Q1 2024 Earnings Summary
- Strong Operating Performance with High Growth and Profitability: In the first quarter of 2024, Kinsale's net income and net operating earnings increased by 77.3% and 43.8%, respectively. The company achieved a combined ratio of 79.5%, reflecting its strong underwriting profitability and efficient operations.
- Leveraging Competitive Advantages as a Low-Cost Producer: Kinsale's management emphasized their position as the industry's low-cost producer, allowing them to sustain growth even in more competitive markets. They are willing to accept slightly lower ROEs in exchange for incremental growth, highlighting their flexibility in pricing and ability to capture market share.
- Attractive Opportunities in Property and Casualty Markets: The company noted that property pricing is at a 20-year high, presenting attractive growth opportunities. Additionally, Kinsale is optimistic about growth in casualty lines, as industry-wide reserving issues may create further pricing opportunities. Their conservative reserving practices position them well to capitalize on these market dynamics. ,
- Growth deceleration: Kinsale's growth rate has slowed compared to previous periods, and management acknowledges the challenge of tough comparisons ahead. As Michael Kehoe noted, "Our overall growth slowed slightly compared to where it's been" and they recognize that "it's an interesting observation, Mark. Tough comp." ,
- Potential pressure on underwriting margins due to rate cuts: To sustain growth, Kinsale may consider cutting rates in certain areas, which could pressure underwriting margins. Brian Haney stated, "So in certain areas, we are looking at cutting rates to grow faster."
- Higher underlying loss ratios expected: Management anticipates that the full-year 2024 underlying loss ratio could be approximately 1 point higher compared to 2023's 57.4%, due to inflation and loss cost trends. Michael Kehoe agreed that "the 1 point observation that you had is a good one."
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Loss Reserves and Inflation
Q: Is Kinsale adding conservatism to loss reserves due to inflation?
A: Michael Kehoe stated that they are setting slightly higher loss picks and releasing reserves at a slightly slower pace as an additional measure of conservatism against the backdrop of inflation in the economy. -
Property Pricing and Growth
Q: Will Kinsale continue property growth if pricing decelerates?
A: Michael Kehoe noted that property pricing is at a 20-year high and they see it as a very attractive opportunity for growth. They will always prioritize profitability over growth, and depending on market trends, this will impact growth in that line of business. They are optimistic and not seeing any inroads from standard companies at the moment. -
Leveraging Low-Cost Advantage
Q: Is Kinsale leveraging its low-cost advantage for growth?
A: Brian Haney explained that they aim to maximize value for investors by balancing ROE and growth. Being a low-cost operator provides leeway competitors don't have, allowing them to cut rates in certain areas to grow faster. They don't need to maintain a 30% ROE to maximize book value. -
Entry into Admitted Market
Q: Will Kinsale enter the specialty admitted market?
A: Michael Kehoe mentioned that over the next couple of years, they will focus on building their position in the E&S market. Looking several years ahead, it's highly likely they will enter the specialty admitted space, but not in the next couple of years. -
Competition from Admitted Carriers
Q: Are admitted carriers trying to win back E&S business?
A: Brian Haney stated they are not seeing business flow out of E&S into admitted markets. Increased competition is generally from MGAs, not from admitted carriers. -
Growth Expectations and Tough Comparisons
Q: Should we expect slower growth in Q2 due to tough comps?
A: Michael Kehoe acknowledged that their overall growth slowed slightly compared to previous periods, but they are still growing at a rapid rate and remain optimistic about growth prospects. They do not forecast growth or offer growth guidance but noted the tough comparison for Q2. -
Opportunities in Casualty Lines
Q: Do reserving issues create more opportunities in casualty?
A: Brian Haney confirmed they are seeing increased opportunities in casualty lines right now. Michael Kehoe added that the expansion of delegated underwriting authorities, some of which are aggressive in underwriting and pricing, is likely to contract in the future, which is bullish for the market and for Kinsale. -
Tax Rate Guidance
Q: What is a good full-year tax rate estimate?
A: Bryan Petrucelli suggested looking at their tax rates over a 12-month period for a better guide. A significant number of stock options were exercised in the first quarter, which drove the rate down.