Good morning ladies and gentlemen and welcome to the Q4 2017 Kinsale Capital Group Incorporated Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, let me remind everyone that through the course of the teleconference Kinsale’s management may make comments that reflect their intentions, beliefs and expectations for the future. As always these forward-looking statements are subject to certain risk factors which could cause actual results to differ materially. These risk factors are listed in the company’s various SEC filings including the 2016 annual report on form 10-K, which should be reviewed carefully. The company has furnished a form 8-K with the Securities and Exchange Commission that contains the press release announcing its fourth-quarter results. Kinsale’s management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these measures can be found in the press release which is available at the company’s website at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale’s President and CEO, Mr. Michael Kehoe. Please go ahead sir.

Thank you, operator. Good morning everyone and thanks for participating on our call. With me today are Bryan Petrucelli, Kinsale’s Chief Financial Officer and Brian Haney, Kinsales’s Chief Operating Officer. The Kinsale strategy is to combine disciplined, underwriting and claim handling with advanced use of technology and low cost to deliver steady profits and growth to our stockholders, even in competitive markets like we have today. Kinsale had a strong fourth quarter with a combined ratio of 83.1% and an adjusted return on equity of 13.3%, notwithstanding some choppiness on the loss side with some Cat activity ad a small amount of adverse development of prior year reserves. Kinsale reported net income of $5.9 million for the fourth quarter compared to $6.9 million in the fourth quarter of 2016. The drop in income was due to a charge of $1.9 million related to the Tax Cut and Jobs Act. Adjusting to exclude this charge net income was $7.8 million for the quarter, an increase of 14% over the prior year. And gross written premium grew 20% in the quarter compared to the fourth quarter of 2016, continuing the trend of robust growth that w e have seen throughout 2017. So for further details I'm going to pass over to Bryan Petrucelli.

Thanks, Mike. As Mike noted, the results for the fourth quarter and for the full year were in line with expectations. The 83.1% combined ratio for the quarter and 84% combined ratio for the year are consistent with our 85% or lower goal and we believe demonstrates the strength of our low-cost model, particularly in periods of intense price competition and in consideration of this year's Cat activity. I should probably start by acknowledging the enactment of the Tax Reform Act in December, which among other things reduces the corporate tax rate from 35% to 21% effective January 1, 2018. Although we're not able to provide an exact estimate of the impact of tax reform on our 2018 effective tax rate, we expect to see a significant decrease from our historical reported effective tax rate. Additionally, as the law was enacted in December, we were required to re-measure our net deferred-tax assets using the lower rate, and our fourth-quarter and year-to-date results reflect the related $1.9 million charge that Mike previously mentioned. The fourth-quarter and year-to-date effective tax rates of 47.2% and 35.4% respectively are elevated as a result of the charge. Excluding the impact of the charge, those rates are 30.2% and 30.4% for the fourth quarter and full year respectively. Now, I'll go to results for the quarter. We reported net income of $5.9 million for the fourth quarter of 2017, down from $6.9 million for the fourth quarter of 2016. Excluding the impact of the tax charge, our adjusted net income was $7.8 million and 14% higher than the fourth quarter of 2016. The company generated underwriting income of $8 million and a combined ratio of 83.1%, compared to $9.5 million and 75.3% for the fourth quarter of 2016. The combined ratio for the fourth quarter of…

Thanks, Bryan. As noted earlier, premium grew 20% in the fourth quarter. The growth is widely spread, with most of our 17 divisions showing positive change. Particularly notable was the growth in our small business, construction, and energy divisions. We also had nice growth in our Environmental and Life Science divisions. Our Aspera business was up 31% for the quarter. Commissions in the fourth quarter were around 21% higher than the fourth quarter of last year. The growth in submissions is, like the growth in premiums, widespread across most divisions. The growth rate in submissions continues to gradually accelerate. Moving on to rates, we are seeing rate increases in the market accelerating but it's uneven. There are lines of business seeing more increases than others, and some don't seem to be showing increases at all. In the last 90 days, we've specifically pushed up technical rates on some of our casualty business and our personal insurance business. We'd say the overall effect of the technical rate change would be about 3% to 4%. I would also note that the recently passed tax reform act was the equivalent of roughly a 5% to 6% increase in our rates above and beyond the 3% to 4%. So the combined net effect is that our rates in 2018 are materially stronger than they were in 2017. The commercial property market continues to experience dislocation, which is driving a big increase in submissions for us. New-business submissions in the fourth quarter for commercial property were up more than 50% over the same period last year. Our renewal rate increases in commercial property have been running around 7% to 9%. We also just recently launched a new-property product focused on small business risks, which will target a much smaller account size than our commercial property division currently does. Looking at the market from a macroeconomic perspective, there are a number of things happening that give us reason for optimism. The oil and gas industry resurgence continues, which has been helpful in particular to our Energy division. The high level of confidence of small business owners around the country seems to be helping as well. Small businesses are the core of what we do and when small businesses are flourishing, we tend to benefit. Also, the tax reform is obviously an immediate boon to us in terms of lower taxes, but there's another secondary benefit we get from tax reform, it will raise the effective tax rate of many of our offshore competitors. I mentioned earlier that tax reform was, for us, the equivalent of a 5% to 6% premium rate increase, but for many of our competitors, however, it was effectively a price cut, and they will have to increase their prices just to get back to where they were, which will ultimately benefit us. And with that, I'll turn it back over to Mike.

Thanks, Brian. Operator, we're ready now to open up the call for questions.

[Operator Instructions] Our first question comes from Mark Hughes from SunTrust. Your line is now open.

Thank you very much. The point about the competitors, you're essentially seeing a price cut with the tax reform, but they're going to have to increase prices to account for that. Could you go into a little more detail? And any way to size up what percentage of your competitors are we talking Lloyds here, in particular? Just a little more on that.

I was thinking more of the Bermuda offshore competitors that Lloyds.

I think if you look at like the top 25 E&S groups, it's almost 60% are overseas-domicile. So you have to assume there's probably some intercompany reinsurance under way there that may be impaired by the new tax act.

And if you looked at public data of some of those competitors, many of them have tax rates, effective tax rates that were 10% or in some cases lower. Our tax rate is going to come down significantly while in theory theirs would go up, closer to ours.

Understood. The submission increase, I think you suggested, is accelerating. Any more detail you can provide on that? Is that new businesses, business from the admitted market coming to E&S? What are you seeing there?

Well, some of it's being driven by dislocations. We mentioned commercial property, those submissions are up a lot. The Allied-Health market, submissions are up a fair amount in that. Whether or not it's business coming from the admitted market it's tough to tell. I would say a lot of it is business that has had a problem or might be business that was insured under a binding-authority arrangement or a program arrangement that's experiencing some difficulty. So I would just, in general, characterize it as market dislocation.

And then one add-on there, Mark is, Brian talked about the economic outlook and when new business formations are up, that's typically an E&S write. You've got a brand-new business without the track record to qualify for a standard company. They'll come into the E&S market for a number of years. So, that might be part of it as well.

And then on the reserves on the development, I think your model has been to be pretty conservative over time and try to be more likely to be redundant than deficient. What do you think happened this quarter? Is it some kind of turn in inflation? I can understand some normal variability, but it seems like there would still be enough conservatism that you might still have some gains. How should we think about it?

Yes, I think the best way to think of it is, it's a slight amount of developmental prior accident-year reserves. We went from $3.8 million favorable in the fourth quarter of last year to $550,000 unfavorable. That's consistent with a normal level of, call it volatility or variability in a 90-day period of time. I would tell you that there are no worrisome trends, there are no concerns, none. Our loss ratio for the quarter, I think, was 59.2%. For the full year 2017, it was 58.9%, both of which are very solid numbers. Our goal definitely is to be conservative in how we reserve and in fact our reserves are conservatively stated. Mark, I think on an inception-to-date basis, if you look at the company's entire history, every single accident-year has developed favorably except one, and that was the 2011 year, which obviously was right after we started the business, it was very small. So, we feel very good about the reserves and about the business and, candidly, I think, even with a choppy quarter, right, where you just had slightly elevated amount of activity in terms of reported losses, we still posted, I think, a highly respectable 83.1% combined ratio. So it kind of speaks to the resilience and the effectiveness of our low-cost model.

Thank you.

Thanks Mark.

Thank you. [Operator Instructions] Our next question comes from Mark Dwelle from RBC Capital Markets. Your line is now open.

Yes, good morning. If we could just stick with the reserving topic for a couple of more questions, if you can bear them, can you give us a sense of whether, whatever I realize in reserve setting and year-end reserve review there's a number of different analyses that are involved. Was the charge the product of specific case reserves that seemed to be light or was it actuarial-assumption changes any color that you can provide kind of to help understand kind of the nature of what was contributing to the variability.

Yes Mark, good morning. It's Mike. The best way to look at it is just in a three-month period of time there was just a slightly heightened activity in terms of case reserves. No trends, no concerns, no deficiencies in the book. Just, hey, the normal flow of new claims coming into the company claims being resolved and settled. We just saw a slight uptick in case reserving.

Did these primarily relate to relatively more recent accident years or relatively more aged?

Well, keep in mind, it's like the first couple of accident years are tiny because the book of business was, we're a de novo start-up back in 2010. So, I think they would be disproportionate in the more recent accident years because they happened to be much larger dollar amounts.

And then any color you can shed on which lines of business were more impacted? Really just trying to understand as the trends develop in the future, if there's any areas to be more diligent on, maybe there's pricing actions to be taken or whatnot. That's why I said to the prior caller, there's no specific trends or concerns. There's no line of business that's falling below our probability thresholds or anything like that. It's just the normal flow we get in, of course hundreds of claims a month. We settle hundreds of claims a month and in that normal high volume, flow of activity, right? Sometimes the case reserves are going up. Sometimes they're going down. And the net result in this 90-day period was a couple million dollars higher than what it would have been the prior year, right? That's why I say it's kind of like a normal degree of variability or volatility that you might see in a defined period of time but there are no trends, no concerns. The reserves are conservatively stated. And, I think, if you look at it on an annual basis, little bit less volatility in that period of time. Every year we've been in business, our reserves have developed favorably.

OK, that's helpful. I mean, it's hard to argue with 83 combined ratio, at least not for too long.

And, Mark, one last point I forgot to make. On a gross basis, so before reinsurance, we actually had almost $2 million of favorable development in the fourth quarter. It just happened that some of the individual cases that we settled that resulted in very material takedowns. Well, they happened to be heavily reinsured policies. So the economic benefit, if you will, of those takedowns inured the benefit of our reinsurers.

That's helpful. Other question I wanted to ask really more to some of Brian Haney's commentary. Appreciate the color on the submissions and so forth, and I realize that a lot of your business is not specifically renewal-oriented, but are you seeing improvement in exposure-unit growth or kind of signs of a strong economy just kind of generally helping the overall rising flood of premium opportunities?

Yes, we're seeing that. We're also seeing it in audit premiums and we are seeing it in exposure increases as well.

That's helpful. I think that'll be all of my questions, thanks.

Thanks, Mark.

Thank you. And I am showing no further questions in the queue. I would like to turn the call back over to Michael Kehoe for further remarks. Michael Kehoe -- Chief Executive Officer and President OK, thank you, operator. And I just want to thank everybody for joining us on the call and have a good day.

Ladies and gentlemen, thank you for participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.