Q3 2023 Ryan Specialty Holdings Inc Earnings Call

Good afternoon, and thank you for joining us today for Ryan Specialty Holdings' third quarter 2023 earnings conference call.

On today's call management's prepared remarks and answers to your questions may contain forward looking statements investors should not place undue reliance on any forward looking statements. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ.

Materially from those discussed today.

Listeners are encouraged to review the more detailed discussion of these risk factors contained in the company's filings with the S. E C.

The company assumes no duty to update such forward looking statements in the future except as required by law.

Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release, which is filed with the SEC and available on the Companys website with that I would.

I'd now like to turn the call over to the founder Chairman and Chief Executive Officer of specialty Pat Ryan.

Good afternoon.

Thank you for joining us to discuss our third quarter results.

With me on today's call is our President Jim Turner.

Our C of O Jerome I broke them out.

Ill of underwriting manager was miles war.

Also with us who's our head of Investor Relations.

Specialty had another strong quarter as we continued to successfully execute on our strategic financial and operational objectives.

We grew total revenue of 21, 8%.

Led by organic growth of 14, 7%.

We saw broad based strength across our specialist.

The various lines of business as well as strong contributions from our recent acquisitions most.

Most notably soldiers.

This quarter was a great example of our strategic I'm Gonna contributes to total revenue growth and will contribute to organic growth in future years.

We also generated a double digit growth in both adjusted EBITDA and.

Adjusted net income on a year over year basis.

I'm very pleased with our results.

The entire Orion, especially team continues to perform at a high level.

Further validate a differentiated business model.

Along with our excellent results I'm excited to note that we continue to execute on our M&A strategy.

Before diving into the details.

I wanted to reiterate how we think about it.

I have a nice strategy is aligned around the evolving and growing needs of our clients in order to create a dynamic value of proposition.

Our focus is on M&A opportunities.

Highest quality specialty distributors.

Wholesale delegated authority.

Boy benefits, we're building out our alternative a restaurant is being structured solutions beyond your personal insurance placement.

To support our clients' needs to reinsure.

Good for P&C or employee benefit strategies.

So to summarize stride has been where it's definitely expanding our total addressable market with them, especially insurance.

And deepening our considerable moat.

Well in answering our scale scope and intellectual capital.

This we believe will help ensure our ability to sustainably grow our platform over the longer term.

It performed well over all economic cycles.

Earlier, this week, we announced an attractive and strategic acquisition.

Which will deliver immediate value to our clients.

We continue to build out line supposedly benefits with the signing of a definitive agreement to acquire accuracy.

Which is targeted to close later this quarter.

A lot of $25 million of annual revenue.

Like your risk has been part of a medical stop loss of them do you.

Also provides capabilities and group captive supplemental health care amount is but an occupational accident.

We're excited to bring the highly regarded accuracy team on board.

Our three recent acquisitions and the employee benefit space another cornerstone of our medical stop loss.

Boyfriend up its distribution of underwriting platform.

We are rapidly developing our product and services offering to help our clients with integrated health solutions.

We generally target firms that have a track record of all the higher growth and greater long term margin potential above the industry average.

These employee benefits firms are perfectly aligned with those attributes.

Further we continue to believe there remains a long runway.

For both organic and inorganic growth in medical stop loss and more broadly employee benefits.

Building on a strong year of executing.

Our pipeline remains robust.

It speaks well to our ability.

The marriage of perpetual transactions, both tuck ins and larger acquisitions.

We remain disciplined in our pursuit of acquisitions, particularly in the current environment.

As we will only move forward with all of our criteria are met.

Each acquisition must be a strong cultural fit strategic.

Strategic and accretive.

We continue to make targeted investments to talk during the quarter to further enhance our capabilities in both current and developing lines of business.

These investments in talent offer.

Offer the greatest returns for our shareholders.

They're part of a proven winning formula.

Maintained our long term growth prospects.

Now turning to accelerate 20 to 25.

As we continue to execute on our restructuring actions.

Identified additional opportunities to drive continued growth and innovation.

Liver sustainable productivity over the longer term.

So direct margin improvement.

We now expect to generate annual savings of approximately 50 million falling 25.

Cumulative special charges of approximately $90 million through the end of 'twenty 'twenty four.

Turning to the market.

Thus marketplace remain robust.

Providing solutions are otherwise simply not available well hard to place risks, we expect those trends to support our growth and continue for the foreseeable future.

As we have previously noted.

Thus it significantly in those lines.

We see clear opportunities to grow there.

The bolstering of lines of business, where our clients need us the most.

Looking forward.

We recognize the more uncertain macroeconomic and geopolitical environment.

Favorable specialty insurance market dynamics to persist.

We believe will provide us with a robust opportunities for continued growth.

We are well positioned to further capture the broader E&S payroll was through our flexible and differentiated business model and capitalize on our specific lines and accelerated growth.

Our exceptional team continues to consistently deliver adding value for our clients trading partners and ultimately our shareholders.

I'm pleased to turn it over to Jim Jim.

Thank you very much Pat.

Third quarter solid momentum from the first half of the year seamlessly carry forward as we generated double digit growth across all of our specialties.

Turning to the market ongoing industry trends persist, notably in increasingly complex weather and legal environment.

<unk> pulled back in risk appetite from the admitted market and uncertainty regarding reserve adequacy.

Trends are driving more risks into the E&S marketplace, which offer significantly more freedom of rate and form.

And is thus able to provide critical solutions for these risks.

Given our specialized and industry, leading teams ability to navigate the complexities of the market, we plan to continue delivering and exceeding expectations for our clients.

Diving into our specialties, our wholesale brokerage specialty generated another quarter of strong growth in property elevated loss activity driven by severe convective storms higher reinsurance costs persistent inflation and ongoing focus on insurance.

The value and a reduction in available capacity make for an incredibly challenging market.

These factors are continuing to drive flow of new business into the E&S market.

The E&S market continues to respond well providing solutions for insureds, while surplus lines insurers are exhibiting more conservative appetite and tighter limit management, especially around coastal property severe convective storms wildfire flood and Earth.

Quake risk.

Our teams of experts are assisting our clients in navigating the significant.

<unk> of this market and devising tailored solutions that best fit the insurance needs.

Our casualty practice also had another strong quarter driven by higher flow into the E&S market in both primary and excess casualty, particularly for large venue risks health care habitation all in real estate.

Which are all experiencing higher loss trends, driven by economic and social inflation and reserving issues.

Our transportation practice continues to see significant cash flow in the quarter driven by social inflation carrier need for continued rate increases a pullback and underwriter appetite and market exits.

We also received strong contributions in the quarter from our new team members that joined us through our acquisition of social <unk>, which officially came on board at the beginning of July.

Overall, our wholesale brokerage specialty remains dedicated to executing on its game plan, which includes continued evolution of strategies and products to meet changing needs and we expect to generate consistent and profitable growth for the foreseeable future our binding authority.

Specialty had an excellent quarter with the trends we saw in the first half of the year continuing in the third quarter, despite ongoing capacity constraints in personal lines.

Named plenty of potential for panel consolidation as a steady long term growth opportunity.

We are well positioned to execute our underwriting management specialty also performed very well.

<unk> was driven by sustained broad based rate increases, particularly in property <unk>.

Contributions from new growth initiatives, such as excess casualty and alternative risk solutions, Inc.

Incremental capacity fueling growth in cat property transportation and that our reinsurance M. G. You Ryan Reed.

And profit conditions, including many of the strong historical performance and the preceding soft market cycle.

We also announced the acquisition of accu risk, which adds breadth and depth to our growing benefits practice.

As Pat mentioned in his remarks.

Our acquisition strategy continues to provide us with new avenues, such as alternative risks and benefits to substantially expand our total addressable market.

This will enable us to further grow alongside our clients' evolving needs and ensure our ability to sustainably grow our platform over the longer term and perform over economic cycles.

Turning to price.

Through Q3, we remained in a prolonged stage of historically hard market conditions pricing in the E&S market largely held firm or accelerated in many lines of business with property continuing to see the strongest rate momentum.

So in a seasonally smaller quarter.

Exceptions remain in public company, D&O and cyber and Swift.

All cycles and certain lines or perceived to reach pricing adequacy admitted markets tend to step back in a certain placements.

That said, we still have yet to see it play out and the standard market is not meaningfully impacted rate or flow in the aggregate.

We continue to expect the flow of business into the non admitted market to be a significant driver of Ryan specialties growth more so than rate.

With that I will now turn the call over to our Chief Financial Officer, Jeremy <unk>, who will give you more detail on the financial results of our third quarter. Thank you.

Thank you Tim in Q3, we grew total revenue 21, 8% period over period to 502 million fueled by another strong quarter of organic revenue growth coming in at 14, 7%.

And M&A, which added over four percentage points to our top line growth was driven by ongoing tailwind in much of the E&S market strong renewal retention and our ability to win substantial amounts of new business.

Net income for Q3, 23 was $16 million.

One of the acquisitions, we made in Q3 associated with a C Corp at the time of acquisition.

Right. After closing we executed a legal entity reorganization by converting social to an LLC, which of course made it a pass through entity for tax purposes, and then subsequently transferred the entity to our operating LLC, which is where we typically buy and hold our acquisitions. The results of these actions was a great outcome.

For shareholders, particularly with regards to tax efficiency.

These actions did however, create a onetime noncash deferred tax expense at the public holding company, which created a loss of <unk> <unk> per diluted share for the quarter.

Since we have no plan to ever sell associates, we do not expect this tax expense will ever be realized in cash.

Going forward, we do not expect any change in the company's annual effective tax rate related to these actions and we will likely pursue a similar strategy with respect to any future acquisition of C. Corp's.

Adjusted net income for the quarter was $87 million or 32 cents per diluted share.

Adjusted EBITDAX for the third quarter grew 25, 8% period over period to 147 million, while adjusted EBITDA margin improved 90 basis points to 29, 3% driven.

Driven by strong organic revenue growth and higher fiduciary investment income and partially offset by continued investments in our business.

Turning to our accelerate 2025 program, we had approximately $16 million of charges in the quarter.

We identified additional opportunities to wisely invest to drive more efficiencies and thus greater savings and we remain well on pace to complete the program by the end of 2024.

As Pat mentioned, we now expect to generate annual savings of approximately $50 million in 2025 with cumulative special charges of approximately $90 million through the end of 2024.

We expect just over half the charges in calendar year 2023, and then the remainder to flow throughout 2020 for.

As Pat also mentioned, we will continue making targeted investments in the fourth quarter and talent and recruitment.

These investments in talent, particularly recruiting new colleagues historically have offered the highest returns for our shareholders and are part of our proven approach to maintaining our long term growth prospects.

Based on our current forecast, we expect to record GAAP interest expense, which is net of interest income on our operating funds of approximately $31 million in Q4, which incorporates the impact of the accuracy acquisition.

Turning to guidance, we are now guiding our organic revenue growth rate for the full year 'twenty three to be between $13, five and 14, 5%, which reflects an increase of 50 basis points to the floor compared to our previous guide range of 13.0 to 14, 5%.

In addition, we are raising the low end of our full year adjusted EBIT margin guidance range and are now guiding to full year adjusted EBIT margin of between 29, five and 30.0%.

In summary, we're very pleased with our third quarter performance and we remain very excited about our both near and long term prospects with that we thank you for your time and we'd like to open up the call for Q&A.

Greater.

Thank you and at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate your line is in the question you May Press star two if he would like to remove your question from the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

And our first question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.

Thanks I'm. Good evening. My first question is on your organic growth guide. So you guys raised the guidance for the full year.

Like you were at 14.7% year to date on that 13, five to 14 and a half now for the full year and that would imply right that the fourth quarter come in in a range of 12% to 14%. So I'm just hoping to get more color are you expecting a D cell in the Q4, because I had thought that other than the second quarter.

The quarter has a higher property concentration and that should be a tailwind or maybe there's just some conservatism built into the guide.

Hi, there at least no. Your recollection is correct Q4 is seasonally our biggest quarter. It does have the second most amount of property business second to Q2, but we did get some of the benefit of the <unk>.

<unk> in property last Q4, and so we've got some measured assumptions about that compounding on itself. If theres a very very strong showing in Q4, there is some potential upside related to property for sure.

And then on the savings program on the incremental savings that you guys are announcing Tonight I, though as expected. So so that's 50 versus 35, so that incremental 15 is that expected to come in 25 of them. We now see more savings now.

Filter through in 2024 as well.

Yeah.

The full 50 won't show up until 'twenty, five but relative to the prior estimate of 35 of saves there will be more flowing through next year and that will be fully represented in our margin guide for 'twenty for that we released in Q1.

Okay, and then Hum you know Pat you were talking about a robust M&A pipeline I believe you said tuck ins as long as larger acquisitions on you know what do you guys define I guess, it's larger deals and you know have you seen any change just in multiples on potential.

Transactions, either tuck ins or larger deals over the course of the past year.

I would say that.

Tuck ins are obvious larger deals.

Yeah, it would be.

Of our 400 million.

You'll recall all risks.

Uh huh.

Quite a bit higher than that that would be how long.

I was just still today.

We work on these transactions.

Particularly the larger ones over an extended period of time.

So it's difficult to know.

If they do mature if they will materialize.

Cause of the.

Length of time that it takes to bring these in.

And so we're just kind of.

Time those.

Accurate way.

But in terms of the.

Valuations Elyse.

We as you know look for look to buy.

Good to great companies.

We're not a bottom fishing or whatnot.

Not looking to buy.

Projects.

We therefore.

Spec took pay.

A fair multiple.

And so on good and great companies.

Multiples are still.

Pretty consistent from what they've done.

There could be some tailing off with theirs.

A little.

Lesser quality.

But be assured that as were looking.

Very selectively.

Well, we will bring into the Orion, especially family.

They've got to be a really good company.

And they have to have the potential that we can make them better.

And we can make great companies, even better so that's how we look at.

Thank you.

Yeah.

Our next question comes from the line of Mike <unk>.

<unk> <unk> with BMO capital markets. Please proceed with your question.

Hey, good afternoon.

First question on on on M&A, because you guys have stressed a lot Ah yeah, especially in your prepared remarks about kind of expanding your Tam and addressable market alternative RASK and benefits just.

Curious like I I.

Is there a way you can express how much larger your.

Sure.

Your Tam is to give us a better flavor of why does it.

Net cash or keeping the balance sheet really.

Can can be maybe fully deployed.

Is that the goal that you know maybe all your free cash flow plus some of your net cash but over the next year could be deployed into you know about your the markets you're in plus this expanded Tam or is it just a small expanded tam.

Well, we're always looking to expand Tam.

It has large away as practical impossible.

But to say directly to sort of directly your question is about.

All of our dry powder, we'd be delighted to invest all of our more.

We.

We keep working on these kinds of deals we've had I think a quite good.

'twenty three in terms of.

I think to our total addressable market.

We believe that it's been an active year for us it's been a very successful M&A year.

There's time left in the year.

And so we're looking forward to.

And then to deploy that.

Dry powder.

We have a balance sheet that can accept.

Within our guidelines.

Debt ratios.

Considerable more of that so yeah, we're ambitious and what we're looking for.

Okay.

Switching gears to some of the excellent revenue growth and binding authorities and underwriting management really saw an acceleration of revenue growth. There you know can you.

Any more color or flavor you know of.

You know, what's driving that you know.

M&A versus organic and just you know weather.

Weather.

Our operating kind of at that.

There's some tailwind that we should be thinking about.

Yes, we continue to grow in.

And expand.

As we have but it's accelerated and its driven mostly in in our binding authorities and R and R. M. G. You strategy in areas like Cat property.

As you know the the the wind the wildfire the convective storm in the flood affecting so many different businesses across the country in different geographies. So we've capitalized on that.

The flow of business into the channel you know coming into binding and and into the MGA side of the business is is really a part of the strategy. If you. If you know our the way we've arranged our Mg use our binding authorities behind our brokerage horsepower in the practice group versus.

<unk> led by Cat property, but also long tail high hazard casualty business, that's working out very well for us. So that's part of it I'll, let miles respond even more specifically on the on the Mgo side.

Certainly I appreciate the question. So look just to add again right definitely opportunity is certainly up launching incremental products. We've we've successfully launched our international renewable facility excess casualty has expanded trucking has expanded incur.

Incremental capital and extremely key products right now property Treaty reinsurance.

The inorganic element that we are quite proud of has grown and that's our profit commissions. So again. This is reflective of our our profit generated to the carriers. Some of these measurements are actually might be in from three or four years ago. So keeping in mind, we're earning these from the soft market years.

And there there's we're starting to collect them today. So we're quite proud of that inorganic contribution to our to our growth.

Thank you.

Yeah.

Our next question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your question.

Hey, thanks.

So I think our expectations in the second quarter were for double digit organic growth in both property and casualty lines of business in the second half of 2023, So I'm curious of them materialize in the quarter and how you see growth developing between these two classes of business as we head into 2020.

Sure.

Well clearly a cat property has been the leading driver into the channel, but right behind it is long tail casualty business as I mentioned and the real high hazard casualty business led by transportation consumer product liability.

<unk> real estate again, that's a that's a property and casualty loss leader in the reinsurance world.

It's expanding those classes of business and some others led by public entity.

Some of the sports and entertainment classes higher education.

Large venue risks really continuing to to grow and expand in the non admitted property and casualty channel.

Myles Yeah, absolutely. Thank you so it looks so rates and terms remain very firm for property, but compounding that is our at bats are increasingly so even non win habitation. All we've we've had the benefit of our results and risk management tools that allowed us to continue.

Track capacity when others are pulling back and now we're meeting we're meeting needs that others are forced to pull back from so we've seen that in the last quarter and continuing into next year. So we think we're well positioned.

Got it appreciate that.

And on.

On the on the property comments I mean, I think the the comments are you know here and in the press release for that property pricing in submission flow or the drivers of <unk>.

Growth, despite a lower weighting to cat in the quarter I think some investors hold the view that this growth is somewhat temporary in nature and might eventually create a difficult headwind for growth. So I'm curious if you could comment on that notion at all and perhaps the sustainability of the property flow into the E&S market in 2024.

Sure.

We tend to disagree with that and really we follow the global warming and the impacts of of of all of that and it's really more.

Difficult than ever for carriers to be profitable and cat, but its much more than just coastal wind it's affecting.

Every geography in the United States today, and it's it's wildfires convective storm, it's flood, it's driving much more business than just the win in the wind buying season. So we see it having a positive impact on all four quarters and the demand for our products solutions and services to continue to incur.

We see no let up in that.

And is it.

Just the only class I'd add is even course of construction remained extremely robust in both submission count and revenue contribution.

We are we are obviously conscious of rising rate environment and the impact of both buyers and builders, but the reality is there's a.

A major structural shortfall in available housing units in the U S that we continue to meet through E&S products.

Uh huh.

Okay awesome, thanks for that and maybe just lastly for me.

I think there's been some speculation out there that some larger brokers can enter the wholesale space, but it feels like it may not make the most sense for them to compete where you do.

So curious if you have any views on the impact of Orion should a larger broker enter the whole sales space in some form.

Sure well I'll start out by saying.

The first time you about us.

We talked about the value of being independent.

Independent being defined as.

Competing with our clients.

We have grown we've prospered.

For multiple reasons, one of which is that we're independent.

We don't compete with our clients.

I think the larger brokers have started this I know for a fact.

You'll probably do as well.

They haven't made the decision to go in.

But I think a lot of it is around.

Yeah sure we're the right owner for.

A wholesaler.

We believe Pac.

Passionately.

And independents as a real differentiator.

So we don't sit around wondering worrying and that's all going to come in.

They come in after they have to compete with birth tough competition remember this.

All the brokers that we do business. So we believe that they passionately wanted to do what's best for their clients.

And what's best for the client in our minds, it's a great talent pool that we have that are so differentiating.

So we have several clients.

Their own wholesaler.

Well, they bring us the tough hazardous high hazard Russ.

Bring us the risks that we are uniquely qualified to handle because of our industry our product expertise.

So if you Wanna really survey this.

Talk to retailers about who are the go to places to go out and really hard risk because you're gonna here right.

Ryan specialty arty mentioned very often.

So we would you.

Yeah.

We're very proud and pleased that the position we're in.

The more competition comes in we still think that they need us and they use us when they need us and we understand that so we keep building that their need for us.

That's a big part of our strategy.

Yeah.

Thanks appreciate the color.

Our next question comes from the line of Brian Meredith with UBS. Please proceed with your quick.

Yeah. Thanks, a couple of them here, Hey, Pat I'm, just curious there's a there's a potential very large wholesaler that's going to get sold to a private equity shop does that create any opportunities for you do you ever see like teams fallout after something like that happens with the relationship there with a big Bank you know potentially cause some business just with the <unk>.

Check out.

Well I've got to be very careful answering this question.

Yeah, well first of all.

We don't have movement out of our company.

As you know we retain our talent.

Some people do have movement out of a company that our company.

That's a kind of a.

A cultural thing, but its a strategic issue.

So I'd rather not comment.

What might happen to any individual company, that's not something we do.

Talk about competitors or clients for that matter.

So if you'll pardon by not commenting on that.

I'll just say that.

And the brokerage business and you've observed this across brokerage.

Space, there's a lot of mobility.

There's a lot of mobility.

Unfortunately, we have a culture.

That has allowed us.

To maintain our talent.

Fortunately, we have a platform.

That allows the people who join us.

Got significant productivity increases so people who come from another firm.

Almost always.

That's fast majority of the time increase their productivity.

We make acquisitions like social as well.

There are already increasing their productivity and I've only been with US a few months.

So it's the culture, it's the trading relationships, we have with capital providers.

Trading relationships of trust.

And reliability that we have with our retail brokers they know that we're passionate about.

Having them, well and helping them serve their clients well partnering on their behalf.

Hotel at ones in this business, although it was in this business.

And that's why we're winning.

Makes sense I appreciate that and then second question just curious transactional type business.

Are you seeing any pick up there any green shoots.

What's the view there.

Well.

Global M&A transactions volumes remain under pressure I mean, certainly in light of higher interest rates and macro uncertainty.

We we are seeing incremental opportunities we've been doing our best to offset as much of that pressure through geographic expansion and product expansion include.

Including the launch of our first office in Singapore.

Behind us so theres two substantial losses in the industry totaling almost speculated that total almost 1 billion for <unk>.

So therefore, despite lower deal volumes, we remain very optimistic on on rate going into next year.

Great. Thank you.

And our next question comes from the line of.

Mayor shoes from K B W. Please proceed with your question.

Oh, great. Thanks, so much and good evening, all I think there's a question for Jeremy when you provide guidance going forward, what is the assumption for supplemental and contingent commissions and better than that not numerically, but conceptually.

A good question Mayer.

Supplemental and contingent commissions are not part of the organic calculation. So they're not contemplated in our organic revenue guidance, but our forecast of course does contemplate them on the margin guidance.

Okay perfect. That's helpful. A second broader question.

We've touched on this but.

Trying to get a sense as to the maybe acceleration of rate increases or the acceleration of business moving to the E&S market on the casualty side as social inflation persists or accelerate.

If it's we didn't see any inflection points on either of those.

We see a steady increase in inflow in the high hazard.

Aspects of casualty mayor.

I gave a few examples earlier, but transportation maybe the number one the loss leader in the reinsurance world is being dumped and shed by almost every standard company that's pouring into the channel and that's every aspect of transportation from long haul trucking delivery.

The shared economy.

Small commercial fleets.

Seeing in and we were prepared for it we made the krausz acquisition for that reason, we've built up our binding authorities and our Mg use in transportation and then habitation all maybe the second largest leading a loss leader in the reinsurance world doing a lot of damage in the standard market.

We see that increasing in flow and the rates continue to rise even in the non admitted marketplace.

Any type of venue business, where large crowds gather unfortunately, whether its university stadiums large sports venues, we see that pouring in and then one of our traditional long tail high hazard classes of business consumer product liability, we see a tremendous amount of that pouring in.

Into the channel.

Lots of demand for our solutions there. So it's really the the loss leaders and the high hazard niches within the casualty segment.

Okay. Thank you very much.

Okay.

Our next question comes from the line of Michael Ward with Citi. Please proceed with your question.

Got you.

Thanks, guys.

I think the so on the margins I think year to date margins are like a little over 30%.

And the guide is for 29 25 to 30.

It's not that big of a difference, but just wondering what you're expecting.

To drive our margin for Q is it simply hiring.

It's hiring continued investments in the business that we're doing perpetually and there is still a little bit of a lingering effect of the hiring we made in 2022.

We'll have an impact in Q4, it's getting less as time goes on but theres still an impact in Q4 from that.

Okay. Thank you.

And then the three the benefits businesses that you've acquired just wondering sort of how they fit together or complement each other there I think they are relatively smaller so curious how the integration effort.

[noise] differs from your host wholesale P N C deals.

Great question.

Youre right they they do differ but.

Right.

Liberally.

Targeted.

The first two.

Case in 0.6 are basically distributors.

Quite quite effective distributors.

Acura risk.

This is in fact.

Our managing general underwriter.

Ah specializes in medical stop loss.

But it isn't a really excellent integrated health plan.

Which is a major part of our strategy.

They have a terrific management team.

A very experience.

Outstanding management team, so that helps tie those things together.

But lucky risk also has.

Fills that we believe are going to be important to the distribution into the building of the entire plan.

Which is that.

They've got an ability to manage group captives.

In addition to the integrated health plan.

We believe the funding of self insured plans.

Often are gonna microwave.

And the group captives.

Also we believe that there's a really strong need.

By retailers generally maybe not the top two or three or four or five.

They need help and that's why we've gone into it.

To provide these services to our clients.

So it really runs through the top 100 up to say the top pick at five.

They need help in executing on these opportunities.

So we feel that this foundation of these three.

Not really gives us a product detector market.

Well solve for the needs of these retail brokers so.

This was a step by step process more to come but.

We really believe that together now.

We have close to $400 million of medical stop loss premium and as we've said in the past.

Ah self insurance is migrating quickly.

In different segments of the commercial market.

Uh huh.

Many smaller firms.

The 100 to 200, and even sometimes smaller than that.

Writing into self insurance.

And so the ability to help them provide medical stop loss.

And then to get them integrated health plan to supplement that.

Then our goal.

And then ultimately as we've said in the past we believe that the funding often.

As we go into the future here is going to be through group caf to funding mechanisms.

So accuracy brings us out as well.

Yes.

Thank you so much.

Okay.

Our next question comes from the line of Tracy.

Things easy with Barclays. Please proceed with your question.

Thank you Pam luxury how has this is mix byproduct lines change in the third quarter of 23 versus the third quarter 'twenty tail that might have played into your strong organic revenue growth that's 14.7% this quarter.

I don't think that's a factor.

As much as the momentum.

Momentum is strong.

Yeah, and Tracy and if you'll recall in Q3 of last year is when we started a rapid deceleration in public D&O.

Public D&O is still a headwind for us, but its impact is less compared to a year ago.

Okay, so that public D&O hasn't fully cycled out yet.

Well, we've been through we've been through 12 months of paint on it but right rates keep going down. It's just the impact in Q3 of 23 was lesser of an impact in Q3 of 'twenty two.

Got it as just one example.

Yes.

I also wanted to touch upon your underwriting management you mentioned the profit Commission and I'm just wondering that work the other way like let's say do you have to pay a claw back as the casualty loss ratios are worse than whatever target you mutually set up with the carrier.

So I appreciate the question, but I want to emphasize we only recognize.

The profit commissions when they are both collected and fully earns we never accrue anything that could be rebuilt.

There is no there is no claw back in any of these.

Okay. So then they'll just be no profit commission, if you didn't get the loss ratios over time.

Exactly I Miss would result in a zero.

They recognize it when it's earned and never opened a claw back.

Got it thank you.

And it looks like we have reached the end of our question and answer session. Therefore, I will turn the call back over to Pat Ryan for any closing comments.

Well it was a very very robust discussion.

We're very pleased with how well our team has performed through.

Through the first nine months.

Okay.

Proud of our performance.

Alright, thankful for your support and interest and your good questions.

Are we talking another three months, but several of your prior to that obviously.

Have a good evening.

And this concludes today's conference call.

You may now disconnect your lines. Thank you for your participation.

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