As the stock market struggles in wake of climbing inflation, investors are turning to industry groups that are recession-resilient. Insurance stocks are one of the areas holding up well despite market volatility.
Even amid economic hardships, individuals and companies must maintain their insurance coverage. Therefore, these groups may have a better chance at holding up under difficult conditions.
The property and casualty insurance industry group currently ranks No. 32 of IBD's 197 groups. Recently, the group has hosted a series of breakouts from insurance stocks such as W.R. Berkley, Cincinnati Financial, Markel and more.
While most of these are now extended, Kinsale Capital Group, an IBD 50 component and industry group leader, is among insurance stocks still awaiting a breakout.
Insurance Stocks Nearing Buy Points
Shares are approaching a 245.27 cup-base buy point after weeks of tight trading action. According to MarketSmith chart analysis, the pattern is identified as a very large cup with handle. But, given the handle's 27% decline and general shape, it's safe to call this base a proper cup.
The stock could also be bought if shares move above the 240.56 entry of a 4-weeks-tight pattern that formed. A 4 weeks tight essentially extends a 3-weeks-tight pattern that can be used for follow-on buys. Meanwhile, the tight sideways action lately has allowed the 10-week moving average to catch up to the stock price, and is providing a potential area of support.
After the company reported better-than-expected earnings on Feb. 17, shares began to rally and form the right side of the base. The stock got critical buying support at the 200-day line earlier this year. And it's encouraging to see the stock's relative strength line move higher as well.
Kinsale's Competitive Advantage
Kinsale Capital Group is an insurance company that specializes in the excess and surplus (E&S) market across the U.S. The excess and surplus lines market works to insure high-risk businesses that other insurers tend to pass up. The company has carved out a niche catering to smaller accounts which they believe are subject to less competition.
According to the firm's recent investor presentation, Kinsale managed to grow its premiums at a compound rate of over 36% across the last four years, while growing underwriting income at nearly 50%.
The strong growth has supported Kinsale's full-year increase in earnings of 82% to $5.74 a share in 2021, compared to 2020. As for its fourth-quarter earnings, Kinsale reported growth of 54% year-over-year to $1.76 a share on revenue of $183.6 million. This represents sales growth of 32%.
The insurance stock is set to report earnings on April 28, after the market closes; this could catalyze a move in the stock price up or down. According to FactSet, analysts expect EPS of $1.51 in Q1, which would represent growth of 36% from the same quarter a year ago.
A major driver of growth for Kinsale has been its proprietary technology platform that assists in the underwriting process. "We believe that our technology platform 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," Kinsale wrote in an investor presentation released in March.
