10-Q 1 knsl-20220930.htm 10-Q knsl-20220930
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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 September 30, 2022
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)

Delaware
98-0664337
(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)
2035 Maywill Street
Suite 100
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 class
Trading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareKNSLNew York Stock Exchange
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 October 21, 2022: 22,925,235


Table of Contents
KINSALE CAPITAL GROUP, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 6.
1

Table of Contents
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," "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 catastrophes, including due to climate change, pandemics and similar events adversely affecting our business, results of operations and financial condition;
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 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;
our employees taking excessive risks;
the intense competition for business in our industry;
the effects of litigation having an adverse effect on our business;
the performance of our investment portfolio adversely affecting our financial 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;
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extensive regulation adversely affecting our ability to achieve our business objectives or the failure to comply with these regulations adversely affecting our financial condition and results of operations;
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, 2021.
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)
September 30,
2022
December 31,
2021
(in thousands, except share and per share data)
Assets
Investments:
Fixed-maturity securities, available for sale, at fair value (amortized cost: $1,794,729 2022; $1,371,519 2021)
$1,605,847 $1,392,066 
Equity securities, at fair value (cost: $117,218 2022; $118,895 2021)
133,735 172,611 
Short-term investments81,408  
Total investments1,820,990 1,564,677 
Cash and cash equivalents126,213 121,040 
Investment income due and accrued11,663 7,658 
Premiums receivable, net96,102 71,004 
Reinsurance recoverables, net188,803 122,970 
Ceded unearned premiums40,924 33,679 
Deferred policy acquisition costs, net of ceding commissions58,445 41,968 
Intangible assets3,538 3,538 
Deferred income tax asset, net59,136 2,109 
Other assets58,418 57,012 
Total assets$2,464,232 $2,025,655 
Liabilities and Stockholders' Equity
Liabilities:
Reserves for unpaid losses and loss adjustment expenses$1,197,317 $881,344 
Unearned premiums471,736 347,730 
Payable to reinsurers26,323 16,112 
Accounts payable and accrued expenses22,218 23,250 
Debt123,159 42,696 
Other liabilities4,024 15,188 
Total liabilities1,844,777 1,326,320 
Stockholders’ equity:
Common stock, $0.01 par value, 400,000,000 shares authorized, 22,924,522 and 22,834,377 shares issued and outstanding at September 30, 2022 and December 31, 2021 respectively
229 228 
Additional paid-in capital297,692 295,040 
Retained earnings468,873 385,942 
Accumulated other comprehensive (loss) income (147,339)18,125 
Total stockholders’ equity619,455 699,335 
Total liabilities and stockholders’ equity$2,464,232 $2,025,655 
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 September 30,Nine Months Ended September 30,
2022202120222021
(in thousands, except per share data)
Revenues:
Gross written premiums$284,111 $197,616 $806,625 $560,553 
Ceded written premiums(48,212)(26,939)(111,885)(77,825)
Net written premiums235,899 170,677 694,740 482,728 
Change in unearned premiums(26,640)(13,806)(116,761)(65,116)
Net earned premiums209,259 156,871 577,979 417,612 
Net investment income13,858 8,095 33,540 22,466 
Change in the fair value of equity securities
(6,095)(1,012)(37,199)13,644 
Net realized investment (losses) gains(173)895 1,535 2,397 
Other income112 35 381 58 
Total revenues216,961 164,884 576,236 456,177 
Expenses:
Losses and loss adjustment expenses134,788 87,352 344,333 236,727 
Underwriting, acquisition and insurance expenses40,145 31,465 117,662 89,490 
Interest expense1,716 243 2,306 752 
Other expenses212 145 521 482 
Total expenses176,861 119,205 464,822 327,451 
Income before income taxes40,100 45,679 111,414 128,726 
Total income tax expense 7,116 9,054 19,549 24,387 
Net income32,984 36,625 91,865 104,339 
Other comprehensive (loss) income:
Change in net unrealized losses on available-for-sale investments, net of taxes(46,652)(6,072)(165,464)(16,111)
Total comprehensive (loss) income$(13,668)$30,553 $(73,599)$88,228 
Earnings per share:
Basic$1.45 $1.61 $4.03 $4.60 
Diluted$1.43 $1.59 $3.98 $4.53 
Weighted-average shares outstanding:
Basic22,813 22,714 22,783 22,681 
Diluted23,114 23,064 23,099 23,057 

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 (Loss)
Income
Total
Stock-
holders' Equity
(in thousands, except per share data)
Balance at December 31, 202122,834 $228 $295,040 $385,942 $18,125 $699,335 
Issuance of common stock under stock-based compensation plan
76 1 377 — — 378 
Stock-based compensation expense
— — 1,489 — — 1,489 
Restricted shares withheld for taxes(2)— (516)— — (516)
Dividends declared ($0.13 per share)
— — — (2,977)— (2,977)
Other comprehensive loss, net of tax— — — — (63,930)(63,930)
Net income— — — 31,791 — 31,791 
Balance at March 31, 202222,908 229 296,390 414,756 (45,805)665,570 
Issuance of common stock under stock-based compensation plan
8  150 — — 150 
Stock-based compensation expense
— — 1,857 — — 1,857 
Restricted shares withheld for taxes (12)— (2,741)— — (2,741)
Dividends declared ($0.13 per share)
— — — (2,978)— (2,978)
Other comprehensive loss, net of tax— — — — (54,882)(54,882)
Net income— — — 27,090 — 27,090 
Balance at June 30, 202222,904 229 295,656 438,868 (100,687)634,066 
Issuance of common stock under stock-based compensation plan
21  373 — — 373 
Stock-based compensation expense
— — 1,663 — — 1,663 
Dividends declared ($0.13 per share)
— — — (2,979)— (2,979)
Other comprehensive loss, net of tax— — — — (46,652)(46,652)
Net income— — — 32,984 — 32,984 
Balance at September 30, 202222,925 $229 $297,692 $468,873 $(147,339)$619,455 



























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KINSALE CAPITAL GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - Continued
Shares of Common StockCommon StockAdditional Paid-in CapitalRetained EarningsAccumu-
lated
 Other
Compre-
hensive
Income
Total
Stock-
holders' Equity
(in thousands, except per share data)
Balance at December 31, 202022,757 $228 $291,315 $243,315 $41,380 $576,238 
Issuance of common stock under stock-based compensation plan
55  339 — — 339 
Stock-based compensation expense
— — 1,036 — — 1,036 
Dividends declared ($0.11 per share)
— — — (2,504)— (2,504)
Other comprehensive loss, net of tax— — — — (19,622)(19,622)
Net income— — — 32,079 — 32,079 
Balance at March 31, 202122,812 228 292,690 272,890 21,758 587,566 
Issuance of common stock under stock-based compensation plan
7  163 — — 163 
Stock-based compensation expense
— — 1,279 — — 1,279 
Restricted shares withheld for taxes (13)— (2,082)— — (2,082)
Dividends declared ($0.11 per share)
— — — (2,508)— (2,508)
Other comprehensive income, net of tax
— — — — 9,583 9,583 
Net income— — — 35,635 — 35,635 
Balance at June 30, 202122,806 228 292,050 306,017 31,341 629,636 
Issuance of common stock under stock-based compensation plan
13  220 — — 220 
Stock-based compensation expense
— — 1,265 — — 1,265 
Dividends declared ($0.11 per share)
— — — (2,509)— (2,509)
Other comprehensive loss, net of tax— — — — (6,072)(6,072)
Net income— — — 36,625 — 36,625 
Balance at September 30, 202122,819 $228 $293,535 $340,133 $25,269 $659,165 

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)
Nine Months Ended September 30,
20222021
(in thousands)
Operating activities:
Net cash provided by operating activities$456,699 $301,881 
Investing activities:
Purchase of property and equipment(4,744)(4,770)
Change in short-term investments, net(81,113) 
Purchases – fixed-maturity securities(599,735)(509,000)
Purchases – equity securities(1,098)(11,717)
Sales – fixed-maturity securities73,066 102,552 
Sales – equity securities3,990 3,185 
Maturities and calls – fixed-maturity securities89,783 139,669 
Net cash used in investing activities(519,851)(280,081)
Financing activities:
Proceeds from notes payable125,000  
Payoff of credit facility(43,000) 
Debt issuance costs(2,381) 
Payroll taxes withheld and remitted on share-based payments(3,257)(2,082)
Proceeds from stock options exercised901 722 
Dividends paid(8,938)(7,521)
Net cash provided by (used in) financing activities68,325 (8,881)
Net change in cash and cash equivalents5,173 12,919 
Cash and cash equivalents at beginning of year121,040 77,093 
Cash and cash equivalents at end of period$126,213 $90,012 
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 unaudited 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. 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 Company") included in the Annual Report on Form 10-K for the year ended December 31, 2021. 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, if any, 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.
Prospective accounting pronouncements
There are no 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 September 30, 2022 and December 31, 2021:
September 30, 2022
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$22,945 $ $(1,347)$21,598 
Obligations of states, municipalities and political subdivisions
230,156 100 (27,589)202,667 
Corporate and other securities795,400 73 (87,910)707,563 
Asset-backed securities323,601 226 (8,684)315,143 
Residential mortgage-backed securities
356,947 62 (57,773)299,236 
Commercial mortgage-backed securities65,680  (6,040)59,640 
Total fixed-maturity investments$1,794,729 $461 $(189,343)$1,605,847 

December 31, 2021
Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$6,936 $ $(89)$6,847 
Obligations of states, municipalities and political subdivisions
216,375 12,139 (469)228,045 
Corporate and other securities450,594 11,714 (3,821)458,487 
Asset-backed securities299,810 2,217 (252)301,775 
Residential mortgage-backed securities
340,804 1,804 (4,923)337,685 
Commercial mortgage-backed securities57,000 2,433 (206)59,227 
Total fixed-maturity investments$1,371,519 $30,307 $(9,760)$1,392,066 
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 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 decline 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 its ability to recover all amounts outstanding when contractually due. When assessing whether it intends to sell a fixed-maturity security or, if it is
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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.
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. For fixed-maturity securities that the Company does not intend to sell or for which it is more likely than not that the Company would not be required to 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.
The Company reports investment income due and accrued separately from 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 earnings at the time the issuer of the bond defaults or is expected to default on payments.
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:
September 30, 2022
Less than 12 Months12 Months or LongerTotal
Estimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized LossesEstimated Fair ValueGross Unrealized Losses
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of the U.S. government agencies$15,457 $(542)$6,141 $(805)$21,598 $(1,347)
Obligations of states, municipalities and political subdivisions
169,711 (23,087)12,935 (4,502)182,646 (27,589)
Corporate and other securities
596,026 (61,181)94,449 (26,729)690,475 (87,910)
Asset-backed securities269,716 (7,449)31,305 (1,235)301,021 (8,684)
Residential mortgage-backed securities
163,761 (25,163)133,937 (32,610)297,698 (57,773)
Commercial mortgage-backed securities52,555 (4,659)7,085 (1,381)59,640 (6,040)
Total fixed-maturity investments$1,267,226 $(122,081)$285,852 $(67,262)$1,553,078 $(189,343)

At September 30, 2022, the Company held 984 fixed-maturity securities in an unrealized loss position with a total estimated fair value of $1.6 billion and gross unrealized losses of $189.3 million. Of these securities, 130 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 September 30, 2022, unrealized losses were caused by interest rate changes or other market factors and were not credit-specific issues. At September 30, 2022, 79.8% of the Company’s fixed-maturity
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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 nine months ended September 30, 2022, the Company concluded that there were no credit-related impairments of fixed-maturity securities in an unrealized loss position.
December 31, 2021
Less than 12 Months
12 Months or Longer
Total
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
Estimated Fair Value
Gross Unrealized Losses
(in thousands)
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies
$6,847 $(89)$ $ $6,847 $(89)
Obligations of states, municipalities and political subdivisions
23,870 (469)  23,870 (469)
Corporate and other securities
188,522 (3,718)1,092 (103)189,614 (3,821)
Asset-backed securities136,669 (204)4,452 (48)141,121 (252)
Residential mortgage-backed securities
260,251 (4,329)17,968 (594)278,219 (4,923)
Commercial mortgage-backed securities10,773 (206)  10,773 (206)
Total fixed-maturity investments$626,932 $(9,015)$23,512 $(745)$650,444 $(9,760)

Contractual maturities of available-for-sale fixed-maturity securities
The amortized cost and estimated fair value of available-for-sale fixed-maturity securities at September 30, 2022 are summarized, by contractual maturity, as follows:
September 30, 2022
AmortizedEstimated
CostFair Value
(in thousands)
Due in one year or less$14,977 $14,823 
Due after one year through five years531,759 506,959 
Due after five years through ten years245,305 207,332 
Due after ten years256,460 202,714 
Asset-backed securities323,601 315,143 
Residential mortgage-backed securities356,947 299,236 
Commercial mortgage-backed securities65,680 59,640 
Total fixed-maturity securities $1,794,729 $1,605,847 

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 nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Interest:
Taxable bonds$12,041 $6,471 $29,015 $18,356 
Tax exempt municipal bonds849 874 2,558 2,636 
Cash equivalents and short-term investments475 1 598 11 
Dividends on equity securities1,085 979 3,208 2,801 
Gross investment income14,450 8,325 35,379 23,804 
Investment expenses(592)(230)(1,839)(1,338)
Net investment income$13,858 $8,095 $33,540 $22,466 

Realized investment gains and losses
The following table presents realized investment gains and losses for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(in thousands)
Fixed-maturity securities:
Realized gains$ $804 $1,076 $2,445 
Realized losses(177) (720)(2)
Net realized (losses) gains from fixed-maturity securities(177)804 356 2,443 
Equity securities:
Realized gains 97 1,363 97 
Realized losses (6)(148)(143)
Net realized gains (losses) from equity securities 91 1,215 (46)
Realized gains (losses) from the sales of short-term investments4  (36) 
Net realized investment (losses) gains$(173)$895 $1,535 $2,397 

Change in net unrealized losses on fixed-maturity securities
For the three and nine months ended September 30, 2022, the changes in net unrealized losses for fixed-maturity securities were $(59.1) million and $(209.4) million, respectively. For the three and nine months ended September 30, 2021, the changes in net unrealized losses for fixed-maturity securities were $(7.7) million and $(20.4) million, respectively.
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Insurance – statutory deposits
The Company had invested assets with a fair value of $6.3 million and $6.7 million on deposit with state regulatory authorities at September 30, 2022 and December 31, 2021, respectively.
Payable for investments purchased
The Company recorded a payable for investments purchased, not yet settled, of $3.9 million and $15.0 million at September 30, 2022 and December 31, 2021, respectively. The payable balance was included in the "other liabilities" line item of the consolidated balance sheet.
3.     Fair Value Measurements
Fair value is estimated for each class of financial instrument based on the framework established in the fair value accounting guidance. Fair value is defined as the price in the principal market that would be received 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 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 accounting vendor from nationally recognized third-party pricing services, where available. Values for U.S. Treasuries and 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 and non-redeemable preferred stock, the pricing vendors use a pricing methodology involving the market approach, including pricing models which use prices and relevant market information regarding a particular security or securities with similar characteristics to establish a valuation. The estimates of fair value of these investments are included in the amounts disclosed as Level 2. For those investments where significant inputs are unobservable, the Company's investment 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 accounting vendor that assess fair values from third party pricing services, 2) discussing with the Company's investment accounting vendor its process for reviewing and validating pricing obtained from third party pricing services and 3) reviewing the security pricing received from the Company's investment accounting vendor and monitoring changes in unrealized gains and losses at the individual security level. The Company has
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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.
The following tables present the balances of assets measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, by level within the fair value hierarchy:
September 30, 2022
Level 1Level 2Level 3Total
(in thousands)
Assets
Fixed maturities:
U.S. Treasury securities and obligations of U.S. government agencies$21,598 $ $ $21,598 
Obligations of states, municipalities and political subdivisions
 202,667  202,667 
Corporate and other securities 707,563  707,563 
Asset-backed securities 315,143  315,143 
Residential mortgage-backed securities 299,236  299,236 
Commercial mortgage-backed securities 59,640  59,640 
Total fixed-maturity securities21,598 1,584,249  1,605,847 
Equity securities:
Exchange traded funds94,898   94,898 
Non-redeemable preferred stock 38,837  38,837 
Total equity securities94,898 38,837  133,735 
Short-term investments81,056