One Of The Strongest Unknown Niche Compounders
A First Look At The Business: Kinsale Capital.
Hi, everyone!
I’m Felix, stepping into Michael Kehoe's shoes as Chairman and CEO of Kinsale Capital Group.
Overview
Today, I’ll discuss the following things through the eyes of Michael Kehoe:
Introduction
Products
Market Position
Revenue Model
Competitive Position
Growth Strategy
As a special thank you for reading this article, I wanna give you a 10% Discount of my Gold Community (the Paid community)!
Introduction
At the end of last year results showed operating earnings per share increased by 19.4% and gross written premium grew by 12.2% over the prior year, I realized something that most investors still don't grasp. They're looking at us like we're just another insurance company competing on price and scale. They're dead wrong.
The Reality
We posted a combined ratio of 76.4% and a full-year 2024 operating return on equity of 29%. While our competitors are fighting over standard market scraps with razor-thin margins, we're operating in what I call the "profitable chaos" of excess and surplus lines. We use our underwriting expertise to offer terms on hard-to-place risks that others won't touch, and we're getting paid handsomely for it.
Why is this ratio so important?
Because we operate in an environment where volatility is the norm. Natural catastrophes, social inflation, and emerging risks constantly pressure traditional carriers, pushing them into loss-making positions.
In contrast, our underwriting model thrives in this setting. The combined ratio, essentially the relationship between claims paid, expenses, and premiums earned, reveals whether an insurer is making money on its core business before even considering investment income.
At 76.4%, every dollar of premium we collect yields nearly 24 cents of underwriting profit. That is not just sustainable, it is exceptional in an industry where anything below 95% is considered strong.
The Strategic Tension
Gross written premiums in our Commercial Property Division declined 17.5% in the first half of 2025 compared to the prior-year periods, reflecting lower rates and increased competition, including from standard carriers. Everyone sees this as weakness. I see it as the market finally recognizing what we've built and trying desperately to copy it.
Most analysts focus on premium growth rates and miss the real story.
Our competitive strength isn't in writing more policies, it's in writing the right policies that nobody else can properly evaluate or service. We have the "broadest risk appetite in the business" and advanced technology and low operating costs that create what I call our "profitable selectivity moat."
Understanding our strategic positioning sets up the critical question every investor should be asking: Is now the right time to invest in a company that's transformed industry rejects into a 29% ROE machine?
I'll answer that with precise technical analysis and optimal entry points in this week's "Fundamentals meet Technicals" deep dive.
Our Products
We operate in the highly specialized Excess and Surplus (E&S) insurance market, which provides coverage for risks that traditional insurers typically avoid, ranging from wildfire-zone homes to drone delivery startups. While State Farm and Allstate fight over vanilla homeowner policies with 3% margins, we're writing policies for businesses that make standard carriers break out in cold sweats.
The numbers tell the real story.
Our gross written premiums grew by 19% to $1.9 billion, and net investment income surged 47% to $150 million in 2024. But here's what most investors miss, this isn't just growth, it's selective growth.
We use our underwriting expertise to write coverages for hard-to-place small and mid-sized business risks, which means we're not competing on price. We're competing on capability.
Our Product Differentiation
Kinsale has clear competitive advantages with faster quotes compared to peers, a defensible moat with respect to its technology, and the ability to charge higher premiums. When a cannabis dispensary, a drone delivery startup, or a wildfire-zone restaurant needs coverage, they don't have five quotes to compare. They have us, and maybe one or two other E&S carriers who understand their risk profile.
The Strategic Foresight
Most investors think E&S is a niche market. The overall E&S market is accelerating growth relative to the standard insurance market, and we're positioned at the intersection of two massive trends: increasing business complexity and risk aversion in traditional insurance. Every new technology, regulatory change, and societal shift creates risks that standard carriers won't touch and those all become our opportunities.
The Product Vulnerability
Lower rates and increased competition, including from standard carriers in commercial property shows that when we prove a market segment is profitable, larger competitors try to muscle in. But here's what they don't understand. E&S isn't about capital scale; it's about underwriting judgment at lightning speed.
As a special thank you for reading this article, I wanna give you a 10% Discount of my Gold Community (the Paid community)!
Our Market Position
The E&S market sounds niche until you realize what we're actually doing. KNSL has an economic moat given the accelerated growth rate of the overall E&S market relative to the standard insurance market. We're not just writing specialty policies, we're serving as the risk recycling center for an increasingly complex economy.
Every drone company, cannabis business, cyber security firm, and climate-vulnerable property creates risks that traditional insurers can't or won't evaluate properly. Unlike standard insurers, E&S carriers like Kinsale can customize coverage because we're not constrained by standard forms and regulatory pre-approvals in most states.
The Competitive Positioning
The combination of deep underwriting expertise in a specialized market, coupled with a technology driven, low cost operating model, creates a strong competitive moat for Kinsale. While AIG and Chubb have more capital, they can't move fast enough for small E&S accounts. While smaller E&S players can move quickly, they don't have our technology platform or risk appetite breadth.
The strategic timing advantage we have right now?
27.2% increase in net income and 20.9% growth in premiums in Q2 2024 came during a period when traditional carriers were pulling back from risky segments. Every time a major carrier exits a market segment due to losses or regulatory pressure, we gain 50-100 new potential risks to evaluate.
Customer acquisition in E&S works differently than standard insurance. We don't need massive marketing budgets because hard-to-place risks eventually find us through retail agents. Kinsale is tapping into unmet needs in the E&S market with agents who know exactly where to send their problem cases.
The market reality that keeps competitors awake?
The stock has returned more than 2,500% by insuring what others won't. When your business model is literally "profitable risk others avoid," you're playing a different game than capacity driven standard carriers.
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Our Revenue Model
Let me be completely transparent about how money flows through our business because this is where most insurance analysts get it wrong.
We posted a combined ratio of 76.4% and a full-year 2024 operating return on equity of 29%. That 76.4% combined ratio means for every $1 we collect in premiums, we pay out only $0.734 in claims and expenses. The other $0.266 is pure underwriting profit before investment income.
Revenue Architecture
Gross written premiums grew by 19% to $1.9 billion in 2024, but the real magic happens in our investment income. Net investment income surged 47% to $150 million because higher interest rates finally work in our favor, we collect premiums upfront and invest them while claims develop over time.
Unit Economics
48.3% rise in investment income combined with disciplined underwriting creates a compounding effect. Every dollar of premium we write generates immediate investment float plus long-term underwriting profit if we select risks correctly.
Strategic trade-offs I'm making right now?
Commercial Property Division declined 17.5% in the first half of 2025 because we're sacrificing short-term premium growth to maintain underwriting discipline. When rates soften and competition increases, we walk away rather than chase volume at inadequate pricing.
Our Financial Positioning Advantage
We seek to produce reliable and attractive underwriting profits, steady investment returns, and manage our capital prudently. Unlike larger insurers who need billions in premium to move the needle, we can achieve outsized returns by being highly selective in a specialized market.
The margin pressure reality I'll acknowledge: The loss ratio increased slightly due to higher catastrophe losses and less favorable prior year reserve development. Climate volatility and social inflation affect us like everyone else, but our pricing flexibility in E&S markets lets us adjust faster than standard carriers constrained by regulatory approval processes.
Our Competitive Position
Kinsale Capital Group has a narrow economic moat due to its intangible assets and efficient scale in a specialized insurance market. That "narrow" rating from analysts actually understates our position because they're evaluating us like a standard carrier.
Our Competitive Advantages
Faster quotes compared to peers, a defensible moat with respect to its technology, and the ability to charge higher premiums. While competitors take weeks to evaluate complex E&S risks, we can provide quotes in days or hours. Our advanced technology and low operating costs create cost advantages that let us be profitable on smaller accounts that others can't service economically.
What keeps me up at night?
Increased competition, including from standard carriers entering our profitable niches. When we prove that cannabis businesses or drone companies can be profitably underwritten, larger carriers with more capital try to replicate our success. But that’s where our unique product comes into play and destroys the competition.
Strategies
Our business strategy of small E&S account focus, absolute control over our underwriting and claim handling processes, best-in-class service levels and risk appetite creates switching costs. Agents learn to trust our judgment and speed, making it harder for competitors to steal business on price alone.
The competitive reality check?
Deep underwriting expertise in a specialized market, coupled with a technology driven, low cost operating model isn't easily replicated. Large carriers struggle with small account economics, and small carriers struggle with technology investment and risk appetite breadth.
Key Competitors
Let me give you a few of our (direct) competitors (and their individual combined ratios) and let’s compare them with ourselves:
Admiral Insurance Group (specialized player): 79.7%
Lexington Insurance (specialized player): 91.8%
Markel Corporation (specialized player): 95.2%
Arch Capital Group: 94.8%
Argo Group: 119.3%
The Hartford (not a specialized player): 89.9%
Chubb (not a specialized player): 86.6%
Berkshire Hathaway (not a specialized player): 96.6%
AIG: 91.8%
Lloyd’s of London: 86.9%
James River Group Holdings: 117.6%
If we take all these ratios and calculate an average combined ratio, we get the following ratio: 95.4%
This means that our combined ratio is well below the average ratio of the market, making us an outstanding player in this market.
As a special thank you for reading this article, I wanna give you a 10% Discount of my Gold Community (the paid community).
Our Growth Strategy
Here's my strategic roadmap and why timing matters for investors right now.
Our goal is to deliver long-term value for stockholders by generating exceptional, consistent financial growth, but the definition of "long-term" in E&S is different than standard insurance.
The Growth Trajectory
The accelerated growth rate of the overall E&S market relative to the standard insurance market is just beginning. Every technological innovation, regulatory change, and societal shift creates new risks that standard carriers won't touch. Artificial intelligence, climate change, social media liability, cryptocurrency businesses these aren't temporary trends. They're permanent expansions of the E&S addressable market.
Strategic Catalysts on my Radar
19.4% increase in operating earnings per share, despite wildfire losses and increased competition proves our model works even under stress. The real catalyst is market dislocation every time a major carrier pulls back from a risk category, we gain pricing power and market share simultaneously.
Resource Allocation
Technology driven, low cost operating model gets continued investment because our competitive advantage compounds when we can evaluate risks faster and cheaper than competitors. I'm also investing heavily in underwriting talent because that's what truly differentiates us in complex risk evaluation.
Risk Mitigation
We remain confident in our ability to drive profitable growth and deliver long-term value for stockholders, but the key word is "profitable." Unlike standard carriers who chase growth for scale advantages, we can walk away from unprofitable business because our model doesn't depend on volume.
The Valuation Context
Lower rates and increased competition in some segments creates investor pessimism, but this is exactly when patient capital gets rewarded. When competitors retreat due to losses or regulatory pressure, our market position strengthens dramatically.
40-50% upside estimates assume we maintain current profitability while growing. A 29% operating return on equity is unsustainable at massive scale, but it's achievable in specialized E&S markets where expertise and speed matter more than capital.
This strategic foundation proves we're not just another insurer, we're the risk solution for an increasingly complex economy. But successful investing requires perfect timing, not just solid fundamentals.
In this week's "Fundamentals meet Technicals" analysis, I'll break down whether Kinsale's current valuation reflects this growth potential and identify the optimal entry points for maximum returns. The intersection of our 29% ROE machine with current market conditions creates an opportunity that won't last forever.
If you enjoyed reading this article, and would like to read more articles like this one, you should go and check out the following:
In the coming days, I'll be publishing a comprehensive 'Fundamentals meet Technicals' analysis that dives deep into the company's financial statements while applying technical indicators to determine whether the stock presents a compelling buying opportunity. This dual-lens approach will provide you with both the fundamental backdrop and technical setup needed to make an informed investment decision.
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Fantastic writeup on Kinsale Felix! The competetive analysis section really caught my attention, especially the combined ratio comparisons. One name that's noticeably absent from your list is Palomar Holdings (PLMR), which has been putting up a combined ratio around 73% over the past few quarters. That's actually better than Kinsale's 76.4%. What's intresting is that PLMR focuses heavily on California earthquake and wildfire risk, which is a different specialty niche than Kinsale's broader E&S approach. Do you think Palomar's more concentrated geographic and peril focus makes them more vunerable to catastrophe volatility, or does their specialized underwriting expertise in those specific risks give them a similar moat to what Kinsale has built across multiple E&S lines? Would love your thoughts on how these two compare as investments.