Stockholders’ equity

Amendment of Certificate of Incorporation and Reclassification of Common Stock

At January 1, 2016, the Company was authorized to issue 18,333,333 shares of Common Stock, $0.0001 par value per share ("Common Stock"), of which 15,000,000 shares were designated as Class A Common Voting Shares ("Class A Common Stock") and 3,333,333 were designated as Class B Common Non-Voting Shares ("Class B Common Stock"). On July 28, 2016, in connection with the IPO as discussed below, the Company amended and restated its certificate of incorporation to recapitalize the Company’s authorized capital stock to consist of 400,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. There were no shares of preferred stock issued or outstanding at December 31, 2017 or December 31, 2016.

In addition, the amended and restated certificate of incorporation provided for automatic reclassification of the Company’s Class A Common Stock and Class B Common Stock into a single class of common stock. All shares of Class A Common Stock were equal to the sum of:


•	the number of shares of common stock equal to the amount of accrued and unpaid dividends based on a reclassification date of July 28, 2016, or $90.3 million, divided by the IPO price of $16.00 per share, plus


•	the number of shares of common stock equal to a conversion ratio of 0.65485975, calculated based on the IPO price of $16.00 per share.

On July 28, 2016, the Company had outstanding grants of 1,783,858 restricted shares of Class B Common Stock. At that date, all restricted shares of Class B Common Stock were reclassified into 1,286,036 shares of common stock equal to a conversion ratio of 0.72095061. The conversion ratio was calculated based on the IPO price of $16.00 per share.

All fractional shares resulting from the reclassification of Class A Common Stock and Class B Common Stock into a single class of common stock were settled in cash.

Initial Public Offering

On August 2, 2016, the Company completed its IPO of 7,590,000 shares of common stock at a price to the public of $16.00 per share. The Company issued 5,000,000 shares of common stock and the selling stockholders sold 2,590,000 shares of common stock, which included 990,000 shares sold to the underwriters pursuant to the underwriter’s option to purchase additional shares. After underwriter discounts and commissions and offering expenses, the Company received net proceeds from the offering of approximately $72.8 million. The Company did not receive any net proceeds from the sale of shares of common stock by the selling stockholders. The issuance of common stock by the Company and the related net proceeds were recorded in the consolidated financial statements on the closing date of the IPO.

On December 6, 2016, the Company completed a follow-on offering of 3,864,000 shares of common stock at a price of $27.50 per share, which included 504,000 shares sold to the underwriters pursuant to their over-allotment option. All of the shares in the offering were offered by the selling stockholders. The Company did not receive any proceeds from the offering.

On May 17, 2017, the Company completed a second follow-on offering of 4,557,774 shares of common stock at a price of $33.00 per share, which included 594,492 shares sold to the underwriters pursuant to their over-allotment option. All of the shares in the offering were offered by the selling stockholders. The Company did not receive any proceeds from the offering.

Changes in the shares of outstanding common stock were as follows:



	Year Ended December 31,
	2017	2016		2015

Common Shares Outstanding:
Balance at beginning of year	20,968,707	—		—
Shares issued from equity-based compensation	67,380	—		—
Reclassification	—	15,968,707		—
Shares issued	—	5,000,000		—
Balance at end of year	21,036,087	20,968,707		—

Class A Common Stock Outstanding:
Shares outstanding at beginning of year	—	13,803,183		13,795,530
Share dividend	—	8,617,963		—
Reclassification	—	(22,421,146	)	—
Other	—	—		7,653
Shares outstanding at end of year	—	—		13,803,183

Class B Common Stock Outstanding:
Shares outstanding at beginning of year	—	1,513,592		1,287,696
Restricted stock grants vested	—	270,266		225,896
Reclassification	—	(1,783,858	)	—
Shares outstanding at end of year	—	—		1,513,592

Dividend Declaration

On February 1, 2017, the Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock. This dividend was paid on March 15, 2017 to all stockholders of record on February 15, 2017.

On May 25, 2017, the Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock. This dividend was paid on June 15, 2017 to all stockholders of record on June 5, 2017.

On August 10, 2017, the Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock. This dividend was paid on September 15, 2017 to all stockholders of record on August 31, 2017.

On November 8, 2017, the Company’s Board of Directors declared a cash dividend of $0.06 per share of common stock. This dividend was paid on December 15, 2017 to all stockholders of record on November 30, 2017.

On February 12, 2018, the Company’s Board of Directors declared a cash dividend of $0.07 per share of common stock. This dividend is payable on March 15, 2018 to all stockholders of record on February 28, 2018.

Equity-based Compensation

Stock Options

On July 27, 2016, the Kinsale Capital Group, Inc. 2016 Omnibus Incentive Plan (the "2016 Incentive Plan") became effective. The 2016 Incentive Plan provides for grants of stock options, stock appreciation rights, restricted stock, other stock-based awards and other cash-based awards to directors, officers and other employees, as well as independent contractors or consultants providing consulting or advisory services to the Company. The number of shares of common stock available for issuance under the 2016 Incentive Plan may not exceed 2,073,832. 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 IPO price of $16.00 per share. The options have a maximum contractual term of 10 years and will vest 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 return	1.26	%
Dividend yield	1.25	%
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.

A summary of option activity under the employee share option plan as of December 31, 2017, and changes during the year then ended is presented below:



	Number of Shares		Weighted-average exercise price		Weighted-average remaining years of contractual life	Aggregate intrinsic value (in thousands)
Outstanding at January 1, 2017	1,018,942		$	16.00
Granted	—		—
Forfeited	(21,122	)	16.00
Exercised	(67,380	)	16.00
Outstanding at December 31, 2017	930,440		$	16.00	8.5 years	$	26,983
Exercisable at December 31, 2017	219,063		$	16.00	8.5 years	$	6,353

The weighted average grant date fair value of options granted during 2016 was $2.71 per share. The total intrinsic value of options exercised during the year ended December 31, 2017 was $1.5 million. There were no options exercised during 2016.

The following table summarizes nonvested share-based awards under the 2016 Incentive Plan as of December 31, 2017:



	December 31, 2017
	Number of Awards		Weighted Average Grant-Date Fair Value

Nonvested awards, beginning of year	970,942		$	16.00
Granted	—		—
Vested	(239,043	)	16.00
Forfeited	(21,122	)	16.00
Nonvested awards, end of year	710,777		$	16.00

As of December 31, 2017, the Company had $1.7 million of unrecognized share-based compensation expense expected to be charged to earnings over a weighted-average period of 2.5 years. The total fair value of shares vested during the years ended December 31, 2017 and 2016 was $6.9 million and $0.9 million, respectively.

Restricted Stock Grants

Prior to the IPO, under the Kinsale Capital Group, Inc. 2010 Incentive Plan (the "2010 Incentive Plan"), the Company granted shares of restricted Class B Common Stock to certain directors, executive officers, and employees. In connection with the reclassification on July 28, 2016, all unvested shares of Class B Common Stock were immediately vested and reclassified into a single class of common stock. The 2010 Incentive Plan was then terminated upon the completion of the IPO.

In 2015, pursuant to the 2010 Incentive Plan, the Compensation Committee awarded restricted stock grants of 33,500 to certain directors, executive officers, and employees, which had a total grant-date fair value of $40 in 2015. The fair value of the Company’s share-based awards that vested was $0.1 million in each of the years ended December 31, 2016 and 2015. The fair value of the Company’s restricted stock grants was determined based on a valuation of Class B Common Stock on the grant date using a binomial lattice option pricing model. The model the Company used to value the Class B Common Stock, like any option pricing model for a nonpublic security, required the input of highly subjective assumptions including the underlying security price, strike price, risk-free rate of return, expected term and expected stock price volatility. The underlying security price was based on the Company’s book value of equity and the application of a multiple of tangible equity. The strike price was based on the liquidation preference of the Company’s Class A Common Stock at the grant date. The risk-free interest rate was based on the U.S. Treasury rate at the date of the grant. The expected term was based on an equal chance for a liquidity event at any time between 0 years and 0.50 years from the grant date. The expected stock volatility was based on stock price volatility using a set of comparable publicly traded companies.

The Company recognized total equity-based compensation expense of $0.7 million, $0.5 million and $0.1 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Subsequent Event

The Board of Directors granted 6,666 shares of restricted stock on January 1, 2018 under the 2016 Incentive Plan to the Company’s non-employee directors. The restricted stock had a fair value on the date of grant of $45.00 per share and will vest over a 1 year period.