CEO Interview #1: Michael Kehoe (Kinsale Capital Group)

10 timeless questions for every CEO — plus 5 company-specific questions that matter most for long-term value creation

After completing my deep dive on Kinsale, I had the opportunity to follow up with a written CEO interview.

In case you missed the deep dive, check it out here:

The goal of this format is simple: ask the same set of timeless, investor-relevant questions across companies (questions 1-10), and complement them with a small number of company-specific questions that go directly to the core economic drivers of the business (questions 11-15).

The intention is to create comparable, long-form insights into how CEOs think about capital allocation, competition, growth constraints, and long-term value creation.

About the CEO

The answers below were provided by Michael Kehoe, Founder and CEO of Kinsale Capital Group.

Under his leadership, Kinsale has grown into one of the most consistently profitable underwriters in the U.S. E&S insurance market, characterized by strong underwriting discipline, a lean operating structure, and a long track record of value creation for shareholders.

Michael Kehoe remains a ~3.9 % stake, worth ~$ 360 million today.

I highly recommend the following speech:

A note on the format

All answers are reproduced word for word, without edits, paraphrasing, or compression. The length, depth, and level of detail of each response are entirely the CEO’s choice. The goal is to preserve the original thinking, tone, and emphasis.

The Interview

1. When you generate incremental free cash flow, how do you decide between reinvestment, acquisitions, debt reduction, and returning capital to shareholders?

We focus on growth first and returning capital to shareholders second – principally through share buybacks and to a lesser extent through dividends. We are not generally interested in acquisitions.

2. What capital allocation decision turned out worse than expected, and what did it teach you about risk and valuation?

We manage our various product lines to a return greater than 15% above the risk free rate – today that’s a minimum 20% ROE.

We manage profitability carefully and have generally exceeded our target. This effort involves constantly measuring results at a granular level and adjusting pricing, coverage, limits, geographic mix, concentration limits, reinsurance, etc. to make sure we are on target. When returns lag expectations, we quickly adjust our strategy to get on track.

3. Do you have explicit return thresholds for reinvestment or acquisitions (IRR, ROIC, payback), and how strictly are they enforced in practice?

We currently target a 20% ROE or greater in writing business. We are not considering any acquisitions.

4. What’s a decision you’ve made that was unpopular at first but proved to be right?

We moved all of our employees back to the office full time, five days a week in October 2020. Some employees were unhappy; over time some left the company.

But working together in the office allowed us to improve productivity, train new employees to handle significant growth in our business, to better collaborate in various areas of our business and to take market share from competitors – all of which allowed us to pay our employees better.

5. Can you describe a situation where you deliberately chose long-term value creation over short-term reported growth — even if it made the company look worse in the short term?

We always prioritize profit over growth. It’s the best way to create wealth in our business but it can create short-term headwinds for your share price if the growth rate moderates because of increased competition.

6. What do you believe will matter most for your competitive advantage ten years from now — and what do you think investors overestimate today?

Kinsale’s use of data and analytics and our cost advantage over competitors will drive significant wealth creation over time.

Some investors emphasize near term premium growth. Growth is certainly important, but only if you achieve it while maintaining adequate margins.

7. What is the biggest threat posed by competitors that you think the market underappreciates?

We have many smart and disciplined competitors, but we have many who don’t fit that description. Competitors who routinely underprice risk are problematic for the industry even as they destroy their own wealth in the process.

8. What do you see as a competitive advantage you offer that others can’t?

Our quantitative approach to the business relies on quality data and employees who can analyze it and on a business culture that promotes its use. Certainly, competitors could build a similar capability over time, but I suspect some don’t appreciate the value.

The second advantage with durability is our cost advantage – which comes from how the business is organized, use of technology and a business culture and management team that emphasize efficiency.

9. What is the most significant bottleneck preventing faster growth — and what concrete actions are you taking to alleviate this constraint over time?

We don’t have any internal bottlenecks.

Externally, there has been a significant influx of capital to the P&C industry that is driving a higher level of competition than we had a couple of years ago. P&C has always been a cyclical business. Eventually the naïve capacity in the marketplace is overwhelmed with losses and the cycle turns.

Kinsale will make money in both hard and soft markets but our growth rate can fluctuate depending on market conditions.

10. If you were to start this business again today, with everything you know now, what would you do differently?

In 2009 I invested most of my life’s savings in Kinsale; if I were to do it all over again, I’d invest them all.

11. Kinsale has been gaining roughly 0.1–0.2 percentage points of market share per year in the E&S market. What ultimately limits how much share a disciplined underwriter like Kinsale can take?

Perhaps there is some natural ceiling on market share, but we are so far away from it that it’s irrelevant.

12. Progressive is often cited as Kinsale’s long-term role model for disciplined growth. Looking ahead, what do you believe is a realistically achievable long-term market share for Kinsale — and what would need to happen for Kinsale to get there?

I suspect we will continue to take share at a moderate pace. I believe Progressive has moved from 1% of the personal auto market to near 20%, but it has taken decades to do so.

13. How do you distinguish between underwriting skill and favorable pricing conditions when evaluating your own performance, especially as hard markets turn softer?

Market conditions and underwriting skill both factor into results as do our risk management strategy, service model, investment returns, etc. I’m not sure you can accurately disaggregate results into various categories.

Ultimately, the most important driver of our results is the Kinsale team – the leaders and employees who make it happen every week.

14. Kinsale is often described as a technology-enabled underwriter. Which parts of your underwriting advantage are hardest to replicate — and which are easier than investors might think?

We built and maintain our own enterprise system – 120 applications. This system is designed specifically for Kinsale. When we add a new feature it can become a competitive advantage.

We have no legacy software. All these things are hard to imitate for companies dealing with thousands of legacy applications that may be 30 or 40 years old.

15. If pricing were to soften materially for several years, how would that change your growth ambitions and capital deployment priorities?

We will grow as rapidly as we can subject to the business we write meeting our return targets and our risk management protocols. In a competitive market we will tend to grow more slowly.

Beyond growth, we will deploy capital by buying our own shares and paying a dividend.

Regardless of market conditions, Kinsale has significant competitive advantages that will allow us to continue compounding wealth for our owners at an attractive rate.