Kinsale’s third-quarter earnings look excellent, but management is trying to rein in expectations.
After reporting third-quarter earnings, shares of excess and surplus (E&S) insurer Kinsale Capital (KNSL -5.29%) were down 8% as of 1:45 p.m. ET Friday, according to data provided by S&P Global Market Intelligence.
Despite delivering earnings-per-share growth of 50% during Q3, Kinsale’s gross written premium growth slowed to “only” 19% as the company faced increasing competition. Priced at nearly 30 times earnings prior to today’s drop, Kinsale trades with the expectation that it will deliver near-perfect results each quarter, and it came up shy of these expectations in Q3.
Stellar results, but the market wanted perfection
Contrary to the market’s reaction, Kinsale’s Q3 results were not particularly worrisome, as the company maintained a 75.7% combined ratio during the quarter.
A combined ratio adds an insurer’s expense and loss ratios together, with a score below 100% indicating profitability. Kinsale’s combined ratio remains one of — if not the best — of its peer group, which is an impressive feat considering these results include exposure to Hurricanes Francine and Helene in Q3.
However, with gross written premium growth decelerating from 34% to 26%, to 21%, and now 19% over the last four quarters, Kinsale’s valuation is once again being reeled in by the market as the latter tempers its growth expectations. Though this reaction may be justified, Kinsale CEO Michael Kehoe has stated for years that he expects the company’s long-term growth rate to settle in around 10% to 20%, making Q3’s 18% growth A-OK.
Furthermore, Kehoe explained that losses tied to Hurricane Milton in Q4 should be under $10 million — far from a perilous event for the $11 billion company. Ultimately, growth rates may have slowed temporarily, but Kinsale’s profitability continues to be top-notch.
