TIP804: Kinsale Capital Stock Deep Dive w/ Clay Finck & Daniel Mahncke

**SPEAKER_1** (0:00)
You're listening to TIP.

**Clay Finck** (0:03)
On today's episode, I'm joined by my co-host Daniel Mahncke to discuss Kinsale Capital. Kinsale is a specialty insurer that has quietly become one of the most exceptional businesses in the financial sector by dominating the excess and surplus insurance market and ensuring risks that most insurers just won't touch. Since the IPO in 2016, Kinsale stock has compounded at well north of 30% per year. During this episode, Daniel and I break down the broader insurance industry and how Kinsale fits into the bigger picture, the durable competitive advantages that Kinsale has built, the advantages of keeping underwriting in-house in the excess and surplus market, what is driving Kinsale's incredibly low combined ratio, why its focus on the E&S market and smaller accounts is a moat in itself, Kinsale's valuation and primary risk for investors to monitor, and much more. As always, this was a fun company to cover on the show, and I hope you find the discussion useful.

**SPEAKER_1** (1:02)
Since 2014 and through more than 190 million downloads, we break down the principles of value investing and sit down with some of the world's best asset managers. We uncover potential opportunities in the market and explore the intersection between money, happiness, and the art of living a good life. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own, and they may have investments in the securities discussed. Now for your host, Clay Finck.

**Clay Finck** (1:44)
Hey, everybody, welcome back to The Investor's Podcast. I'm your host, Clay Finck, and today I'm joined by my new co-host, Daniel Mahncke, to discuss Kinsale Capital. I don't want to spoil some of the updates that are to come, but you'll be seeing more of Daniel here on the show. Daniel, it's hard to believe you joined TIP just a year ago. I feel like I've just learned so much from tuning into your episodes ever since.

**Daniel Mahncke** (2:08)
Well, I'm glad to be here again, Clay, and I can wholeheartedly say that I've learned just as much from you since I joined TIP. This past year has been outstanding. I looked at over 60 companies in-depth on my show with my co-host, Shawn, together, and we learned so much about all kinds of industries and companies. I've invested for many years before our show too, but I think the last year really felt like we were just speedrunning the investing game. At the same time, it was probably more thorough research than I've ever done before I actually started the show.
There are still some companies and some industries that we haven't looked at despite looking at all of these different business models. I think that the company we covered today is actually one of such companies that we haven't looked at yet.

**Clay Finck** (2:51)
That's one of the things about investing is that the more you learn, the more you discover how much there is out there yet to be found.
As I mentioned during today's episode, Daniel and I will be discussing Kinsale Capital. Kinsale, to put it simply, their best-in-class insurer that has just delivered exceptional returns to shareholders since their IPO in 2016 But the stock is actually down around 30% from its highs, making this the fourth drawdown of this magnitude in the last six years. And this is definitely also a business I've wanted to dive into for a long time. And I'm glad that I had the opportunity to finally do some digging on the company. And you know, it's just been one of those companies that's been on my list for a while to do some research on.

**Daniel Mahncke** (3:35)
Insurance is an industry that we haven't historically covered on the show outside of the more well-known companies like Berkshire Hathaway and Fairfax Financial. So to get us started, Clay, how about you give us an overview of maybe the insurance industry as a whole and then how Kinsale actually fits into that picture.

**Clay Finck** (3:53)
Yeah, so Kinsale Capital, this is a specialty insurer that focuses exclusively on the excess and surplus insurance market here in the United States. So they sell insurance in all 50 states primarily through a network of independent insurance brokers. If we zoom out and take a look at the broader market of insurance, there are two primary categories. We have the life and health and property casualty industries. Kinsale operates in the PNC industry and this is a massive, mature industry. It tends to grow at a rate similar to the broader economy. And in 2024, written premiums for the PNC industry totaled around $1 trillion, so clearly a very large industry. Within the PNC industry sits the excess and surplus market, which is much more dynamic and it's oftentimes referred to as the non-standard market or the specialty market. The excess and surplus market is unique in that it's a market that standard insurance companies won't insure. So it exists to provide coverage for these unusual new or high risk situations. So to help wrap your mind around what this might look like, a few examples can include insuring a construction company that's doing very dangerous work, ensuring a building in a wildfire prone area, a brand new business with no operating history, or maybe unusual liability exposure such as amusement parks, for example. So one of the examples I came across in my research was that a dentist wanted to get professional liability insurance, but the dentist had a past history of being accused of sexual misconduct from his patients. So this might be a unique situation where standard insurers decide that they just aren't going to offer any coverage to dentists with that sort of background. But Kinsale is able to step in, look at the situation and see if they can put together a policy that makes sense both for them and the insured. So in this case, Kinsale discovered that the dentist was good at what they did professionally. So they were willing to offer liability coverage for anything related to the professional services, but they would exclude covering personal issues such as sexual misconduct. So that sort of illustrates how Kinsale is able to serve these niche parts of the market that are underserved by standard insurers.