Kinsale Capital, a specialist insurer of hard-to-place small business risks, plans to bolster its capital base and fund its premium growth with the primary proceeds from a US$96m IPO scheduled to price July 27.
The deal’s timing takes advantage of good aftermarket returns on recent US IPOs and a tailwind for the insurer’s investment portfolio as stock and bond markets sit at or near record highs.
Kinsale plans to sell 5m new shares to contribute capital to its insurance subsidiary, while major shareholder Moelis Funds/NexPhase Capital will sell 1m shares to cut its stake to 47.2% from 68.2% previously. The marketing range is US$14–$16 a share.
Leads JP Morgan, William Blair and RBC Capital Markets launched the roadshow early Monday, starting with management presentations at these firms before meetings with investors in the mid-Atlantic Tuesday, New York Wednesday and Thursday and Boston Friday. Next week, the roadshow moves to the Midwest on Monday and the West Coast on Tuesday before pricing Wednesday post-close.
Kinsale and underwriters decided to bring the deal after seeing US markets shake off the weekend’s failed military coup in Turkey and having more than recovered losses following last month’s shock Brexit vote.
According to banking sources, Kinsale is being comped against James River Group Holdings, a larger and more established provider of excess and surplus (E&S) insurance that went public in late 2014 and has since rallied more than 60% from its IPO price.
James River trades at 2.04x price to tangible book value while Kinsale is valued at 1.6x at the midpoint of the range, market sources told IFR.
The link with James River is even more relevant since Kinsale’s senior management, including chief executive Michael Kehoe and chief operating officer Brian Haney, are former James River executives. Kehoe is the former CEO of James River.
Kinsale’s underwriters carried a “testing the waters” exercise a month ago that familiarised investors with the management team.
Niche focus
Founded in 2009, Richmond, Virginia-based Kinsale focuses exclusively on the E&S market, a type of property and casualty (P&C) insurance that covers newly established companies or industries, high-risk operations, insureds in “litigious values” and companies with poor loss histories.
“(Kinsale) prides themselves on being 100% focused on the E&S market so they have compete discretion about the pricing and the terms of the insurance contract (“the rate and the form”) and they can exclude or take risks as appropriate,” said one ECM source.
The IPO terms would value Kinsale at up to US$335.5m at top-end pricing, versus gross written premiums of US$177.1m and net income of US$22.3m last year.
In the first quarter (the three months ended March 31 2006), Kinsale grew gross written premiums 5.4% to US$43.1m and net income modestly to US$5.3m, though flash numbers for the latest quarter showed a 16.2% gain in gross written premiums to US$50.1m and a 15.1% increase in net income to US$6.1m.
Kinsale produced a combined ratio of 79.6% in the first quarter, implying underwriting profitability, and an annualised return on equity of 18%. The combined ratio for the latest quarter fell further to 75.3% (the key reason for higher profitability), while return on equity was again 18%.
The E&S market has historically operated at lower loss ratios and higher margins and has grown premiums quicker than the traditional P&C market, helped by less competition. According to A.M. Best, E&S insurers produced an average net loss and loss adjustment expense ratio of 68.4% and grew direct premiums 7.7% annually, versus 74.3% and 3.4% for the P&C industry.
Kinsale first filed confidentially April 22 before filing publicly on July 1.
It plans to list on NASDAQ under the symbol “KNSL”.
