Kinsale Capital (KNSL Quick QuoteKNSL - Free Report) is expected to register an improvement in its top and bottom lines when it reports fourth-quarter 2024 results on Feb. 13, after the closing bell.

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The Zacks Consensus Estimate for KNSL’s fourth-quarter revenues is pegged at $418.3 billion, indicating 19.1% growth from the year-ago reported figure.

The consensus estimate for earnings is pegged at $4.34 per share. The Zacks Consensus Estimate for KNSL’s fourth-quarter earnings has moved up 2.6% in the past 30 days. The estimate suggests year-over-year increase of 12.1%.

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Solid Earnings Surprise History

KNSL’s earnings beat the Zacks Consensus Estimates in each of the trailing four quarters, the average surprise being 9.41%. This is depicted in the following chart.

Image Source: Zacks Investment Research

What the Zacks Model Unveils for KNSL

Our proven model predicts an earnings beat for Kinsale this time around. This is because the stock has the right combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).  

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Earnings ESP: Kinsale has an Earnings ESP of +1.00%. This is because the Most Accurate Estimate of $4.38 is pegged higher than the Zacks Consensus Estimate of $4.34.

Zacks Rank: KNSL carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Shape Q4 Results

Kinsale’s fourth-quarter results are likely to benefit from the strong performing transportation divisions, especially the commercial auto division, growth in personal line space, particularly high-value homeowners division, strong growth in new business submission activity and positive overall rate changes across the book of business. The Zacks Consensus Estimate for net earned premium is pegged at $363 million, indicating a 22% increase from the year-ago reported quarter. Our estimate is $344.7 million.

Net investment income is likely to have benefited from growth in the investment portfolio generated from strong operating cash flows. The Zacks Consensus Estimate for net investment income is pegged at $42.8 million, implying an increase of 40.8% from the year-ago reported quarter. Our estimate is $41.5 million. 

A proprietary technology platform, cost-control initiatives to manage expenses and ceding commissions generated from the company's casualty and commercial property quota-sharing reinsurance agreements are likely to have aided margins. The Zacks Consensus Estimate for expense ratio is pegged at 20.4.

Underwriting income benefited from premium growth and lower relative net commissions. Our estimate is $77 million. The Zacks Consensus Estimate for combined ratio is pegged at 76.

Share buybacks are likely to have aided the bottom line.

KNSL’s Price Performance & Expensive Valuation

The stock outperformed the industry, sector and the Zacks S&P 500 composite index in 2024. 
 

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KNSL stock is not that cheap, as its Value Score of D suggests an unfavorable valuation at this moment.
 

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The stock is trading at a price-to-book value of 7.55X, higher than the industry’s 1.56X. It is expensive compared with other players like Globe Life (GL Quick QuoteGL - Free Report) and Everest Group (EG Quick QuoteEG - Free Report) but cheap compared with Ryan Specialty (RYAN Quick QuoteRYAN - Free Report) .

Investment Thesis

Kinsale is well poised to gain from its strong presence across the E&S market in the United States and high retention rates stemming from contract renewals.  Management noted that the E&S market has grown significantly and generated better underwriting results than the broader P&C industry. It remains well-poised to benefit from continued market dislocation, aiding improved submission flows and better pricing decisions.

KNSL has been successfully delivering improved margins and lower loss ratios. The insurer targets clients with small and medium-sized accounts, offering better pricing. Management estimates low double-digit rate increases across the book of business.

Kinsale enjoys the best combination of high growth and low combined ratio among its peers. It targets a combined ratio in the mid-80s range over the long term.

KNSL is well poised to generate an improved expense ratio given its proprietary technology platform, which is likely to provide it with a competitive edge over other industry players and scalability in business. The insurer drives profitability and operational efficiency using analytics. 

Amid a low interest rate environment, investment income should benefit from the investment of excess operating funds.

Notably, its free cash flow conversion has remained more than 85% over the last several quarters, reflecting its solid earnings.

Conclusion

Kinsale Capital is poised to gain from its focus on the excess and supply market, prudent underwriting, lower expense ratio, growth in the investment portfolio and effective capital deployment.

The insurer has an impressive dividend history. It has increased dividends since 2017 at a seven-year CAGR (2017-2024) of 12%, riding on the strength of operational excellence that supports its solid capital position. 

However, given its expensive valuation, it is better to wait for some more time before investing in the stock.