Lubin Investment · Blog

Kinsale Capital (KNSL): the niche insurer to watch

2026-06-10 ·

Kinsale Capital is an elite American insurer that covers the odd risks nobody else wants, with a cost discipline its rivals cannot copy. It meets 10 of my 10 quality criteria, grows 33% a year, and still trades cheap. Quality this rare is unusual. So is the price. Here is how I read it, without getting carried away.

The insurer that says yes when others say no

The first time I looked closely at Kinsale Capital, I assumed my data had a bug. An insurer with the margins of a software company is not supposed to exist. And yet.

To understand Kinsale, you first have to understand what it does. Most insurers cover ordinary things: your car, your home, your standard business. Kinsale works in the E and S market (excess and surplus). Translation: the unusual risks traditional insurers refuse to touch. A food truck, an amusement park, a demolition site, a small drone company. Files too rare or too odd to fit the boxes of a mass-market insurer.

This corner of the market has one peculiarity: prices are not regulated the way they are in mainstream insurance. Whoever can correctly assess an unusual risk can charge a fair price for it and make money. Whoever gets it wrong gets crushed. Kinsale built its whole house around that bet: being the best at saying yes, intelligently, where everyone else says no.

How an insurer makes money (and why this one is good at it)

Before going further, a useful detour, because insurance is judged with its own thermometer. An insurer collects premiums today and pays claims later. In between, two questions decide everything.

First question: does it make money on the act of insuring itself? You measure that with the combined ratio: claims paid plus running costs, divided by premiums collected. Below 100%, the insurer is profitable just by insuring, before earning a cent on its investments. Above 100%, it loses money on its core trade and has to make it up elsewhere. Many insurers scrape by around 100%. Kinsale operates structurally well below, and that is where everything is decided.

Second question: what does it do with the money in the meantime? When you pay your premium in January, the insurer only reimburses a possible claim months, sometimes years later. In between, it keeps that pile and invests it. This is the float: other people's money, collected before it is spent, working for free for the insurer. The bigger the float, the harder the machine works.

Kinsale is good on both counts. And the result shows in a number that made me pause: its free cash flow margin reaches 52%. Free cash flow is the money that truly stays in the bank once every bill is paid. A 52% margin means that out of every 100 dollars of revenue, 52 end up as genuinely available cash. Most companies top out near 10. That is a software-company level, not an insurer level. Its net margin comes in at 28%.

The real treasure: a moat money alone cannot buy

A clean balance sheet is never enough to convince me. What I look for is the moat: the competitive trench, what stops a better-funded rival from taking the spot. At Kinsale, the moat comes neither from a brand nor a patent. It comes from two less glamorous, but sturdier things.

First, underwriting discipline. Underwriting is the act of deciding which risk you accept and at what price. Kinsale says no far more often than yes, and does not chase volume when prices get too low. That restraint, in a sector where the temptation to grow fast is constant, is rarer than it looks. It explains why the company stays profitable on the act of insuring where others get burned.

Second, the cost structure. Kinsale handles almost everything in-house, on its own technology platform, instead of delegating to a swarm of intermediaries the way traditional insurers do. Fewer intermediaries, fewer costs, so a higher margin at equal risk. That cost gap is hard to close: a competitor would have to rebuild years of tools and data. It is an advantage that widens over time rather than eroding.

In numbers, this moat shows up in two measures I always check. Growth first: revenue has risen 33% a year for five years, and free cash flow per share 28% a year over the same period, all organic, with no acquisitions inflating the stats. Return on capital next: Cash ROCE reaches 45%. This measure answers a simple question: for every dollar put into the business, how much cash does it spit back each year? Here, 45 cents per dollar per year. That is roughly three times the threshold I consider excellent.

What exactly is my 10/10 score?

I do not score a company on a hunch. I run it through 10 fundamental quality criteria, broken into concrete sub-criteria: is it genuinely profitable, are sales and cash growing, does it turn accounting profit into real cash, is its debt under control, does it return money to shareholders without wasting it? A company that passes everything gets 10 out of 10. That is rare by design.

Kinsale passes 24 of these sub-criteria out of 25. Top marks on the four pillars I weigh most: profitability, growth, return on capital, and balance sheet strength. On that last point, the company has no net debt: its cash covers all of its borrowings. In plain terms, it could pay everything off tomorrow morning. That is exactly the cushion that lets a business ride out a bad cycle without panic.

Two details say a lot about management quality. First: the cash conversion ratio comes in at 1.89, meaning the cash generated exceeds the accounting profit. A company that turns its profits into real money, and then some, is not playing games with its books. Second: management returns capital without wasting it, with a new 250 million dollar share buyback program announced in December 2025. Buying back its own shares concentrates ownership among the remaining holders, as long as it is done at a reasonable price.

Quality first, price second (and separately)

Here is the rule I never break: I always separate two questions most people merge. One: is this a good business? Two, entirely apart: is this the right price? A great company bought too expensive is still a bad investment. On Kinsale, the first question is settled. The second remains.

To measure the price, I look at the P/FCF (price to free cash flow): the share price divided by the cash the company truly generates each year. A P/FCF of 7 means that at the current pace, you are paying the equivalent of seven years of that cash. The lower it is, the cheaper it is. Kinsale trades at 7.0 times its free cash flow.

Put that number in perspective. Solid but far slower insurers trade richer: Progressive around 7.4 times, Chubb 8.3 times, RLI 8.8 times. The sector median sits near 7.4 times. In other words, the market prices Kinsale below competitors that grow two to three times more slowly. That is unusual: normally you pay a premium for growth, not a discount.

Running this profile through my valuation model, with deliberately prudent assumptions (free cash flow growth cut to 20% a year, well below its current pace, and a modest 10 times exit multiple), I get a reasonable buy price around 533 dollars. The stock trades near 303. So the price is roughly 76% below what my model judges justified. A gap that wide, on a business of this quality, only happens when a stock is temporarily out of favor.

Why does the market shun such a fine machine?

Because the market does not pay for a company, it pays for a story, and the recent story spooked it. In the first quarter of 2026, Kinsale reported revenue below expectations, and the stock corrected 30% from its highs. From a distance, it looks like a stumble.

Up close, it is more nuanced. Earnings per share actually came in at 5.11 dollars, versus 4.79 expected: 6.7% above consensus. It is not that Kinsale disappointed on profit, it is that the market hoped for even stronger revenue growth. When a quality stock falls for that reason, it is not an alarm, it is often a window.

The risks I do not forget

I would be dishonest to show you only the bright side. Kinsale has real trade-offs, and they deserve a straight look.

First risk: insurance is a cyclical business. Right now, in the E and S market, prices are high because risks are flooding in and capacity is short. That is a so-called hard market, favorable to insurers. But these cycles reverse. The day prices soften, Kinsale's blistering growth will slow, and that is precisely what the market already fears. Its 33% annual growth is not a guaranteed annuity: it is partly a market window.

Second risk: the discipline has to hold. The entire moat rests on rigorous underwriting. The day the company starts chasing volume to feed its growth, accepting mispriced risks, that engine would seize. It has happened to many insurers before it. Nothing guarantees Kinsale escapes it forever.

Third risk, the simplest: quality does not protect you from price. If you buy even the best company in the world too expensive, you make a bad investment. Today Kinsale looks cheap, but a low P/FCF is never a bargain in itself: it only is if the quality holds and the cycle does not turn too soon. That is exactly why I judge quality before price, and price separately.

How I read Kinsale, without getting carried away

At its core, Kinsale has that dual nature I like: it is both a growth stock (33% a year) and a cheap stock (7.0 times its cash). You rarely see both in the same line, and that is what makes the case interesting. The next concrete date is July 22, 2026, with second-quarter results. If the company confirms its pace, the market may end up granting it a more generous multiple.

But I am not rushing in. I note a reasonable buy price, around 533 dollars, and let the market come to me rather than chase it. If you want to dig in, you will find the criteria detail and the comparables on Kinsale's analysis page, in the insurers hub, and in my ranking of companies scored 10 out of 10.

Judging whether a business is good, then at what price to buy it, separately, in a few seconds and for any stock: that is exactly what I wanted to be able to do. So I built it.

FAQ

What is E and S insurance?

E and S (excess and surplus) insurance covers the atypical risks traditional insurers refuse: rare, hazardous or hard-to-assess activities. It is a market where prices are not regulated, so a competent insurer can price the risk well and make money.

What is the combined ratio?

It is an insurer's claims paid plus expenses, divided by the premiums it collects. Below 100%, the insurer makes money just by insuring, before it even invests its cash. Above 100%, it loses money on its core trade. Kinsale operates structurally well below 100%.

What does a P/FCF of 7.0 mean?

The P/FCF (price to free cash flow) divides the share price by the cash actually generated each year. A P/FCF of 7.0 means you pay the equivalent of seven years of that cash. The lower it is, the cheaper it is. That is unusual for a company growing 33% a year.

Why does Kinsale score 10/10?

It passes 24 of my 25 quality sub-criteria, with top marks on profitability, growth, return on capital and balance sheet strength (it has no net debt). My 10/10 score measures the quality of the business alone, independent of the share price.

What are the risks with Kinsale?

Three mainly: insurance is cyclical, so its growth can slow when market prices fall; everything rests on an underwriting discipline that has to hold over time; and quality never protects you from overpaying. This is not investment advice, do your own research.

Voir l'analyse KNSL sur Lubin Investment

About the author

Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I have analyzed stocks through their fundamentals for several years and invest my own money with this method. I codified it into a tool that judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).