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Kinsale Capital Group delivered strong Q1 2026 results, highlighted by a 37.7% increase in operating EPS and a 24% annualized ROE. Despite a slight 0.5% dip in gross written premiums, net written premiums grew by 5.6%, reflecting a strategic focus on lines with higher retentions. The company's combined ratio stood at 77.4%, bolstered by underwriting discipline and favorable reserve development. The main challenge remains the large commercial property sector, where aggressive competition and falling rates prompted Kinsale to pull back. Conversely, small-to-medium risk segments showed resilience, with average policy premiums decreasing to $12,200 as the company pivots toward smaller, higher-margin accounts. Management emphasized their technological moat, including new AI integrations, which keeps their operational expense ratio at a market-leading 10.3%. While competition is rising in long-tail casualty lines like construction, Kinsale's management remains bullish on their ability to maintain best-in-class returns through a low-cost model and decentralized underwriting. New granular disclosures provided during the call revealed that excluding property headwinds, the business grew submissions by 9%, signaling healthy underlying demand and continued broker engagement.

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Kinsale Capital Group, INC.: Aggressive Reserve Releases and Legal Tail-Risks Masked by Capital Returns

Full Earnings Call Transcript — Q1 • 2026-04-24

Operator: Before we get started, let me remind everyone that through the course of the teleconference, Kinsale's management may make comments that reflect their intentions, beliefs and expectations for the future. As always, these forward-looking statements are subject to certain risk factors, which could cause actual results to differ materially. These risk factors are listed in the company's various SEC filings, including the 2025 annual report on Form 10-K, which should be reviewed carefully. The company has furnished a Form 8-K with the Securities and Exchange Commission that contains the press release announcing its first quarter results. Kinsale's management may also reference certain non-GAAP financial measures in the call today. A reconciliation of GAAP to these measures can be found in the press release, which is available at the company's website at www.kinsalecapitalgroup.com. I will now turn the conference over to Kinsale's Chairman, President and CEO, Mr. Michael Kehoe. Please go ahead, sir.
Michael Kehoe: Thank you, operator, and good morning, everyone. Today, I'm joined by Bryan Petrucelli, our Chief Financial Officer; Stuart Winston, our Chief Underwriting Officer; and Salmaan Allibhai, our Chief Actuary and Head of our Data and Analytics team. In the first quarter 2026, Kinsale's diluted operating earnings per share increased by 37.7% over the first quarter of 2025, generating an annualized operating return on equity of 24%. Gross written premium was down 0.5%, but net written premium grew by 5.6% for the quarter as our business lines with the least reinsurance participation continued to show positive top line growth. Kinsale's combined ratio was 77.4%. E&S market conditions in the first quarter continued to be competitive with the level of competition and our growth rate varying from one market segment to another. We added additional disclosure to our 10-Q this quarter with gross written premium detailed by underwriting division, first quarter of 2026 and 2025. This quarterly disclosure complements the annual disclosure of premium by underwriting division in our 10-K and provides some insight into market conditions and growth prospects at a more granular level. And continuing the trend from the last few quarters, much of the headwind to our growth emanates from our large commercial property division, where we write larger layered property accounts and where there is an abundance of competition and falling rates. Excluding the Commercial Property division, Kinsale's growth in gross written premium was 6% for the first quarter. The investment thesis in Kinsale has always started with our disciplined underwriting and low-cost business model. By maintaining control over our underwriting operation and never outsourcing it to third parties, we drive a more accurate and more profitable underwriting process while offering our brokers the best customer service and the broadest risk appetite in the E&S market. Likewise, our 17-year commitment to making technology and analytics a core competency, allows us to operate a smarter business with a tremendous cost advantage over every competitor in the market, no exceptions. And in this competitive period of the insurance cycle, the Kinsale model continues to succeed. In the first quarter, new business submissions were up 6%. New business quotes were up 8% and new business bind orders were up 9%. We are seeing the largest headwind to growth among larger accounts, particularly within our Commercial Property division. It's on the larger premium accounts where the competition is most intense. Hence, our continued focus on smaller transactions where margins continue to be robust. You can see this smaller account trend in our average policy premium for the quarter. It was $12,200 per policy, down from $14,200 and in the first quarter of 2025. Finally, we continue to work on technology innovation, including extensive use of AI models to drive automation in our business process, especially underwriting and claim handling and throughout our software development and analytics teams. This innovation is improving efficiency, customer service, accuracy and data collection across our business, and we have begun incorporating various AI agents into our enterprise system. With the talent of our technology professionals in our bespoke enterprise system and the lack of any legacy software, we are well positioned to expand our tech lead to the benefit of both profitability and growth. And with that, I'll turn the call over to Bryan Petrucelli.
Bryan Petrucelli: Thanks, Mike. As Mike just noted, the profitability of the business continues to be strong, with net income and net operating earnings increasing by 26.1% and 36.3%, respectively, quarter-over-quarter. The 77.4% combined ratio for the quarter included 4.5 points from net favorable prior year loss reserve development compared to 3.9 points last year, with less than 1 point in cat losses this year compared to 6 points in Q1 last year. Gross written premium decreased by 0.5 point for the quarter, while net written premium grew by 5.6% and as Mike mentioned, the growth in net written premium was higher than gross as the lesser reinsured lines continue to grow at a nice clip. We produced a 21.1% expense ratio for the quarter compared to 20% last year. The other underwriting expense portion of the ratio, which is the best measure of the operational efficiency of the business, was 10.3% for the quarter compared to 10.5% in Q1 2025. The overall expense ratio increase is attributable to a higher net commission ratio resulting from higher reinsurance retentions. The larger retention provides a positive economic trade for the company with a higher net commission ratio being more than offset by greater underwriting and investment income. On the investment side, net investment income increased by 26.5% for the first quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows. Kinsale's float, mostly unpaid losses and unearned premium grew to $3.3 billion at March 31 from $3.1 billion at the end of 2025. Annual gross return was 4.5% for the quarter compared to 4.3% last year. New money yields are averaging around 5%, with an average duration slightly above 4 years on the company's fixed maturity investment portfolio. And lastly, diluted earnings per share continues to improve and was $5.11 per share for the quarter compared to $3.71 per share for the first quarter of 2025. And with that, I'll pass it over to Stuart.
Stuart Winston: Thanks, Bryan. There's plenty of competition in the E&S market. There's also opportunity and it's also a market in constant transition. Areas like large shared and layered placements in commercial property, certain professional lines, management liability and public entity all continue to experience strong competition and headwinds to growth. Recently, we have noticed more aggressive competition in some long tail lines like construction over the last quarter as well. There are also strong areas of opportunity with favorable growth prospects within the E&S market. Within the overall property market, our small business property and Inland Marine, Agribusiness property and Personal Insurance divisions all experienced favorable underwriting conditions and strong growth in the quarter. Within Casualty, our Agribusiness Casualty, Allied Health, General Casualty, Healthcare, Entertainment and Product Liability division saw favorable markets and growth in the quarter as well. We also continue to drive growth through new product offerings and product expansions, robust marketing efforts, new broker appointments and continually improving service standards combined with the broadest risk appetite in the business. As Mike mentioned, overall new business submission growth increased 6% in the first quarter, a similar rate to the fourth quarter of 2025. We continue to see a decline in new business submissions in the Commercial Property division that handles large shared and layered deals and excluding the Commercial Property division, new business submissions were up 9% for the quarter. While our lines of business are experiencing varying levels of competition and pricing pressure, the combined pricing trend for Kinsale is in line with the Amwins Pricing Index, which showed a rate decrease of 3 1/3% compared to a 2.7% decrease in the fourth quarter of 2025. Although large commercial property placements continue to experience strong rate pressure, other property lines like small business property and Inland Marine and casualty lines like commercial auto, excess casualty and general casualty, present opportunities for meaningful rate increases. We continue to have a high level of confidence in our model and its ability to perform throughout all parts of the market cycle. The foundation of that confidence is our underwriting discipline, our market responsiveness, our low cost and maintaining the flexibility to adapt to changing conditions. What is especially encouraging is that the business continues to show very good momentum. For small- to medium-sized risks, submissions are up, quotes are up and binders are up. That tells us the market is responding well to what we offer and that our value proposition continues to resonate with brokers and insurers. In a hard market, our model allows us to lean into opportunity. In a soft market, it gives us the discipline to stay selective and focus on business that meets our return thresholds and to exploit our low-cost advantage over our competition. We do not need a specific market environment to perform well. The model is designed to adapt, and we believe that adaptability is a real competitive advantage. So when we look ahead, we feel good about where we are, we feel good about the opportunities for profit and growth and we remain very confident in the long-term strength and durability of the platform. And with that, I'll hand it back over to Mike.
Michael Kehoe: Thanks, Stuart. Operator, we're now ready for any questions in the queue.
Operator: [Operator Instructions] Your first question comes from Dan Cohen with BMO Capital Markets.
Daniel Cohen: Just first on the new disclosure of the new business quotes and the new bind orders. Can you just maybe expand on how that's trended year-over-year and quarter-over-quarter. I understand, Stuart, you said this was up. Just wondering if you could quantify that? And how should we be thinking about this KPI relative to submission growth?
Michael Kehoe: Dan, this is Mike. I would say we've had requests from people over the years for a little bit more granular disclosure. So we're providing it. The more granular, the more volatile those numbers are. So I wouldn't overthink how important it is that in a 90-day period, some things up or down. But across the 25 divisions, I think you can see what we're talking about, which is overall, we're in a competitive market, but there's plenty of opportunities in some places. In other places, there's a lot more competition, and we're going to grow a little bit more slowly.
Daniel Cohen: Okay. And then maybe just given the material expense ratio and the best-in-class returns today, just wondering, is Kinsale willing to deteriorate some of its accident year loss ratio for higher growth in the near term? Is that a part of the equation at this point?
Michael Kehoe: Listen, we always manage all of our product lines to a low 20s return on equity or greater. And we're constantly adjusting pricing in both directions based on our understanding of the relative profitability of a given line. So that's just a normal part of managing an insurance company. But our ROE for the quarter was 24%. So I wouldn't expect a meaningful deterioration from that, no.
Operator: Your next question is from Hristian Getsov with Wells Fargo.
Hristian Getsov: My first question is on the accident year loss ratio. So I think it was much better than people expected, up 40 bps year-over-year. But is there anything one-off you'd like to highlight maybe in favorable non-cat weather? Or how should we think about the accident year loss ratio moving from here just given more mix shift towards casualty and just loss trend versus rate in lines away from property?
Salmaan Allibhai: This is Salmaan. There's nothing out of the ordinary, no one-time adjustments to the accident year loss ratio. I'll just remind you that throughout the course of the year, there is a little bit of seasonality when it comes to that current accident year loss ratio. And so typically, the first quarter is a little bit higher than the other quarters, but nothing out of the ordinary to report.
Hristian Getsov: Got it. And then just given the new disclosure, I was surprised to see E&S homeowners declined 22% in the quarter. Was that driven by increased competition? Or was it something more timing-related.
Stuart Winston: Yes. It's the high value -- this is Stuart. The high-value market is experiencing some increased competition, and we're -- the limits that we're offering are tend to be lower. So it's -- the average premium is dropping a little bit.
Michael Kehoe: We're still showing, I think, good growth in our Personal Insurance division, which is obviously also a homeowner split.
Hristian Getsov: Got you. And then if I could just sneak 1 more. I know your reinsurance renewal is coming up and you guys increased retentions last year. But how are you guys thinking about it for this year given the below-average forecasted hurricane season. But also counterbalancing that, which is the lower cost of reinsurance?
Michael Kehoe: Yes. This is Mike. We look at reinsurance retentions, limits, et cetera, every year. We've obviously increased our retention many times over the 17 years in business. And so obviously, we'll look at it again this year, but I can't really commit at this moment to how the treaties will be placed. I'll just note, it's a 6/1 renewal date.
Operator: Our next question is from Andrew Andersen with Jefferies.
Andrew Andersen: On the casualty side, Mike, maybe you could just talk a bit about how competitive behavior has been changing over the past 6 months, whether that's from MGAs or admitted carriers and on the flip side, maybe where it's been more stable than we would expect.
Michael Kehoe: Andrew, I would just say, in general, we're looking at a competitive market. I think Stuart highlighted at the underwriting division level, where we're seeing -- I would look at the growth rate as a proxy for how competitive things are, right? The faster we're growing, the more opportunities we're finding. Stuart, I think you commented about the increase in competition on the long-tail lines.
Stuart Winston: Yes, we're starting to see a lot of competition from fronts and MGAs and new companies on long-tail lines, specifically in construction over the last 4 to 5 months. So that's -- it's ramping up pretty aggressively there, but there's still premises liabilities is strong for us. Anything related to auto, we're seeing meaningful opportunities there.
Michael Kehoe: And maybe one other thing, just to reiterate is that there's -- it's a different market when you're looking at larger transactions than when you're looking at smaller. And hence, we've always focused predominantly on small- to medium-sized accounts. And in a more competitive market, we always feel like that's a great safe harbor for Kinsale.
Andrew Andersen: Got it. And that kind of ties into this question, but the submission growth seems pretty similar quarter-over-quarter, but down from where it was maybe a year or so ago. How much of the slowdown of the submissions would you kind of characterize as demand-driven versus some pullback on just irrational pricing? And perhaps you could also update us on some initiatives to expand broker relationships or the penetration with the existing brokers and how that could help top line as we go through the year?
Michael Kehoe: In terms of the submission growth, again, we've always looked at that as a little bit of a leading indicator, maybe not a perfect one. But the ex commercial property, the fact that our submissions were up, I think, 9% for the quarter. We look at that as an attractive growth rate. If you had to characterize it, it's a competitive market, but reasonably steady, and we're excited about the growth prospects. There is a little bit of the shift from where larger accounts are under more competitive stress. So that has the near-term impact of, if you will, it has a depressing effect on the growth rate, but only until some of those accounts transition off the books, and then we see more of a normalization. But in terms of new broker appointments, we're always looking for top quality brokers to trade with. And that's a dynamic market. We're principally a wholesale distribution model. If there are changes in the marketplace and an experienced team of brokers who want to start a new shop, we're typically quite supportive of that.
Operator: Our next question is from Pablo Singzon with JPMorgan.
Pablo Singzon: Mike, thanks for the disclosure and submission growth. Are you noticing any change in retention? Or is the delta between gross premium and submission mostly pricing exposure as well as the mix impact from large commercial property?
Stuart Winston: Yes. Pablo, this is Stuart. New business hit ratios and renewal hit ratios have been consistent quarter-to-quarter for a long time. So no big change there.
Pablo Singzon: Okay. And then maybe a broader question. So small business E&S and even on the admitted side, has historic have been challenging to break into and some of your larger competitors have said that technology might enable them to be more competitive with smaller customers. Are you seeing any evidence of that emerging in the market today? .
Michael Kehoe: No. Obviously, technology has always been an enormous priority for Kinsale. We talk about it in terms of making technology a core competency of our business 17 years ago when we started the company alongside of underwriting and claim handling. And I think that's providing some pretty powerful benefits. I think you can use our expense ratio in part as a proxy for the lead we have over competitors in terms of technology. We like to think we're going to be able to adapt new technologies that are coming out, whether it's software and hardware or whether it's AI models. We think we can adapt that and incorporate those innovations into our business more quickly because of the skill of our tech professionals because of the fact that we don't have legacy software going back 20, 30, 40 years. We don't have thousands of legacy applications to maintain. I think our competitors would have to speak to their own positions on that issue, but we feel like we're in a good spot.
Operator: Your next question is from Mark Hughes with Truist.
Mark Hughes: Yes. On the property front, where do we stand in terms of the sequential change in competition or pricing. The question is, is it reset at the lower level and now you're just kind of running through that and eventually, you'll hit the easier comp or is it continuing to drift to the downside?
Michael Kehoe: Yes. We don't really have any good news to report there. I would say the easier comps, just like last year will be in the second half of the year, because we've always had a little bit of a disproportionate percentage of that commercial property volume in the first 6 months of the calendar year.
Mark Hughes: And then the -- yes, the expense advantage, I think you had kind of touched on this earlier that your focus is going to be on keeping -- managing the low 20s ROE but you talked about using the expense advantage. Would you say that essentially, you're in the -- you're using that to the degree that's appropriate at this point that you're not going to be pushing more or using the expense advantage to grow the top line. Is that -- that's something you've already deployed, so to speak, to the extent that you choose to?
Michael Kehoe: Mark, I think the way I'd characterize it is we're always estimating our loss cost, some lines of business we write are short tail, like the property cat exposed business. It's heavily dependent near term on the weather. The fire peril on a property book is a little bit more statistically predictable. We write short, medium and long tail casualty those things are impacted by different things like changes in tort law and inflation and -- so yes, we're always thinking about our expense advantage. We also think about our underwriting advantage, controlling our own underwriting, having a more accurate process. We think about the tremendous amount of work we've done in terms of analytics, constantly figuring out smarter ways to segment and price risk. I think that's an advantage. But then on top of that, we've got a tort system that's not 100% predictable, right? There's the law of large numbers. We've got accurate ways to reserve for future claims, but there's -- you never know definitively the cost of goods sold. And so hence, the conservative reserving, we've got a 17-year track record of those reserves developing favorably on a GAAP basis. But yes, all those things go into the mix, and we think it puts us in a great position to not only generate best-in-class returns but to continue to grow the business. We are ambitious. We do want to grow. But we subordinate the growth if we have to, to profitability. But I think the message on this call is that even in a highly competitive market, we're finding lots of ways to grow. Admittedly, the gross written premium number being down 0.5% for the quarter might seem to contradict that. But when you consider all the commentary we're making around large accounts being under more stress, in a lot of ways, the book is just shifting or transitioning to a little bit more of a smaller average premium, and we're fine with that. The profitability in that business is top-notch. So long term, we're confident we're going to continue to grow and take market share, but certainly never at the expense of an attractive level of profitability.
Mark Hughes: And then just out of curiosity, how is the equity portfolio performing?
Michael Kehoe: It's performing well. I think if you look back over -- so keep in mind, we're about 2/3 actively managed equities and 1/3 passive, principally the S&P 500. I think since late 2022, we've lagged the S&P, but we've more or less matched our benchmark, which is the Vanguard VYM, the high dividend ETF. And lagging the S&P is mostly related to the fact that we've got a little bit less of a weighting toward tech. It's not that we're not big believers in technology. It's just that we're a little bit more of a value orientation.
Operator: [Operator Instructions] Your next question comes from Rowland Mayor with RBC Capital Markets.
Rowland Mayor: I appreciate the new disclosures on the growth rates by unit. I was just wondering on the commercial property. It looks like it was $65 million of premium in the first quarter and $375 million last year. What portion of that is actually in the large property category you're talking about the competition?
Michael Kehoe: We don't have a specific breakout, but the average premium in that division, I think, is somewhere between $30,000 and $40,000 per policy.
Stuart Winston: That commercial -- that commercial property division, that is the large shared and layered division. So everything else has handled small properties broken out separately. So Commercial Properties is a stand-alone division for the large shared and layered deals.
Michael Kehoe: Yes. And if you look at that division, Rowland, if you looked at that, like, say, a year or 2 ago, I think the average premium might have been north of $50,000. So you can see where we're either losing some of those larger accounts or maybe we're participating higher in the schedule where there's less risk, so hence, less premium. It's a variety of factors. But definitely, a trend towards smaller accounts where, again, we're very confident around the margin in that business.
Rowland Mayor: Okay. Perfect. And then I wanted to ask, you had mentioned the low 20s target for ROEs. And I guess with the amount of capital coming into the space and seemingly going after lower return targets, do you think it will normalize back to your market? Or do you think you might long-term need to come down into the high teens at some point?
Michael Kehoe: I think with a better underwriting model and a cost advantage that's so significant, it's -- it's hard to believe that it exists. No, we're confident in a low 20s return on equity. We kind of look at it, if you will, it's like a spread over the risk-free rate, which is admittedly slightly -- if you use the 10-year treasury, that's a little bit below 5%. But just generally speaking, we're about 15 percentage points above the risk-free rate.
Operator: Your next question is from Pablo Singzon with JPMorgan.
Pablo Singzon: Mike, the submission growth rate you provided, do you have a sense of how that compares to the overall market or maybe the subsegment of E&S where you compete in, right? I just want to get a sense of, first, like sort of where the macro is trending? And I guess, more importantly, how you are running against it?
Michael Kehoe: Yes. Pablo, we don't have any specific information for the overall market. But I would say, in general, brokers do a great job working hard for their clients. Their clients want low-cost, broad coverage. So they typically canvass the market to make sure they're getting the best terms and conditions for their customer. So I assume there's some commonality to the stats we have versus what our competitors have. But we don't really know that.
Operator: Your next question is from Mark Hughes with Truist.
Mark Hughes: You talked about more competition in construction. How are you seeing the volume of opportunities? Have you seen any kind of slowdown or delay in construction activity?
Stuart Winston: Mark, this is Stuart. We haven't seen any delays, but we don't also focus on large project-specific policies for those parts. I think you will see that in certain areas, outlets in the Northeast for wraps that projects are being delayed a little bit, but that's not really where we focus on in the construction book.
Mark Hughes: And then in the general casualty, the growth was still pretty strong double digits, at what, 11% or 12%? How did that compare to the fourth quarter? I think for all of last year, you were up in the low 20s. I'm just sort of curious sequentially what you've seen on the general casualty book?
Michael Kehoe: Mark, we don't have the stats to provide today, but we do have in the K, you've got the by underwriting division, gross written premium for the year, and it's a 3-year look back.
Mark Hughes: Yes. Yes. Exactly. Okay. And then Bryan, on the cash flow, the cash from operations up 8%. Should we think -- is that going to track along with net written perhaps? Or how would you think about the cash flow dynamic playing out this year? What are the guideposts we should keep an eye on in terms of the free cash. Obviously, it's helping to drive investment income. So I'm just sort of curious, any thoughts there.
Bryan Petrucelli: I think that's a good way to look at it, Mark, trending it with net written premiums.
Operator: There are no further questions at this time. I'll now turn the call back over to Mr. Kehoe for closing remarks.
Michael Kehoe: All right. Well, I just want to thank everybody for participating. And hopefully, you get a sense of our optimism and hope everybody has a great day. Goodbye.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.