What happened

Kinsale Capital (KNSL 1.84%) stock rallied in June, with shares up 23.5%, according to data provided by S&P Global Market Intelligence. The stock built on its strong performance thus far in 2023, gaining 41% since the start of the year.

Kinsale Capital stock has crushed the S&P 500 since going public in 2016. Its recent surge in June came following an upgrade and a price target increase from an analyst covering the stock.

So what

Kinsale Capital writes insurance policies on hard-to-place risks. These policies are outside traditional property and casualty (P&C), and cover excess and surplus (E&S) risks that others don't.

E&S insurance policies can be highly profitable for companies with sound risk management and the experience and data to accurately assess the risks of unique insurance policies. Kinsale checks both of these boxes, and the stock has gained 1,960% since going public in 2016.

In its most recent quarter, Kinsale reported premium growth of 33% while its net income surged 75%. The stellar earnings performance was driven by favorable conditions in the insurance market, which allowed Kinsale to grow its business while increasing its rates. The company also benefited from higher investment income since it has been able to invest its capital in higher-interest-rate earning assets over the last year.

The stellar performance by Kinsale in Q1 has some analysts optimistic about the stock. On June 2, analysts at BMO Capital upgraded Kinsale Capital from underperform to outperform while raising its price target from $270 to $389. 

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Image source: Getty Images.

Now what

Kinsale Capital has done a stellar job of underwriting highly profitable insurance policies, and these strong trends continued in Q1. The company has benefited from the current inflationary environment, allowing it to raise premiums to keep pace with rising costs.

In addition, the insurance market is in a "hard market," meaning conditions favor insurers, especially those E&S insurers like Kinsale. In a hard market, demand for insurance outpaces supply, giving insurers the ability to raise rates and be more selective about the policies they will cover. This environment favors E&S insurers the most because it allows them to be highly selective and focus only on high-margin policies.

Hard market conditions are likely to continue, especially if inflationary pressures in the economy persist. Kinsale Capital's stellar underwriting ability and tailwinds from those hard market conditions should continue to boost the stock going forward.