KNSL - Kinsale Capital stock drops after Compass Point cuts to Neutral

Kinsale Capital Group ( NYSE: KNSL ) stock dropped 5.1% in Tuesday late morning trading after Compass Point analyst Casey Alexander downgraded the specialty insurer to Neutral, reflecting increased volatility in its earnings streams.

The company, which focuses on Excess & Surplus specialty insurance, has experienced rapid growth and produced combine ratios well below industry averages, which have supported its valuation above industry averages, Alexander wrote in a note to clients.

While the analyst is confident in Kinsale ( KNSL ) management's ability to manage reinsurance over the long term, "our estimates are reflective of greater volatility in future earnings streams, especially baking in higher loss ratios in the 3Q periods due to the higher incidence of CAT (catastrophic) activity in that specific period," he wrote.

With the elevated valuation and with reinsurance renewal several months away, "we believe a more Neutral posture is appropriate at the current juncture for KNSL," Alexander said.

He is discounting Kinsale's ( KNSL ) price/tangible book value multiple to 8.5x (vs. 9.5x) to account for potential earnings volatility on its increased property exposure, he said.

Price target is raised to $350 per share from $330.

Alexander's Neutral rating agrees with the SA Quant rating and disagrees with the average Wall Street rating of Buy.

See why SA contributor Weighing Machine sees Kinsale ( KNSL ) as priced beyond perfection

For further details see: