Silver Bullet
Looking into the E&S insurance market
Before I get into where I’m looking right now, I want to establish a baseline — because the jargon in insurance can make it hard to follow the logic without it.
A Quick Primer on E&S
Both Bowhead (NYSE: BOW) and Kinsale (NYSE: KNSL) operate in the excess and surplus lines (E&S) market. E&S is what happens when a risk is too complicated or unusual for standard admitted carriers to write. Think of standard insurance as staying inside the guardrails — clean risks, predictable outcomes, heavily regulated rates. E&S is everything that doesn’t fit that mold: harder-to-place risks, complex liability exposures, specialty situations. The tradeoff for the insurer is more flexibility in pricing and terms, but the underwriting has to be considerably more careful. Errors don’t surface quickly — they can take years to emerge in the loss development data.
That lag is exactly what makes the statutory Schedule P filings so valuable for investors. They show you what’s actually happening inside the reserve development — not the earnings press release version, the actuarial truth.
The Macro Backdrop: Social Inflation and Nuclear Verdicts
Before looking at individual companies, it helps to understand the force that defined the casualty insurance market over the past several years — because it explains both how we got here and why the current soft market carries more risk than it might appear.
Social inflation is the term used to describe the rising cost of insurance claims driven by factors beyond general economic inflation: more aggressive plaintiff attorneys, third-party litigation funding, nuclear verdicts, and a legal environment increasingly hostile to corporate defendants. It has been the defining theme in casualty insurance for the better part of a decade.
The numbers are striking. In 2024, there were 135 lawsuits resulting in nuclear verdicts — those above $10 million — against corporate defendants, a 52% increase over 2023. The total sum of those nuclear verdicts was $31.3 billion, representing a 116% increase from 2023. Third-party litigation funding, where investment firms finance lawsuits in exchange for a share of the proceeds, is pouring accelerant on the trend — annual investment in litigation funding is projected to reach $31 billion by 2028.
This is the environment in which E&S casualty writers are operating. The standard market retreated from complex and difficult risks as losses mounted, pushing more business into E&S. In 2024, E&S direct premiums written reached $98.18 billion, a 13.4% year-over-year increase, now representing 9.5% of total U.S. direct premiums. The E&S market is structurally larger than it was five years ago, and a meaningful portion of that growth is permanent — risks that migrated out of standard markets during the hard cycle don’t all migrate back when conditions soften.
The casualty hard market created the conditions for the exceptional underwriting results you’ll see in Kinsale’s Schedule P. The current softening — with competitors flooding back in, pricing declining, and the cycle turning — is the risk. Holding both of those thoughts at once is essential to understanding the thesis.
What Schedule P Actually Tells You
Every insurance company files a Schedule P with their state regulator annually. Part 1 gives you the snapshot: premiums earned, losses paid, and total reserves by accident year. Part 2 is where it gets interesting — it’s the development triangle, showing how the net incurred loss estimate for each accident year changes over time as claims actually settle.
The key columns are the “One Year” and “Two Year” development figures. Negative numbers are good: actual losses came in better than reserved — the actuary set aside more than was needed. Positive numbers mean the opposite: the company is strengthening reserves upward, meaning initial estimates were too optimistic.
This matters enormously in long-tail casualty lines, where a claim from 2022 might not fully resolve until 2030. By the time you see the adverse development, the company has already written several more years of business at similar pricing. If your 2022 book is developing badly and you’ve doubled premium volume in 2023 and 2024, you have a compounding problem — except nobody knows it yet.
With that framework established, let’s look at both companies.