Kinsale Capital Group - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered strong profitability despite wildfire losses: combined ratio at 82.1% with 3.9 points of favorable prior-year development and 6.0 points of catastrophe losses; diluted operating EPS rose 6% year over year to $3.71 even as GAAP EPS fell to $3.83 on higher cat losses.
• Against S&P Global consensus, operating EPS materially beat (+13.6%) while total revenue was a modest miss (-0.4%); estimates coverage was broad (10 EPS, 6 revenue) [Values retrieved from S&P Global]*.
• Gross written premiums grew 7.9% to $484.3M; Commercial Property division declined 18.4% YoY on intensified competition and ~20% price declines, while excluding Commercial Property, premiums grew 16.7% YoY.
• Investment income surged 33.1% YoY to $43.8M on portfolio growth and low-5% new money yields; book value per share increased to $67.92; cash and invested assets reached $4.3B.
• Management flagged a near-term growth headwind in Q2 from Commercial Property seasonality (first-half weighted) but reiterated confidence in sustained best-in-class underwriting returns and low-cost advantage; shares were down >10% premarket on top-line deceleration concerns, making margin resilience a key stock reaction catalyst.

What Went Well and What Went Wrong

What Went Well

• Operating EPS increased 6% YoY to $3.71; combined ratio of 82.1% with 3.9 points favorable prior-year development supports underwriting discipline: “strong profitability…even with the significant catastrophe event”.
• Investment income rose 33.1% YoY to $43.8M; annualized gross return 4.3% with new money yields in low-5% and book yields ~4.5%, signaling continued tailwind from rates.
• Technology-enabled low-cost model remains a durable moat: “We are the low-cost leader…profit comes first, growth second…best-in-class returns”.

What Went Wrong

• GAAP diluted EPS fell 9.7% YoY to $3.83 due to higher catastrophe losses (6.0 points in the loss ratio; Palisades wildfire ~$41M gross, ~$22M net pretax).
• Commercial Property division contracted 18.4% YoY with ~20% rate declines and increased competition from standard carriers and MGAs; overall rates down ~1%.
• Expense ratio stable at 20.0% but combined ratio worsened vs Q4 2024 (73.4% → 82.1%) as cat losses rose (2.2 points → 6.0 points) and mix effects impacted the loss ratio.

Transcript

Operator (participant)

Thank you for standing by, and welcome to the Kinsale Capital Group First Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. 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 2024 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 and CEO, Mr. Michael Kehoe. Please go ahead, sir.

Michael Kehoe (Chairman and CEO)

Thank you, Operator, and good morning, everyone. Bryan Petrucelli, our CFO, and Brian Haney, our President and COO, are both joining me this morning for the call. We will each make a few comments and then take any questions you may have. In the first quarter of 2025, Kinsale's operating earnings per share increased by 6%, and gross written premium grew by 8% over the first quarter of 2024. For the quarter, the company posted a combined ratio of 82% and an annualized operating return on equity of 22.5%. These results reflect strong profitability in our business generated from our disciplined underwriting and low-cost model, even with a significant catastrophe event occurring in the quarter. The Palisades wildfire loss that we estimated in February at $45 million is now estimated to be about $41 million gross and $22 million net of reinsurance. All these numbers are pre-tax.

As a reminder, Kinsale has a considerable presence in the natural catastrophe market, but we operate with a conservative risk management approach to balance the margin in the business with its inherent volatility. We use a disciplined underwriting model, a robust reinsurance program, regular CAT modeling, and strict limits on concentration of business to limit the volatility of our financial results. We view the outcome of the Palisades wildfire as consistent with this strategy. Growth in premium in the quarter was 8%, slightly below our expectations of 10%-20% across the cycle. This growth rate was mostly driven by the 18% decrease in our commercial property division, which was our largest underwriting unit last year.

Note this underwriting division grew 20-fold over the prior five years and has produced compelling profits, but now we are seeing more intense competition, including from some standard companies, and rate declines from the peak of about 20%. The margins in this business are still strong, but we do expect to write less premium compared to the prior year for the near term. If you exclude the commercial property division from the calculation, Kinsale's direct written premium for the quarter grew by 16.7%. Also, since the commercial property division premium in 2024 is disproportionately concentrated in the first half of the calendar year, we expect this to be a headwind to overall growth in the second quarter as well, but less so in the second half of 2025. It's also worth mentioning that our personal lines and small commercial property teams continue to grow at double-digit rates.

Overall, the E&S market in the first quarter remained steady, with a continued increase in competition. With that, I'm going to turn the call over to Bryan Petrucelli.

Bryan Petrucelli (CFO)

Thanks, Mike. Another nice quarter with net operating earnings increasing by 6%, even with the impact of the California wildfires. The 82.1% combined ratio for the quarter included 3.9 points from net favorable prior-year loss reserve development compared to 2.7 points last year, with 6 points in CAT losses this year, primarily again from the California wildfires compared to less than a half point in the first quarter last year. We produced a 20% expense ratio in the first quarter and comparable to the 20.7% last year. As we've noted in previous quarters, the expense ratio will fluctuate from quarter to quarter, and we'll just continue to point you to the full-year expense ratio as a good measure. On the investment side, net investment income increased by 33.1% this quarter over last year as a result of continued growth in the investment portfolio generated from strong operating cash flows.

The annualized gross return was 4.3% and consistent with last year. New money yields continue to average in the low 5% range, with book yields around 4.5%. We should see some continued investment income benefit from these higher rates as we move forward. Diluted operating earnings per share continues to improve and was $3.71 per share for the quarter compared to $3.50 per share for the first quarter of 2024. As respects to capital management, we repurchased $10 million in shares during the first quarter. I would expect similar modest levels of repurchases each quarter on a routine basis, with larger purchases made opportunistically from time to time. With that, I'll pass it over to Brian Haney.

Brian Haney (President and COO)

Thanks, Brian. First quarter saw growth in our gross written premium of 8%. Our property-related divisions as a whole shrank by 8% while the rest of the company grew 15%. The decrease in the property premiums was driven entirely by our commercial property division. All the other property divisions were up for the quarter, as Mike mentioned. The rates in commercial property in this space had reached all-time highs, and the margins have become very significant, which is bringing in competition, including from MGAs and admitted companies. That market is now normalizing after a period of crisis pricing conditions in past years. Casualty is still seeing growth overall, particularly commercial auto and general casualty.

Professional lines remain competitive with management liability and are non-medical professional under pressure, but our professional lines group as a whole still grew for the quarter, and we are seeing positive signs in the allied health and excess professional areas. We are also seeing growth opportunities in our personal line space, whether it be through our high-value homeowners division or in manufactured homes or in traditional site-built homes, which are all products we are looking to expand and should provide a nice growth opportunity going forward. New business submission growth was 11% for the quarter, down from 17% in the fourth quarter. This number is subject to some variability, but in general, we view submissions as a leading indicator of growth, and so we see the submission growth rate as a positive signal. Overall, rates for the quarter were down 1%.

As mentioned earlier, our commercial property division is seeing rates down about 20%, but our other property lines are still seeing modest rate increases. Casualty rates overall were up modestly, driven by construction and general casualty, and there were modest rate declines in professional and some specialty casualty lines where profitability has been exceptional. We are believers in the model of disciplined underwriting and technology-driven low cost, and over the long term, our business model has and will continue to drive business. Our advantages, particularly in lower cost and greater efficiency, are tough to replicate, and we feel these give us a durable moat. Beyond that, though, there are some recent data points that give us additional cause for optimism. A lot of the more aggressive competition we are facing, and that is producing some headwinds at the moment, comes from fronting companies.

If you look at the gross incurred loss ratios for some of these fronting companies, you see a lot of older accident years where the loss ratios are 90% or 100% or higher and continuing to develop adversely. No risk bearer is making money at a 100% loss ratio, period. While the fronting companies themselves do not bear those loss ratios because they are ceding away the premium, someone is bearing those loss ratios, and that someone cannot keep doing that for long. Kinsale could not make money at a 100% loss ratio, even with our expense ratio advantage, so you know a risk bearer that has an expense ratio of 35% or 40% or higher cannot. It is just not sustainable. Beyond that, some of the same fronting companies show current accident year gross loss ratios in the low 60%. That is a remarkable, you might say, incredible improvement.

It seems difficult to believe that business that was producing 90% or 100% loss ratios with persistent and significant adverse development as recently as 2022 could be in the low 60s in 2024. All this data is public, by the way, so I invite the listeners to look it up for themselves. It is eye-opening. For all these reasons, we are rate optimistic. Our results are good. Our growth prospects are good. As the low-cost provider in our space, we have a durable competitive advantage that should allow us to continually gradually take market share from our higher expense competitors while delivering strong results and build wealth for our investors. With that, I will hand it back over to Mike.

Michael Kehoe (Chairman and CEO)

Thanks, Brian. Operator, we are ready for any questions in the queue.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of Michael Zaremski from BMO Capital Markets. Your line is open.

Hey, good morning. It's Dan Ong for Mike. First, I can just start with the 11% submission rate that you gave us. Could you maybe parse out how that's trending between property and casualty lines for us?

Brian Haney (President and COO)

The commercial property is experiencing the biggest decline in growth rate. I would say the rest of property's submission growth continues to be strong.

Michael Kehoe (Chairman and CEO)

Consistent with casualty.

Brian Haney (President and COO)

Yeah.

Okay. Thanks. Small property is in line with casualty, and then the large account is materially declining, correct?

Yep.

Okay. Thanks. More back to the property slowdown this quarter, you're mentioning the increasingly competitive environment. Does that comment mean E&S business is falling back to the standard market, or are those standard line carriers writing more business on an E&S basis?

Michael Kehoe (Chairman and CEO)

I think it's, in general, a lot more competition in the large property account space, including standard companies, MGAs, E&S companies, etc. The returns there have been dramatically good, and it makes sense, right? It's attracting a lot more capital, and as a consequence, the opportunity is slightly more limited.

Thank you.

Operator (participant)

Your next question comes from Bill Carcache from Wolfe Research. Your line is open.

Bill Carcache (Senior Equity Analyst)

Thank you. Good morning. Your stock is down over 10% pre-market. It seems largely on a continuation of the decelerating top-line growth theme, which feels like it's been under scrutiny for a long time. It looks like the top-line growth comparisons are going to get easier as we progress through the year, as you pointed out, and that should help mitigate the growth headwinds. What I think is notable that many investors have called attention to is your ability to more than offset top-line weakness with a lower combined ratio. Can you give a little bit more color on your confidence level in being able to sustain that kind of underwriting performance? There has been some concern that potential degradation in underwriting quality would exacerbate the sort of top-line deceleration concerns, and it would be just helpful to get your thoughts.

Michael Kehoe (Chairman and CEO)

Yeah, Bill, this is Mike. We're very confident in our business model, as Brian was just commenting on in his prepared remarks. Kinsale focuses on a high-margin segment, small E&S accounts. We control our own underwriting. We don't outsource that to other parties. We think that drives meaningfully better accuracy. We are the low-cost leader in our space. Insurance is a good or a service where our customers care intensely about the price. I think we have built a very conservative balance sheet. I think our reserves, we are very confident, are conservatively stated, so they're much more likely to develop favorably than unfavorably. We're bullish on the future. I think we've got advantages that are compelling and dramatic. That being said, we always prioritize profitability over growth.

When you have a period of time where there's intense price competition, Brian just detailed where there's a number of companies writing business below the burn cost. Okay, we're not going to do that. The market ebbs and flows, and I think we're very confident we're going to continue to grow, take market share, and deliver best-in-class returns.

Bill Carcache (Senior Equity Analyst)

Thanks, Mike. That's helpful. Separately, Kinsale has established a strong track record since the time of your founding, but you haven't faced a severe macro downturn outside of COVID. Could you speak to what Kinsale's playbook is if, say, tariff policy were to push the U.S. economy into recession? Any color on maybe where you'd expect to adjust, what you'd expect to stay the same, where you'd expect to see the greatest opportunities?

Michael Kehoe (Chairman and CEO)

Insurance is a compulsory product in a modern economy. If the economy were to contract, the P&C industry might contract along with it. That tends to be a couple percentage points. I think we would continue to grow right through that. We're operating with a 20% expense ratio. Most of our competitors that, like us, focus on the small account space tend to be well into the 30s or even above 40. I think we're well positioned to continue to grow and take market share in all markets. I just think in a competitive market, hey, it's going to be a little bit more slowly than in a less competitive market.

Bill Carcache (Senior Equity Analyst)

Thanks, Mike. If I may squeeze in one last one, sort of against the backdrop that you've laid out where you expect to write less premium, it seems like, and to the extent that we do see volatility in your stock under pressure, maybe if you could just speak to what it takes for you to consider more aggressively increasing repurchases and perhaps even above that modest amount that you've mentioned, particularly if the growth environment remained weak and volatility intensified. Thanks.

Michael Kehoe (Chairman and CEO)

Yeah. We expect to have incremental purchases. We always leave the door open to do things opportunistically. In general, we kind of view the incremental repurchase as the best strategy for us. It is consistent, if you will, in the fact that we pay a small dividend as well. We have incrementally increased that a little bit each year. That is the way we kind of view it, at least at this time.

Bill Carcache (Senior Equity Analyst)

Thanks, Mike. I appreciate it. Appreciate your taking my questions.

Michael Kehoe (Chairman and CEO)

Thanks, Bill.

Operator (participant)

Your next question comes from a line of Andrew Andersen from Jefferies. Your line is open.

Andrew Andersen (Equity Research VP)

Hey, good morning. The 60.0% underlying loss ratio is pretty strong in the quarter. I think you called out some better results on property, but was there any change in loss trend on either the property or the casualty lines?

Michael Kehoe (Chairman and CEO)

Andrew, I think it was basically a decrease in reported losses, and then a little bit of it is driven by the mix of business. The property, obviously, is short-tail business. So those losses are resolved much more quickly than our long-tail casualty book. It is basically those two things.

Andrew Andersen (Equity Research VP)

Okay. And then maybe just kind of back on macro, I guess I typically think of Kinsale as writing a lot in the small commercial end of the market. If we are to get into a tougher macro backdrop, is there an intention to move more into middle market, or do you still find the small commercial runway pretty plentiful?

Michael Kehoe (Chairman and CEO)

We like the small space. Our average premium, since we launched the company back in 2010, has been in that mid-teen space. We're always willing to consider larger deals. There's nothing inherently wrong with them. It's just that they tend to be priced much more aggressively from the perspective of the risk bearer. I think the margins are not quite as good. No, I think we're very comfortable with where we have been, and that's where we expect to be. In fact, as Brian Haney mentioned, we're expanding our personal lines book, in effect, going lower, not higher.

Andrew Andersen (Equity Research VP)

Thank you.

Operator (participant)

Your next question comes from a line of Michael Phillips from Oppenheimer. Your line is open.

Michael Phillips (Managing Director and Senior Analyst)

Thank you. Good morning. I wanted to touch on your comments on the more conservative actuarial assumptions for construction liability. The question is, what are you seeing for severity there? Has that changed from, say, the last quarter? Maybe, was that what you did there, was that a result of what you are actually seeing in the data, or is that more of a proactive stance given the impact tariffs may have on construction defect claims? Thanks.

Michael Kehoe (Chairman and CEO)

Yeah, this is Mike again. We have seen a development on the long-tail casualty business, in particular the construction, in certain acts in the years where it's developed a little bit higher and a little bit later than we originally anticipated. We have pushed the book loss ratios for construction specifically, but it probably picks up some other long-tail lines as well, up over the last several years. We have done a lot of things to drive better margins going forward, higher prices. We have adjusted the mix of coverage that we offer, etc. We have also, just as a precaution, booked the 2020, 2021, 2022, 2023, 2024 construction lines in the mid-80s as well.

We are very conservatively positioned there, but it has nothing to do with tariffs. It really just has to do with the fact that that's long-tail business, and it can be a very litigious line. I think there was a significant impact from the spike in inflation a few years ago, but it really has nothing to do with tariffs.

Michael Phillips (Managing Director and Senior Analyst)

Okay. Yeah, thanks. It is more of what you are seeing than proactive on tariffs. Okay. Thank you. I guess the second question on your casualty treaties I think comes up in June. I think it is a big piece of your ceded premium. Anything that you can share that we would expect on changes in retention levels or anything else that might affect the net growth that maybe also help top line?

Michael Kehoe (Chairman and CEO)

Look, we've adjusted the retentions many, many times over the years, so that would not be unprecedented that we would take a little bit more net. You're always balancing profitability with the business with volatility. As we've gotten larger, we've continued to take a larger net. That might be a safe assumption.

Michael Phillips (Managing Director and Senior Analyst)

Okay. Okay. If I could speak in, any chance you'd share the commercial property combined ratio this quarter versus last quarter?

Michael Kehoe (Chairman and CEO)

No, but I mean, no, we're probably not going to get into that. It gets very complex when you start to disaggregate losses between reported case reserves paid and then by accident year. I'm not sure that would be productive. I would just tell you that, as you can tell from the 82% combined, the business is very profitable. That profitability is even in the face of a very conservative approach to reserving for future claims. It is one of the benefits, I think, of our underwriting model, driving a very positive result and combining that with a low-cost approach to the business. Again, we think it gives us a very interesting advantage long-term.

Michael Phillips (Managing Director and Senior Analyst)

Okay. Thank you, Mike. Appreciate it.

Operator (participant)

Your next question comes from a line of Pablo Singzon from JPMorgan. Your line is open.

Pablo Singzon (Executive Director and Equity Research Analyst)

Hi, good morning. First question is about the large commercial property. I'm curious to find out if the price declines there have reached a point where your appetite is reduced or are the lower premiums you referenced purely a function of lower prices, right? It sounds like you're getting less submissions, but I was curious if for those submissions that do come in, if you're still actively engaging in writing those cases.

Brian Haney (President and COO)

Yeah, I think part of it, we are. We haven't changed our appetite. Our idea is that there's a price for everything, and it's our job to know the right price and terms that are going to give us our best chance at making money. It is mostly a function of, hey, rates are down and submissions are down.

Pablo Singzon (Executive Director and Equity Research Analyst)

Okay. You provided qualitative commentary about competition in large commercial. I was wondering, I suppose the context is that price declines there are not, you're right, they did not happen just this quarter. Therefore, I was curious if the price declines there are stable, continue to accelerate, slowing from sort of peak pricing. I just want to get a sense of the shape of pricing and how that's developing.

Michael Kehoe (Chairman and CEO)

We said they're down 20% on average, right? We're looking at thousands of transactions, so there's a range of what's going on with those individual transactions. For the three-month period, that's what we saw. The results have been very positive. We saw property cat pricing in particular go up year-after-year-after-year. I think we're kind of at about a 20-year high. That kind of high pricing combined with positive results has attracted a lot more capital. I think the business is still very high margin. It's just incrementally lower than it was this time a year ago.

Pablo Singzon (Executive Director and Equity Research Analyst)

Yep. Yep. Understood. Last one, just shifting to the casualty side. Curious if you're seeing, I guess, more positive signals there, right? If you go by what other companies are saying, especially in excess. I know you had called out a decline in the nominal rate, but I suspect a lot of that has to do with large property commercial. If you could provide more context of what's happening on the casualty side, that'd be helpful. Thank you.

Brian Haney (President and COO)

I think casualty is still favorable for us. I think excess casualty looks good. I think the MGAs we were talking about earlier seem to write a lot of that business. I do not expect that business to get like it would not shock me if and when there is a correction in the fronting world that you would see further positive movement in the casualty market.

Pablo Singzon (Executive Director and Equity Research Analyst)

Thank you.

Operator (participant)

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Bob Huang from Morgan Stanley. Your line is open.

Bob Huang (VP and Research Analyst)

Hi, good morning. Maybe just like a follow-up and some clarification side. In terms of competition, you've talked about several times on this call that there are fronting companies that have high loss ratios, and then what they're doing is unsustainable. If we can just think from their perspective, how long do you think they can sustain an elevated loss environment, kind of erode the competitive environment, so to speak? Do you think this is more of a next 12-month thing, or do you think they can last a lot longer than that? Just curious to your thought.

Brian Haney (President and COO)

Yeah, we don't know. I mean, it's tough. It would be tough for us to know. All we do know is that it will change.

Michael Kehoe (Chairman and CEO)

The math is brutal.

Brian Haney (President and COO)

Yeah, the math does not work out.

Bob Huang (VP and Research Analyst)

Got it. Okay. No, that is fair. The second question, if we think about your core loss ratio, which is incredibly strong, it actually improved year-on-year, right? If I remember correctly, in the past, you have mentioned that you are willing to sacrifice some of this margin for growth. Just given the strong core loss ratio today, how much and how willing are you to sacrifice that margin for additional growth, given that it sounds like the broader market is a lot riskier than the previous time that you mentioned this?

Michael Kehoe (Chairman and CEO)

Bob, maybe a better way to describe it is we're always managing profitability at a granular level. Kinsale collects a tremendous amount of statistical information at the transaction level. It's another consequence of having very modern, up-to-date systems. We pour through that data on a regular basis to analyze profitability, not just by product line, but by class of business within the product line, by state, by territory, by account size, all sorts of different ways. We're adjusting the pricing in order to make sure we're generating low 20s ROEs or better. Okay? That's just a normal part of managing an insurance company. I wouldn't really look into that as anything extraordinary. We're always managing profitability. Profit comes first, growth second.

Given our model, we think even in a competitive market, we can deliver the best-in-class returns, but at the same time, we can take share away from less efficient competitors.

Bob Huang (VP and Research Analyst)

Got it. No, that's incredibly helpful. Thank you very much for that.

Operator (participant)

Your next question comes from a line of Mark Hughes from Truist Securities. Your line is open.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

Yeah, thanks. Good morning.

Brian Haney (President and COO)

Good morning, Mark.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

How do we think about the competition in the commercial property? Kind of has it progressed through the quarter? You talked about 2Q, which has a lot seasonally strong in terms of property renewals. We ought to consider that in thinking about the growth rates. Is that property market more competitive now than it was at the start of the first quarter? Maybe you see a little bit of incremental pressure, or would you describe it as relatively steady compared to what you experienced throughout the first quarter?

Michael Kehoe (Chairman and CEO)

I think it's steady. It's hard to put too fine a point on it, Mark, right? I mean, again, we're looking at I think we wrote about $450 million of premium in that division last year. It's a big division. There are thousands and thousands of transactions. Some of it's fire-exposed business. Some of it's wind. We write a little bit of quake, out west. There's a lot going on there. In general, the results, certainly for Kinsale, have been incredible. I think they've been quite positive for the industry, and it's attracted a lot more capital, so.

Brian Haney (President and COO)

Yeah, I would agree with that. I think it's tough to, as Mike said, put too fine a point on it, but I would say it's pretty stable.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

When you think about hit rates, that sort of thing, that you're at some sort of equilibrium, is that fair?

Brian Haney (President and COO)

Yeah, actually, that's a good way of looking at it. The hit rates haven't changed much.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

Okay. When you look at your mix of property versus casualty, you're a lot heavier in property now than you were two years ago, four years ago. Is there some reason to think there's a normal equilibrium? If you think about the long-term E&S market, how much should be property? How much should be casualty? Are there any rules of thumb? Do you have any sense of, or is there any reason to think it normally would return to a certain mix between the two? That's a big question, but I wonder if you have any thoughts on it.

Michael Kehoe (Chairman and CEO)

I think the E&S market is one-third, two-thirds, Mark. That's probably a good benchmark. Brian indicated we're doing a lot of work to expand into the homeowners business. That's been a sore point for the industry with some of the volatility in that line over the last five years. We see an opportunity as an E&S company to build a more meaningfully sized homeowners book. Of course, that's predominantly a multi-peril line, but it's predominantly property. That could drive it up a little bit. In general, I think one-third, two-thirds. Yeah.

Mark Hughes (Managing Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Your next question comes from a line of Pablo Singzon from JPMorgan. Your line is open.

Pablo Singzon (Executive Director and Equity Research Analyst)

Hi. Thanks for the follow-up. Mike, you had mentioned that large commercial property tends to be concentrated in the first half. I was wondering if you could provide some sense of the split there, right, between the first half and second half? Is it like 60/40, 70/30?

Michael Kehoe (Chairman and CEO)

Yeah, I think it was 60/40. 60/40. I think it was 35% in the second quarter.

Pablo Singzon (Executive Director and Equity Research Analyst)

All right. Thank you. Thank you.

Michael Kehoe (Chairman and CEO)

All right, Pablo.

Operator (participant)

Your next question comes from a line of Casey Alexander from Compass Point. Your line is open.

Casey Alexander (Managing Director and Senior Equity Analyst)

Hi, good morning. Forgive me if these seem a little naive, but first of all, it seems like California, despite the fact that you had the loss in California this quarter, has started to exhibit a lot of the characteristics of what Florida had when you made a concerted move to grow in that market with a lack of capacity and carriers leaving the market. Is there a similar opportunity building in California? Is it too early to look at it, or how do you see that market as an opportunity to shift the property book and continue to grow it?

Brian Haney (President and COO)

I think you're absolutely right. I think the biggest opportunity there is going to be in personal, but probably some of the smaller commercial. We are taking advantage of that. I mean, the high-value homes division, we're growing nicely in that, and a lot of it is in California, and there is a huge opportunity.

Casey Alexander (Managing Director and Senior Equity Analyst)

Okay. Great. Thank you. Secondly, if the tariffs do create one of the areas that we kind of see vulnerability in the tariffs is that it could significantly increase the building materials cost. If that were to take place, would that have some impact on your ability to release reserves, particularly against construction, things like that?

Michael Kehoe (Chairman and CEO)

Casey, it's Mike. I would say this. I agree. Tariffs, I mean, look, that's a work in progress, right? Nobody really knows where that policy ends up. Assuming the worst, it could drive up the cost of building supplies. Certainly, that would flow through to an insurance company. What I would say is Kinsale's margins are really, really strong. We're in a great spot. Very conservative reserves, very low-cost operating model, very strict controls over our underwriting. I think we're very well positioned to absorb any kind of incremental movement in prices, whether it's building supplies or whether it's medical inflation or anything else. I think we're in a great spot to handle that. I wouldn't really see that as being a material exposure for us.

Casey Alexander (Managing Director and Senior Equity Analyst)

Okay. Great. Lastly, I was impressed by the fact that you were able to squeeze out a profit from the equity portfolio during a quarter where there was a pretty decent negative return for the overall market. Is there some unique characteristic to the equity portfolio that permitted it to outperform the general market by such an extent?

Michael Kehoe (Chairman and CEO)

Our equity portfolio is a third passively managed through indexes that are very close to the S&P and two-thirds active. The active portfolio is very much a value orientation, larger cap, dividend-paying, kind of buy and hold. I think that's essentially it. I mean, we're underweight tech.

Casey Alexander (Managing Director and Senior Equity Analyst)

Yeah. That's great. All right. Thank you for taking my questions. I appreciate it.

Michael Kehoe (Chairman and CEO)

Thanks, Casey.

Operator (participant)

We have reached the end of our question and answer session. I will now turn the call back over to Mike for closing remarks.

Michael Kehoe (Chairman and CEO)

Thank you, everybody, for joining us. We look forward to speaking with you again here in three short months. Have a great day.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.