It looks like Kinsale's numbers are too good to be true. I checked their Google reviews and there are a lot of recurring bad reviews. It’s sound like a non ethical practices.
In my opinion, it's a red flag, and I'd love to hear your thoughts.
Hi Amit! Yeah that’s a great find actually. Took me longer than you to find that issue and chase down the answer/reasoning for it.
Essentially, those “bad practices” and “morally corrupt” ethical reviews come from upset customers that Kinsale doesn’t cover their issue. The question is why would this be? Kinsale is only B2B and utilizes exclusively wholesale brokers!
Basically, since Kinsale is the low-cost insurer for the industry. Their contracts are very clear, descriptive, and exact for a set of unclear risk insured segments. Basically, these customers got fucked by the details in the contract.
Morality issue can easily be attributed more to the broker who’s selling this to customer without proper education in my opinion.
Thank you very much for your breakdown William. I must say you are the only person i will give my money on a monthly basis. I always learn from your articles. I am an investor on KNSL and something in my gut despite everyone telling me is a bad investment I always said it just very well managed business. Also i dont think it should be underestimate the power of the float investments and their technology at the core of everything. I tried looking at the other E&S competitors and i dont see them leveraging technology like KNSL. Maybe that will change in the future with AI, but KNSL seems to be leveraging AI technology already. I will read your article a few times. cheers!
That means so much to me Jeremy. I put so much effort into these articles and it does feel sometimes like they're getting sent into the void. So, I appreciate a kind note like this more than you ever realize.
If you ever need a method to show your naysayers why Kinsale can be a fantastic investment, I hope this article and my business 'moat' breakdown can help articulate that for you! It's not a well known name today in the markets but I imagine it will be after our thesis plays out further.
AI sadly still takes a solid robust data structure to train and house models. If your systems are set up to collect data meaningfully, you can't layer on AI effectively. AI will likely benefit Kinsale even more than E&S competitors with their simplified data structure flow.
I'm sure a lot of work went into this analysis, that's how it is, and you can't just do it for the response because it won't be anywhere near (for now). I think one has to write these things for oneself in the first place. And it's worth it, it makes you think and question harder and your perception of the stock won't be the same. Anyway, great stuff... makes me want to take a closer look myself (e.g. I wouldn't be surprised if in this industry investing results have historically subsidized underwriting for a number of players. Also your mention that the admitted market may try to win back business really got my interest).
Oh yeah, a crazy amount of work goes into these things and you are right... it's for my benefit overall. It's a nice way to organize my thoughts and research process. I have to understand all these materials for myself anyways.... might as well document it for others in a fun way!
As for Kinsale, great company that's been stealing market share while being more profitable than its competitors. As many disruptors to mature industries have before, Kinsale simply designed a more efficient distribution system that allows them to be more profitable. Good thing for us... any industry player looking to replicate it would need to rebuild their entire company from scratch, which isn't possible.
Definitely worth the closer look! I would also reread my original "moat" article, that is linked at the top of this post. These two articles are meant to work with each other (1) why the business is defensible and update on its strategy to grow (2) what the IRR opportunity is (this article).
One thing I don't understand is why it should be so difficult for other players to replicate Kinsale's distribution system. Is it really no easier than building the entire company from scratch again?
I hate to put it this simplistically but yes, you'd have to build a company from the ground up to compete with Kinsale effectively. The question is... why?
Kinsale founders left James River (CEO for a number of years) and built Kinsale from the ground up to be the most efficient possible:
- One headquarters, no branches, cutting OpEx costs -> structurally lower Expense ratio
- Built custom Cloud-application for Wholesale brokers to limit the number of partners to get the widest distribution for E&S policies
- The custom application plugs straight into Kinsale's datalake, which I guarantee makes the financial operations much easier having all your data, policy underwriting data, risk analysis, etc. all in one place. It's an Operator's dream to run this "simple" architecture of a nearly $10B business.
- This simple design with few moving parts allows Kinsale to get quotes back to brokers in 24 hours, compared to competitors in a week.
Basically, with competitors having (1) multiple subsidiaries all on different tech stacks, processes for underwriting, Kinsale essentially 100% organic (2) Kinsale designing from scratch the most efficient distribution system has allowed their success.
A company looking to "simplify" their structure to resemble Kinsale's would need to literally destroy the entire company and rebuild it, which no Executive will agree to or even has the skill to do effectively.
Seeing one of your info-graphs on the industry's combined ratio, I got the urge to analyse Arch Capital Group: a competitor in the insurance industry that seems to me to be growing well, is very solid and above all has a very good valuation (compared to Kinsale, which is facing a major growth in P/E and has a higher risk of shrinking multiples). What do you think of this alternative?
I looked up Arch Capital Group's financials and the metrics look really good with very profitable underwriting. However, the premium growth does look highly cyclical compared to Kinsale's, which explains the valuation disparity. I don't see any reason why Arch Capital can't do well from here though.
Awesome report, thank you very much for contribute your knowledge
im investor of kinsale and in spite of the small growth slowdown in the sector, one of the key in the competitive advantage is the increasing of market share a accompanied with better ROIC AND ROE.
I 100% agree with that. Kinsale is getting to be a better and more efficient business over time, which will increase owners earnings. I think the growth left to be played out will surprise investors and I'm looking forward to some continued excellence!
Glad that we're close to your fair value then assuming a 12% discount rate. Seems like we have relatively close assumptions then! Glad you enjoyed the analysis :)
Hi William, thanks for you great article!
It looks like Kinsale's numbers are too good to be true. I checked their Google reviews and there are a lot of recurring bad reviews. It’s sound like a non ethical practices.
In my opinion, it's a red flag, and I'd love to hear your thoughts.
Hi Amit! Yeah that’s a great find actually. Took me longer than you to find that issue and chase down the answer/reasoning for it.
Essentially, those “bad practices” and “morally corrupt” ethical reviews come from upset customers that Kinsale doesn’t cover their issue. The question is why would this be? Kinsale is only B2B and utilizes exclusively wholesale brokers!
Basically, since Kinsale is the low-cost insurer for the industry. Their contracts are very clear, descriptive, and exact for a set of unclear risk insured segments. Basically, these customers got fucked by the details in the contract.
Morality issue can easily be attributed more to the broker who’s selling this to customer without proper education in my opinion.
For any1 interested in Jun CPI numbers, here are my estimates with near-perfect track record so far:
https://open.substack.com/pub/arkominaresearch/p/jun-2024-cpi-estimate?r=1r1n6n&utm_campaign=post&utm_medium=web
Thank you very much for your breakdown William. I must say you are the only person i will give my money on a monthly basis. I always learn from your articles. I am an investor on KNSL and something in my gut despite everyone telling me is a bad investment I always said it just very well managed business. Also i dont think it should be underestimate the power of the float investments and their technology at the core of everything. I tried looking at the other E&S competitors and i dont see them leveraging technology like KNSL. Maybe that will change in the future with AI, but KNSL seems to be leveraging AI technology already. I will read your article a few times. cheers!
That means so much to me Jeremy. I put so much effort into these articles and it does feel sometimes like they're getting sent into the void. So, I appreciate a kind note like this more than you ever realize.
If you ever need a method to show your naysayers why Kinsale can be a fantastic investment, I hope this article and my business 'moat' breakdown can help articulate that for you! It's not a well known name today in the markets but I imagine it will be after our thesis plays out further.
AI sadly still takes a solid robust data structure to train and house models. If your systems are set up to collect data meaningfully, you can't layer on AI effectively. AI will likely benefit Kinsale even more than E&S competitors with their simplified data structure flow.
Cheers my friend!
I'm sure a lot of work went into this analysis, that's how it is, and you can't just do it for the response because it won't be anywhere near (for now). I think one has to write these things for oneself in the first place. And it's worth it, it makes you think and question harder and your perception of the stock won't be the same. Anyway, great stuff... makes me want to take a closer look myself (e.g. I wouldn't be surprised if in this industry investing results have historically subsidized underwriting for a number of players. Also your mention that the admitted market may try to win back business really got my interest).
Oh yeah, a crazy amount of work goes into these things and you are right... it's for my benefit overall. It's a nice way to organize my thoughts and research process. I have to understand all these materials for myself anyways.... might as well document it for others in a fun way!
As for Kinsale, great company that's been stealing market share while being more profitable than its competitors. As many disruptors to mature industries have before, Kinsale simply designed a more efficient distribution system that allows them to be more profitable. Good thing for us... any industry player looking to replicate it would need to rebuild their entire company from scratch, which isn't possible.
Definitely worth the closer look! I would also reread my original "moat" article, that is linked at the top of this post. These two articles are meant to work with each other (1) why the business is defensible and update on its strategy to grow (2) what the IRR opportunity is (this article).
One thing I don't understand is why it should be so difficult for other players to replicate Kinsale's distribution system. Is it really no easier than building the entire company from scratch again?
I hate to put it this simplistically but yes, you'd have to build a company from the ground up to compete with Kinsale effectively. The question is... why?
Kinsale founders left James River (CEO for a number of years) and built Kinsale from the ground up to be the most efficient possible:
- One headquarters, no branches, cutting OpEx costs -> structurally lower Expense ratio
- Built custom Cloud-application for Wholesale brokers to limit the number of partners to get the widest distribution for E&S policies
- The custom application plugs straight into Kinsale's datalake, which I guarantee makes the financial operations much easier having all your data, policy underwriting data, risk analysis, etc. all in one place. It's an Operator's dream to run this "simple" architecture of a nearly $10B business.
- This simple design with few moving parts allows Kinsale to get quotes back to brokers in 24 hours, compared to competitors in a week.
Basically, with competitors having (1) multiple subsidiaries all on different tech stacks, processes for underwriting, Kinsale essentially 100% organic (2) Kinsale designing from scratch the most efficient distribution system has allowed their success.
A company looking to "simplify" their structure to resemble Kinsale's would need to literally destroy the entire company and rebuild it, which no Executive will agree to or even has the skill to do effectively.
Does that answer your question?
It's certainly clearer to me now. Thanks.
By the way, you wrote above that you put a lot of work into your articles. And I have to say that it shows - they are great...
Great analysis on Kinsale as usual.
Seeing one of your info-graphs on the industry's combined ratio, I got the urge to analyse Arch Capital Group: a competitor in the insurance industry that seems to me to be growing well, is very solid and above all has a very good valuation (compared to Kinsale, which is facing a major growth in P/E and has a higher risk of shrinking multiples). What do you think of this alternative?
Best regards.
Appreciate you reaching out!
I looked up Arch Capital Group's financials and the metrics look really good with very profitable underwriting. However, the premium growth does look highly cyclical compared to Kinsale's, which explains the valuation disparity. I don't see any reason why Arch Capital can't do well from here though.
Awesome report, thank you very much for contribute your knowledge
im investor of kinsale and in spite of the small growth slowdown in the sector, one of the key in the competitive advantage is the increasing of market share a accompanied with better ROIC AND ROE.
I 100% agree with that. Kinsale is getting to be a better and more efficient business over time, which will increase owners earnings. I think the growth left to be played out will surprise investors and I'm looking forward to some continued excellence!
Well written analysis. I recently did a DCF. I'm usually rather pessimistic and the fair value came out to be around $350 for me.
Glad that we're close to your fair value then assuming a 12% discount rate. Seems like we have relatively close assumptions then! Glad you enjoyed the analysis :)