If you had invested $1,000 in Kinsale Capital Stock during its 2016 IPO, you would have that much today

When you think of growth stocks, insurance companies in general aren’t the first thing that springs to mind. Insurance is typically a stable industry with modest growth and good cash flows. However, Kinsale capital (KNSL 1.06%) has bucked the trend and achieved impressive growth since its initial public offering (IPO) in 2016.

The specialty insurance company has leveraged its expertise and technology to take advantage of favorable industry trends while delivering industry-leading profitability. Investors who got in on the ground floor have seen their shares explode in value. Read on to find out how much $1,000 invested in the specialty insurer is worth today.

Specialized in specialty insurance

Kinsale Capital writes insurance policies that cover things that traditional insurers don’t cover. It is known as a specialty insurer and operates in a segment of the insurance market called Excess & Surplus (E&S). E&S insurance is a niche market within the larger property and casualty insurance space. What makes this business attractive is that it’s not subject to the same strict regulations as traditional insurers.

Traditional policies such as car or homeowner policies are highly regulated as to what they can ask for and need to cover. Because traditional insurance products are very uniform, companies compete on the basis of price. Specialist insurers are not subject to the same restrictions.

Instead, companies like Kinsale can write unique policies for things they have expertise in, and they have more flexibility in the premiums they can charge. Because of the expertise and flexible pricing, specialty insurance companies can achieve very healthy profit margins.

If you had invested $1,000 in Kinsale in 2016, you would have that much

Kinsale has done an excellent job of underwriting highly profitable insurance, and the stock has delivered returns for investors who bought it on day one. If you had invested $1,000 in Kinsale during its IPO on July 28, 2016 and reinvested dividends, you would have over $17,720 today — a return of over 1,670%.

KNSL Total Return Level data from YCharts.

Here’s why it thrived

Kinsale has a few things that have worked in its favor since its IPO. For one thing, according to insurance broker Risk Strategies, the insurance market has been in a “hard market” since 2019.

The insurance industry is cyclical and goes through growth and contraction phases. When many insurers compete for pricing and coverage, this is known as a “soft” market. In times like these, insurers’ margins come under pressure due to increased competition.

However, when insurers face higher claims due to increased catastrophes or stricter regulations, it creates conditions for a tough market where insurers are more selective about what they cover. A tough insurance market benefits E&S insurers like Kinsale by allowing them to cover policies others don’t want to touch.

Kinsale has benefited from this tailwind, but has also used other factors to outperform its peers. The company sees its many years of experience with high-ranking executives as well as data and technology as decisive competitive advantages. It practices disciplined underwriting, strictly limits geographic concentration and uses reinsurance to protect against catastrophic losses.

It also uses its data and expertise to write policies quickly and accurately, making it a leader in the industry in terms of profitability. It has automated much of the process of responding to brokers and handling claims, allowing it to respond to clients quickly and efficiently and achieve impressive growth.

KNSL Sales Data (TTM) by YCharts.

Why it can keep winning

Kinsale Capital has done an excellent job taking advantage of favorable market conditions while using expertise and technology to deliver industry leading results. The company is valued more expensively than its peers at a price-to-earnings (P/E) ratio of 46, which is justified given its impressive growth since going public.

The management team sees favorable conditions for insurers going forward. In recent years, insurers have faced rising claims costs due in part to inflation due to the increasing frequency and severity of events. It continues to see strong inflows of new business and can raise rates and increase exposure across all types of cover.

Kinsale Capital has done an excellent job in the specialty insurance space and should be able to continue to do so going forward — making it a solid stock for investors to buy today.

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool owns positions in and recommends Kinsale Capital Group. The Motley Fool has a disclosure policy.