Friday File: Insurance and Tech Earnings

Do you mean today??

Kinsale is the most richly valued insurance company out there, pretty much, so I think we're just in a situation where everyone knows that they can't keep growing 40% per year forever... and investors are hedging their bets on whether that means growth slows down gradually, or just disappears suddenly.The two numbers that came out of the call were that the CEO repeated what he has said in the past, that you don't get 40% growth in mature industries like P&C insurance, and they expect their growth to settle down someday in the 10-20% range; and that they posted their slowest growth in gross premiums written in a few quarters, which created two "slowdown" data points for investors to worry about, and they worried.I'm not worried. My thinking on Kinsale hasn't changed, it's just a reminder that the growth WILL slowdown eventually. If the top line slows down to 15% next year, we're overpaying right now. If it slows down to 20-30% and gradually slows down to 15-20%, then things can continue to be fantastic on the bottom line. Every insurer faces the risk that they might be under-reserving, or might have a bad model or bad luck that leads to massive losses, but Kinsale has been over-reserving in recent years and has spread the risk out pretty well, from what I can tell, so that's not my major concern -- my major concern is that growth will slow down and underwriting profits will shrink when they eventually get more meaningful competition in writing non-standard policies, but so far that's not happening, and more insurers are leaving markets, and opening up Kinsale's business prospects as more risks get shunned by the mainstream admitted markets and are only written by excess & surplus companies like Kinsale.My judgement is still that their growth, and increasingly their compounding as the float becomes a larger contributor for them (it's still trivial compared to larger players like Markel), will probably be enough to make the "normalization" of the business fairly gradual. That's not the only possible outcome, of course, they could have 40% revenue growth and insane earnings growth for several more years and continue to shoot higher, or they could hit a patch of bad underwriting or bad luck and lose money next year, which would cause the multiple to deflate dramatically and the share price to crash. Not for the faint of heart, but I think there's a good likelihood of a gradual slowdown and normalization of this market that works out very well for investors.They are still doing much better than everyone else that I've ever looked at in their little part of the insurance world, and it does not look to me like they're doing better by taking unreasonable risks... and they still have a tiny share of the specialty E&S market, and that market is still getting bigger and more profitable. This quarter creates some reason to sell, for folks who wanted to sell, because of those two mild "slowdown" indicators (CEO repeats comment about growth slowing someday, and premiums written slows for one quarter) -- but I see no reason to panic.