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Kinsale Capital Group, Inc. 10-K Analysis & Summary – 2/21/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Kinsale Capital Group, Inc.

Filing date:

02/21/2025

TLDR:

Kinsale Capital Group demonstrates strong financial performance in the Excess and Surplus (E&S) lines market. The company’s technology-driven approach and efficient expense management provide a competitive edge, but investors should monitor risks related to loss reserve adequacy and reinsurance recoverability.

ELI5:

Kinsale is like a specialized insurance company that’s doing well by using technology to be efficient. They make money by insuring things that are hard for other companies to insure, but there are some risks to keep an eye on.

Accession #:

0001669162-25-000010

Published on

Analyst Summary

  • Gross Written Premiums increased by 19.2% to $1.9 billion in 2024.
  • Net Income increased by 34.6% to $414.8 million in 2024.
  • Combined Ratio was 76.4% in 2024, indicating strong underwriting profitability.
  • Return on Equity (ROE) was 32.3% in 2024.
  • Expense Ratio was 20.6% in 2024, demonstrating efficient operations.
  • Operating Profit Margin = 24.13%
  • Net Profit Margin = 26.13%
  • Return on Assets (ROA) = 8.49%
  • Return on Equity (ROE) = 27.96%
  • Basic Earnings Per Share (EPS) = $17.92
  • Diluted Earnings Per Share (EPS) = $17.78
  • Current Ratio = 0.08
  • Quick Ratio = 0.08
  • Cash Ratio = 0.03
  • Debt-to-Equity Ratio = 0.12
  • Debt-to-Assets Ratio = 0.04
  • Interest Coverage Ratio = 51.79
  • Days Sales Outstanding (DSO) = 27.31 days
  • Days Payable Outstanding (DPO) = 19.25 days
  • Asset Turnover = 0.32
  • Price-to-Earnings Ratio (P/E) = 23.91
  • Price-to-Book Ratio (P/B) = 6.72
  • Price-to-Sales Ratio (P/S) = 6.28
  • Enterprise Value to EBITDA (EV/EBITDA) = 18.93
  • Revenue Growth = 29.65%
  • Net Income Growth = 34.65%
  • EPS Growth = 33.9%
  • Net Operating Earnings = $374,771 (in thousands)
  • Combined Ratio = 76.4%

Opportunities and Risks

  • E&S Market Growth: Exclusive focus on the E&S market positions Kinsale to capitalize on its growth potential.
  • Underwriting Expertise: Expertise in underwriting hard-to-place risks allows for attractive returns.
  • Technology-Driven Efficiency: Proprietary technology platform drives efficiency and competitive advantage.
  • Strong Balance Sheet: Conservative balance sheet provides stability and supports growth.
  • Loss Reserve Adequacy: The inherent uncertainty in estimating loss reserves could lead to future deficiencies, impacting financial results.
  • Reinsurance Recoverability: Failure of reinsurers to meet their obligations could result in losses.
  • Catastrophe Events: Severe weather conditions and other catastrophes could adversely affect the business.
  • Economic Downturn: Adverse economic factors could reduce demand for insurance or increase claims frequency.
  • Competition: Intense competition in the P&C insurance industry could affect pricing and market share.
  • Cybersecurity: Failure of information technology and telecommunications systems due to cyberattacks could disrupt operations.
  • Regulatory Changes: Extensive regulation and potential changes in laws could increase compliance costs and limit business flexibility.

Potential Implications

Kinsale Capital Group, Inc. (KNSL) – 2024 10-K Filing Analysis

Executive Summary

This report analyzes Kinsale Capital Group, Inc.’s 2024 10-K filing. Kinsale continues to demonstrate strong performance in the Excess and Surplus (E&S) lines market, with significant growth in gross written premiums, underwriting income, and net income. The company’s technology-driven approach and expense management contribute to its competitive advantage. However, investors should be aware of risks related to loss reserve adequacy, reinsurance recoverability, and potential economic downturns. Overall, the company appears well-managed and positioned for continued growth, but careful monitoring of risk factors is warranted. A HOLD recommendation is appropriate at this time, pending further assessment of the evolving economic environment and its potential impact on the E&S insurance market.

Company Overview

Kinsale Capital Group, Inc. (KNSL) is a specialty insurance company focused exclusively on the U.S. Excess and Surplus (E&S) lines market. The company provides a range of property and casualty insurance products through a network of independent brokers. Kinsale differentiates itself through its proprietary technology platform, underwriting expertise, and efficient expense management. The E&S market caters to risks that are difficult to place in the standard insurance market, offering Kinsale opportunities for specialized underwriting and potentially higher margins.

Financial Statement Analysis

Key Highlights:

  • Gross Written Premiums: Increased by 19.2% to $1.9 billion in 2024.
  • Net Income: Increased by 34.6% to $414.8 million in 2024.
  • Combined Ratio: 76.4% in 2024, indicating strong underwriting profitability.
  • Return on Equity (ROE): 32.3% in 2024.
  • Expense Ratio: 20.6% in 2024, demonstrating efficient operations.

Key Ratios and Trends:

  • Loss Ratio: Increased slightly from 54.6% in 2023 to 55.8% in 2024, primarily due to higher catastrophe losses.
  • Expense Ratio: Decreased slightly from 20.8% in 2023 to 20.6% in 2024, reflecting continued expense management.
  • Net Retention Ratio: Decreased from 80.6% in 2023 to 79.0% in 2024, due to changes in reinsurance treaties.
  • Investment Portfolio: Totaled $4.1 billion at the end of 2024, with a focus on high-quality fixed-maturity securities.

Financial Performance Table:

Metric 2024 2023 Change
Gross Written Premiums (USD millions) 1,870.3 1,568.8 +19.2%
Net Income (USD millions) 414.8 308.1 +34.6%
Combined Ratio 76.4% 75.4% +1.0%
Return on Equity 32.3% 33.6% -1.3%
Expense Ratio 20.6% 20.8% -0.2%

Management’s Discussion and Analysis (MD&A) Insights:

  • Management attributes the growth in gross written premiums to higher submission activity and a favorable pricing environment.
  • The increase in net income is attributed to profitable growth and strong investment results.
  • The slight increase in the loss ratio is primarily due to higher catastrophe losses.

Red Flags and Uncommon Metrics:

  • Catastrophe Losses: The increase in the loss ratio due to catastrophe losses warrants monitoring. The company’s catastrophe risk management and reinsurance programs are crucial.
  • Reinsurance Recoverables: A significant portion of reinsurance recoverables is concentrated with a few reinsurers, creating potential credit risk.
  • Prior Year Development: While overall favorable, adverse development in certain accident years (2017-2019) due to construction defect claims suggests potential challenges in estimating ultimate losses for these long-tailed lines.

Risk Assessment

  • Loss Reserve Adequacy: The inherent uncertainty in estimating loss reserves could lead to future deficiencies, impacting financial results.
  • Reinsurance Recoverability: Failure of reinsurers to meet their obligations could result in losses.
  • Catastrophe Events: Severe weather conditions and other catastrophes could adversely affect the business.
  • Economic Downturn: Adverse economic factors could reduce demand for insurance or increase claims frequency.
  • Competition: Intense competition in the P&C insurance industry could affect pricing and market share.
  • Cybersecurity: Failure of information technology and telecommunications systems due to cyberattacks could disrupt operations.
  • Regulatory Changes: Extensive regulation and potential changes in laws could increase compliance costs and limit business flexibility.

Opportunity Assessment

  • E&S Market Growth: Exclusive focus on the E&S market positions Kinsale to capitalize on its growth potential.
  • Underwriting Expertise: Expertise in underwriting hard-to-place risks allows for attractive returns.
  • Technology-Driven Efficiency: Proprietary technology platform drives efficiency and competitive advantage.
  • Strong Balance Sheet: Conservative balance sheet provides stability and supports growth.

Conclusion and Actionable Insights

Kinsale Capital Group demonstrates strong financial performance and a solid strategic focus on the E&S market. The company’s technology-driven approach and efficient expense management provide a competitive edge. However, investors should carefully monitor risks related to loss reserve adequacy, reinsurance recoverability, and the potential impact of economic downturns. A HOLD recommendation is appropriate at this time, pending further assessment of the evolving economic environment and its potential impact on the E&S insurance market. Future reports should focus on trends in catastrophe losses, reserve development, and the company’s ability to maintain its competitive expense ratio.

Financial Ratio and Metric Analysis

Profitability

Gross Profit Margin

  • Ratio/Metric: Not applicable for insurance companies.

Operating Profit Margin

  • Ratio/Metric: Underwriting Income / Net Earned Premiums = $325,881 / $1,350,470 = 24.13%
  • Trend: $270,374 / $1,072,537 = 25.21%. Percentage Change: (24.13% – 25.21%) / 25.21% = -4.28%
  • Industry: The average operating margin for the property and casualty insurance industry is typically between 5% and 15%. Kinsale’s operating margin is significantly higher than the industry average, indicating strong underwriting profitability.

Net Profit Margin

  • Ratio/Metric: Net Income / Total Revenues = $414,843 / $1,587,525 = 26.13%
  • Trend: $308,093 / $1,224,449 = 25.16%. Percentage Change: (26.13% – 25.16%) / 25.16% = 3.86%
  • Industry: A good net profit margin for insurance companies typically falls in the range of 5% to 15%. Kinsale’s net profit margin is significantly higher, reflecting efficient operations and investment strategies.

Return on Assets (ROA)

  • Ratio/Metric: Net Income / Total Assets = $414,843 / $4,886,704 = 8.49%
  • Trend: $308,093 / $3,772,974 = 8.17%. Percentage Change: (8.49% – 8.17%) / 8.17% = 3.92%
  • Industry: The average ROA for the insurance industry is generally between 1% and 3%. Kinsale’s ROA is substantially higher, indicating effective asset utilization.

Return on Equity (ROE)

  • Ratio/Metric: Net Income / Stockholders’ Equity = $414,843 / $1,483,561 = 27.96%
  • Trend: The filing indicates a ROE of 32.3% for 2024 and 33.6% for 2023. Percentage Change: (32.3% – 33.6%) / 33.6% = -3.87%
  • Industry: The average ROE for insurance companies is typically between 8% and 12%. Kinsale’s ROE is significantly above this range, demonstrating strong profitability relative to equity.

Earnings Per Share (EPS)

  • Ratio/Metric:
    • Basic: $17.92
    • Diluted: $17.78
  • Trend:
    • Basic: $13.37. Percentage Change: ($17.92 – $13.37) / $13.37 = 33.9%
    • Diluted: $13.22. Percentage Change: ($17.78 – $13.22) / $13.22 = 34.5%
  • Industry: EPS varies widely, but Kinsale’s EPS indicates strong profitability on a per-share basis compared to industry peers.

Liquidity

Current Ratio

  • Ratio/Metric: Current Assets / Current Liabilities.
    Calculations:

    • Current Assets: Cash and cash equivalents ($113,213) + Investment income due and accrued ($27,366) + Premiums and fees receivable, net ($140,027) = $280,606
    • Current Liabilities: Reserves for unpaid losses and loss adjustment expenses ($2,285,668) + Unearned premiums ($828,449) + Payable to reinsurers ($43,959) + Accounts payable and accrued expenses ($55,159) + Debt ($184,122) + Other liabilities ($5,786) = $3,403,143
    • Current Ratio: $280,606 / $3,403,143 = 0.08
  • Trend:
    • 2023:
      • Current Assets: Cash and cash equivalents ($126,694) + Investment income due and accrued ($21,689) + Premiums and fees receivable, net ($143,212) = $291,595
      • Current Liabilities: Reserves for unpaid losses and loss adjustment expenses ($1,692,875) + Unearned premiums ($701,351) + Payable to reinsurers ($47,582) + Accounts payable and accrued expenses ($44,922) + Debt ($183,846) + Other liabilities ($15,566) = $2,686,142
      • Current Ratio: $291,595 / $2,686,142 = 0.11
    • Percentage Change: (0.08 – 0.11) / 0.11 = -27.27%
  • Industry: Insurance companies typically have low current ratios (below 1) due to the nature of their business model. The ratio is low because of the large amount of liabilities.

Quick Ratio (Acid-Test Ratio)

  • Ratio/Metric: (Current Assets – Inventory) / Current Liabilities. Since insurance companies do not typically have inventory, this is the same as the current ratio. Therefore, the quick ratio is 0.08.
  • Trend: Same as current ratio, -27.27%
  • Industry: Similar to the current ratio, a low quick ratio is typical for insurance companies.

Cash Ratio

  • Ratio/Metric: Cash and Cash Equivalents / Current Liabilities = $113,213 / $3,403,143 = 0.03
  • Trend: $126,694 / $2,686,142 = 0.05. Percentage Change: (0.03 – 0.05) / 0.05 = -40%
  • Industry: Insurance companies generally have a low cash ratio.

Solvency/Leverage

Debt-to-Equity Ratio

  • Ratio/Metric: Total Debt / Stockholders’ Equity = $184,122 / $1,483,561 = 0.12
  • Trend: $183,846 / $1,086,832 = 0.17. Percentage Change: (0.12 – 0.17) / 0.17 = -29.41%
  • Industry: A debt-to-equity ratio of 0.12 is considered low for the insurance industry, indicating a conservative capital structure.

Debt-to-Assets Ratio

  • Ratio/Metric: Total Debt / Total Assets = $184,122 / $4,886,704 = 0.04
  • Trend: $183,846 / $3,772,974 = 0.05. Percentage Change: (0.04 – 0.05) / 0.05 = -20%
  • Industry: A debt-to-assets ratio of 0.04 is low, suggesting that Kinsale relies more on equity than debt to finance its assets.

Interest Coverage Ratio (Times Interest Earned)

  • Ratio/Metric: EBIT / Interest Expense = (Net Income + Income Tax Expense + Interest Expense) / Interest Expense = ($414,843 + $99,873 + $10,134) / $10,134 = 51.79
  • Trend: ($308,093 + $75,924 + $10,301) / $10,301 = 38.27. Percentage Change: (51.79 – 38.27) / 38.27 = 35.33%
  • Industry: An interest coverage ratio above 3 is generally considered good. Kinsale’s ratio is exceptionally high, indicating a strong ability to meet its interest obligations.

Activity/Efficiency

Inventory Turnover

  • Ratio/Metric: Not applicable for insurance companies.

Days Sales Outstanding (DSO)

  • Ratio/Metric: (Premiums and Fees Receivable / Gross Written Premiums) * 365 = ($140,027 / $1,870,341) * 365 = 27.31 days
  • Trend: ($143,212 / $1,568,815) * 365 = 33.31 days. Percentage Change: (27.31 – 33.31) / 33.31 = -17.9%
  • Industry: A lower DSO is generally better, indicating that the company is collecting premiums more quickly.

Days Payable Outstanding (DPO)

  • Ratio/Metric: (Accounts Payable and Accrued Expenses / (Losses and Loss Adjustment Expenses + Underwriting, Acquisition and Insurance Expenses)) * 365 = ($55,159 / ($772,899 + $285,808)) * 365 = 19.25 days
  • Trend: ($44,922 / ($600,219 + $228,970)) * 365 = 19.88 days. Percentage Change: (19.25 – 19.88) / 19.88 = -3.17%
  • Industry: DPO can vary, but a stable DPO suggests consistent payment practices.

Asset Turnover

  • Ratio/Metric: Total Revenues / Total Assets = $1,587,525 / $4,886,704 = 0.32
  • Trend: $1,224,449 / $3,772,974 = 0.32. Percentage Change: (0.32 – 0.32) / 0.32 = 0%
  • Industry: The asset turnover ratio for insurance companies is typically low, as they hold a large amount of assets relative to their revenue.

Valuation

Price-to-Earnings Ratio (P/E)

  • Ratio/Metric: Stock Price / EPS = $428.53 / $17.92 = 23.91
  • Trend: To determine the trend, we would need the P/E ratio from the previous comparable period, which is not provided in the filing.
  • Industry: The P/E ratio for insurance companies can vary widely, but Kinsale’s P/E ratio suggests that the stock is trading at a premium compared to some of its peers, reflecting investor expectations of future growth.

Price-to-Book Ratio (P/B)

  • Ratio/Metric: Market Cap / Stockholders’ Equity = (23,272,157 * $428.53) / $1,483,561,000 = $9,972,242,886.1 / $1,483,561,000 = 6.72
  • Trend: To determine the trend, we would need the P/B ratio from the previous comparable period, which is not provided in the filing.
  • Industry: A P/B ratio above 1 suggests that the market values the company more than its book value. Kinsale’s P/B ratio indicates that investors have a high opinion of the company’s future growth and profitability.

Price-to-Sales Ratio (P/S)

  • Ratio/Metric: Market Cap / Total Revenues = $9,972,242,886.1 / $1,587,525,000 = 6.28
  • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
  • Industry: Kinsale’s P/S ratio suggests that investors are willing to pay a premium for each dollar of revenue, reflecting expectations of future growth.

Enterprise Value to EBITDA (EV/EBITDA)

  • Ratio/Metric: (Market Cap + Total Debt – Cash) / (Net Income + Income Tax Expense + Interest Expense + Depreciation and Amortization) = ($9,972,242,886.1 + $184,122,000 – $113,213,000) / ($414,843,000 + $99,873,000 + $10,134,000 + $5,802,000) = $10,043,151,886.1 / $530,652,000 = 18.93
  • Trend: To determine the trend, we would need the EV/EBITDA ratio from the previous comparable period, which is not provided in the filing.
  • Industry: Kinsale’s EV/EBITDA ratio suggests that the company is trading at a premium compared to some of its peers, reflecting investor expectations of future growth.

Growth Rates

Revenue Growth

  • Ratio/Metric: (Current Revenue – Previous Revenue) / Previous Revenue = ($1,587,525 – $1,224,449) / $1,224,449 = 29.65%

Net Income Growth

  • Ratio/Metric: (Current Net Income – Previous Net Income) / Previous Net Income = ($414,843 – $308,093) / $308,093 = 34.65%

EPS Growth

  • Ratio/Metric: (Current EPS – Previous EPS) / Previous EPS = ($17.92 – $13.37) / $13.37 = 33.9%

Other Relevant Metrics

Net Operating Earnings

  • Metric: Net Operating Earnings = $374,771 (in thousands)
  • Trend: $291,400 (in thousands). Percentage Change: ($374,771 – $291,400) / $291,400 = 28.6%
  • Significance: Net operating earnings is a non-GAAP measure that adjusts net income to exclude the impact of after-tax realized and unrealized gains and losses on equity securities. This metric provides a clearer picture of the company’s core insurance operations. The adjustments seem reasonable as they remove the volatility of investment gains/losses.

Combined Ratio

  • Metric: 76.4%
  • Trend: 75.4%. Percentage Change: (76.4 – 75.4) / 75.4 = 1.33%
  • Significance: A combined ratio below 100% indicates underwriting profitability. Kinsale’s combined ratio is excellent, demonstrating strong underwriting discipline.

Commentary

Kinsale Capital Group delivered a strong financial performance in 2024, marked by substantial growth in gross written premiums and net income. The company’s profitability metrics, including ROA, ROE, and net profit margin, significantly exceed industry averages, showcasing its operational efficiency and underwriting expertise. While the operating profit margin experienced a slight decrease, the interest coverage ratio improved substantially, indicating enhanced financial stability. Kinsale’s low leverage and strong liquidity position the company well for continued growth and strategic opportunities.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️