Verdict: WATCH (confidence 4/5) · price $339.65 on 2026-10-08 · tranches $280 / $220 / $150 · trim above $400 The business is excellent; the screen's 3-of-3 methods agreement is not reliable here. Its Sticker ($739) assumes 15% growth, and its Payback and Ten Cap use operating cash flow, which for an insurer includes float. On earnings, with growth at 10%, price is above Sticker (
$280), Payback ($277) and Ten Cap (~$220). Next check: Q3 results ~2026-10-22. Research, not advice.
R · Radar
- Screen: status BUY, tier A, Big Five 12/13, 3 of 3 methods agree on its numbers (price/Sticker 0.46), 29% below the 52-week high. Flag: financial (OCF tests less meaningful). Why selected: requested.
- No Radar items and no guru holders in the data (13F lag ~4 months).
- Next report ~2026-10-22.
U · Understand
- The business in one sentence: Kinsale underwrites hard-to-place commercial insurance in the US excess & surplus (E&S) market, mostly small accounts sold through wholesale brokers, using its own technology to keep costs low.
- Money: premiums plus investment income. Q2 2026 gross written premiums were $527.6M (−5%); commercial property fell 32.7% while the rest grew 3.7% [1][2]. Net earned premium was $417.6M (+8.9%), net investment income $55.7M [2]. Division mix as a % of revenue: not found. Customers: small businesses unable to buy standard-market cover. Hook: broker relationships, speed and underwriting appetite. Rivals: RLI, W.R. Berkley, Markel, Palomar, Skyward, and standard carriers that dip into E&S when rates are good [3].
- Weather: the E&S cycle is turning soft. Lockton reports non-habitational property rates down 5–10% at renewal, and surplus capital is at records [3]. Catastrophe exposure is limited but present (Q2 cat losses were small).
- Circle of competence: 3/5. I understand the model; I still need to learn the reserve adequacy (long-tail casualty), investment portfolio risk and the divisional mix. Reserve and business-description facts here are from general knowledge and the 10-K was not re-read [4].
L · Love (moat and management)
- Moat: low-cost operator (expense ratio ~21.7%) plus underwriting discipline in a niche; the "technology-enabled low cost" claim is management's [2]. Replication test: any capitalised insurer can write E&S, so the edge is the cost base, data and culture. Disappears test: brokers would notice, but would switch quickly. Pricing power: weak by nature in a competitive market; the evidence is a combined ratio of 75.5% against peers' higher ones, and ROIC 17–25% over five years. That is a durable edge only while discipline holds.
- Management: CEO and chairman Michael Kehoe; capital allocation is shown by a $100M buyback in Q2 and a new $250M authorisation [3], while the share count was flat at ~23.3M since 2023. Debt $225M = 0.2 years of FCF. Cash conversion 1.8 is meaningless for an insurer (float). Incentives, candour and insider trading: not read this run.
- Values: nothing that the owner would veto was found. Insurance for hard-to-place risks is a normal business.
- Would I buy the whole company at this price? Not yet: ~$7.8B for roughly $0.5B of normalised earnings (about 15x) is fair, not cheap, for a business entering a softer cycle.
E · Event
- What happened: shares fell about 29% from the high as E&S commercial property pricing softened. Wells Fargo cut to Equal Weight after Q1 (target $357) and Cantor stayed Neutral [3]. Q2 (23 July) was strong: combined ratio 75.5%, net income +31% to $175.9M, but premiums shrank 5% [1][2].
- Event checks (METHOD 7):
- Known: ✔ softening E&S property rates.
- Easy to find: ✔.
- Needs at least a year: ✔ a pricing cycle takes years.
- Resolves within ~3 years: ? cycles usually turn but timing is uncertain.
- No new debt needed: ✔ debt is tiny and capital is in excess.
- You would own it for life: ? Possibly, at the right price.
- Event or problem? A cycle, not a broken business: it is system-wide (METHOD 7, 'moves price, not value'), but the price has not fallen enough to be a margin-of-safety event on earnings. Not a value trap (29% below the high).
R · Reduce basis (tranches only, no options)
| Tranche | Price | Basis | Status |
|---|---|---|---|
| 1 | $280 | ≈ corrected Sticker and Payback (~$277–280) | Not triggered |
| 2 | $220 | ≈ earnings Ten Cap (10x normalised earnings) | Not triggered |
| 3 | $150 | ≈ corrected MOS price ($140), ~1.7x book value | Not triggered |
The screen's default plan was $689 / $512 / $370, all triggered. I replaced it because it relies on OCF (which includes float growth that is slowing) and 15% growth. Equal dollar tranches, set in advance; keep dry powder for a further ~50% fall. Stop buying above $280. Trim above $400 (Sticker at an optimistic 12% growth, ~$405).
S · Story
- Thesis: Kinsale is the lowest-cost specialist in a market that keeps growing, earning a 20%+ return on capital. A soft cycle slows premium growth for a few years but not its underwriting profit, and excess capital goes into buybacks. Buy it if the price falls to roughly 10–13x normalised earnings.
- Three things that must stay true: (1) combined ratio stays below ~85%; (2) premium growth outside property stays positive; (3) reserves hold (no adverse development).
- Inversion: bear case: competition cuts casualty rates too, the profitable 2020–2025 vintages were helped by hard pricing and favourable reserves (4.5 points in Q2), and the 30%+ growth of 2023–25 will not return. Rebuttal: costs are lowest in class, so margin has room to fall and stay good. Concession: the 75% combined ratio is not a normal level; earnings of ~$22/share (operating, my estimate) may be a peak.
- Sell triggers: a combined ratio above 90% for two quarters; adverse reserve development in consecutive years; ROIC below 12% for two years; a new CEO plus guidance cut; debt above 3x FCF.
Numbers
Insurer: OCF tests mean less, so I lean on earnings, ROE and book value growth (BVPS $63.6 in 2024 to $84.3 in 2025, +32%).
| Item | Screen | Corrected / note |
|---|---|---|
| Sticker | $739.20 (EPS $24.64, 15%) | ~$282: normalised EPS ~$22 (Q2 operating EPS $5.54 ×4; GAAP EPS includes investment gains, Q2 $7.72 [2]) × 1.10^10 × P/E 20 ÷ 1.15^10. At 12%: ~$405. |
| MOS price | $369.60 | ~$141 |
| Payback | $689.24 (OCF-based, 15% growth) | ~$277 on EPS at 10% growth; ~$176 flat |
| Ten Cap | $511.71 (OE $1.17B) | ~$220: 10 × ~$0.5B normalised earnings ÷ 22.9M shares. Owner earnings include float. |
| Windage growth | 15% | 10%: premiums are shrinking, earned premium +8.9% |
| P/E | 13.8 vs 10-yr median 37.2 | ~15x normalised EPS |
| Net debt / cash conversion | $14M / 1.81 | Not meaningful for an insurer |
Big Five (screen): ROIC 10y 17.6%, 5y 21.9%; sales growth 10y 37%, 5y 32%; EPS 5y 41%; BVPS 5y 27%; OCF 5y 30%.
| FY | Revenue $M | EPS | OCF $M | FCF $M | ROIC |
|---|---|---|---|---|---|
| 2016 | 142 | n/a | 74 | 73 | 12.5% |
| 2017 | 187 | 1.16 | 77 | 77 | 10.5% |
| 2018 | 222 | 1.56 | 104 | 103 | 12.8% |
| 2019 | 316 | 2.86 | 178 | 159 | 15.6% |
| 2020 | 460 | 3.87 | 280 | 247 | 15.3% |
| 2021 | 653 | 6.62 | 407 | 401 | 20.6% |
| 2022 | 839 | 6.88 | 558 | 551 | 16.9% |
| 2023 | 1,224 | 13.22 | 860 | 853 | 24.3% |
| 2024 | 1,588 | 17.78 | 976 | 952 | 24.9% |
| 2025 | 1,874 | 21.65 | 1,044 | 990 | 23.1% |
Deep dive model (reports/model/KNSL.md): 10-year DCF at 9.6% WACC gives $402 (perpetuity, 3%) to $409 (11x EBITDA exit); grid $325–$544. It assumes growth rebounding to 11–12% in years 3–5, a more generous view than my 10%, so I treat it as the upper end.
Sources
- Kinsale Q2 2026 results (Barchart / Business Wire)
- Reinsurance News: Q2 2026 net income
- Insurance Business: capital glut squeezes Kinsale's property line and Yahoo Finance: Cantor Neutral
- Kinsale 10-K filings on SEC EDGAR (not re-read this run)
Changelog
- 2026-10-09: created. Verdict WATCH: the screen's three-method agreement relies on OCF and 15% growth; on normalised earnings and 10% growth price is above Sticker, Payback and Ten Cap. Check Q3 on ~2026-10-22.