditions would be expected to preclude coverage for
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virus-related claims. Although management cannot definitively determine the ultimate impact of COVID-19 and related economic conditions at this time, management doeshas not currently expect aexperienced any material adverse effect on Kinsale’s loss ratios due to COVID-19 related claims.

With respect to our investment portfolio, we seek to hold a high-quality, diversified portfolio of investments. During the first quarter of 2020, we experienced a significant decline in the fair value of our investment portfolio due to disruption in the global financial markets associated with COVID-19. DuringSubsequent to the secondfirst quarter of 2020, the fair values of our investment portfolio rebounded sharply, gaining back a significant portionall of the decline in fair value. However, during economic downturns, certain investments may default or become impaired due to deterioration in the financial condition or due to deterioration in the financial condition of an insurer that guarantees an issuer’s payments on such investments. Given the conservative nature of our investment portfolio, we do not expect a material adverse impact on the value of our investment portfolio or a long-term negative impact on our financial condition, results of operations or cash flows as it relates to COVID-19.

Components of our results of operations
Gross written premiums
Gross written premiums are the amounts received or to be received for insurance policies written or assumed by us during a specific period of time without reduction for policy acquisition costs, reinsurance costs or other deductions. The volume of our gross written premiums in any given period is generally influenced by:
•New business submissions;
•Conversion of new business submissions into policies;
•Renewals of existing policies; and
•Average size and premium rate of bound policies.
We earn insurance premiums on a pro rata basis over the term of the policy. Our insurance policies generally have a term of one year. Net earned premiums represent the earned portion of our gross written premiums, less that portion of our gross written premiums that is ceded to third-party reinsurers under our reinsurance agreements.
Ceded written premiums
Ceded written premiums are the amount of gross written premiums ceded to reinsurers. We enter into reinsurance contracts to limit our exposure to potential large losses. Ceded written premiums are earned over the reinsurance contract period in proportion to the period of risk covered. The volume of our ceded written premiums is impacted by the level of our gross written premiums and any decision we make to increase or decrease retention levels.
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. 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;
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•Trends in legal defense costs;
•Wage inflation; and
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•Inflation in medical costs.
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. 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. Policy acquisition costs also include underwriting expenses that are directly related to the successful acquisition of those policies which are deferred. The amortization of policy acquisition costs is charged to expense in proportion to premium earned over the policy life.
Other underwriting expenses represent the general and administrative expenses of our insurance business such as employment costs, telecommunication and technology costs, and legal and auditing fees.
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 cash equivalents, equity securities and short-term investments. The principal factors that influence net investment income are the size of our investment portfolio and the yield on that portfolio. As measured by amortized cost (which excludes changes in fair value), the size of our investment portfolio is mainly a function of our invested equity capital combined with premiums we receive from our insureds less payments on policyholder claims.
Change in fair value of equity securities
Change in fair value of equity securities represents the increase or decrease in the fair value of equity securities held during the period.
Net realized investment gains (losses) on investments
Net realized investment gains (losses) on investments are a function of the difference between the amount received by us on the sale of a security and the security's amortized cost, as well as any credit impairments recognized in earnings.
Income tax expense
Currently, substantially all of our income tax expense relates to federal income taxes. 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. The amount of income tax expense or benefit recorded in future periods will depend on the jurisdictions in which we operate and the tax laws and regulations in effect.
Key metrics
We discuss certain key metrics, described below, which we believe provide useful information about our business and the operational factors underlying our financial performance.
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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 gains and losses on investments, other income, other expenses and income tax expense. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to underwriting income.
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Net operating earnings is a non-GAAP financial measure. We define net operating earnings as net income excluding the net change in the fair value of equity securities, after taxes, and net realized gains and losses on investments, after taxes. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to net operating earnings.
Loss ratio, expressed as a percentage, is the ratio of losses and loss adjustment expenses to net earned premiums.
Expense ratio, expressed as a percentage, is the ratio of underwriting, acquisition and insurance expenses to net earned premiums.
Combined ratio is the sum of the loss ratio and the expense ratio. A combined ratio under 100% indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss.
Return on equity is net income expressed on an annualized basis 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 on an annualized basis as a percentage of average beginning and ending total 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.
Net retention ratio is the ratio of net written premiums to gross written premiums.
Gross investment return is investment income from fixed-maturity and equity securities, before any deductions for fees and expenses, expressed as a percentage of the average beginning and ending balancesbook value of those investments during the period.
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Three months ended June 30, 20202021 compared to three months ended June 30, 20192020
The following table summarizes our results of operations for the three months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Three Months Ended June 30,
($ in thousands)($ in thousands)20202019Change% Change($ in thousands)20212020Change% Change
Gross written premiumsGross written premiums$134,091  $94,947  $39,144  41.2 %Gross written premiums$194,061 $134,091 $59,970 44.7 %
Ceded written premiumsCeded written premiums(16,484) (12,260) (4,224) 34.5 %Ceded written premiums(26,308)(16,484)(9,824)59.6 %
Net written premiumsNet written premiums$117,607  $82,687  $34,920  42.2 %Net written premiums$167,753 $117,607 $50,146 42.6 %
Net earned premiumsNet earned premiums$96,957  $66,087  $30,870  46.7 %Net earned premiums$137,700 $96,957 $40,743 42.0 %
Losses and loss adjustment expensesLosses and loss adjustment expenses58,304  39,579  18,725  47.3 %Losses and loss adjustment expenses79,115 58,304 20,811 35.7 %
Underwriting, acquisition and insurance expensesUnderwriting, acquisition and insurance expenses22,961  16,437  6,524  39.7 %Underwriting, acquisition and insurance expenses29,889 22,961 6,928 30.2 %
Underwriting income (1)
Underwriting income (1)
15,692  10,071  5,621  55.8 %
Underwriting income (1)
28,696 15,692 13,004 82.9 %
Net investment incomeNet investment income6,645  4,806  1,839  38.3 %Net investment income7,429 6,645 784 11.8 %
Change in the fair value of equity securitiesChange in the fair value of equity securities13,839  1,909  11,930  NMChange in the fair value of equity securities7,565 13,839 (6,274)(45.3)%
Net realized gains (losses) on investments253  (235) 488  NM
Other income (expense), net13  (16) 29  (181.3)%
Net realized gains on investmentsNet realized gains on investments304 253 51 20.2 %
Other (expense) income, netOther (expense) income, net(386)13 (399)NM
Income before taxesIncome before taxes36,442  16,535  19,907  120.4 %Income before taxes43,608 36,442 7,166 19.7 %
Income tax expenseIncome tax expense6,180  2,768  3,412  123.3 %Income tax expense7,973 6,180 1,793 29.0 %
Net incomeNet income$30,262  $13,767  $16,495  119.8 %Net income$35,635 $30,262 $5,373 17.8 %
Net operating earnings (2)
Net operating earnings (2)
$19,129  $12,445  $6,684  53.7 %
Net operating earnings (2)
$29,419 $19,129 $10,290 53.8 %
Loss ratioLoss ratio60.1 %59.9 %Loss ratio57.5 %60.1 %
Expense ratioExpense ratio23.7 %24.9 %Expense ratio21.7 %23.7 %
Combined ratioCombined ratio83.8 %84.8 %Combined ratio79.2 %83.8 %
Annualized return on equityAnnualized return on equity28.2 %18.5 %Annualized return on equity23.4 %28.2 %
Annualized operating return on equity(2)
Annualized operating return on equity(2)
17.8 %16.7 %
Annualized operating return on equity (2)
19.3 %17.8 %
NM - Percentage change not meaningful.
(1)Underwriting income is a non-GAAP financial measure. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to underwriting income.
(2)Net operating earnings and annualized operating return on equity are non-GAAP financial measures. Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized investment gains and losses, on investments, after taxes. Annualized operating return on equity is defined as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total 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.
Net income was $35.6 million for the three months ended June 30, 2021 compared to $30.3 million for the three months ended June 30, 2020, compared to $13.8 million for the three months ended June 30, 2019, an increase of 119.8%17.8%. The increase in net income for the second quarter of 20202021 over the second quarter of 20192020 was primarily due to higher underwriting income, resulting from favorable E&S market conditions, rate increases and strong growth in broker submissions, and higheroffset in part by a smaller change in unrealized gains on ourof the fair value of equity investment portfolio as fair values on equity securities rebounded sharply duringsecurities. During the second quarter of 2020.2020, the fair value of equity securities
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rebounded sharply from significant declines in fair value in March 2020 associated with the disruption in the financial markets driven by the COVID-19 pandemic.
Underwriting income was $28.7 million for the three months ended June 30, 2021 compared to $15.7 million for the three months ended June 30, 2020, compared to $10.1 millionan increase of 82.9%. The corresponding combined ratios were 79.2% for the three months ended June 30, 2019, an increase of 55.8%. The corresponding combined ratios were2021 compared to 83.8% for the three months ended June 30, 2020 compared to 84.8% for the three months ended June 30, 2019.2020. The increase in our underwriting income in the second quarter of 20202021 compared to the second quarter of 2019,2020, was largely due to premium growth quarter over quarterfrom a strong underwriting environment, continued rate increases and higher net favorable development onof loss reserves from prior accident years. These increases were offset in part by modest activity in catastrophe losses, largely from development on losses related to winter storms Uri and Viola in Texas.
Premiums
Our gross written premiums were $194.1 million for the three months ended June 30, 2021 compared to $134.1 million for the three months ended June 30, 2020, compared to $94.9 million for the three months ended June 30, 2019, an increase of $39.1$60.0 million, or 41.2%44.7%. The increase in gross written premiums for the second quarter of 20202021 over the same period last year was due to higher submission activity from brokers and higher rates on bound accounts, resulting from favorable market conditions. The average premium on a policy written was approximately $9,900 in the second quarter of 2021 compared to approximately $8,500 in the second quarter of 2020 compared to approximately $7,600 in the second quarter of 2019.2020. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was approximately $12,800 in the second quarter of 2021 compared to $11,400 in the second quarter of 2020 compared to $10,500 in the second quarter of 2019.2020.
Net written premiums increased by $34.9$50.1 million, or 42.2%42.6%, to $167.8 million for the three months ended June 30, 2021 from $117.6 million for the three months ended June 30, 2020 from $82.7 million for the three months ended June 30, 2019.2020. The increase in net written premiums for the second quarter of 20202021 compared to the same period last year was primarily due to higher gross written premiums and higher retention of gross written premiums. The net retention ratio was 86.4% for the three months ended June 30, 2021 compared to 87.7% for the three months ended June 30, 2020 compared to 87.1% for the three months ended June 30, 2019.2020. The increasedecrease in the net retention ratio was largely due to the change in the mix of business and higher retention levels underreinstatement premiums in the reinsurance treaties effective withsecond quarter of 2021 over the June 1, 2019 contract renewal, as well as the property catastrophe reinsurance treaty renewal effective June 1,second quarter of 2020.
Net earned premiums increased by $30.9$40.7 million, or 46.7%42.0%, to $137.7 million for the three months ended June 30, 2021 from $97.0 million for the three months ended June 30, 2020 from $66.1 million for the three months ended June 30, 2019 and was directly related to growth in gross written premiums.
Loss ratio
The loss ratio was 57.5% for the three months ended June 30, 2021 compared to 60.1% for the three months ended June 30, 2020 compared to 59.9% for the three months ended June 30, 2019.2020. The increasedecrease in the loss ratio in the second quarter of 20202021 compared to the second quarter of 20192020 was due primarily to higher favorable development on loss reserves from prior accident years and slightly lower loss selections for the current accident year, offset in part by higher favorable development on loss reserves from prior accident years and a slight decreasean increase in catastrophe losses related toin the current accident year.
During the second quarters of 2020 and 2019, the favorableyear, largely from development on loss reserves from prior accident years was primarily duelosses related to reported losses emerging at lower levels than expected.winter storms Uri and Viola in Texas. During the three months ended June 30, 2021, prior accident years developed favorably by $9.1 million, of which $12.3 million was attributable to the 2020 accident year. The 2020 accident year reflected lower emergence of reported losses than expected. This favorable development was offset in part by adverse development, mostly attributable to accident years 2016 and 2017 as a result of modest adjustments in actuarial assumptions.
During the three months ended June 30, 2020, loss reserves for prior accident years developed favorably by $3.6 million, which was primarily attributable to the 2019 accident year. During the three months ended June 30, 2019, loss reserves for prior accident years developed favorably by $1.4 million.
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The following table summarizes the loss ratios for the three months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Three Months Ended June 30,
2020201920212020
($ in thousands)($ in thousands)Losses and Loss Adjustment Expenses% of Earned PremiumsLosses and Loss Adjustment Expenses% of Earned Premiums($ in thousands)Losses and Loss Adjustment Expenses% of Earned PremiumsLosses and Loss Adjustment Expenses% of Earned Premiums
Loss ratio:Loss ratio:Loss ratio:
Current accident year before catastrophe lossesCurrent accident year before catastrophe losses$61,530  63.4 %$40,360  61.1 %Current accident year before catastrophe losses$85,416 62.0 %$61,530 63.4 %
Current year catastrophe lossesCurrent year catastrophe losses390  0.4 %639  1.0 %Current year catastrophe losses2,834 2.1 %390 0.4 %
Effect of prior year developmentEffect of prior year development(3,616) (3.7)%(1,420) (2.2)%Effect of prior year development(9,135)(6.6)%(3,616)(3.7)%
TotalTotal$58,304  60.1 %$39,579  59.9 %Total$79,115 57.5 %$58,304 60.1 %

Expense ratio
The following table summarizes the components of the expense ratio for the three months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Three Months Ended June 30,
2020201920212020
($ in thousands)($ in thousands)Underwriting Expenses% of Earned PremiumsUnderwriting Expenses% of Earned Premiums($ in thousands)Underwriting Expenses% of Earned PremiumsUnderwriting Expenses% of Earned Premiums
Commissions incurred:Commissions incurred:Commissions incurred:
DirectDirect$16,341  16.9 %$11,387  17.2 %Direct$23,554 17.1 %$16,341 16.9 %
CedingCeding(3,463) (3.6)%(3,114) (4.7)%Ceding(6,087)(4.4)%(3,463)(3.6)%
Net commissions incurredNet commissions incurred12,878  13.3 %8,273  12.5 %Net commissions incurred17,467 12.7 %12,878 13.3 %
Other underwriting expensesOther underwriting expenses10,083  10.4 %8,164  12.4 %Other underwriting expenses12,422 9.0 %10,083 10.4 %
Underwriting, acquisition and insurance expensesUnderwriting, acquisition and insurance expenses$22,961  23.7 %$16,437  24.9 %Underwriting, acquisition and insurance expenses$29,889 21.7 %$22,961 23.7 %

The expense ratio was 21.7% for the three months ended June 30, 2021 compared to 23.7% for the three months ended June 30, 2020 compared to 24.9% for the three months ended June 30, 2019.2020. The decrease in the expense ratio was due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums. The decrease in the other underwriting expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses, as a result of management's focus on controlling costs. ThisThe decrease was offset in part by higherthe net commissions incurred as a percentage of earned premiums andratio was largelymostly due to an increasea higher ceding commissions on the excess casualty lines from a change in the retention on our reinsurance treaties, which resulted in relatively lower ceded premiumsmix of business and associated commissions.from ceding commissions from the personal insurance quota share treaty, effective June 1, 2020. Direct commissions paid as a percent of gross written premiums was 14.6% for the three months ended June 30, 2021 and 14.5% for the three months ended June 30, 2020 and 14.6% for the three months ended June 30, 2019.2020.


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Investing results
The following table summarizes net investment income, change in the fair value of equity securities and net realized and unrealizedinvestment gains and losses on investments for the three months ended June 30, 20202021 and 2019:2020:
Three Months Ended June 30,Three Months Ended June 30,
($ in thousands)($ in thousands)20202019Change% Change($ in thousands)20212020Change% Change
Interest from fixed-maturity securitiesInterest from fixed-maturity securities$6,167  $4,364  $1,803  41.3 %Interest from fixed-maturity securities$7,033 $6,167 $866 14.0 %
Dividends from equity securitiesDividends from equity securities879  566  313  55.3 %Dividends from equity securities953 879 74 8.4 %
OtherOther11  156  (145) (92.9)%Other9 11 (2)(18.2)%
Gross investment incomeGross investment income7,057  5,086  1,971  38.8 %Gross investment income7,995 7,057 938 13.3 %
Investment expensesInvestment expenses(412) (280) (132) 47.1 %Investment expenses(566)(412)(154)37.4 %
Net investment incomeNet investment income6,645  4,806  1,839  38.3 %Net investment income7,429 6,645 784 11.8 %
Change in the fair value of equity securitiesChange in the fair value of equity securities13,839  1,909  11,930  NMChange in the fair value of equity securities7,565 13,839 (6,274)(45.3)%
Net realized gains (losses) on investments253  (235) 488  NM
Net realized investment gainsNet realized investment gains304 253 51 20.2 %
TotalTotal$20,737  $6,480  $14,257  220.0 %Total$15,298 $20,737 $(5,439)NM
NM - Percentage change not meaningful.

Our net investment income increased by 38.3%11.8% to $7.4 million for the three months ended June 30, 2021 from $6.6 million for the three months ended June 30, 2020 from $4.8 million for the three months ended June 30, 2019.2020. This increase was primarily due to growth in our investment portfolio balance generated from the investment of excess operating fundspositive cash flow since June 30, 2019 and from proceeds from our equity offering in the third quarter of 2019.
2020. Our investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 2.6% for the three months ended June 30, 2021, compared to 3.0% for the three months ended June 30, 2020, compared to 3.2%2020.
The change in unrealized gains on our equity investment portfolio was $7.6 million for the three months ended June 30, 2019.
Unrealized gains on our equity investment portfolio increased by2021 compared to $13.8 million duringfor the three months ended June 30, 2020. During the second quarter of 2020. This increase2021, the change in unrealized gains was mostly relatedattributable to our ETFexchange-traded fund ("ETF") securities, whichwhose valuations are largely reflective of the broader domestic capital market. Fair values on these securities rebounded sharply duringU.S. stock markets. During the second quarter of 2020, the fair value of our ETF securities rebounded sharply from a significant declinesdecline in fair value driven by the disruption in the financial markets in March 2020 associated with the COVID-19 pandemic.

Income tax expense
Our effective tax rate was 18.3% for the three months ended June 30, 2021 compared to 17.0% for the three months ended June 30, 2020 compared to 16.7% for the three months ended June 30, 2019.2020. The effective tax rates were lower than the federal statutory rate of 21% due to the tax benefits from the stock-based compensation and from income generated by certain tax-advantaged investments.tax-exempt investment income.
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Six months ended June 30, 20202021 compared to six months ended June 30, 20192020
The following table summarizes our results of operations for the six months ended June 30, 20202021 and 2019:2020:
Six Months Ended June 30,Six Months Ended June 30,
($ in thousands)($ in thousands)20202019Change% Change($ in thousands)20212020Change% Change
Gross written premiumsGross written premiums$258,127  $179,573  $78,554  43.7 %Gross written premiums$362,937 $258,127 $104,810 40.6 %
Ceded written premiumsCeded written premiums(32,467) (23,819) (8,648) 36.3 %Ceded written premiums(50,886)(32,467)(18,419)56.7 %
Net written premiumsNet written premiums$225,660  $155,754  $69,906  44.9 %Net written premiums$312,051 $225,660 $86,391 38.3 %
Net earned premiumsNet earned premiums$186,718  $127,578  $59,140  46.4 %Net earned premiums$260,741 $186,718 $74,023 39.6 %
Losses and loss adjustment expensesLosses and loss adjustment expenses112,037  73,311  38,726  52.8 %Losses and loss adjustment expenses149,375 112,037 37,338 33.3 %
Underwriting, acquisition and insurance expensesUnderwriting, acquisition and insurance expenses44,544  32,053  12,491  39.0 %Underwriting, acquisition and insurance expenses58,025 44,544 13,481 30.3 %
Underwriting income (1)
Underwriting income (1)
30,137  22,214  7,923  35.7 %
Underwriting income (1)
53,341 30,137 23,204 77.0 %
Net investment incomeNet investment income12,605  9,321  3,284  35.2 %Net investment income14,371 12,605 1,766 14.0 %
Change in fair value of equity securitiesChange in fair value of equity securities(2,322) 7,804  (10,126) NMChange in fair value of equity securities14,656 (2,322)16,978 (731.2)%
Net realized gains on investments1,029  45  984  NM
Other income (expense), net23  (48) 71  (147.9)%
Net realized investment gainsNet realized investment gains1,502 1,029 473 46.0 %
Other (expense) income, netOther (expense) income, net(823)23 (846)NM
Income before taxesIncome before taxes41,472  39,336  2,136  5.4 %Income before taxes83,047 41,472 41,575 100.2 %
Income tax expenseIncome tax expense6,124  6,849  (725) (10.6)%Income tax expense15,333 6,124 9,209 150.4 %
Net incomeNet income$35,348  $32,487  $2,861  8.8 %Net income$67,714 $35,348 $32,366 91.6 %
Net operating earnings (2)
Net operating earnings (2)
$36,369  $26,286  $10,083  38.4 %
Net operating earnings (2)
$54,949 $36,369 $18,580 51.1 %
Loss ratioLoss ratio60.0 %57.5 %Loss ratio57.3 %60.0 %
Expense ratioExpense ratio23.9 %25.1 %Expense ratio22.2 %23.9 %
Combined ratioCombined ratio83.9 %82.6 %Combined ratio79.5 %83.9 %
Annualized return on equityAnnualized return on equity16.4 %22.7 %Annualized return on equity22.5 %16.4 %
Annualized operating return on equity(2)
Annualized operating return on equity(2)
16.9 %18.4 %
Annualized operating return on equity(2)
18.2 %16.9 %
NM - Percentage change not meaningful.
(1)Underwriting income is a non-GAAP financial measure. See "—Reconciliation of non-GAAP financial measures" for a reconciliation of net income in accordance with GAAP to underwriting income.
(2)Net operating earnings and annualized operating return on equity are non-GAAP financial measures. Net operating earnings is defined as net income excluding the effects of the net change in the fair value of equity securities, after taxes, and net realized investment gains and losses, on investments, after taxes. Annualized operating return on equity is defined as net operating earnings expressed on an annualized basis as a percentage of average beginning and ending total 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.
Net income was $67.7 million for the six months ended June 30, 2021 compared to $35.3 million for the six months ended June 30, 2020, compared to $32.5 million for the six months ended June 30, 2019, an increase of 8.8%91.6%. The increase in net income for the first six months of 20202021 over the same period last year was primarily due to a number of factors including higher returns on equity investments as a result of a rebound in the financial markets, growth in the business from favorable market conditions and continued rate increases, and higher net investment income and a lower effective tax rate generatedfavorable development of loss reserves from the tax benefits related to stock-based compensation activity. These increases were offset in part by a decline in fair value on our equity investment portfolio driven by volatility in the financial markets.prior accident years.
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Underwriting income (1)was $53.3 million for the six months ended June 30, 2021 compared to $30.1 million for the six months ended June 30, 2020, an increase of 77.0%. The corresponding combined ratios were 79.5% for the six months ended June 30, 2021 compared to $22.283.9% for the six months ended June 30, 2020. The increase in underwriting income for the first six months of 2021 compared to the same period last year was largely due to premium growth from a positive underwriting environment, continued rate increases and higher net favorable development of loss reserves from prior accident years. These increases were offset in part by modest activity in catastrophe losses, largely from development on losses related to winter storms Uri and Viola in Texas.
Premiums
Our gross written premiums were $362.9 million for the six months ended June 30, 2019, an increase of 35.7%. The corresponding combined ratios were 83.9% for the six months ended June 30, 20202021 compared to 82.6% for the six months ended June 30, 2019. The increase in our underwriting income for the first six months of 2020 compared to the same period last year was due to growth in earned premiums period over period, offset in part by lower favorable development on loss reserves from prior accident years.
Premiums
Our gross written premiums were $258.1 million for the six months ended June 30, 2020, compared to $179.6 million for the six months ended June 30, 2019, an increase of $78.6$104.8 million, or 43.7%40.6%. The increase in gross written premiums for the first six months of 20202021 over the same period last year was due to higher submission activity from brokers and higher rates across most lines of business, resulting from continued favorable market conditions in the excess and surplus linesE&S market. The average premium on a policy written was approximately $9,900 in the first six months of 2021 compared to approximately $8,800 in the first six months of 2020 compared to approximately $7,800 in the first six months of 2019.2020. Excluding our personal lines insurance, which has a relatively low premium per policy written, the average premium on a policy written was approximately $12,600 for the first six months of 2021 and approximately $11,600 for the first six months of 2020 and $10,500 for the first six months of 2019.2020.
Net written premiums increased by $69.9$86.4 million, or 44.9%38.3%, to $312.1 million for the six months ended June 30, 2021 from $225.7 million for the six months ended June 30, 2020 from $155.8 million for the six months ended June 30, 2019.2020. The increase in net written premiums for the first six months of 20202021 compared to the same period last year was primarily due to higher gross written premiums. The net retention ratio was 87.4%86.0% for the six months ended June 30, 20202021 compared to 86.7%87.4% for the same period last year. The slight increasedecrease in the net retention ratio was primarily due to higher retention levelsreinstatement premiums on the reinsurance treaties effective withproperty lines of business and change in the June 1, 2019 contract renewal.mix of business.
Net earned premiums increased by $59.1$74.0 million, or 46.4%39.6%, to $260.7 million for the six months ended June 30, 2021 from $186.7 million for the six months ended June 30, 2020 from $127.6 million for the six months ended June 30, 2019 due to growth in gross written premiums.
Loss ratio
The loss ratio was 57.3% for the six months ended June 30, 2021 compared to 60.0% for the six months ended June 30, 2020 compared to 57.5% for the six months ended June 30, 2019.2020. The increasedecrease in the loss ratio in the first six months of 20202021 compared to the first six months of 20192020 was due primarily to lowerfrom favorable net development on lossof reserves from prior accident years.years and slightly lower loss selections for the current accident year, offset in part by an increase in catastrophe losses in the current accident year, largely from development on losses related to winter storms Uri and Viola in Texas.
During the first six months of 20202021 and 2019,2020, the favorable development onof loss reserves from prior accident years was primarily due to reported losses emerging at lower levels than expected. During the six months ended June 30, 2021, prior accident years developed favorably by $16.2 million, of which $21.8 million was attributable to the 2020 accident year and reflected lower emergence of reported losses than expected. This favorable development was offset in part by adverse development, mostly attributable to the 2018 accident year as a result of modest adjustments in actuarial assumptions.
During the six months ended June 30, 2020, loss reserves from prior accident years developed favorably by $6.6 million, of which $5.0 million was attributable to the 2019 accident year. During the six months ended June 30, 2019, loss reserves for prior accident years developed favorably by $7.8 million, of which $14.0 million was largely attributable to accident years 2017 and 2018. This favorable development was offset in part by adverse development in the accident years 2011 through 2016 of $6.2 million, which resulted from higher IBNR reserves to provide for emergence of reported losses over a longer period of time based on observed trends. The favorable development on loss reserves from prior accident years was lower in the first half of 2020 compared to the prior year in part to provide for the uncertainty associated with the emergence of reported losses over a longer period of time in light of recent economic conditions and other effects related to the COVID-19 pandemic.
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The following table summarizes the loss ratios for the six months ended June 30, 20202021 and 2019:2020:
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
($ in thousands)($ in thousands)Losses and Loss Adjustment Expenses% of Earned PremiumsLosses and Loss Adjustment Expenses% of Earned Premiums($ in thousands)Losses and Loss Adjustment Expenses% of Earned PremiumsLosses and Loss Adjustment Expenses% of Earned Premiums
Loss ratio:Loss ratio:Loss ratio:
Current accident year before catastrophe lossesCurrent accident year before catastrophe losses$118,201  63.3 %$80,458  63.1 %Current accident year before catastrophe losses$162,673 62.4 %$118,201 63.3 %
Current year catastrophe lossesCurrent year catastrophe losses461  0.2 %669  0.5 %Current year catastrophe losses2,910 1.1 %461 0.2 %
Effect of prior year developmentEffect of prior year development(6,625) (3.5)%(7,816) (6.1)%Effect of prior year development(16,208)(6.2)%(6,625)(3.5)%
TotalTotal$112,037  60.0 %$73,311  57.5 %Total$149,375 57.3 %$112,037 60.0 %

Expense ratio
The following table summarizes the components of the expense ratio for the six months ended June 30, 20202021 and 2019:2020:
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
($ in thousands)($ in thousands)Underwriting Expenses% of Earned PremiumsUnderwriting Expenses% of Earned Premiums($ in thousands)Underwriting Expenses% of Earned PremiumsUnderwriting Expenses% of Earned Premiums
Commissions incurred:Commissions incurred:Commissions incurred:
DirectDirect$31,483  16.9 %$22,061  17.3 %Direct$44,719 17.1 %$31,483 16.9 %
CedingCeding(6,646) (3.6)%(6,052) (4.7)%Ceding(11,442)(4.4)%(6,646)(3.6)%
Net commissions incurredNet commissions incurred24,837  13.3 %16,009  12.6 %Net commissions incurred33,277 12.7 %24,837 13.3 %
Other underwriting expensesOther underwriting expenses19,707  10.6 %16,044  12.5 %Other underwriting expenses24,748 9.5 %19,707 10.6 %
Underwriting, acquisition and insurance expensesUnderwriting, acquisition and insurance expenses$44,544  23.9 %$32,053  25.1 %Underwriting, acquisition and insurance expenses$58,025 22.2 %$44,544 23.9 %

The expense ratio was 22.2% for the six months ended June 30, 2021 compared to 23.9% for the six months ended June 30, 2020 compared to 25.1% for the six months ended June 30, 2019.2020. The decrease in the expense ratio was due to lower other underwriting expenses and lower net commissions incurred as a percentage of earned premiums. The decrease in the other underwriting expense ratio was primarily due to higher net earned premiums, without a proportional increase in the amount of other underwriting expenses, as a result of management's focus on controlling costs. ThisThe decrease was offset in part by higherthe net commissions incurred as a percentage of earned premiums period over period, whichratio was largelymostly due to an increasea higher ceding commissions on the excess casualty lines from a change in the retention on our reinsurance treatiesmix of business and resulted in relatively lower ceded premiums and associatedfrom ceding commissions forfrom the six months endedpersonal insurance quota share treaty, effective June 30,1, 2020. Direct commissions paid as a percent of gross written premiums was 14.6% for both the six months ended June 30, 20202021 and 2019.2020.
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Investing results
The following table summarizes net investment income, change in the fair value of equity securities and net realized investment gains for the six months ended June 30, 20202021 and 2019:2020:
Six Months Ended June 30,Six Months Ended June 30,
($ in thousands)($ in thousands)20202019Change% Change($ in thousands)20212020Change% Change
Interest from fixed-maturity securitiesInterest from fixed-maturity securities$11,693  $8,439  $3,254  38.6 %Interest from fixed-maturity securities$13,647 $11,693 $1,954 16.7 %
Dividends from equity securitiesDividends from equity securities1,454  1,087  367  33.8 %Dividends from equity securities1,822 1,454 368 25.3 %
OtherOther261  401  (140) (34.9)%Other10 261 (251)(96.2)%
Gross investment incomeGross investment income13,408  9,927  3,481  35.1 %Gross investment income15,479 13,408 2,071 15.4 %
Investment expensesInvestment expenses(803) (606) (197) 32.5 %Investment expenses(1,108)(803)(305)38.0 %
Net investment incomeNet investment income12,605  9,321  3,284  35.2 %Net investment income14,371 12,605 1,766 14.0 %
Change in fair value of equity securitiesChange in fair value of equity securities(2,322) 7,804  (10,126) NMChange in fair value of equity securities14,656 (2,322)16,978 (731.2)%
Net realized gains on investments1,029  45  984  NM
Net realized investment gainsNet realized investment gains1,502 1,029 473 46.0 %
TotalTotal$11,312  $17,170  $(5,858) (34.1)%Total$30,529 $11,312 $19,217 NM
NM - Percentage change not meaningful.

Our net investment income increased by 35.2%14.0% to $14.4 million for the six months ended June 30, 2021 from $12.6 million for the six months ended June 30, 2020 from $9.3 million for the six months ended June 30, 2019.2020. This increase in the first six months of 20202021 compared to the same period last year was primarily due to growth in our investment portfolio balance generated from the investment of excess operating fundspositive cash flow since June 30, 20192020 and proceeds from our equity offering in the third quarter of 2019. This increase was offset in part by lower gross investment returns in the first half of 2020 compared to the first half of 2019.2020. Our fixed-maturity investment portfolio, excluding cash equivalents and unrealized gains and losses, had an annualized gross investment return of 2.6% for the six months ended June 30, 2021 and 3.0% for the six months ended June 30, 2020, compared to 3.2% for the six months ended June 30, 2019. The decrease in annualized gross investment returns was due to a lower interest rate environment since June 30, 2019.2020.
During the first six months of 2021, the change in fair value of equity securities was comprised of unrealized gains related to ETF securities of $14.3 million and unrealized gains related to non-redeemable preferred stock of $0.4 million. The change in unrealized gains during the first half of 2021 attributable to ETF securities was largely reflective of the gains in the broader U.S. stock market.
During the first six months of 2020, the change in fair value of equity securities was comprised of unrealized losses related to non-redeemable preferred stock of $1.5 million and unrealized losses related to ETF securities of $0.8 million. Fair valuesThe fair value of ETF securities declined by $13.1 million during the first quarter of 2020, driven by the disruption in the financial markets associated with the COVID-19 pandemic and, subsequently, the fair value of those securities rebounded sharply during the second quarter of 2020. During the first half of 2019, the change in fair value of equity securities was comprised of unrealized gains related to ETF securities of $5.9 million and preferred stock of $1.9 million. The unrealized gains related to ETF securities during the first half of 2019 reflected increased volatility in the financial markets during that time period
We perform quarterly reviews of all available-for-sale securities within our investment portfolio to determine whether the decline in the securities'a security's fair value is deemed to be a credit loss. Management concluded that there were no credit losses (previously known as other-than-temporary impairments) from available-for-sale investments for the six months ended June 30, 20202021 or 2019.2020.
Other expense, net
For the six months ended June 30, 2021, other expense, net was comprised of interest expense of $0.5 million and building costs not allocated to the insurance operations of $0.3 million.
Income tax expense
Our incomeeffective tax expenserate was $6.1 million18.5% for the six months ended June 30, 20202021 compared to $6.8 million for the six months ended June 30, 2019. Our effective tax rate was 14.8% for the six months ended June 30, 2020 compared to 17.4% for the six months ended June 30, 2019.2020. 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.
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Return on equity
Our annualized return on equity was 22.5% for the six months ended June 30, 2021 compared to 16.4% for the six months ended June 30, 2020 compared to 22.7%2020. Our annualized operating return on equity was 18.2% for the six months ended June 30, 2019. Our annualized operating return on equity was2021 compared to 16.9% for the six months ended June 30, 2020 compared to 18.4% for the six months ended June 30, 2019.2020. The decreaseincrease in annualized operating return on equity for the six months ended June 30, 20202021 compared to the prior-yearprior period was due largelyattributable primarily to the proceeds received from our equity offeringgrowth in the third quarterbusiness and higher net favorable development of 2019.

loss reserves from prior accident years.
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 Company, which is domiciled in Arkansas. Accordingly, we may receive cash through (1) loans from banks and other third parties, (2) issuance of equity and debt securities, (3) corporate service fees from our insurance subsidiary, (4) payments from our subsidiaries pursuant to our consolidated tax allocation agreement and other transactions, and (5) dividends from our insurance subsidiary. We may use the proceeds from these sources to contribute funds to Kinsale Insurance Company in order to support premium growth, reduce our reliance on reinsurance, pay dividends and taxes and for other business purposes.
We receive corporate service fees from Kinsale Insurance Company to reimburse us for most of the operating expenses that we incur. 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.
In August 2019, we filed a universal shelf registration statement with the SEC that expires in 2022. We can use this shelf registration to issue an unspecified amount of debt securities, 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.
Management believes that the Company has sufficient liquidity available both in Kinsale and in its insurance subsidiary, Kinsale Insurance Company, as well as in its other operating subsidiaries, to meet its operating cash needs and obligations and committed capital expenditures for the next 12 months.
Cash flows
Our most significant source of cash is from premiums received from our insureds, which, for most policies, we receive at the beginning of the coverage period. Our most significant cash outflow is for claims that arise when a policyholder incurs an insured loss. Because the payment of claims occurs after the receipt of the premium, often years later, we invest the cash in various investment securities that earn interest and dividends. We also use cash to pay commissions to insurance brokers, as well as to pay for ongoing operating expenses such as salaries, consulting services and taxes. As described under "—Reinsurance" below, we use reinsurance to manage the risk that we take related to the issuance of 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.
The timing of our cash flows from operating activities can vary among periods due to the timing by which payments are made or received. Some of our payments and receipts, including loss settlements and subsequent reinsurance receipts, can be significant, so their timing can influence cash flows from operating activities in any given period. Management believes that cash receipts from premiums, proceeds from investment sales and redemptions and investment income are sufficient to cover cash outflows in the foreseeable future.
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Our cash flows for the six months ended June 30, 2021 and 2020 and 2019 were:
Six Months Ended June 30,Six Months Ended June 30,
2020201920212020
(in thousands)(in thousands)
Cash and cash equivalents provided by (used in):Cash and cash equivalents provided by (used in):Cash and cash equivalents provided by (used in):
Operating activitiesOperating activities$132,587  $71,292  Operating activities$194,948 $132,587 
Investing activitiesInvesting activities(181,607) (64,939) Investing activities(137,434)(181,607)
Financing activitiesFinancing activities11,588  (3,311) Financing activities(6,602)11,588 
Change in cash and cash equivalentsChange in cash and cash equivalents$(37,432) $3,042  Change in cash and cash equivalents$50,912 $(37,432)

Net cash provided by operating activities was approximately $132.6$194.9 million for the six months ended June 30, 2020,2021, compared to $71.3$132.6 million for the same period in 2019.2020. This increase was largely driven by higher premium volume, the timing of claim payments and reinsurance recoveries, offset in part by changes in operating assets and liabilities.
Net cash used in investing activities was $137.4 million for the six months ended June 30, 2021, compared to $181.6 million for the six months ended June 30, 2020, compared to $64.9 million for the six months ended June 30, 2019.2020. Net cash used in investing activities during the first six months of 2021 included purchases of fixed-maturity securities of $315.2 million, and were comprised primarily of corporate bonds, asset- and mortgage-backed securities, and municipal securities. During the first six months of 2021, we received proceeds of $87.7 million from sales of fixed-maturity securities, largely corporate bonds, and $99.7 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the six months ended June 30, 2021, purchases of ETF securities and non-redeemable preferred stock were $1.0 million and $7.3 million, respectively.
Net cash used in investing activities of $181.6 million during the first six months of 2020 included purchases of fixed-maturity securities of $231.1 million, which in part reflected the deployment of cash equivalents held at December 31, 2019. Purchases of fixed-maturity securities were comprised primarily of corporate bonds, asset- and mortgage-backed securities, and municipal securities. During the first six months of 2020, we received proceeds of $54.5 million from sales of fixed-maturity securities, largely corporate bonds, and $42.1 million from redemptions of asset- and mortgage-backed securities and corporate bonds. For the six months ended June 30, 2020, purchases of ETFsETF securities and non-redeemable preferred stock were $26.2 million and $5.8 million, respectively. Net cash used in investing activities included net purchases of property and equipment of $15.1 million, primarily related to the development of our new corporate headquarters, previously disclosed.headquarters.
Net cash used in investing activities during the first six months of 2019 reflected purchases of fixed-income securities of $115.4 million, comprised of asset- and mortgage-backed securities and corporate bonds. During the first six months of 2019, we received proceeds of $31.4 million from sales of fixed-maturity securities, principally municipal bonds, and $25.7 million from redemptions of corporate bonds and asset- and mortgage-backed securities. During the six months ended June 30, 2019, purchases and sales of non-redeemable preferred stocks were $2.1 million and $2.9 million, respectively, and purchases of ETFs were $1.5 million. In addition, net cash used in investing activities included the purchase of property and equipment for $6.0 million mostly related to the development of our new corporate headquarters.
During the first six months of 2021, cash used in financing activities reflected dividends paid of $0.11 per common share, or $5.0 million in aggregate. Proceeds received from our equity compensation plans were $0.5 million, offset by payroll taxes withheld and remitted on restricted stock awards of $2.1 million for the six months ended June 30, 2021.
During the first six months of 2020,, we drew down $16.3 million on our Credit Facility, which was used to fund the construction of our new headquarter facilities. In addition, during the first six months of June 30, 2020,, cash used in financing activities reflected dividends paid of $0.18$0.09 per common share, or $4.0 million in aggregate. During the first six months of June 30, 2019, cash used in financing activities primarily reflected dividends paid of $0.16 per common share, or $3.4 million in aggregate. Proceeds received from our equity compensation plans were $1.1 million, offset by payroll taxes withheld and remitted on restricted stock awards of $1.8 million for the six months ended June 30, 2020.
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Net proceeds from equity compensation totaled $0.4 million for the six months ended June 30, 2019.Table of Contents
Credit agreement
In May 2019, we entered into a Credit Agreement that provided us with a $50 million Credit Facility and an uncommitted accordion feature that permits us to increase the commitments by an additional $30 million. The Credit
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Facility has a maturity of May 28, 2024. Borrowings under the Credit Facility will bewas used to fund construction of our new headquarters andbut may also be used for working capital and general corporate purposes. Interest rates on borrowings are based on prevailing interest rates and the applicable margin, as described in the Credit Agreement. As of June 30, 20202021, there was $33.1$42.6 million outstanding under the Credit Facility, net of debt issuance costs.
Reinsurance
We enter into reinsurance contracts primarily to limit our exposure to potential large losses. Reinsurance involves an insurance company transferring ("ceding") a portion of its exposure on a risk to another insurer, the reinsurer. The reinsurer assumes the exposure in return for a portion of the premium. Our reinsurance is primarily contracted under quota-share reinsurance contracts and excess of loss contracts. In quota-share reinsurance, the reinsurer agrees to assume a specified percentage of the ceding company's losses arising out of a defined class of business in exchange for a corresponding percentage of premiums, net of a ceding commission. 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. Under 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.
We use facultative reinsurance coverage on a limited basis. Facultative coverage refers to a reinsurance contract on individual risks as opposed to a group or class of business. It is used for a variety of reasons, including supplementing the limits provided by the treaty coverage or covering risks or perils excluded from treaty reinsurance.
We renew our reinsurance treaties annually. During each renewal cycle, there are a number of factors we consider when determining our reinsurance coverage, including (1) plans to change the underlying insurance coverage we offer, (2) trends in loss activity, (3) the level of our capital and surplus, (4) changes in our risk appetite and (5) the cost and availability of reinsurance coverage.

To manage our natural catastrophe exposure, we use computer models to analyze the risk of severe losses. We measure exposure to these losses in terms of probable maximum loss ("PML"), which is an estimate of the amount of loss we would expect to meet or exceed once in a given number of years (referred to as the return period). When managing our catastrophe exposure, we focus on the 100 year and the 250 year return periods. Effective with the June 1, 2020 renewal, we entered into a new personal insurance quota share treaty. We used model results previously noted to stress test the completeness of our program and determined that over 70% of the modelled losses from catastrophes costing over $10 million came from our personal insurance business. We determined that utilizing a personal lines quota share treaty combined with a catastrophe treaty was a more efficient and cost effective way to manage the total loss exposure on our property coverages.
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The following is a summary of our significant reinsurance programs as of June 30, 2020:2021:
Line of Business CoveredCompany Policy LimitReinsurance CoverageCompany Retention
Property - per risk (1)Up to $10.0 million per risk$8.05.75 million excess of $2.0$3.0 million$2.03.0 million per occurrence
Property - personal insurance (2)N/A50% up to $47.5$30.4 million per catastrophe50% of all personal property losses
Property - catastrophe (3)N/A$45.060.0 million excess of $10.0$15.0 million$10.015.0 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 property per-risk reinsurance reduces the financial impact of a large loss on a single commercial property or inland marine policy. In addition to the Company's retention, this treaty includes a deductible of the first $4.0 million of losses covered under this reinsurance treaty. This treaty also includes a reinstatement provision which
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requires us to pay reinstatement premiums after a loss in excess of $5 million has occurred in order to preserve coverage.
(2)    Our personal insurance quota share reinsurance reduces the financial impact of property losses on our personal insurance policies.
(3)    Our property catastrophe reinsurance reduces the financial impact of a catastrophe event involving multiple claims and policyholders. 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. Including the reinstatement provision, the maximum aggregate loss recovery limit is $90$120 million and is in addition to the per-occurrence coverage provided by our facultative and treaty coverages.
(4)    Reinsurance is not applicable to any individual policy with a per occurrenceper-occurrence limit of $2.0 million or less.
(5)    For casualty policies with a per occurrenceper-occurrence limit higher than $2.0 million, the quota-share 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%. 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.
ReinsuranceReinsurance contracts do not relieve us from our obligations to policyholders. Failure of the reinsurer to honor its obligationsobligation could result in losses to us, and if such an event occurred,therefore, we would establishestablished an allowance for those amounts considered uncollectible.credit risk based on historical analysis of credit losses for highly rated companies in the insurance industry. In formulating our reinsurance programs, we are selective in our choice of reinsurers and we consider numerous factors, the most important of which are the financial stability of the reinsurer, its history of responding to claims and its overall reputation. 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 June 30, 2020,2021, all reinsurance contracts that our insurance subsidiary was a party to were with companies with A.M. Best ratings of "A" (Excellent) or better. As of June 30, 2020,2021, we have never had a lossrecorded an allowance for uncollectible reinsurance.doubtful accounts of $0.3 million related to our reinsurance balances.
Ratings
Kinsale Insurance Company has a financial strength rating of "A" (Excellent) with a stable outlook from A.M. Best. A.M. Best assigns 16 ratings to insurance companies, which currently range from "A++" (Superior) to "F" (In
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Liquidation). "A" (Excellent) is the third highest rating issued by A.M. Best. The "A" (Excellent) rating is assigned to insurers that have, in A.M. Best's opinion, an excellent ability to meet their ongoing obligations to policyholders. This rating is intended to provide an independent opinion of an insurer's ability to meet its obligation to policyholders and is not an evaluation directed at investors.
The financial strength ratings assigned by A.M. Best have an impact on the ability of the insurance companies to attract and retain agents and brokers and on the risk profiles of the submissions for insurance that the insurance companies receive. The "A" (Excellent) rating obtained by Kinsale Insurance Company is consistent with our business plan and allows us to actively pursue relationships with the agents and brokers identified in our marketing plan.
Financial condition
Stockholders' equity
At June 30, 2020,2021, total stockholders' equity was $456.1$629.6 million and tangible stockholders' equity was $453.3$626.8 million, compared to total stockholders' equity of $405.9$576.2 million and tangible stockholders' equity $403.1$573.4 million at
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December 31, 2019.2020. The increases in both total and tangible stockholders' equity over the prior year-end balances were primarily due to profits generated during the period higher fair valuesand activity related to stock-based compensation plans, offset in part by an increase in unrealized losses on our available-for-sale investments, net of taxes, and activity related to stock-based compensation plans. These increases were offset in part by the payment of dividends.
Tangible stockholders’ equity is a non-GAAP financial measure. We define tangible stockholders’See "—Reconciliation of non-GAAP financial measures" for a reconciliation of stockholders' equity as total stockholders’ equity less intangible assets, net of deferred taxes. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders' equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.
Stockholders' equity at June 30, 2020 and December 31, 2019, reconcilesGAAP to tangible stockholders' equity as follows:
June 30, 2020December 31, 2019
(in thousands)
Stockholders' equity$456,114  $405,880  
Less: intangible assets, net of deferred taxes2,795  2,795  
Tangible stockholders' equity$453,319  $403,085  

equity.
Investment portfolio
At June 30, 2020,2021, our cash and invested assets of $1.1$1.5 billion consisted of fixed-maturity securities, equity securities and cash and cash equivalents. At June 30, 2020,2021, the majority of the investment portfolio was comprised of fixed-maturity securities of $893.4 million$1.2 billion that were classified as available-for-sale. Available-for-sale investments are carried at fair value with unrealized gains and losses on these securities, net of applicable taxes, reported as a separate component of accumulated other comprehensive income. At June 30, 2020,2021, we also held $107.9$150.9 million of equity securities, which were comprised of ETFsETF securities and non-redeemable preferred stock, and $63.0$128.0 million of cash and cash equivalents.
Our fixed-maturity securities, including cash equivalents, had a weighted average duration of 4.64.3 years at June 30, 20202021 and 4.3 years at December 31, 20192020 and an average rating of "AA-" at June 30, 20202021 and "AA" at December 31, 2019.2020.
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At June 30, 20202021 and December 31, 2019,2020, the amortized cost and estimated fair value on fixed-maturity securities were as follows:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Amortized CostEstimated Fair Value% of Total Fair ValueAmortized CostEstimated Fair Value% of Total Fair ValueAmortized CostEstimated Fair Value% of Total Fair ValueAmortized CostEstimated Fair Value% of Total Fair Value
($ in thousands)($ in thousands)
Fixed-maturity securities:Fixed-maturity securities:Fixed-maturity securities:
U.S. Treasury securities and obligations of U.S. government agencies$1,130  $1,113  0.1 %$110  $112  — %
Obligations of states, municipalities and political subdivisionsObligations of states, municipalities and political subdivisions178,620  190,544  21.3 %166,312  172,893  23.7 %Obligations of states, municipalities and political subdivisions$211,296 $224,639 18.3 %$216,181 $230,906 21.3 %
Corporate and other securitiesCorporate and other securities277,485  294,333  33.0 %180,287  184,768  25.4 %Corporate and other securities412,687 428,332 35.0 %294,854 316,608 29.3 %
Commercial mortgage and asset-backed securities261,734  265,887  29.8 %195,750  197,970  27.1 %
Asset-backed securitiesAsset-backed securities274,514 278,163 22.7 %236,813 240,661 22.2 %
Commercial mortgage-backed securitiesCommercial mortgage-backed securities60,119 63,459 5.2 %66,110 70,969 6.6 %
Residential mortgage-backed securitiesResidential mortgage-backed securities137,167  141,487  15.8 %172,358  173,789  23.8 %Residential mortgage-backed securities228,987 230,286 18.8 %217,859 222,656 20.6 %
Total fixed-maturity securitiesTotal fixed-maturity securities$856,136  $893,364  100.0 %$714,817  $729,532  100.0 %Total fixed-maturity securities$1,187,603 $1,224,879 100.0 %$1,031,817 $1,081,800 100.0 %

The table below summarizes the credit quality of our fixed-maturity securities at June 30, 20202021 and December 31, 2019,2020, as rated by Standard & Poor’s Financial Services, LLC ("Standard & Poor's"):
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
Standard & Poor’s or Equivalent DesignationStandard & Poor’s or Equivalent DesignationEstimated Fair Value% of TotalEstimated Fair Value% of TotalStandard & Poor’s or Equivalent DesignationEstimated Fair Value% of TotalEstimated Fair Value% of Total
($ in thousands)($ in thousands)
AAAAAA$260,398  29.2 %$213,174  29.2 %AAA$353,811 28.9 %$312,721 28.9 %
AAAA271,026  30.3 %259,873  35.6 %AA387,174 31.6 %382,174 35.3 %
AA206,171  23.1 %176,338  24.2 %A237,509 19.4 %187,970 17.4 %
BBBBBB132,181  14.8 %74,872  10.3 %BBB174,554 14.2 %157,777 14.6 %
Below BBB and unratedBelow BBB and unrated23,588  2.6 %5,275  0.7 %Below BBB and unrated71,831 5.9 %41,158 3.8 %
TotalTotal$893,364  100.0 %$729,532  100.0 %Total$1,224,879 100.0 %$1,081,800 100.0 %
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The amortized cost and estimated fair value of our fixed-maturity securities summarized by contractual maturity as of June 30, 20202021 and December 31, 2019,2020, were as follows:
June 30, 2020December 31, 2019
Amortized
Cost		Estimated Fair Value% of Total Fair ValueAmortized
Cost		Estimated Fair Value% of Total Fair Value
($ in thousands)
Due in one year or less$11,926  $12,047  1.3 %$9,940  $9,990  1.4 %
Due after one year through five years114,967  122,401  13.7 %115,480  118,611  16.3 %
Due after five years through ten years142,571  152,692  17.1 %79,235  82,314  11.3 %
Due after ten years187,771  198,850  22.3 %142,054  146,858  20.1 %
Commercial mortgage and asset-backed securities261,734  265,887  29.8 %195,750  197,970  27.1 %
Residential mortgage-backed securities137,167  141,487  15.8 %172,358  173,789  23.8 %
Total fixed maturities$856,136  $893,364  100.0 %$714,817  $729,532  100.0 %
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June 30, 2021December 31, 2020
Amortized
Cost		Estimated Fair Value% of Total Fair ValueAmortized
Cost		Estimated Fair Value% of Total Fair Value
($ in thousands)
Due in one year or less$8,024 $8,103 0.7 %$15,545 $15,782 1.5 %
Due after one year through five years168,151 175,444 14.3 %107,150 115,390 10.7 %
Due after five years through ten years198,812 207,615 16.9 %156,958 169,711 15.7 %
Due after ten years248,996 261,809 21.4 %231,382 246,631 22.8 %
Asset-backed securities274,514 278,163 22.7 %236,813 240,661 22.2 %
Commercial mortgage-backed securities60,119 63,459 5.2 %66,110 70,969 6.5 %
Residential mortgage-backed securities228,987 230,286 18.8 %217,859 222,656 20.6 %
Total fixed-maturity securities$1,187,603 $1,224,879 100.0 %$1,031,817 $1,081,800 100.0 %

Actual maturities may differ from contractual maturities because some borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
As of June 30, 2020,2021, 7.5% of our total cash and investments werewas invested in ETFs.ETF securities. At June 30, 20202021 and December 31, 2019,2020, our ETF balances were comprised of the following funds:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
FundFundFair Value% of TotalFair Value% of TotalFundFair Value% of TotalFair Value% of Total
($ in thousands)($ in thousands)
Domestic stock market fundDomestic stock market fund$51,666  64.7 %$42,873  78.7 %Domestic stock market fund$74,603 65.9 %$64,760 66.0 %
Dividend yield equity fundDividend yield equity fund28,152  35.3 %11,590  21.3 %Dividend yield equity fund38,645 34.1 %33,290 34.0 %
TotalTotal$79,818  100.0 %$54,463  100.0 %Total$113,248 100.0 %$98,050 100.0 %

As of June 30, 2020, 2.6%2021, 2.5% of our total cash and investments werewas invested in non-redeemable preferred stock. A summary of these securities by industry segment is shown below as of June 30, 20202021 and December 31, 20192020:
June 30, 2020December 31, 2019June 30, 2021December 31, 2020
IndustryIndustryFair Value% of TotalFair Value% of TotalIndustryFair Value% of TotalFair Value% of Total
($ in thousands)($ in thousands)
FinancialFinancial$24,815  88.3 %$20,369  85.5 %Financial$33,643 89.4 %$27,744 87.8 %
UtilitiesUtilities2,880  10.3 %2,992  12.5 %Utilities3,095 8.2 %3,034 9.6 %
Industrials and otherIndustrials and other392  1.4 %470  2.0 %Industrials and other896 2.4 %834 2.6 %
TotalTotal$28,087  100.0 %$23,831  100.0 %Total$37,634 100.0 %$31,612 100.0 %

Restricted investments
In order to conduct business in certain states, we are required to maintain letters of credit or assets on deposit to support state-mandated insurance regulatory requirements and to comply with certain third-party agreements. Assets held on deposit or in trust accounts are primarily in the form of high-grade securities. The fair value of our restricted assets was $6.9$6.8 million and $6.9 million at both June 30, 20202021 and December 31, 2019.2020, respectively.
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Off-balance sheet arrangements
We do not have any material off-balance sheet arrangements at June 30, 2020.
2021.

Reconciliation of non-GAAP financial measures
Reconciliation of underwriting income
Underwriting income is defined as net income excluding net investment income, the net change in the fair value of equity securities, net realized investment gains, and losses on investments, other income, other expenses and income tax expense. The Company uses underwriting income as an internal performance measure in the management of its operations because the Company believes it gives management and users of the Company's financial information useful insight into the Company's results of operations and underlying business performance. Underwriting income should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define underwriting income differently.
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Net income for the three and six months ended June 30, 20202021 and 2019,2020, reconciles to underwriting income as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)2020201920202019(in thousands)2021202020212020
Net incomeNet income$30,262  $13,767  $35,348  $32,487  Net income$35,635 $30,262 $67,714 $35,348 
Income tax expenseIncome tax expense6,180  2,768  6,124  6,849  Income tax expense7,973 6,180 15,333 6,124 
Income before income taxesIncome before income taxes36,442  16,535  41,472  39,336  Income before income taxes43,608 36,442 83,047 41,472 
Other expenses(1)Other expenses(1)—  21  —  57  Other expenses(1)398 — 846 — 
Net investment incomeNet investment income(6,645) (4,806) (12,605) (9,321) Net investment income(7,429)(6,645)(14,371)(12,605)
Change in the fair value of equity securitiesChange in the fair value of equity securities(13,839) (1,909) 2,322  (7,804) Change in the fair value of equity securities(7,565)(13,839)(14,656)2,322 
Net realized (gains) losses on investments(253) 235  (1,029) (45) 
Net realized investment gainsNet realized investment gains(304)(253)(1,502)(1,029)
Other incomeOther income(13) (5) (23) (9) Other income(12)(13)(23)(23)
Underwriting incomeUnderwriting income$15,692  $10,071  $30,137  $22,214  Underwriting income$28,696 $15,692 $53,341 $30,137 
(1) Other expenses are comprised of interest expense on our Credit Facility and building expenses not allocated to our insurance operations.

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, and net realized gains and losses on investments, after taxes. Management believes the exclusion of these items provides a more useful comparison of the Company's underlying business performance from period to period. Net operating earnings and percentages or calculations using net operating earnings (e.g., diluted operating earnings per share and annualized operating return on equity) are non-GAAP financial measures. Net operating earnings should not be viewed as a substitute for net income calculated in accordance with GAAP, and other companies may define net operating earnings differently.
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Net income for the three and six months ended June 30, 20202021 and 2019,2020, reconciles to net operating earnings as follows:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)2020201920202019(in thousands)2021202020212020
Net operating earnings:
Net incomeNet income$30,262  $13,767  $35,348  $32,487  Net income$35,635 $30,262 $67,714 $35,348 
Change in the fair value of equity securities, after taxesChange in the fair value of equity securities, after taxes(10,933) (1,508) 1,834  (6,165) Change in the fair value of equity securities, after taxes(5,976)(10,933)(11,578)1,834 
Net realized (gains) losses on investments, after taxes(200) 186  (813) (36) 
Net realized investment gains, after taxesNet realized investment gains, after taxes(240)(200)(1,187)(813)
Net operating earningsNet operating earnings$19,129  $12,445  $36,369  $26,286  Net operating earnings$29,419 $19,129 $54,949 $36,369 
Operating return on equity:Operating return on equity:Operating return on equity:
Average stockholders' equity (1)
Average stockholders' equity (1)
$428,724  $298,398  $430,997  $285,947  
Average stockholders' equity (1)
$608,601 $428,724 $602,937 $430,997 
Annualized return on equity (2)
Annualized return on equity (2)
28.2 %18.5 %16.4 %22.7 %
Annualized return on equity (2)
23.4 %28.2 %22.5 %16.4 %
Annualized operating return on equity (3)
Annualized operating return on equity (3)
17.8 %16.7 %16.9 %18.4 %
Annualized operating return on equity (3)
19.3 %17.8 %18.2 %16.9 %
(1) Computed by adding the total stockholders' equity as of the date indicated to the prior quarter-end or year-end total, as applicable, and dividing by two.
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(2) Annualized return on equity is net income expressed on an annualized basis as a percentage of average stockholders’beginning and ending stockholders' equity during the period.
(3) Annualized operating return on equity is net operating earnings expressed on an annualized basis as a percentage of average beginning and ending stockholders’ equity during the period.

Reconciliation of tangible stockholders' equity
Tangible stockholders’ equity is defined as total stockholders’ equity less intangible assets, net of deferred taxes. Our definition of tangible stockholders’ equity may not be comparable to that of other companies, and it should not be viewed as a substitute for stockholders’ equity calculated in accordance with GAAP. We use tangible stockholders' equity internally to evaluate the strength of our balance sheet and to compare returns relative to this measure.
Stockholders' equity at June 30, 2021 and December 31, 2020, reconciles to tangible stockholders' equity as follows:
June 30, 2021December 31, 2020
(in thousands)
Stockholders' equity$629,636 $576,238 
Less: intangible assets, net of deferred taxes2,795 2,795 
Tangible stockholders' equity$626,841 $573,443 

Critical accounting estimates
We identified the accounting estimates which are critical to the understanding of our financial position and results of operations. Critical accounting estimates are defined as those estimates that are both important to the portrayal of our financial condition and results of operations and require us to exercise significant judgment. We use significant judgment concerning future results and developments in applying these critical accounting estimates and in preparing our condensed consolidated financial statements. These judgments and estimates affect our reported
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amounts of assets, liabilities, revenues and expenses and the disclosure of our material contingent assets and liabilities, if any. Actual results may differ materially from the estimates and assumptions used in preparing the condensed consolidated financial statements. We evaluate our estimates regularly using information that we believe to be relevant. Our critical accounting policies and estimates are described in our annual consolidated financial statements and the related notes in our Annual Report on Form 10-K for the year ended December 31, 2019.

2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of economic losses due to adverse changes in the estimated fair value of a financial instrument as the result of changes in interest rates, equity prices, foreign currency exchange rates and commodity prices. Our primary market risks have been equity price risk associated with investments in equity securities and interest rate risk associated with investments in fixed maturities. We do not have any material exposure to foreign currency exchange rate risk or commodity risk.
There have been no material changes in market risk from the information provided in our Annual Report on Form 10-K for the year ended December 31, 2019.

2020.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required financial disclosure.
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of that date.
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Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the second quarter of 20202021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The effectiveness of any system of controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that our controls and procedures will detect all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are party to legal proceedings which arise in the ordinary course of business. We believe that the outcome of such matters, individually and in the aggregate, will not have a material adverse effect on our condensed consolidated financial position.
Item 1A. Risk Factors
In addition to the other information set forthThere have been no material changes in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties described under the heading “Risk Factors”our risk factors from those disclosed in Part I, Item 1A of our Annual Report on Form 10-K
for the year ended December 31, 2019 (our "2019 Form 10-K"), as updated and supplemented by the below risk factor.  The below risk factor updates the risk factorcaptioned “Severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us.” in our 2019 Form 10-K.  These risks and uncertainties are not the only ones facing us.  There may be additional risks and uncertainties of which we are currently unaware or currently believe to be immaterial.  The occurrence of any of these risks could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects.

Severe weather conditions, catastrophes, pandemics and similar events may adversely affect our business, results of operations and financial condition.

Our business is exposed to the risk of severe weather conditions and other catastrophes. Catastrophes can be caused by various events, including natural events such as severe winter weather, tornadoes, windstorms, earthquakes, hailstorms, severe thunderstorms and fires, and other events such as explosions, war, terrorist attacks and riots. The incidence and severity of catastrophes and severe weather conditions are inherently unpredictable. The extent of losses from catastrophes is a function of the total amount of losses incurred, the number of insureds affected, the frequency and severity of the events, the effectiveness of our catastrophe risk management program and the adequacy of our reinsurance coverage. Insurance companies are not permitted to reserve for a catastrophe until it has occurred. Severe weather conditions and catastrophes can cause losses in our property lines and generally result in both an increase in the number of claims incurred and an increase in the dollar amount of each claim asserted, which may require us to increase our reserves, causing our liquidity and financial condition to deteriorate. In addition, our inability to obtain reinsurance coverage at reasonable rates and in amounts adequate to mitigate the risks associated with severe weather conditions and other catastrophes could have a material adverse effect on our business and results of operations.

Our business is also exposed to the risk of pandemics, outbreaks, public health crises, and geopolitical and social events, and their related effects. On March 11, 2020, the World Health Organization designated COVID-19 as a global pandemic. In response, governmental authorities (including the U.S. federal government, states and localities) have mandated, and continue to introduce, measures to slow the transmission of the virus, including shelter-in-place orders, significant restrictions on travel, limits on gatherings, quarantines and business shutdowns. While to date we have not seen a decrease in the growth rate of our gross written premiums since the beginning of the COVID-19 pandemic and related economic downturn, the COVID-19 situation remains fluid and continues to evolve, and at this time we are unable to determine the ultimate impact of COVID-19 and related economic downturn on our business, financial condition, results of operations and cash flows. While policy terms and conditions in the lines of business written by Kinsale would be expected to preclude coverage for virus-related claims, court decisions and governmental actions may challenge the validity of any exclusions or our interpretation of how such terms and conditions operate. In addition, in response to COVID-19, legislative, regulatory and judicial actions may include,
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but are not limited to, actions prohibiting us from cancelling insurance policies in accordance with our policy terms, ordering us to provide premiums refunds, granting extended grace periods for payment of premiums and providing for extended periods of time to pay past due premiums. We are closely monitoring the impact of the COVID-19 pandemic and related economic downturn on all aspects of our business, including how it will impact premium volume, losses and the fair value of our investment portfolio as well as how it may result in other effects such as the potential for delayed reporting and settlement of claims due to limited access to business locations. During the first quarter of 2020, we experienced a significant decline in the fair value of our investment portfolio due to disruption in the global financial markets associated with COVID-19, which adversely affected our total comprehensive income (loss) for the quarter. During the second quarter of 2020, the fair values of our investment portfolio rebounded sharply, gaining back a significant portion of the decline in fair value. If the COVID-19 pandemic continues for a significant length of time and measures put in place to stabilize the economy are not effective, or pandemics, outbreaks and other events occur or re-occur, our business, results of operations, financial condition and cash flows may be materially adversely affected.

2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
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Item 6. Exhibits
Exhibit
Number		Description
101.INS **XBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
** The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document



document.
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
KINSALE CAPITAL GROUP, INC.
Date: July 30, 202029, 2021By:/s/ Michael P. Kehoe
Michael P. Kehoe
President and Chief Executive Officer
Date: July 30, 202029, 2021By:/s/ Bryan P. Petrucelli
Bryan P. Petrucelli
Executive Vice President, Chief Financial Officer and Treasurer
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