Editor’s note: The Porter & Co. editorial and Customer Care offices will be closed on Monday, February 16, because of the Presidents Day holiday. Customer Care will reopen Tuesday at 9 AM ET and the Daily Journal will next publish on Wednesday, February 18.

Inside today’s Daily Journal…

Here we go again.

Yesterday afternoon, leading property and casualty (P&C) insurer Kinsale Capital (KNSL) once again posted outstanding quarterly results. And once again, the day after posting outstanding results, the stock is getting hammered. As I’m writing this, Kinsale shares are down about 10%.

We have documented this repeatedly over the last two years. It’s an anomaly that scares some investors. But it shouldn’t.

Let me explain why.

Let’s start with what matters: Kinsale’s an incredible business.

Kinsale has two advantages over all P&C insurance companies. It has both the lowest operating costs (in insurance measured by the expense ratio) and, in most years, the best underwriting (measured by the loss ratio).

When you combine these metrics, you get the combined ratio, the key metric investors use to judge the quality of an insurance company.

Here’s how the leading companies in the sector stack up:

Kinsale was built, from the ground up, to use technology to streamline the underwriting process, allowing it to process policies 2.6x faster than its peers. And that’s why, year after year, Kinsale trounces every other P&C business.

This fundamental advantage translates into stunning financial results, as Kinsale confirmed yesterday.

In Q4, the company produced earnings per share (“EPS”) of $5.81 versus the consensus estimate of $5.30, a 9.6% beat. Revenue in Q4 was up 17.3% year-over-year to $483.3 million, topping estimates by 2.5%. For the full year, net written premiums were $1.6 billion, up 9.4% from 2024. EPS for the full year were up 21.7% ($21.65 versus $17.78).

By minimizing its expenses and maximizing the profitability of its underwriting, Kinsale is able to convert more of its insurance premium into income to invest. That translates into an investment portfolio that’s growing far faster than that of its peers. In 2025, Kinsale’s investment income was $192.2 million, compared to $150.3 million in 2024, up 27.9%.

It’s important to understand that this growth isn’t coming from risky investments. Kinsale primarily owns AA rated fixed-income securities with a four-year duration. It isn’t taking credit risk and it isn’t taking duration risk. That’s why the yield on the portfolio is only 4.4%. The growth is coming from huge gains to the size of its portfolio. Kinsale’s cash and invested asset base grew by more than $1 billion this year, to $5.2 billion.

And these gains are compounded by the company’s continued share buybacks (119,000 shares in the quarter at $417.52 each). And the board has authorized another $250 million buyback this year. That means fewer shares own a larger and larger portfolio of an ultra-safe investment that’s growing 25%+ a year.

Over time, that is a hard combination to beat. And you see the tangible results of that in Kinsale’s cash dividend payments. The board recently announced a quarterly cash dividend of $0.25 per share, up 47.1%.

So… why is the stock down so much?

As we’ve documented, nearly every time Kinsale reports earnings, no matter how stellar the numbers, the stock sells off. During 2021-2025, in 12 out of 16 quarters, the stock fell strongly following earnings, despite EPS beats of 10%+. The average post-earnings share-price move? Down 7% to 10% in the first one to two days

Last year (Q4 2024 earnings in February 2025) saw a similar post-beat sell-off of about 8%, despite a 26% EPS jump. Then, in Q1 2025, Kinsale beat consensus by a whopping 17.8%. The stock plummeted 13% in after-hours trading, then another 16% decline the next day, cratering from $501 to $419 per share. And the same kind of thing happened to a lesser extent in Q2 2025 (stock fell 4%) and in Q3 2025 (stock fell 7%).

So, this isn’t unusual. It’s just what happens with Kinsale’s stock. The company has been trading at a high earnings multiple because of its excellent results. So when expectations for high premium growth disappoint, in any way, the stock sells off.

This time, despite excellent overall results, the company reported a large decline in its largest division, commercial property, where gross premiums fell 28% in Q4. But the other parts of the company are doing well. Excluding commercial property, gross written premiums increased 10.2% for the quarter and 13.3% for the full year compared to the prior-year periods, driven by continued strong submission flow across most divisions. And, overall, including the weak results in commercial property, Kinsale saw written premiums grow 9.4% for the year.

In most businesses a decline in the core business of almost 30% would be an enormous red flag. But not in insurance!

There aren’t many ways to make a great profit in the insurance business because, more or less, these are commodity products.

As Warren Buffett explained in his 2004 shareholder letter:

Thus, to succeed in insurance you need two things: low costs (as with any commodity business) and iron-clad discipline in the underwriting. You cannot afford to sell to a bad risk. Buffett explained why in an earlier 1977 shareholder letter, in reference to declining premiums at National Indemnity, Berkshire Hathaway’s leading P&C subsidiary:

During the late 1980s and 1990s “soft” insurance market, National Indemnity’s written premiums fell from $366.2 million in 1986 all the way down to $54.5 million (!) in 1999. But you’ll also notice that Berkshire’s share price did just fine in the period. Berkshire ended 1986 just below $3,000 per share. By 1999, it was trading at $65,000.

Last year, commercial lines overall rose less than 2% on average and property policies actually declined 0.2% – the first drop since 2017. Many insurers have noted this “soft” market on their earnings calls. Aon (AON) called it a “pricing correction.” Swiss Re (SSREY) said its U.S. commercial prices dipped for the first time since 2018. Amwins reported flat-to-15% rate decreases on single-carrier property placements.

This happens in the insurance business when too much new capital (aka, dumb capital) chases premiums. It also happens when, like today, there haven’t been any major hurricanes or other huge loss events requiring major claims payments. The industry has a lot of capital and, as a result, many companies are accepting lower premiums to gain market share. Again, this is normal. During a similar cycle in 2013-2017, property rates fell 5% to 10% annually.

While that’s not great news for the industry as a whole, it is actually during these tough periods that Kinsale will shine the most because it has the lowest costs.

It also has the best full-cycle proven underwriting. Unlike all of the other carriers, Kinsale does 100% of its underwriting in house. There’s no delegation to brokers, who after all, are only paid on premiums generated, not the resulting underwriting profits or losses.

Kinsale’s top-line premiums may decline in its commercial lines again next year, but EPS won’t, because it will not insure bad risks. It’s only the most elite insurance companies that can maintain this kind underwriting discipline.

I learned all of this from Buffett, whose annual letters offer a master class in insurance investing:

On Kinsale’s earnings call today, CEO Michael Kehoe addressed the risks of a “soft” market in insurance by saying, more or less, “so what.”

Obviously, investors are ignoring the CEO’s comments and the company’s outstanding results.

Falling interest rates mean insurance companies’ portfolios might produce lower profits. That risk has seen the entire sector selling off for about a year. This poor sentiment combined with the soft market in commercial lines has hit Kinsale’s share price hard.

But none of these risks have even slowed Kinsale’s incredible execution. In the last two years the company’s investment portfolio (cash and invested assets) has grown 69%. Gross written premiums have grown 24%. Net investment income is up 88%. Total outstanding shares have decreased, and the dividend has grown 79%.

Since trading over $500 in early 2024, the stock is now down 35%.

Fortunately for us, it’s hard for most investors to deal with a share price that doesn’t immediately reflect a company’s accomplishments or its intrinsic value. Like Buffett says, “investors pay a high price for a sunny outlook.” But, sooner or later, the market price will track the growing book value, the growing earnings, the growing portfolio income, and the growing dividends at Kinsale.

Will that benefit you? Only if you let it.

Tell me what you think of today’s Journal: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

1. Consumer distress is moving up the economy. 12.7% of credit-card balances and 5.2% of auto loans are 90+ days delinquent (15-year highs), and similar distress is spreading up the income ladder – credit counselors report the average client now earns $70,000 yet carries $35,000 in unsecured debt, roughly double the pre-pandemic burden. Higher earners are relying on revolving credit to cover essentials and maintain their lifestyle.

2. Commercial real estate (“CRE”) is the latest casualty of AI fears. Shares of CRE services firm CBRE (CBRE) cratered 20% over two days this week – its worst stretch since the 2020 COVID crash – while Cushman & Wakefield (CWK) dropped 26%, Jones Lang LaSalle (JLL) fell nearly 20%, and Newmark (NMRK) slid 8%. Over the past two weeks, the same fear trade has swept through software stocks, wealth managers, insurance brokers, and trucking and logistics firms. The irony is that the sell-off hit just as CBRE reported a strong Q4: 12% revenue growth and 18% core EPS growth. CEO Bob Sulentic pushed back directly, saying the company has built AI tools to aid its brokers, not replace them. But that didn’t matter… The market is currently taking a “sell first, ask questions later” approach to any company whose business model could potentially be disrupted by AI.

3. A record year of employment data revisions. The latest U.S. government payroll report showed a better-than-expected 130,000 new hires in January. However, the revisions for past months painted a weaker picture, with 17,000 jobs cut from November and December reports. This wrapped up a record year of 403,000 downward revisions from the initially reported jobs data – from 584,000 to just 181,000 new jobs added. The largest source of U.S. jobs growth is now coming from government statisticians.

Since we recommended Mitsui & Co. in October 2025 and added it to our Best Buys later that month, shares have risen 54% to an all-time high – well above the “buy up to” price.

We release our latest three Best Buys later in February – to get access to the names of the companies we think are at extremely attractive buy prices, click here.

In Wednesday’s Daily Journal, we reported on contradictory numbers emerging on the latest U.S. jobs data – with one source being the U.S. Labor Department and another being “private-sector data.” We then asked readers: “Do you believe the U.S. Labor Departments jobs data?” An overwhelming 97% of survey takers selected “no.”

Paid-up subscriber Jay R. writes:

Porter Comment: Jay —

You’re missing a major component of my critique of Berkshire Hathaway.

There’s nothing wrong per se with capital-intensive businesses. See Philip Morris International (PM) – the greatest business of all time.

The trouble is when you try to fund things like railroads and power plants – which are enormously capital-intensive – with equity funding.

Insurance companies require equity funding. Power plants don’t. By putting both on the same balance sheet, Berkshire is very structurally inefficient.

Hope this helps –

Porter

John C. writes:

Porter Comment: No offense, but that’s not the question you should be asking.

The question you should be asking is:

How will Congress, that’s proven utterly incapable of balancing its budget even in peacetime with a booming economy, possibly make good on any its promises when it is (by the end of this year) $40 trillion in debt and facing interest service costs that will soon exceed all income taxes… with a Social Security “trust fund” that’s made up solely of its own debt?

The answer is: the benefits you’re being paid right now are being printed. They will not be worth anything for long.

I am only the messenger.

Porter

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