What happened

Kinsale Capital Group (KNSL -1.24%) reported fourth-quarter results that easily surpassed analyst expectations. Investors were pleased, sending shares of the specialty insurance company up as much as 14% in Friday trading.

So what

Kinsale is an insurance company that specializes in the obscure -- businesses like marijuana dispensaries and axe-throwing venues that are difficult to evaluate via normal insurance underwriting methods. There's a lot of risk in insuring these businesses, but if you know what you are doing the margins and premiums also tend to be higher than typical business policies.

Kinsale's latest results demonstrate the company's expertise. The company earned $2.60 per share on revenue of $242.96 million in the fourth quarter, easily surpassing Wall Street expectations for earnings of $2.15 per share on sales of $234.5 million. Net operating earnings were up 48.1% year over year, and gross written premiums increased by 45%. For the year, net operating earnings were up 36.2% and gross written premiums increased by 44.2%.

"Our strong performance during the fourth quarter ended another year of exceptional operating results," CEO Michael P. Kehoe said. "We are confident that with the strength of our business model and financial position we will deliver another successful year in 2023."

Now what

You don't often see an insurance stock jump by double-digit percentage points in a single trading day. At least part of the rally is likely a sigh of relief from investors that the difficult macroeconomic conditions didn't trip Kinsale up. Investors knew going in that it was a strong year for pricing policies but were uncertain about whether claims were on the uptick as well.

The results go a long way toward answering those questions. Kinsale's combined ratio for the quarter, a measure of what percentage of premiums are used to cover expenses and pay out claims, was 72.4%. For perspective, over the past three years the average combined ratio for the specialty insurance industry was 96.9%. (A lower number is better.)

That means that Kinsale was able to capitalize on favorable market conditions in terms of pricing policies, while not seeing all of that extra income go out the door in claims.

Kinsale has been an amazing performer over the years, up nearly 1,500% since its 2016 initial public offering. These results do nothing to shake the idea that Kinsale is a top operator in its field.