Company: KG
Filing Date: 2025-11-05
Form Type: 10-Q
Source: 0001628280-25-049606
Chunk: 317

Company: Kestrel Group Ltd
Filing Date: 2025-11-05
Form: 10-Q
Item: Item 2
Chunk 317
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)    Average duration in years.

During the nine months ended September 30, 2025, the yield on the 10-year U.S. Treasury bond decreased by 42 basis points to 4.16%. The 10-year U.S. Treasury rate is the key risk-free determinant in the fair value of many of the fixed maturity securities in our portfolio. The decrease in risk-free rates during the nine months ended September 30, 2025 generated net unrealized gains of $0.7 million on our fixed maturity investment portfolio which increased our book value per common share by $0.09 during the period. Current outlooks for global monetary policy have become more uncertain in recent months, as a combination of significant changes in U.S. fiscal and trade policy while simultaneously, labor market conditions are  noticeably weakening. The impacts of these policies and conditions on both U.S. and global economic outlooks and inflation appear to be causing central banks to adopt a less restrictive monetary policy stance primarily through interest rate cuts. Should interest rates continue to fall our investment portfolios, in particular our fixed maturity assets, may produce less income and thus impact our financial condition. Associated increases in the values of our fixed maturity investments may be more limited given the significant share of fixed maturity investments that we hold that are floating rate securities.

Interest rate risk is the price sensitivity of a security to changes in interest rates. Credit spread risk is the price sensitivity of a security to changes in credit spreads. As noted, the fair value of our fixed maturity investments will fluctuate with changes in interest rates and credit spreads. We attempt to maintain adequate liquidity in our fixed maturity investments portfolio with a strategy designed to emphasize the preservation of our invested assets and provide sufficient liquidity for the prompt payment of claims and contract liabilities. Because we collateralize a significant portion of our insurance liabilities, unanticipated or large increases in interest rates could require us to utilize significant amounts of unrestricted cash and fixed maturity securities to provide additional collateral, which could impact our asset and capital management strategy described herein.

We also monitor the duration and structure of our investment portfolio as discussed below. As of September 30, 2025, the aggregate hypothetical change in fair value from an immediate 100 basis points increase in interest rates, assuming credit spreads remain constant, in our fixed maturity investments portfolio would decrease the fair value of that portfolio by $3.6 million. Actual shifts in interest rates may not change by the same magnitude across the maturity spectrum or on an individual security and, as a result, the impact on the fair