🏗️ Kinsale Capital (KNSL): The Optical Illusion Showing why the market is wrong

Wall Street has the attention span of a goldfish on espresso. 🐠☕️

Feb 06, 2026

∙ Paid

If a company reports +30% growth, the crowd goes wild. If the next quarter it “only” reports +10%, the crowd panics and dumps the stock. This is exactly what’s playing out with Kinsale Capital (KNSL) and for those of us willing to look past the optical illusion, it’s a generational buying opportunity.

Let me show you why the market is wrong.

A Tier-1 Compounder Trading at Tier-3 Prices

MetricValuePrice $389.74 (as of Jan 28, 2026)

P/E Ratio:19.0x

Historical Avg P/E : 32.2x (5Y), 37.8x (10Y)

Earnings Yield : 5.25% (vs. 4.5% risk-free rate)

ROIC: 24.1%

ROE~25% (down from 31.8% in 2023)

Combined Ratio: 74.9% (industry avg: ~98%)

Translation: You’re buying a 24% ROIC insurance machine at a 41% discount to its historical valuation. The market thinks the growth story is dead. The market is wrong.

The Machine (What You’re Actually Buying)

The Plumbing Analogy:

Kinsale is like the boutique insurance shop for businesses nobody else wants to touch. They play in the Excess & Surplus (E&S) market—the “non-admitted” insurance world. Standard insurers (State Farm, Allstate) have to file their rates with regulators. Kinsale doesn’t. They’re free to write weird, risky stuff: haunted house liability, cannabis growers, AI startup cyber insurance, axe-throwing bars.

Here’s the genius: They’re a tech company disguised as an insurer. Their proprietary underwriting platform processes policies in minutes (vs. weeks for legacy carriers) with an Expense Ratio of ~21% (vs. industry average of 30%+). They say “no” to most business, cherry-pick the best risks, and print money.

The Two Engines:

Engine #1: Underwriting (The Ferrari)

This is the day-to-day business: writing policies, collecting premiums, paying claims.
Operating Earnings are still growing at ~20% even in 2025.
Their Combined Ratio of 74.9% means they make 25 cents on every dollar of premiums before investment income. Industry average? 98%. Most insurers barely break even on underwriting.

Engine #2: The Float (The Money Printer)

Between collecting premiums and paying claims (often years later), Kinsale holds billions in cash. This is “Float.”
They invest this Float in safe bonds. When rates were 5%+, this was free money.
The Problem (and Opportunity): Their Equity base has ballooned to $1.6B+ because they’re so profitable. It’s mathematically harder to earn a 30% return on $1.6B than on $500M. This is creating a temporary optical illusion.

The Moat (Why It’s Hard to Kill):

✅ Regulatory Moat: E&S insurers don’t compete with standard carriers by law.
✅ Tech Edge: Proprietary policy admin system = speed + low costs.
✅ Underwriting Discipline: A decade of data + algorithms = they only write profitable business.
✅ Scale Without Bloat: 674 employees generating $1.7B+ in revenue. That’s $2.5M+ per employee.
✅ Growing Market: E&S market expanding 10% annually as standard carriers retreat.

Part 2: The Optical Illusion (Why Wall Street Is Panicking)

Here’s where it gets fascinating. The market sees earnings growth slowing from 30% to 8-10% and screams, “The growth story is broken!” But if you understand the math, you realize this is a one-time normalization, not a structural problem.

The Math Behind the Illusion:

Let’s simulate how ROE compression creates a temporary growth slowdown:

Year 1 (The Party - 2023):

You start with $100 Equity.
ROE is 30%.
You make $30 profit.
Result: Equity grows to $130.

Year 2 (The Reset - 2025):

You start with $130 Equity.
ROE normalizes to 25% (still world-class, but lower).
Profit = $130 × 25% = $32.50.
The Optical Illusion: Profit grew from $30 to $32.50. That’s only +8% growth. 🐢

The Market Reaction:
“OMG! Growth collapsed from 30% to 8%! The business is broken! Sell!”

The Reality:
The business isn’t broken. The rate of return is just finding a sustainable floor. The company still got roughly 25% larger in terms of book value.

Year 3 (The Comeback - What Happens Next):

You kept the $32.50 profit. Equity is now $162.50.
ROE stays stable at 25%.
Profit = $162.50 × 25% = $40.60.
Boom. 💥 Growth snaps back. Going from $32.50 to $40.60 is a +25% increase.

We went from 30% (Year 1) ➡️ 8% (Year 2) ➡️ 25% (Year 3).

Part 3: The Waver Napkin Math (What You’ll Actually Make)

Now that we understand why the market is freaking out, let’s run the numbers on what you actually earn as a shareholder.