Kinsale Capital Group Q1 2025 Earnings
Short-Term Headwinds, Long-Term Strength Intact
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Dear Members,
Kinsale Capital Group (KNSL) released its Q1 2025 earnings, and the market’s reaction—a 16% stock drop on Friday—suggests investors are fixating on short-term challenges rather than the company’s robust long-term prospects. As I outlined in my deep dive on Kinsale, this owner-operated insurer thrives on disciplined underwriting, a low combined ratio, and a statistical approach to risk analysis, positioning it as a compounding machine in the excess and surplus (E&S) insurance market. While Q1 growth fell short of my 15% assumption at 7.9%, driven by competitive pressures in commercial property large accounts, Kinsale’s focus on profitability over volume and its strong fundamentals remain unchanged. I have listened to the earnings call, so let’s address the short-term noise, and reaffirm why Kinsale is a long-term winner.
Q1 2025 Performance: Solid Profitability Amid Slower Growth
Kinsale delivered strong profitability in Q1 2025, even with elevated catastrophe losses and competitive headwinds. Key metrics include:
Adjusted EPS: $3.71, up from $3.50 year-over-year, beating consensus estimates of $3.25.
Revenue: $423.4 million, a 13.6% increase year-over-year, though slightly below expectations of $427.2 million.
Gross Written Premiums: Grew 7.9% to $484.3 million, a slowdown from the ~20% historical average.
Combined Ratio: 82.1%, up from 79.5% in Q1 2024, reflecting higher catastrophe losses but still industry-leading.
Operating ROE: 22.5%, showcasing Kinsale’s ability to generate exceptional returns.
Net Investment Income: Surged 33.1% to $43.8 million, bolstered by a high-performing equity portfolio.
The headline disappointment was the 7.9% premium growth, well below my 15% assumption and Kinsale’s typical 10-20% range. Analysts in the Q&A honed in on this, pressing management about near-term trends for Q2 and the competitive landscape, particularly in commercial property. However, Kinsale’s leadership—CEO Michael Kehoe, CFO Bryan Petrucelli, and President/COO Brian Haney—emphasized that this slowdown is a deliberate choice to prioritize profitability over chasing volume in a softening market.
Analyst Q&A: Short-Term Focus on Commercial Property Headwinds
The Q&A session revealed analysts’ preoccupation with short-term dynamics, especially the competitive pressures in commercial property large accounts. As Haney explained, “The commercial property market, particularly for larger accounts, is seeing increased competition, which has led to rate deceleration and, in some cases, rate reductions.” This explains the Q1 growth shortfall, as Kinsale opted not to chase unprofitable business. When pressed by JPMorgan’s Pablo Singzon about Q2 expectations, Haney noted, “We expect similar headwinds in Q2, but the second half of 2025 should see reduced pressure as market dynamics stabilize.”
Analysts also asked about catastrophe losses, which impacted the combined ratio. Kehoe clarified that Kinsale’s statistical modeling and conservative underwriting limited the damage: “Our proprietary data analytics allow us to price risks with precision, ensuring we maintain margins even in volatile quarters.” This statistical rigor, a cornerstone of Kinsale’s strategy, was a recurring theme in the call, reinforcing my confidence in their ability to navigate market cycles.
The focus on short-term metrics—Q2 growth, catastrophe impacts—misses the bigger picture. Kinsale’s business model is built for the long haul, and management’s decision to prioritize high-margin, smaller accounts over competitive large property schedules aligns with their disciplined ethos.
Commercial Property Challenges: A Temporary Drag
The commercial property market’s competitive intensity is the primary driver of Kinsale’s Q1 growth slowdown. As I noted in my Kinsale analysis, I modeled 15% premium growth, assuming Kinsale would maintain momentum in its 10-20% target range. The 7.9% growth reflects a strategic pullback from large commercial property accounts, where competitors are cutting rates to gain market share. Haney acknowledged, “We’re seeing pricing in some divisions that we can’t sustain long-term, so we’re focusing on smaller accounts and high-margin segments where we have a competitive edge.”
This aligns with Kinsale’s long-standing strategy of targeting the E&S market’s small and mid-sized risks, where their low expense ratio and technology-driven underwriting provide a durable advantage. The company’s combined ratio of 82.1%, while higher than last year’s 79.5%, remains among the industry’s best, reflecting their ability to price risks effectively even in a competitive environment.
Looking ahead, management expects commercial property headwinds to persist in Q2 but ease a bit in the second half of 2025. This temporary growth dip doesn’t alter Kinsale’s long-term trajectory, as their focus on profitability ensures they emerge stronger when market conditions normalize.
Long-Term Strength: Disciplined Underwriting and Statistical Edge
Kinsale’s long-term outlook remains as compelling as when I wrote my original analysis. Their competitive moat is built on three pillars:
Disciplined Underwriting: Kinsale’s focus on the E&S market, particularly smaller accounts, allows them to target niche risks with less competition and higher margins. Their 82.1% combined ratio, even in a challenging quarter, underscores their ability to price risks conservatively and maintain profitability.
Low Expense Ratio: By leveraging proprietary technology, Kinsale keeps costs low, enabling competitive pricing while delivering best-in-class margins to shareholders. Kehoe emphasized, “Our technology model’s durability gives us a structural advantage that will only grow stronger.”
Statistical Risk Analysis: Kinsale’s data-driven approach to underwriting, highlighted in the call, ensures they set reserves conservatively and price risks with precision. Haney noted, “Our statistical models allow us to stay ahead of loss cost trends and inflation, protecting our margins.”
These strengths position Kinsale to capitalize on the E&S market’s long-term growth. As standard carriers continue to push business into the E&S space due to inflation and tightening underwriting conditions, Kinsale’s ability to take market share while maintaining margins remains intact. The commercial property slowdown is a short-term blip, not a structural shift.
Equity Portfolio Surprise
One pleasant surprise in Q1 was the outperformance of Kinsale’s investment portfolio, which I didn’t factor into my original analysis. Net investment income jumped 33.1% to $43.8 million, driven by strong equity returns. Kinsale’s portfolio is split roughly one-third passively invested and two-thirds actively managed with a value orientation, a strategy that paid off handsomely this quarter.
While I focused solely on operational insurance returns in my analysis, this equity portfolio performance adds an extra layer of upside. It’s not a core driver of Kinsale’s value proposition, but it demonstrates management’s capital allocation savvy, reinforcing their owner-operator mindset. Investors should view this as a bonus, not a dependency, as Kinsale’s insurance operations remain the primary engine of long-term returns.
Conclusion: Market Overreaction, Long-Term Opportunity
Kinsale’s Q1 2025 earnings highlight a business firing on all cylinders, despite short-term growth headwinds from commercial property competition. The market’s 16% sell-off on Friday is a classic overreaction, punishing Kinsale for missing lofty growth expectations while ignoring its exceptional profitability and long-term potential. As I argued in my Kinsale analysis, this is a high-quality compounder built on disciplined underwriting, a low combined ratio, and a statistical edge in risk analysis. The Q1 results don’t change that thesis.
Short-term, expect continued pressure in Q2 from commercial property, but the second half of 2025 should see some improvement as market dynamics stabilize. Long-term, Kinsale’s focus on high-margin, smaller accounts and its technology-driven cost advantage position it to deliver consistent 10-20% premium growth and mid-20s ROE. The equity portfolio’s Q1 outperformance is icing on the cake.
For patient investors, Friday’s drop is an opportunity to own a best-in-class insurer at a discount. Kinsale remains a core holding for those focused on long-term wealth creation. Join our Global Quality Investing Community on Discord to discuss further.
Disclosure: I am long KNSL. This is not financial advice. Always do your own research.
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