Why Kinsale Capital Stock Popped, Then Dropped Today

Source The Motley Fool

Key Points

  • Kinsale's second-quarter earnings looked impressive across most metrics.

  • However, increasing competition in the commercial property market, the company's largest insurance division, may have spooked investors.

  • This cyclicality is nothing new for Kinsale, and the company remains diversified and robustly profitable.

  • 10 stocks we like better than Kinsale Capital Group ›

Shares of specialty insurer Kinsale Capital Group (NYSE: KNSL) were flat as of 1 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence.

Kinsale, the only publicly traded insurer focused exclusively on the excess and surplus market (coverage for hard-to-place small and mid-size business risks), reported second-quarter earnings that exceeded analysts' expectations, prompting a 7% increase in its share price.

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Despite these impressive results, the company's price has dipped and is now flat, with the market worried about increasing competition in the commercial property industry.

Steady performance in a challenging environment

During the second quarter, Kinsale:

  • increased gross written premiums (GWPs) by 5%.
  • grew earnings per share by 45%.
  • recorded a combined ratio of 76% (below 100% is profitable).
  • delivered a return on equity of 33%.
  • boosted investment income by 30%.

Altogether, these were exceptional results. However, the company saw its largest insurance division -- commercial property -- post a 17% decline in GWPs compared to last year due to increased competition and lower pricing. This decrease appears to be the source of the market's trepidation.

A variety of different shades of green arrows pointing up sit against a green backdrop.

Image source: Getty Images.

Yet, while Kinsale faced this headwind, the growth rates for the rest of its business increased by 14%. This performance highlights the diversification within its business, as it focuses on smaller accounts with hard-to-place risks that its mega peers have no interest in insuring.

While GWP growth dipped below management's goal of annualized increases between 10% and 20%, I don't believe it is anything more than standard cyclicality in the excess-and-surplus insurance industry.

Furthermore, during the second-quarter earnings call, CEO Michael Kehoe said that the company's "loss reserves have never been more conservatively stated than they are right now."

This safety, paired with Kinsale's top-tier underwriting prowess, keeps the company a promising option for investors willing to hold for a decade and beyond.

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Josh Kohn-Lindquist has positions in Kinsale Capital Group. The Motley Fool has positions in and recommends Kinsale Capital Group. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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