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

You're listening to TI-P. On today's episode, I'm joined by my co-host Daniel Mauchet to discuss Kinzail Capital. Kinzail 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, Kinzail Stock has compounded at well-north of 30% per year. During this episode, Daniel and I break down the broader insurance industry and how Kinzail fits into the bigger picture, the durable competitive advantages that Kinzail has built, the advantages of keeping underwriting in-house in the excess and surplus market, what is driving Kinzail's incredibly low combined ratio, while its focus on the E&S market and smaller accounts is a "moton itself", Kinzail's valuation in 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. 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 Fink. Hey everybody, welcome back to the Investor's Podcast. I'm your host, Clay Fink, and today I'm joined by my new co-host, Daniel Monca, to discuss Kinzail 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. Well, I'm glad to be here again Clay, and I can wholeheartedly say that I've not just as much from you since I joined TIP. I mean, this past year has been outstanding. I looked at over 60 companies in-depth on my show with my co-host, Sean Together, and we had 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. And you're at the same time, most probably more thorough research than I've ever done before. I actually started the show. So yeah, actually, there are still some companies and some industries that we haven't looked yet, 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. Yeah, I mean, 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. So as I mentioned during today's episode, Daniel and I will be discussing Kinzail Capital, Kinzail, but it's simply, they're a best in class, ensure that it's 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. The insurance is an industry that we haven't historically covered on the show outside of the, you know, 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 Kinzail actually fits into that picture? Yeah, so Kinzail Capital, this is a specialty ensure that focuses exclusively on the excess and surplus insurance market here in the United States. So, the sell insurance and all the state's 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. Kinzail operates in the PNC industry and this is a massive mature industry. It tends to grow to 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 ensure. 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 ensuring a construction company that's doing very dangerous work, ensuring a building and a wildfire prone area, a brand new business with no operating history or maybe unusual liability exposures 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 Kinzail 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, Kinzail 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 Kinzail is able to serve these niche parts of the market that are underserved by standard insurers. E&S companies like Kinzail, they tend to write most of their business in states that are more litigious, meaning that there are more lawsuits that tend to occur in these states. So, Kinzail, they do a lot of business in California, Florida, Texas, and New York. Additionally, Florida and California have naturally elevated levels of catastrophic risk, leading to more demand for E&S insurance exposure. Now, even though the risk that they are taking on are perceived to be higher risk, the important thing is that they're pricing that risk appropriately. And although these types of policies might seem like they're higher risk, they can also bring in higher margins because they tend to attract less competition. I'm not sure if listeners know that or are aware of that play. You're basically an insurance expert. I would say you've worked as an actuary in the field for some years. So, do you think that experience might have helped you digging into Kinzail in more detail? Yeah, well, I certainly wouldn't say I'm an expert, but I do have some professional experience in the industry as an actuary in it. It did make me a bit more curious to dig into Kinzail. So, for those who aren't aware, the actuaries are kind of the people in the background calculating the rates that insured pay, they're figuring out what sort of reserves should be held and how products should be structured. Perhaps they could be referred to as the engineers of insurance. It's not the most glamorous field. I'll tell you that much. But there are plenty of takeaways I could share from my time in the industry, but one of the most important principles I think that listeners should walk away from in understanding insures is that the way insurers are able to make money is largely due to the law of large numbers. So, if a life insurance company, for example, they insure millions of people, they can rely on a host of data and their sheer size to be able to accurately price each risk that they're underwriting. So, if one of their policies doesn't go exactly as they'd like, then they know that they'll still be just fine. The excess and surplus market is different in the sense that you don't have the law of large numbers playing as much to your favor, at least to the same extent in the case of Kinseyle. So, insurer may be able to underwrite certain types of risks based on a very limited data set. But if just a few things go wrong or if the data is bad, then insurers can end up writing some unprofitable business either because the data didn't represent the true risk at hand or the insurer isn't able to spread out that risk enough to ensure that they're profitable enough across the entire book of business. So, I think it would also be helpful to outline how the insurance industry works at a high level just a bit further. So, the insurance industry is notorious for being highly regulated to help protect consumers and insurers have the financial backing to take on the risks that they're taking on. So, there are two main insurance markets within P&C, at least. First is the admitted market or the standard market. The admitted market is where regular insurance companies operate and are pretty highly regulated by the state. And then you also have the non-admitted, which includes insurers that cover insurance that the standard market rejects, which I sort of touched on a bit already. Kinseyle Capital operates in the non-admitted market, which aren't as regulated as the admitted market. So, since Kinseyle is not as regulated as a traditional insurer, they have more flexibility in their business. So, their rates and policy forms don't require prior state approval. They can customize coverage for unique risks, and they can price policies more freely based on that risk. This gives Kinseyle more flexibility in their insurance coverage relative to your typical insurer. And this means that coverage can be more customized. They can tailor it to exclude parts of the risks that they're just not interested in ensuring. They can also demand higher deductibles or impose tighter limitations. So in my first job out of school, I worked at a small consulting firm over in Omaha, and I would frequently put together these insurance filings that would get sent to the states here in the US for approval. Then the state would write a letter back submitting the filings and asking questions. And I cannot count the number of times we would get asked, you know, why are you increasing your premiums by 6%, why not 2%, or why not 0%, or they would just flat out reject the increase and say that premiums need to stay where they're at. And then we go back and forth sort of arguing with the state on the client's behalf to try and make the premium adjustments that these insurance companies would want to try and hit their profitability levels. So the state to me sort of acts as this watchdog for the industry to ensure that consumers are being charged fair premiums. - Yeah, just told me for the call that there are some parts of the job that were more fun. And that's some parts that weren't that much fun. I guess this is one of the letter ones. And I actually did a bit of research on, you know, regulations going into this discussion since I knew we would be covering kids' sale. And, you know, regulators certainly play an important role in the insurance industry, obviously. And I mean, they keep insurers in check to make sure that, you know, they have adequate reserves to pay future claims. They oversee how prices are set. And of course, they, you know, protect consumers from unfair practices. And they also prevent access risk taking on side of the insurance. But regulation does have its drawbacks. And, you know, as they admit it or the standard market, as you said, is slow to adapt new risks. And it's kind of reluctant to take on, you know, complex or hard to model exposures. And this is exactly, you know, the non-admitted market or why it exists, basically. So now the insurance business isn't one that typically gets me too excited as an investor and to kind of help to illustrate what I mean. He is actually a quote from Warren Buffett from his 1987 shelter letter. And he said, "The insurance industry is cursed, the set of dismal economic characteristics that make for a poor longterm outlook. You have hundreds of competitors, ease of entry and a product that cannot be differentiated in any meaningful way." In such a commodity like business, only a very low cost operator or someone operating in a protected and unusually small niche can sustain high profitability level. So if anyone wondered why after looking at, you know, dozens of companies on our show, we didn't look at insurance companies before. There you have it from Buffett himself. And in most cases, the insurance market is just not kind to investors. - Yeah, I mean, I would certainly agree with that assessment from Buffett, but I would also argue that Kinzel Capital is unique for several reasons. So Kinzel has developed this deep, underwriting expertise to write coverage for these unusual or hard to place risks. And this has really allowed them to just be a spectacular investment since the IPO. So since the IPO in July of 2016, the stock is compounded at 37% per year. So this is just an unheard of level of compounding for an insurance company, especially considering the comments we just read from Buffett all the way back from 1987. The only calendar year in which Kinzel's stock had a decline since the IPO was just last year in 2025, this brought the valuation more back to reality or more back to a reasonable level, let's say. So the PE ratio now is at around 18. And this is a similar level to where it was at when the company IPO'd. And the price to book, which is a measure that insurers are often judged on, the price to book is roughly 4.5 times. And this is a level we haven't seen since January 2019. One thing that really stood out to me in studying Kinzel was the second paragraph in their 10K. They write, "Our goal is to deliver long-term value for our stockholders by growing our business and generating attractive returns." We seek to accomplish this by generating consistent and attractive underwriting profits while managing our capital, prudently. Now, this is just music to have value investors' ears to hear that one of management's top priorities is to generate value for shareholders. And it's sort of a bit ironic that Buffett would essentially say that insurance is a tough way to compound capital and yet Kinzel's founder and CEO has figured out a way to compound at just extraordinary rates since the company started back in 2009. And that's one of the great things about Kinzel is that it's still a founder-led company. The company was founded by Michael Keoh. He's still the CEO and he owns around 4% of the shares outstanding. That's valued at $350 million. And the company's headquartered out of Richmond, Virginia. From the beginning, Kinzel has had a clear focus on the underserved excess and surplus market, targeting these complex risks. And this focus on the ENS market is part of what gives them a moat. They don't have other divisions trying to consume capital and their systems are built for the ENS market specifically. And this focus is key to the advantage that they've built over time. So Keoh, he has decades of experience in this industry, having previously been the president and CEO of James River Insurance Company. And then alongside a team of veterans, Kinzel set out to target the small ENS risks with fast-quoting discipline to underwriting and broker-only distribution to capitalize on opportunities in the midst of the great financial crisis back in 2009. And the company's always put a really big emphasis on being technology-driven from the ground up. So this is to maximize efficiencies and ensure that underwriting discipline. Keoh, he operates the business in this very discipline manner similar to how Berkshire operates in the insurance space as well. So Kinzel is not a company that is going to pursue growth just for the sake of growth. They want to pursue opportunities that will increase shareholder value. So if that means turning down insurance because the competitor is offering a better rate, then they're absolutely fine with doing just that. What's also important to understand about Kinzel is that they are intentionally targeting the smaller ENS risks. So Kinzel's average premium rate is around $15,000. This premium level is pretty much just not interesting to most ENS insurers because there's just not a lot of money to be made for them. But Kinzel built the systems and these processes to be able to process thousands of these smaller policies. And since the company has run so efficiently, this has allowed them to generate return on equity of around 30%. So from the beginning, Keoh has been very intentional in these markets that he wants to serve. He knows that the ENS market offers better margins and growth prospects and targeting the smaller accounts makes the business prospects even better. He knows that as the account size grows, the competition for that account grows exponentially. Pursuiting smaller accounts also allows Kinzel to really spread out their risk across thousands of policies and lower the potential for catastrophic exposure. If they were just targeting a few larger accounts, then they could be taking too much risk if a hurricane were to strike Florida or earthquake hits California and a large number of the risks are affected. They're really intentional about spreading out that risk across their insured base. I can't really help myself. I usually just look at things on the value investing world lands. And this kind of reminds me of people who look at small caps, like the niches of the market where you can actually still feel like the market is less efficient than maybe in these large caps. And it feels like the management team of Kinzel has done exactly that. And as Buffett outlined, insurance at a basic level is certainly a commodity. So in order to make money in insurance, you either need to go very niche or have a cost advantage over your competitors. And to me, it seems that Kinzel actually does both. I mean, they do lower costs by utilizing their proprietary technology to create a cost advantage over competitors. And they target risks that most other ENS insurers won't even care to try to ensure. Yeah, Kinzel actually describes technology as one of their core competencies. And I think that's important because I have seen first-hand how bureaucratic and slow moving the insurance industry can be. So once a company like Kinzel gains a significant lead, it can really take some time for some of the other players to catch up if they ever do. So Kinzel seeks to operate with this very high degree of efficiency, high levels of accuracy in their render writing, and then speed across just all of their processes. And they also make the best use of the statistical data that they have. Within insurance, there's a lot that goes into the sharing of information. This could mean filing for a quote, filing for a claim, or communicating with brokers. And AI, of course, is top of mind for many investors today in terms of its ability to increase automation and efficiency. But this is really nothing new to Kinzel as they've been optimizing this business from day one. And they are not stopping now as their cost structure continues to decline in margins continue to improve. In their annual report, they wrote, "We believe that our approach to technological advancement will provide us with an enduring competitive advantage, as it allows us to quickly respond to market opportunities and will continue to scale as our business grows." In addition to the underwriting profit that Kinzel earns within their insurance operations, they also generate investment income on the float that they hold. As our audience knows, Berkshire is famous for having Buffett invest part of Berkshire's flow in private companies and the stock market more broadly. Whereas, Kinzail, they tend to keep their focus on fixed income instruments. And this plays a significant role in the profitability of the business as well. Kinzail wants to maintain that strong credit rating. So they aren't going to go too far out on the risk curve with their investments. And they're going to emphasize capital preservation over maximizing the yield that they're getting on that flow. We actually have members in our community that are, you know, huge Kinzail fans. And one of them actually pitched the company a couple of weeks ago in one of these competitions that we always have. And one thing that stood out to me is just the exceptional management team. I mean, they brought a totally different angle to the insurance game. And as you said, I mean, the insurance industry moved slowly and you know that firsthand. So when a player like Kinzail comes in and then starts innovating and executing at the pace that they did, it's just incredibly hard to start. I mean, it's certainly one of those players that you would see actually benefiting from AI compared to their, you know, lot slower competitors. So anyway, you talked about ways to bring down expenses. And another way that Kinzail seems to, you know, limit its expenses is by bringing in its underwriting in-house. So maybe you could talk a bit about the advantages of going in this direction versus outsourcing the underwriting, which is what some other companies actually do. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You got long days of daylight, incredible food, floating sonnas on the Oslo Fjord. And every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world. Many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse using AI to expose human rights abuses and building technology under censorship and authoritarian pressures. 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Before I joined the Investors Podcast, I was on a pretty conventional path and finance I was working at S&P Global, studying for the CFA, but I had this fixation on liberating myself from the 9-5 grind. I had doubts but I took the leap anyway, and it turned out to be one of the best decisions I've ever made. Millions of entrepreneurs worldwide, they set same decision every single year, and one of the things that makes it easier is having the right partner from day one. For a lot of people, that partner is Shopify. Shopify is the commerce platform behind millions of businesses around the world, and 10% of all e-commerce in the US. We're talking everything from huge brands like Jim Shark and Allbirds to people just getting their first store off the ground. Here's what I really appreciate as someone who runs a business myself. Shopify puts everything in one place. Plus, if you ever get stuck, Shopify has award-winning 24/7 customer support. They are always around to help. So if you've been sitting on a business idea wondering what if it's time to turn those what ifs into with Shopify. Sign up for your $1 promo trial today at shopify.com/tip. Go to shopify.com/tip. That's shopify.com/tip. All right, back to the show. Before I get to the underwriting, one of the things I would like to highlight about a lot of the phenomenal companies we talk about on the show is that great companies don't just have one aspect to their moat. It's usually a lot of polusa of several different factors all happening at once, and that's content to make a company misunderstood. It tends to make it really difficult to replicate, and I think a lot of people just have a tough time wrapping their minds around. All that goes into some of these phenomenal companies. So during this episode, I'd like to highlight some of the several key things that are happening within Kinzail, and of course, I'm not going to be able to touch on all of them, but I'll certainly do my best. So to touch on the underwriting, from a high level, an insurance company's job is to segment and price risk. If they can't appropriately price risk, then they're bound to get themselves into trouble. So this means really good underwriting is essential. One of the things that is unique about Kinzail is that they keep all of their underwriting in-house, and they have this culture of continuous improvement. So they are constantly monitoring industry trends and trying to improve that underwriting. The pricing of risk, it's always a moving target. So really the work is never finished on this front, and there's always room for improvement. On the other hand, many of the other excess and surplus ensures outsource their underwriting to what it referred to as MGA's. So let's imagine you're a small E&S carrier. Maybe you're a new entrant to the industry. It probably makes sense to outsourcing underwriting because you might not have the industry expertise required to do appropriate underwriting, but outsourcing this critical function can also lead to several key issues. There's a fundamental misalignment of interest for MGA's because they're responsible for determining and appropriate premium level for each risk, but they aren't responsible for the risk itself, and it's the classic principal agent problem. The MGA's tend to be paid based on premium volume, while the insurer cares most about long term underwriting profitability. So the incentives are not well aligned here. This could lead to the MGA either being incentivized to try and get more business to be written, or it could lead to them recommending or pricing these riskier policies, then what might appear on the surface. So to use an analogy, it would be like you paying me for me to give you stock ideas to invest in, but me taking none of the downside risk should those ideas turn out to be poor investments. So in the case of Kinzail, again, they're doing all of the underwriting themselves. Based on my understanding, they would never outsource this key function. So they have every incentive to turn down business that they know is unprofitable, quote premiums that generate their profitability targets, and avoid business that they just seem too risky. Maybe they don't have the data, they don't have the experience with those types of risks. Kinzail's in-house underwriters are incentivized first to underwrite for a profit, and second to grow the business. So at the end of the day, Kinzail lives or dies based on how well they underwrite in this market, and they don't necessarily rely on the kindness of strangers. Now, also think about how that dynamic might change from the standpoint of innovation. MGA's, they may or may not innovate, and the insurer may or may not benefit from such innovations, whereas at Kinzail, if they improve their underwriting processes, then they only stand to benefit from those improvements. I don't think this would be as surprise to anyone, but I again just want to highlight just how slow-moving and resistant to change the insurance industry can be. So many of the largest P&C insurers are still operating on legacy technology systems that were built decades ago, and modernizing these systems is just incredibly difficult. It's very costly, it's very time-consuming, to just overhaul and modernize these systems, or bring underwriting in-house, for example. At my previous job, I actually worked at an intro here in Lincoln, and I remember just how big of a deal it was for them to switch one of their IT systems. It involved countless people, it led to countless headaches, and because of how cumbersome and time-consuming it is, I wouldn't say that the employees, overall, are too excited about making such a change. Follow the incentives, and I'll show you the outcome. They'd probably just rather keep their existing legacy systems, I've required all these manual processes that are just inefficient but it gives them something to do. today. And because the insurance is fundamentally about managing risk, the culture of the industry tends to be very conservative as well. So most insurers prioritize stability. They prioritize avoiding mistakes rather than pushing for innovation, which means the pace of technological improvement is often pretty slow. This environment creates an interesting opportunity for a company like Kinsey Although, because most players are just resistant to that change in innovation, but Kinsey All embraces it. And once a company gains a big operational lead and a slow moving industry, like insurance, it can take a long time for competitors to catch up. In one of the CEO's presentations, I heard a Michael Keeho. He was talking about how they lost one of their larger accounts a few years ago. So the account was coming up on its renewal period. And Kinsey All had quoted them a renewal premium of $170,000. And they ended up losing that account because an MGA misclassified the business and unwrote a premium of just $57,000. So we're going to talk about this later, but oftentimes these insurers are mainly shopping based on price. So the MGA quoted a price that was one third that of Kinsey's. But the lower premium was not due to the MGA, pricing the risk more appropriately, but it was actually due to them classifying the business as a sporting goods distributor instead of a firearms manufacturer. So that's just one example that illustrates how Kinsey will. I think they tend to do a better job in their underwriting for the risks that they're taking on. And they've put together the systems, the expertise, the processes, and the right team to accurately price these risks and do so very efficiently. When you talk about the headaches of changing an IT system at an insurance company, that gives me immediate flashbacks to all of our constellation software discussions. It always seems so straightforward to just go with the new shiny product currently at AI. But in reality, keeping what works is often the best solution. That's the switching cost mode that CSU is often talking about. Insurance is generally quite an interesting field because insurers are literally selling a product without knowing the underlying cost of what it actually is that they're selling. So when you look at, practically any business, it generally knows what its costs are going to be with a high-do-wee of certainty. So take Coca-Cola as an example. Let's say they charge a dollar and 50 cents for a bottle of Coke. So that is sold to a retailer. They can then look at their expenses and say, well, this much went into purchasing this syrup, this much for the bottle, and this much to transport the bottle of Coke and all of that stuff. But insurance companies, they don't have that luxury. If an insurance sells a whole life insurance policy with, let's say, a million dollar phase value, the insurer doesn't know whether they will need to pay out that million dollars in a month from now and 10 years and 30 years or at any point in the next 50, 60 years. So that's what makes the accounting so tricky when it comes to insurers because they need to set aside reserves and those reserves make actual assumptions on when and at what level of claims will be paid out of a time. Buffett has cautioned investors that some insurers might appear to have a cost advantage with the way that they basically set reserves and handle their accounting. And it's kind of like having a self-graded exam in class. I think we all still know how they turn out most of the time. And you know, if an insurer understates the level of claims they need to pay, it might appear on the surface as if it's, you know, this well-run and more profitable company than it actually is for a while. And this is particularly true of all these long-term risks where claims may be paid out many, many years or even decades into the future after policy is actually written. So I think Kinsel has actually shared that they are very conservative in setting reserves. But I think about any insurer would tell you that they operate very conservatively. But insurers are required to disclose how reserves are adjusted over time. And historically at least Kinsel has consistently overestimated their reserves, which shows that they actually do or historically have been taking a fairly conservative approach and not trying to mislead their investors. I don't expect them to get this perfect certainly as, you know, surprises can and often do happen in insurance. But generally they've been pretty conservative with their reserving methodology. Another way that Kinsel limits the level of risk that they're taking is I hit on this a little bit earlier, but just simply diversifying their exposure base. So instead of being concentrated in one industry or one geography, they do a pretty good job of spreading out their beds across uncorrelated and markets. In the reports, they share several lines of business they have exposure to, which includes things like commercial property, excess casualty, construction, allied health, entertainment, and energy. With this diversification, though, almost all of their lines of business share three key features. They tend to be commercial rather than personal. They involve non-standard risks and they require specialized underwriting judgment. So given that Kinsel is trying to keep the costs as low as possible, how does the expense structure compare against, you know, these other insurance companies? So it's funny. Last May we were in Omaha together for the Berkshire meeting and on Sunday we attended the Marquell branch. At that event, Marquell, they put together this investor presentation and they take questions from the audience. So Marquell does this presentation and they highlight how they seek to be a market leader in each of their pursuits. The irony is that I think they did a pretty good job of highlighting just how special of a business Kinsel is. They had a slide there that showed the combined ratio for several excess and surplus insured. So for those not familiar with this insurance terminology, the combined ratio is a measure that helps show how profitable an insurance company is. So the lower the combined ratio, the better. So in 2024, Marquell's combined ratio was 95%. This means that for every $100 in premium that they're collecting, they get to keep roughly $5 as profit after paying expenses and paying out claims. Marquell also showed the combined ratio for the competitors. Several competitors had a combined ratio that was lower than Marquell's, including Chubb and RLI specialty insurance. But nobody had anywhere near the combined ratio that Kinsel capital had. Kinsel's combined ratio in 2024 was 76% and they consistently keep that ratio below 80%. RLI was the next close competitor on that slide. They were at 86%. While RLI keeps around $14 out of every $100 they take in, Kinsel is keeping around $24. So nobody in the ENS or the PNC industry for that matter is in the same league as Kinsel. While their combined ratio is around 76%, the industry average is around 91%. So within a given year, Kinsel is sending more than 400,000 quotes to insurance brokers and closing business on more than 40,000 of those quotes. So other ensures really struggle to do that level of volume in the ENS market. And again, this ties directly into their culture of operating with the high level of efficiency in automating as much as possible. Kinsel is able to do all of this with just 700 employees, which I thought was pretty impressive. Another reason that Kinsel's margins are significantly better is because most of their competitors are going to be outsourcing that underwriting of the policy. So when it broke or requests a quote for a potential customer, it's Kinsel themselves that is determining what the premiums should be. So their competitors are also inherently just giving up some level of margin by paying somebody else to be generating that quote for them. It's pretty remarkable actually what Kinsel has been able to do because insurance, again, tends to be one of the most commoditized industries out there. I recently put together an episode on MS for intrinsic value podcasts. And it's just incredible how some people will buy a $40,000 MS bag because it is MS. And actually because it costs $40,000 and you're in insurance, as we all know, you have the opposite dynamic where business owners purchase insurance not because they want to, but because they have to. And most people purchasing insurance, they just want the coverage that costs the lease. And usually what that means is there's not a lot of pricing power. And we've looked at so many businesses and what we find is that if you're a good business but in a bad industry, usually that means your business won't be doing that well either. But there are some companies for which that doesn't seem to be the case. And Kinsel is one of those. What you just highlighted I think is the reason to even be skeptical at Kinsel, you know, really dig into the details and really understand what sort of advantages they might have. And I can certainly attest to that, you know, the pricing power within insurance, you know, when I pay for an insurance premium, I tend to think of it as just throwing money down the drain. I like my guy co-auto coverage because I think their premiums are very reasonable. And if they were to hike my premium enough times, I would likely take one or two hours to get my cover switched. I have no brand loyalty to any auto-insure for the record. The last thing I want to do is overpay for insurance. Because as Buffett said at the end of the day, this is a commodity. In most of the time, customers tend to highly prioritize the price according. And Kinsel knows, you know, that having a low expense structure and competitive premiums is essential to succeed in this business. So their expense ratio is something like 21% for their competitors will have an expense ratio of 35% and some actually have one as high as 40%. And as you highlighted earlier, I think it illustrates It's just how slow these legacy insurance companies can can be to adapt. I think it almost seems that the only way one can get an expense ratio or structure as low as as Kinsel has it is if you basically start out from scratch, instead of trying to modernize the systems at these larger insurance companies, which as you said can be even difficult to do if it's just the software that you want to exchange. In an interview with CEO Michael Kehoe, he even compared what Kinsel is doing today, what Geico and Progressive have done in the personal industry. For decades, they basically made technology one of their core competencies, not only to deliver strong returns, but also to grow their market share significantly. For example, in 1990, Progressive had a market share of around 1 to 2 percent. Today, they have a market share of around 16 percent of the auto insurance market. With that said, Kinsel has already had an incredible run over the past decade. So do you still see them going the way of Progressive and continuing to see a share? Are we close to the maximum that they can reach? Yeah. So the EMS market is estimated to do around $115 billion in written premiums. So that's around 10 percent of the broader PNC market. And Kinsel has less than 2 percent of the market in the EMS space. So since Kinsel has been growing revenues north of 30 percent for several years in the past, they've of course been increasing that market share. And I think it's clear that there's still room for them to continue to grow that market share in the future. One of the reasons that Kinsel is able to steal market share is because they have that sole focus on the EMS industry. So when you look at competitors like Chub, AIG, travelers, these are large insurers with several different divisions. And due to Kinsel's focus, they're able to have more underwriting expertise. They have the processes in place that are optimized for that one industry. And most of their management team has 20, 30 plus years experience in the industry. And I think part of their advantage over these bigger players is the speed at which they're able to work with brokers. So insurance tends to be distributed through brokers. So they ultimately decide which enter is getting the business as a result speed and reliability tend to matter a lot. So Kinsel has this proprietary technology that has allowed them to issue quotes fast, which is an important innovation given that they are getting requests for these hard to place risks. So if Kinsel is getting right back to the broker with a quote, but other insurers might be taking days or weeks to run the quote, then brokers may increasingly choose to select Kinsel and writing the business. And not only is Kinsel stealing share in the EMS market, but the EMS market itself is growing at a fairly rapid rate as well. So for commercial lines from 2010 to 2023, the standard P and C market, it grew by 4.6% per year. So slightly faster than the broader economy, while the EMS market grew by 10.5% per year. So in starting Kinsel in 2009, I think it's pretty clear that Kihou recognized the trends that we're playing to his favor at the time. I mean, as Charlie Munga said, and you also early on this episode, show me the incentive, and I will show you the outcome. And we all know that book has earned commissions when actually selling insurance. So that's obviously a benefit if you're just faster than competitor. So how do Kinsel's commission compare to those of the other insurers? Commissions do certainly play a big role in determining which policies are sold and which insurers the brokers want to select. And this was actually really interesting to research. And management has a lot of experience in this industry and is very shareholder focus. So I would expect them to try and find the right balance of compensating brokers enough, but not being overly generous in the commissions they're handing out. So Kinsel, they pay an average commission around 14 to 15% of gross written premiums, but the commission, it isn't the sole consideration by the broker. They're also considering the price that the insurer is paying and the service and expertise offered by the carrier when determining where to place their business. So you can imagine, you know, if you're a broker and you get two quotes from the insurers, let's say Kinsel's is $15,000 premium, the other insurers, $16,000 premium. Well, it's in the broker's best centers to give the insurer the best deal instead of giving them the spiel of why they should pay more for coverage that is essentially the same. So Kinsel believes that their commission rates are slightly lower than that of their competitors, but they're able to make up for that through their high degree of service and their rapid response times. So if they can help make the brokers lives easier, then that's a win-win for everyone, even if they're paying a slightly lower commission rate than the next carrier. As I already highlighted, due to the high level of automation in Kinsel's workflows, they're able to provide these quotes at a faster pace than their competitors. And most people just don't view shopping for insurance as a very pleasant experience. So they tend to just want to take care of it as soon as possible. And sometimes speed is actually a necessity in getting coverage. So for example, a lender might require proof of general liability coverage before releasing funds or a contractor might not be able to start work until they've gotten coverage. So in these types of situations, speed is of utmost importance, which Kinsel is very well positioned to deliver on. Furthermore, I was speaking with a member of our community who happened to meet with Kinsel's CFO. And the member was telling me that since the brokers don't make much money on these smaller E&S policies, they tend to just view them as a headache. So once a customer comes in wanting that type of policy, the broker tends to just want to get it off their plate. They probably have bigger issues to deal with and bigger accounts to service. And I think that's yet another reason why speed plays so into Kinsel's favor. Every business is asking the same question right now. How do we make AI actually work for us? The possibilities are endless, guessing is too risky, but sitting on the sidelines, that's not an option either because your competitors are already making their move. With NetSuite by Oracle, you can put AI to work today. 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For example, in a buyers market, the buyer tends to have the upper hand in the negotiations. So in insurance, a hard market occurs when insurance becomes more expensive or harder to obtain. So in other words, the insurer has the upper hand at the table. A hard market leads to rising premium rates, stricter underwriting standards, less coverage capacity, and more exclusions and restrictions in the policies. This type of environment, it tends to happen after the industry experiences some losses. So that means claims are rising faster than initially expected or there are capital shortages among insurers. You can imagine that if you were an insurer and your financial position was getting pretty tight, then naturally you would have want to increase your premium rates and limit the amount of risk that you're taking. Whereas in a soft market, things are going well. Premiums might be declining or flat, more insurers are competing for business and broader coverage is offered to try and capture more shares. So this tends to happen when insurers are in a much better financial situation. Since insurance is a commodity, it makes sense that the industry would go through these cycles of hard and soft markets. And coming out of the early 2000s, the industry was in a hard market. This was driven by 9/11 losses, a surging claims, and a brutal bear market hitting investment portfolios. Then interest rates rose sharply and underwriting tightened significantly with insurers focused on restoring that profitability. But hard markets don't last forever. As results improved in new capital, enter the space, the market began softening and this is a trend that deepens steadily from roughly 2010 through 2017. Carriers were cutting rates. They were loosening their terms and they were chasing premium volumes at the expense of underwriting discipline. So in a soft market, the insurer effectively sets the price without too much of a consideration for how profitable that price will be long term. And soft markets are a really difficult environment for Kenzail, whose model is built around pricing each risk accurately and walking away when the numbers just don't work. So the tide started to turn around 2017, 2018 years of inadequate pricing combined with back-to-back catastrophic loss years. It began exposing how poorly reserved many insurance carriers were. So insurers, they started to suffer the consequences of their short term decisions of the past, which helped give Kenzail more pricing power and insurers in the standard market. They were really dialing back their coverage, which pushed a lot of business into the ENS market, which really benefited Kenzail. And somewhat ironically, when the standard market does tighten, the ENS market is expanding to fill the gaps in the market. So that's what I'm talking about when I mentioned my head sort of spending of all these good for one carrier, not so good for another carrier. There's a lot to wrap your mind around here. So the resulting hard market, it lasted around six years, far longer than the three to four-year average seen since the 1980s. And it featured a more gradual sustained elevation of rates rather than these sharp spikes and drops of prior cycles. So moving into 2025, the market began to soften again in certain lines and Kenzail has started to see that pressure. Their response, as always, will be to hold the line on price and accept slower growth rather than chasing premium volume at inadequate margins, which is exactly what their model is designed to do. When we look at the growth in Kenzail's business over time, this is really, you know, what we're seeing when we look at the market's dynamics over time. So growth really took off in 2019 as the market was hardening. They enter 2019 with just over $200 million in premium volume. And today they do over $1.6 billion in premiums on an annual basis. So, however, the market environment has normalized as it's softened. And we're seeing that in the growth figures as premium growth in 2025 was around 18% while premium grew on average by 36% annualized in the five years prior. However, 18% premium growth is still very good for an insurance company. If the insurance industry continues to soften, then we could see Kenzail's growth potentially continue to slow. I think the most important takeaway is that the EMS market is cyclical, but it's still a market with structural long-term growth. And it's also important to keep in mind that the EMS market got that significant boost post-COVID. So, it's important for investors not to get too tied or too anchored to the growth rates that we saw for Kenzail from 2019 to 2024 due to the unique market environment during that period. I think one of the other really interesting things about Kenzail is just how the management team just truly takes ownership of the company they run. I mean, they take pride in the fact they've built really a best-in-class insurance. And the management team also owns sizable portions of stock as well. As you know, I like to look at management compensation and how management is incentivized because if you look at so many companies, one common denominator is just that people actually incentivize to go and they write direction. I mean, that's so important for all the companies we look at. And Kenzail's CEO, for example, he owns shares worth about $350 million. The CEO has $64 million stake. And the CEO of all has a stake of about $24 million. So, for a company that's worth more than about $8 billion right now, this might not seem significant, but what matters more is not necessarily the value of the holdings relative to the size of the company, but actually relative to their own net worth. And when taking a look at the salaries of the management team, the salaries are relatively modest, which can help us further put into perspective how management is incentivized. I mean, these top managers can clearly increase the net worth much more by providing value to shareholders and increasing the stock price rather than making money just from a high salary. And Michael Kio, for example, he had about $1.2 million in salary in 2024. And he earned, I think, about $6.7 million in total compensation, which is relatively modest compared to his share on a ship that is worth, you know, hundreds of millions of dollars. Yeah, I do agree with you that the incentives do seem pretty well-lined. And on that note, one of the things that I picked up in listening to Kio is just how passionate he is about this business. He knows the business from top to bottom. And he comes across to me as someone who treats his role at Kenzail very, very seriously and treats the company like it's his baby. And, you know, just again, this company was started in 2009 as nothing. And today it's worth $8 billion. So over the years, he's done several things that can just be incredibly difficult to do such as attracting high quality talent, learning how to motivate them and retain them, and continue to encourage that culture of innovation. You and I sort of touched on this, but he seems like a value investor in the insurance space. And that's sort of what you can see in any industry, you know, you did your episode on Constellation, Mark Leonard. He's been a value investor in the software space for years. And I think that's you can find that in a lot of great companies. And Kio, he especially knows the importance of having great people. And he knows that, you know, if there's a legacy, ensure that just has a somewhat, let's say mediocre culture, mediocre environment, mediocre growth outlook, then their top performers are going to want to be at a company that is a top performing company. And Kio knows how to attract some of that talent, most importantly retain them for the long term. And one of the other things that stood out to me about Kio is just how humble he is. He's certainly not looking to pump his stock price based on what I can tell. All he seems to care about is delivering results in being a good steward of shareholder capital. When I first started looking at, you know, these larger companies always felt like talking about culture seems so like so wonky. Like what exactly is culture actually meaning? But I think if you look at these companies, you look at their financials, you look at how management speaks, you will actually see and figure out for each company individually what culture actually means. And I mean, listen to semi-division of Michael Kio and you will understand how much he cares about the business. And then you will understand why he's so much more long-term focus than so many other companies in the space. And that's really something that you see in all the successful management teams and therefore also in all the successful companies that you will look at. And I mean, when we look at the incentive structure for Kinsale, I mean, management's incentive plan is based primarily on company financial performance metrics and only then adjusted for individual performance. So the three business metrics that make the most impact on the bonus include return on equity, operating profit and of course the combined ratio, which in my opinion is just an excellent combination because you know, it encourages the management to both pursue growth but not at the expense of, you know, the return on equity or the combined ratio. And therefore, it kind of discourages, you know, pursuing reckless premium growth or, you know, underpricing any risks. So when Kinsale is operating in a software market, which you just explain when in a very good way, so that even I understood it, it might be more difficult for them to get as much business as they otherwise would. So perhaps they might not get much benefit in terms of operating profit growth, but if they are disciplined in the underwriting, they can still earn part of their bonus just by generating a solid return on equity. And you know, then the restricted stock awards, I think they're best over a period of one to four years. And they have similar performance metrics attached those as well, which is one of those things that is always driving Sean crazy when he sees these, you know, stock awards, besting and you don't have to do anything but just staying at the company. This is something that you don't see here and just to repeat myself, I have looked at dozens of companies. for on 20th value show and you would be surprised how many bad incentive programs out there. I mean, compared to those, I would think of a judge, Kin Sales and Center structure as pretty much excellent. I mean, given that the management team is heavily invested in shares and gets compensated based on incentives that are again well aligned with long-term shareholders, that's just fantastic to see. And management definitely seems to be one of the high points, you know, in looking at this business. Many of the executives have most of their net worth invested in the company and as a result, they've put a wonderful business over the past 17 years and know with Michael Kehoe, being around 60 years old today, I think I could expect him to be running this business for about as long as he can. And you know, it always is difficult to look at companies that are operating in the industry that you don't understand that well. And then even more important that is to kind of just, you know, say take this side card approach where you know the management team is incentivized just as you are. Then, you know, it just makes it a lot easier for you to fall asleep at night and maybe with that said, Clay, where do you see the business going from here? Yeah, I would first just like to reiterate what you said about fully appreciating what Kinzell's management team has built over the years. They understand at the end of the day, building a great company comes down to having those great people. And he's built a culture that understands how to create long-term value for shareholders. And it's something that, you know, for us is really difficult to communicate. Every company will tell you their culture is great. But the important thing is to figure out, you know, which companies truly have a great culture and truly have a culture that can endure for the long term. So I would say the people at Kinzell are data-driven, they're well incentivized and they have a culture of ownership as more than 50% of employees do own shares in the company. And everyone has paid bonuses based on underwriting profits. So the employee base understands the value of controlling costs and maximizing profits. To your question on where the business goes from here, that really is the key question. To try and understand and answer that, let's take a look at just their growth formula and the variables that play into how Kinzell grows. So Kinzell's business model is optimized to underwrite and ensure a large number of policies with these lower premium amounts. The size of their business is of course a function of gross written premium volumes. And the gross written premium volumes, this is a factor of four things. You have the number of inquiries for new policies. These are coming in from the brokers. You have the conversion rate of those inquiries that end up being ensured by Kinzell. You have the renewal rate of their existing policies and then you have the average premium per policy. So again, the number of submissions or inquiries for new policies comes from the brokers and this number has grown at a fast clip year after year. And then a small portion of these will end up being ensured by Kinzell. So looking at 2024, they received over 880,000 new business emissions, but just 7.3 percent of those or 64,000 end up converting as business for Kinzell. So the conversion rate, it's pretty consistent over time and it tends to grow slightly each year as well. For example, the conversion rate back in 2019 was 6.6 percent. And then the retention rate is also important. So if they have a lot of policies that are churning out in one or two years, then they're on this hamster wheel of each year needing to replace the policies that dropped off just to maintain their business. So I was actually pretty surprised to find that a lot of their policies actually do churn out rather quickly. So for example, 2024, they issued 64,000 policies, but they also soft 43,000 policies laps without renewals. So when you look at the renewal rate for policies that are set to expire, around 70 percent of policies are renewed, meaning that around 30 percent churn out. So that is one metric I would probably keep an eye on. If they're seeing that churn rate increase, then it's going to be more difficult for them to continue to grow. And then for premium volume, I highlighted that the average premiums are around 15,000 since their focus is on these smaller policies. I would not expect this metric to change significantly at least in the near term. And then in terms of profitability, management does see room for the expense ratio to continue to decline as they increasingly use automation and spread out their fixed costs over a larger base of premiums. And as that gap between revenue and expenses widens, it also gives Kenzail the opportunity to push prices lower and potentially generate even more premium volume. So you can kind of think of the scale of premiums and the amount of business they're going to end up getting. The higher they set premiums, the lower the conversion rate they'll probably see. The lower they set premiums since the insured is a very price sensitive. The more conversions, I think you'll see for Kenzail. It's kind of like the Costco model. The lower that Costco lowers their prices, the more they'll see customers walking into their stores. So however, I don't think we should expect top line growth of 20 percent or more going forward. And I think the market is starting to recognize that reality as we've seen the price of a ratio of re-rate from 10 or 11 just two years ago to around four and a half times book today. But even at four and a half times book, it certainly is not your typical insurance company when you're comparing its other insurers. Through the cycle, I think it would be reasonable to assume that Kenzail can grow somewhere in the 10 to 20 percent range. They don't provide guidance. They don't necessarily know how fast they're going to be able to grow since there's sick locality, there's competitors that they're always going head to head with. But at a high level, the PNC industry, it grows at around the rate of the broader economy. The ENS industry tends to grow at a multiple of that. And I think that Kenzail is well positioned to continue to steal share in the market. So that gives us, let's say, six to seven percent plus for the ENS growth of just the market overall growing. And then Kenzail, I would expect them to be growing at some rate faster than that, right? Because they are well positioned to continue to capture share. So through the cycle, let's call it seven to 12 years, I think premium growth of at least 10 percent on the lower end is certainly reasonable. So given that Kenzail has less than two percent share in the market today, I see ample opportunity for them to continue to steal share in this $100 billion ENS market. Lastly, part of their growth algorithm is simply a factor of how many quotes they can push out to brokers. And that's just a function of their head count. For the time being AI, at least, Kenzail says is not going to replace underwriters. And Kehoe, he's actually highlighted the imports of keeping human underwriters, which I believe currently account for roughly half of their workforce. So as they continue to hire more underwriters, it's only logical to assume that this will help support continued growth. We've already talked some numbers now, but I think it's kind of time to get to the part that Sean and I always look forward to the most in our stock breakdowns. And that's the valuation. So we know that the valuation of insurance companies is often judged based on price to book, but this metric would have been practically useless for a company like Kenzail. So what is actually the best way to go about valuing this company? I almost feel like I want to give a management response and cop out on the answer because we just don't know what the future holds, but I'll try and share some helpful information that I can, because insurers are certainly tricky to value because it's difficult to determine what the normalized earnings are. You know, one insurer can look cheap because they've been underreserving for years and they have a lot of big claims coming up just around the corner. While a more conservative company might look a bit expensive because they've been very prudent with the way they're setting reserves. So the quality of the management team and the way they handle the underwriting and setting reserves, it just can't be understatement. We're setting out around $360 a share here towards the end of March 2026. Their price to book again is four and a half times. The PE is 17 or 18. And we haven't seen a PE ratio this low for quite a while. And it's actually since the IPO, but the question is whether the business's future prospects justify the lower PE. So the trouble with using price to book for Kenzail is that the book value is just growing so fast. So investors might have looked at a price to book of five in 2018 and immediately just said that's ridiculous. And since then, the book value is increased by more than seven times. So today's price to book ratio is much lower than where it's historically traded. But still, it's much higher than traditional insurers. So most traditional insurers are treated like commodity-like businesses because that's what they are. And they tend to be businesses with low growth and low ROE. But in my opinion, Kenzail should not be closely compared to these other insurers given their track record of achieving high growth alongside high return on equity. And just to give a frame of reference, while Kenzail compounded their book value at 33% since 2018, Berkshire Hathaway compounded their book value at 10% over the same period. Finally, the business's growth has started to slow over the past one to two years. And that's led many growth investors exiting and bringing the stock price down pretty significantly. So Kenzail's PE, it was over 40 just three years ago. And now it's been more than cut in half. The stock market tends to reward this smooth predictable growth and it dislikes surprises. And Kenzail had this strong, fairly consistent growth for several years during the hard market. And as the market softened, you saw that growth decelerate. So the market has this distaste for lumpy or more cyclical growth. And that can serve as an opportunity for investors who are more patient in letting the business continue to compound through the cycle. over time. Where the stock price goes from here will largely depend on the return on equity and the rate at which they can continue to reinvest earnings to pursue new opportunities in the E and S markets. So over Kinzale's history, the vast majority of its earnings have been reinvested in the business, which has helped propel the exponential growth in book value that we've seen. So when I look at some other comps in the insurance industry, the growth rate and the ROE for other insurers, it just doesn't compare to Kinzale. So the only way I could see the valuation further compressing is if growth continues to decelerate or we see that return on equity coming down. If that does happen, I would expect it to be more due to the tightening of competition, you know, competitors entering and really trying to compete with Kinzale on price rather than mismanagement of the business. And amazingly, again, book value is compounded at a very good clip. And even if that book value growth slows from say 30% to 10 to 15%, I would still expect the intrinsic value of this business to coincide with that growth and book value in investors don't need all of the growth to come in the form of premium volumes because this is a business that, you know, does experience some operating leverage due to their increase use of technology. So one would expect that profits are going to continue to compound faster than revenues and premium volumes. I'm actually glad that, you know, this time with you having to make the valuation because it really can be difficult at times, right? And again, I mean, we emphasized on this before about for business like this, it really comes down to whether you trust the people at the helm of the company. And then you can look at the track record, which has been phenomenal. But also growth is slowing down. It's very difficult to assess, especially for cyclical companies where the bottom of that is. So that's why I'm saying, you know, you either decide to go with the management team and say you double down on a company that has phenomenal people at the helm plus the track record to clearly be better than the average company in the space. But, you know, then there are also risks that are involved and we didn't really talk about them yet too much. But, you know, cyclicality is a clear risk that stands out to me. I mean, Kinsel is to some extent at least still at the whim. So, you know, what is happening around them and how their competitors are behaving. And as you mentioned, I mean, the cyclical nature of the industry, it does also have an impact on the stock price as well. When Kinsel is firing on all its cylinders, you know, growth investors, they tend to hop on board and, you know, push the stock to elevated levels. And then when the cycle turns, they will push the stock price to the other direction. This obviously is also a chance. And, you know, we cover this company today because we believe might be at that point. But there are also other risks that come to my mind. And, you know, one of them is competition because one thing that you usually see in capitalistic systems is that, you know, strong profitability, coupled with high growth, rarely goes unnoticed. And that's why the market gave 40 times P.E. to this company a couple of years ago. So it does seem like it's only a matter of time before strong competitors will enter the market. And at the end of the day, Kinsel still sells a commodity product. So it seems that it's only a matter of time before, you know, the high returns normalize. But the question really is then, when is that actually happening? Yeah, you're certainly right. At the end of the day, Kinsel is still a commodity business that has sort of been in an anomaly with its track record. But I would also say that it will not be easy for a competitor to replicate their strategy. Legacy players are bogged down by outdated technologies and inefficient workflows. But that doesn't mean that they can't compete with Kinsel more closely. Even if it means poor returns for them, which might mean that Kinsel brings their prices down even further, which could mean lower, but still strong returns inequity. I think ROE of say 15 to 20% instead of 25 to 30%. So I'll highlight a few other risks for investors. So Kinsel operates in the ENS industry, which by definition, it contains these risks that can be difficult to assess. Although their history of pricing these risks is solid, there's always a risk that this changes as they continue to grow and ensure all sorts of different types of risks in the industry. If underwriting discipline were to weaken or if certain risk classes were mispriced, the impact on loss ratios could be severe. And on a related note, the reality of the insurance industry is you sort of need to be prepared for the unexpected. So if a catastrophic event happens, for example, a hurricane impacts several of their properties that they've ensured, then this could negatively impact Kinsel. And we haven't really touched on this, but insurance companies they tend to get what's referred to as a re-insurance. So re-insures are insurance for the insurance companies. And this helps protect them against these catastrophic events that are really tail risks that have a very low probability of happening. But, you know, once or twice every 100 years, they tend to still happen. The next risk, all highlight, is broker concentration. So Kinsel, they distribute their products through 180 or so brokers. But the top five brokers account for more than half of their premium volume. So this level of concentration isn't unusual in the industry, but if they were to lose just one of these brokers, whether due to relationship changes or strategic shifts, then that could meaningfully impact Kinsel in the short run. However, they help mitigate this risk by building a reputation for the responsiveness and reliability, which has helped contribute to a steadily rising flow of submissions. There's also investment risk. So Kinsel earns a pretty considerable amount of interest income through their fixed income security. So if interest rates were to decline, for example, then Kinsel would be receiving much less income through their investments. In the last risk, I would highlight is key person risk or the erosion of the culture. So Michael Keeho, he is key to what has made Kinsel the great company it is today. If he were to step away for any reason, then that could impact the business pretty significantly. Well, mentioned constellation here, for example, many people expect in Mark Leonard to be around the rest of his life, perhaps a decade or more. But things can happen that are just totally unpredictable and lead to changes at the company and who's leading them. So if that innovative culture of Kinsel started to erode, then the gap between them and their competitors, it would probably gradually close over time. Constellation is actually such a good example for that because it's probably one of the most decentralized companies out there. And still you had this key man risk, which also to some extent played out. But yeah, I would say that's about it for today. I very much appreciate you joining me to break down Kinsel's capital today, Clay. This is a company that so many of our listeners have talked to us about oftentimes that we need to cover this and always feel like the insurance industry is just so difficult to understand. So it's perfect that you were able to join us today. And it's just always interesting to dive into these best-than-class businesses that operate in industries that many investors just tend to shy away from. So Sean and I have looked at many such companies on our show as well. And after studying enough of these businesses, you just start to see some patterns emerge. I mean, you often have these ambitious founders at the helm, which is also the case here with Kinsel. You have a great culture, which again is the case here with Kinsel. And you just have these lean cost structures that tend to bring higher margins and managers with skin in the game. And I think that Kinsel just fits every single one of those categories. And I actually look forward to seeing how this story continues to unfold because it seems to me that they are, you know, there's still very early innings of where they're heading to even if you just look at the market share and you say it's about 2%. It seems like there's a lot of front-wheel-left. So yeah, I think it's a good place to wrap up the episode. So again, thanks for joining me Clay and I really enjoyed this discussion. Excellent. Thanks a lot Daniel. Thanks for listening to TI-P. 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