Q2 2025 Ategrity Specialty Insurance Co Holdings Earnings Call
Operator: Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer, Chris Schenck, President and Chief Underwriting Officer, and Neelam.
Speaking today are Justin Cohen, Chief Executive Officer, Chris Schenk, President and Chief underwriting Officer, and Neil and Patel, Chief Financial Officer.
Chris Schenck: Patel, Chief Financial Officer.
All lines have been placed on mute to prevent any background noise.
Operator: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, star one again. Thank you. Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business, and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today and our IPO prospectus filed with the SEC.
After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
If you would like to withdraw your question Press Star one again, thank you.
Before we begin I would like to mention that certain matters discussed in today's conference call are forward looking statements relating to future events management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.
Actual results actual results could differ materially from those anticipated in these forward looking statements.
The risk factors that may affect results are referred to in our press release issued today and our IPO prospectus filed with the SEC we.
We do not undertake any obligation to update these forward looking statements made today.
Operator: We do not undertake any obligation to update these forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today. A copy of today's press release may be obtained by visiting the Investor Relations page of the website at investors.ategrity.com. I'll now turn the call over to Justin Cohen.
The speakers may refer to certain adjusted or non-GAAP financial measures on this call.
A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today.
Copy of today's press release may be obtained by visiting the Investor Relations page of the website at investors integrity Dot com.
I'll now turn the call over to Justin Cohen.
Great. Thank you and good afternoon, everyone as we kick off our first earnings call as a public company I want to thank our new investors for their trust and support we take very seriously our responsibility as stewards of your capital and we are committed to delivering world class returns over time, we're excited today to share our results for the quarter and a view into where integrity.
Justin Cohen: Great. Thank you and good afternoon everyone. As we kick off our first earnings call as a public company, I want to thank our new investors for their trust and support. We take very seriously our responsibility as stewards of your capital, and we are committed to delivering world-class returns over time. We're excited today to share our results for the quarter and a view into where Ategrity Specialty Insurance Company Holdings is headed going forward. For those new to the story, let me give first a quick introduction. We are a specialty excess and surplus insurance company focused on insuring small to medium-sized businesses across the U.S. We've built a proprietary underwriting platform to penetrate this high-volume market with consistency, speed, and rigor. We've developed a competitive edge in how we segment, price, and process risk, and we deploy technology and analytics to stay ahead of the market.
Had it going forward for those new to the story, let me give first a quick introduction, we are a specialty E&S company focused on ensuring small to medium sized businesses across the U S. We built a proprietary underwriting platform to penetrate this high volume market with consistency speed and rigor we've <unk>.
The competitive edge in how we segment price and process risk and we deploy technology and analytics to stay ahead of the market. We call. This approach production is the underwriting and we believe it will enable us to grow profits and build market share in the E&S space.
Justin Cohen: We call this approach productionized underwriting, and we believe it will enable us to grow profits and build market share in the excess and surplus space. We saw evidence of that in this quarter as we produced adjusted net income of $17.9 million, a 365% increase over last year. Our gross written premiums outpaced the market, growing 32% year over year, and our focus on rigorous and efficient underwriting contributed to a record combined ratio of 88.9%. Our loss ratio was strong at 58%, supported by solid loss performance in property, and our expense ratio was 31%, down 2.3 points year over year while we continued to drive efficiencies. These are balanced results that translated into 14.5% adjusted ROE for the quarter. We are certainly paying attention to the competitive pressures in insuring, and we recognize that our reported growth this quarter bucks that trend.
We saw evidence of that in this quarter as we produced adjusted net income of $17 9, Million% to 365% increase over last year, our gross written premiums outpaced the market growing 32% year over year, and our focus on rigorous and efficient underwriting contributed to our record combine.
Ratio of 88, 9%.
Our loss ratio was strong at 58% supported by solid loss performance in property and our expense ratio was 31% down two three points year over year, while we continued to drive efficiencies. These are balanced results that translated into a 14, 5% adjusted ROE for the quarter.
Now we are certainly paying attention to the competitive pressures in E&S and we recognize that our reported growth growth. This quarter bucked that trend, we are benefiting from our growth initiatives and distribution strength as well as some barriers to entry in the small and mid sized market with that said, we think we will continue to.
Justin Cohen: We are benefiting from our growth initiatives and distribution strength as well as some barriers to entry in the small and mid-sized market. With that said, we think we will continue to see competition over time, and we will also continue to win and gain market share. You should know that we prioritize underwriting profits first and foremost. We will only grow the top line at a pace that allows us to deliver strong expected returns to our shareholders. With that, I'll turn it over to Neelam Patel, Chief Financial Officer, to walk through our financial results, and then Chris Schenck, our President and Chief Underwriting Officer, will describe how we generated these outcomes.
See competition over time, and we will also continue to win and gain market share, but you should know that we prioritize underwriting profits first and foremost we will only grow the top line at a pace that allows us to deliver strong expected returns to our shareholders. So with that I'll turn it over to Neal <unk>, Chief financial officer to walk through.
Our financial results and then Chris Schenk, our President and Chief underwriting Officer will describe how we generated these outcomes.
Thank you Justin and this was a strong quarter for integrity.
[Analyst 1]: Neelam?
Neelam Patel: Thank you Justin. This was a strong quarter for Ategrity. Adjusted net income came in at $17.9 million, up from $4.9 million in the same quarter last year. These results were driven by solid top line growth, improving margins, and higher investment income. I'll take you through the main line items starting with premiums. As already mentioned, our gross written premiums grew by 32% in the quarter. Net written premiums grew 38% driven by higher retention rates year over year. Net earned premiums grew at a 20% pace, reflecting the lagged recognition of quota share reinsurance replaced in 2024. As we move through the second quarter, second half of 2025, that headwind should gradually abate. Fee income was $1.5 million versus $191,000 a year ago, reflecting increased policy fees. Historically, we hadn't implemented standard market fees, which we began doing this year.
Adjusted net income came in at $17 9 million up from $4 9 million in the same quarter last year.
These results were driven by solid top line growth improving margins and higher investment income.
Take you through the main line items, starting the premium ads.
Already mentioned, our gross written premiums grew by 32% in the quarter net written premiums.
8% driven by higher retention rate year over year.
Earned premiums grew at 20% pace, reflecting the lagged recognition of quota share reinsurance we placed in 2024.
As we move through the second quarter second half of 2025 that had been should gradually Amit.
Fee income was $1 5 million versus.
191000, a year ago, reflecting increased policy fees.
Historically, we had an.
Extended market fees, which we began doing this year.
Turning to underwriting underwriting income and took a 25 was $9 6 million.
Neelam Patel: Turning to underwriting, our underwriting income in 2025 was $9.6 million, up 119% year over year. This translates into a combined ratio of 88.9%, down from 94% due to reductions in both our loss and expense ratio. The loss ratio declined 2.8 points to 58% with strong results in our property business. In Q2 2025 we had no prior year development compared to 3.5 points in Q2 2024 that were related to a change in how we reserved for legal expenses. Catastrophe losses represented 4.1% of net earned premiums this quarter, down from 8.8% last year which had a very active tornado season. Our expense ratio declined 2.2 points to 31% mainly due to lower policy acquisition costs. Policy acquisition costs as a percentage of net earned premiums declined to 18.5% from 21.1% thanks to higher ceding commissions and a more favorable business mix on expenses.
119% year over year.
This translates into a combined ratio of 88, 9% down from 94% due to a reduction in both our loss and expense ratio.
The loss ratio declined two eight points to 58% with strong results in our property business.
And <unk> 25, we had no prior year development compared to three five points and <unk> 24.
Were related to a change in legal expenses.
Cat losses represented four 1% of net earned premiums this quarter down from eight 8% last year, which had a very active tornado season.
Our expense ratio declined two two points to 31%, mainly due to lower policy acquisition cost.
Policy acquisition costs as a percentage of net earned premiums declined to 18, 5% from 21, 1%.
Thanks to higher ceding commissions and a more favorable business mix.
On expenses operating expenses as a percentage of net earned premium was 12, 4% up marginally from last year, but roughly flat compared to first quarter of 2025.
Neelam Patel: Operating expenses as a percentage of net earned premiums was 12.4%, up marginally from last year, but roughly flat compared to first quarter of 2025. The year over year increase reflects the front loaded investments we made in 2024 to support growth and transition to becoming a public company. Moving on to investment results, net investment income was $11.9 million in the second quarter, driven primarily by increased assets from our recent IPO and higher yields on our fixed income portfolio. Meanwhile, realized and unrealized gains contributed another $1.4 million. Our effective tax rate for the quarter was 21.1%. That brings us to net income of $17.6 million. Adjusted net income, which adds back IPO related compensation costs, was $17.9 million or $0.41 per diluted share.
The year over year increase reflect the front loaded investments, we made in 2024 to support growth and transition to becoming a public company.
Moving onto investment results net investment income.
$11 9 million in the second quarter, driven primarily by increased assets from our recent IPO and higher yields on our fixed income portfolio.
Meanwhile, realized and unrealized gains contributed another $1 4 million.
Our effective tax rate for the quarter was 21, 1%.
That brings us to net income of $17 6 million.
Adjusted net income, which adds back IPO related compensation costs was $17 9 million or <unk> 41 per diluted share.
Turning briefly to the balance sheet.
Neelam Patel: Turning briefly to the balance sheet, our investments grew from year end by $180 million to $955 million, which reflects $122 million of net IPO proceeds with the remainder coming in from operating cash flow. Book value increased by $161 million, with $115 million being attributable to the IPO and the rest driven by retained earnings and a modest move up in AOCI. The quarter ended with book value per share of $11.64. With that, I will hand it over to Chris to talk about our underwriting and operating performance.
<unk> grew from year end by 100 180 million to $955 million, which reflects the 122 million of net IPO proceeds with the remainder coming in from operating cash flow look.
Book value increased by $161 million.
$115 million being attributable to the IPO and the rest driven by retained earnings and a modest move up in <unk>.
The quarter ending book value per share of $11 64.
With that.
I will hand, it over to Chris to talk about our underwriting and operating performance.
Thanks Neil.
This quarter, we executed our underwriting playbook with fidelity.
Chris Schenck: Thanks, Neelam. This quarter we executed our underwriting playbook with fidelity. We delivered 32% gross written premium growth.
We delivered 32% gross written premium growth and a sub 90 combined ratio, let me walk you through how we did that.
Chris Schenck: A sub 90% combined ratio. Let me walk you through how we did that.
To start submission volume grew significantly well in excess of our top line. The volume came from three sources activation of new partners launch of our new verticals and products and increased penetration from our Midwest strategy.
Chris Schenck: To start, submission volume grew significantly.
Chris Schenck: In excess of our top line.
Chris Schenck: The volume came from three sources: activation of new partners, launch of our new verticals and products, and increased penetration from our Midwest strategy as submission volume grew. We maintain a conservative underwriting posture, and we deployed capacity with discipline. As a reminder, we operate within a technical and quantitative underwriting framework, and as such, we were able to achieve firm-wide renewal rate increases in the high single digits, with new business rate levels well above technical targets. Our quote-to-buying ratio on middle market business was in the high single digits. This is in line with plan. It is deliberately set low because of our selective risk-taking approach. On the expense side, our service delivery center absorbed higher volumes with only marginal increases in headcount. We continued to deploy automation to reduce manual work, and there was more utilization of our pre-priced and auto quote solutions.
Our submission volume grew we.
We maintain a conservative underwriting posture and we deployed capacity with discipline as a reminder, we operate within a technical and quantitative underwriting framework and as such we were able to achieve firm wide renewal rate increases in the high single digits with new business rate levels well above.
Technical targets.
Yes.
Our quote to bind ratio on middle market business was in the high single digits. This is in line with plan. It is deliberately set low because of our selective risk taken approach on the expense side, our service delivery center absorbed higher volumes with only marginal increases in head.
Count.
We continue to deploy automation to reduce manual work and there was more utilization of our pre priced an auto quote solutions.
This combination of factors factors lowered our unit cost.
Chris Schenck: This combination of factors lowered our unit cost, and as expected, our model is delivering economies of scale while enhancing underwriting quality. A big part of what's powering our submission growth is our expanding distribution network. Since mid 2022, we have invested toward market access for emerging growth opportunities. This has resulted in a 150% increase in unique distribution relationships, with submissions growing at a much faster pace. Our earlier cohorts are ramping up across multiple products now, and we are seeing faster and deeper engagements from our recent appointments.
And as expected our model is delivering economies of scale, while enhancing underwriting quality.
A big part of what's powering our submission growth is our expanding distribution network. Since mid 2022, we have invested toward market access for emerging growth opportunities. This has resulted in a 150% increase in unique distribution relationships with submit.
<unk> growing at a much faster pace, our earlier cohorts are ramping up across multiple products now and we're seeing faster and deeper engagement from our recent appointment.
We believe our value proposition is built around a clearly articulated appetite.
Chris Schenck: We believe our value proposition is built around.
Chris Schenck: A clearly articulated appetite, fast quote delivery, and a hassle-free digital transaction process is resonating with all of our partners. In short, our growth was a function of an expanding distribution funnel. Our combined ratio resulted from maintaining underwriting discipline and improving operational efficiency. These two pieces were mutually reinforcing. We are achieving lower cost at each step from submission to bind. This offsets the cost of a lower quote to bind ratio, which in turn empowers us to adhere to technical rate rates, maintain discipline, and avoid appetite creep. Let's take a look at our performance by casualty and property, which had very different growth dynamics this quarter. Starting with casualty, we produced 57% growth in gross written premium and casualty growth.
<unk> quote delivery and a hassle free digital transaction process is resonating with all of our partners in in short our growth was a function of an expanding distribution and finally our.
Our combined ratio results.
Resulted from maintaining underwriting discipline and improving operational efficiency. These two pieces. We're mutually reinforcing we are achieving lower cost at each step from submission to bind this offsets the cost of lower this offsets the cost of a lower quote to bind ratio, which in turn.
Powers us to adhere to technical rate rates maintain discipline and avoid appetite creep with that I'd like you to take a look at I want to take a look at with that let's take a look at our performance by casualty and property, which had very different growth dynamics this quarter.
Starting with casualty, we produced 57% growth in gross written premium in casualty growth was driven by a combination of new initiatives as well as continued strength in our core segments first we.
Chris Schenck: Was driven by a combination of new.
Chris Schenck: Initiatives as well as continued strength in our four core segments. First, we expanded into new verticals in casualty, most notably retail trades. Launched in Q1 in our broker channel, this is now fully operational and scaling. We also saw strong momentum in our professional liability verticals. These new products launched in January and reached full operating potential in Q2. This line contributed to the growth and that is reflected in our professional services vertical. Second, we advanced our geographic expansion strategy through Project Heartland. As a reminder, Project Heartland is an initiative designed to win targeted business across 30 urban Midwest markets. Built on deeply researched underwriting plans, local.
We expanded into new verticals and casualty, most notably retail trade launched in Q1 in our brokerage channel. This is now fully operational and scaling.
We also saw strong momentum in our professional liability verticals. These new products launch in January reached full and reached full operating potential in Q2.
This line contributed to the growth.
That is reflected in our professional services vertical.
Second we advanced our geographic expansion strategy through project Heartland as a reminder, project Heartland is an initiative designed to win targeted.
<unk> targeted business across 30 urban Midwest Midwest market built on deeply research underwriting plan local partnership and tailored offerings for the region.
Chris Schenck: Partnership and tailored offering for the region.
Project Heartland contributed meaningfully to Q2 growth altogether retail professional liability heartland and a handful of other initiatives accounted for nearly half of the total casualty growth this quarter.
Chris Schenck: Project Heartland contributed meaningfully to Q2 growth. Altogether, retail, professional liability, Heartland, and a handful of other initiatives accounted for nearly.
Chris Schenck: Half of the total casualty growth this quarter.
He also.
Performed on track.
Chris Schenck: We also performed on track or better in our established verticals like hospitality, daycare.
We also performed on track or better in our established verticals like hospitality daycare and residential real estate and.
Chris Schenck: Rental residential real estate.
In casualty renewal rate change was in line with our targets.
Chris Schenck: In casualty, renewal rate change was in line with our targets and well above trend, and we saw new business rates.
Well above trend and we saw new business rates well above technical levels.
[Analyst 1]: Above technical levels.
It is critical for our investors to understand that we hope we believe we hold a clear technical and strategic advantage.
Chris Schenck: It is critical for our investors to understand that we believe we hold a clear technical and strategic advantage. We are going deeper into each of our segments and finding insights that is allowing us to capitalize on emerging opportunities well before our peers see them. As a result, we are leaning in as our competitors are pulling back from key casualty classes. Moving on to property, despite contraction in the excess and surplus insurance sector, we grew property gross written premiums by 4%. While there's talk of a softening market in property, we are only seeing modest pressure in a small and mid-sized space. Competition is still rational and far less severe than the large ticket property. Our 4% growth reflected proactive rate actions implemented in Q3 last year.
We are going deeper into each of our segments segment and finding insights that is allowing us to capitalize on opportunities emerging opportunities well before our peers see them. As a result, we are leaning in as our competitors are pulling back from from key casualty classes.
Moving on to property despite contraction in the E&S sector, we grew property gross premiums by 4%.
While there is talk of a softening market.
In property, we are only seeing modest pressure in a small and mid sized space competition is still rational and far less severe than the large ticket property.
On large ticket property, our 4% growth reflected proactive rate actions implemented in Q3 last year, we held firm on substantive rate increases pricing above technical levels, and we granted flat or down renewals only when justified by performance and exposure stability.
Chris Schenck: We held firm on substantive rate increases, pricing above technical levels, and we granted flat or down renewals only when justified by performance and exposure stability. We priced prospectively with an 18 month view on frequency and severity trends, and accordingly we have raised our severity assumptions to reflect the pending impact of tariffs on building material and labor costs. These factors influence overall replacement costs for property. Here again we're doing something different. Deep analysis, finding insights and taking early.
We priced prospectively with an 18 month view on frequency and severity trends and accordingly, we have raised our severity assumptions to reflect the pending impact of tariffs on building material and labor costs. These are these factors influence overall replacement cost for property.
Here again, we're doing something different deep analysis, finding insight and taken early action to protect our economics.
Chris Schenck: Action to protect our economics.
We believe we are leading proactively.
Chris Schenck: We believe we are leading proactively rather than waiting to react.
<unk>.
Rather than waiting to react.
What react.
Justin Cohen: What react.
That outcome.
Chris Schenck: To avoid a bad outcome, we've made a deliberate trade off. Accordingly, we have made a deliberate trade off prioritizing price over volume in property, and this is consistent with our forward view of loss cost. We also managed our property footprint. We also took action to carefully manage our property footprint in CAT prone geographies, raising rates to cover increasing CAT reinsurance costs. We expect to see these benefits in lower than anticipated cost, even though in the short term it has led to growth, stalled growth in some areas. Finally, Project Heartland meaningfully contributed to our results in the Midwest. We achieved accelerated market penetration, writing profitable business, optimizing our geographic spread, and reducing reliance on large E&S states. To wrap it up, this was a high quality underwriting quarter marked by disciplined growth, strong pricing, and continued efficiency gains.
We've made a deliberate trade up accordingly, we have made a deliberate tradeoff prioritizing price over volume and property and this is consistent with our forward view of loss cost.
We also managed our property footprint, we also took action.
<unk> carefully manage our property footprint in cat prone geographies raising rates to cover <unk>.
Raising rates to cover increasing cat reinsurance costs, we expect these benefits.
We expect to see these benefits and lower than anticipated cost.
Even though in the short term.
It has it has led to some it has led to growth in install growth in some areas. Finally project heartland meaningful meaningfully contributed to our results in the Midwest, we achieve accelerated accelerated market penetration, writing profitable business optimizing our geographic spread.
Reducing reliance on large E&S states.
To wrap it up this was a high quality underwriting quarter, Mark by disciplined growth strong pricing and continued efficiency gains we are scaling deliberately while maintaining technical standards and control. This is the impact of the production is underwriting model, we have built and we believe it positions us for consist.
Chris Schenck: We are scaling deliberately while maintaining technical standards and control.
Chris Schenck: This is the impact of the productionized underwriting platform.
Chris Schenck: Underwriting model we have built, and we believe it positions us for consistent results going forward. Back to Justin. Thanks, Chris.
<unk> results going forward.
Thank you Justin Thanks, Chris.
This was a solid quarter for our integrity profitable growth disciplined underwriting and clear progress on our strategic objectives. As we look ahead into the second half of 'twenty five or expectations are consistent with what we shared with you during the IPO process, a mid to high <unk> growth rate year over year, and gross written premiums and a combined ratio in the low nineties.
Justin Cohen: This was a solid quarter for Ategrity Specialty Insurance Company Holdings, profitable growth, disciplined underwriting, and clear progress on our strategic objectives. As we look ahead into 2H25, our expectations are consistent with what we shared with you during the IPO process. The mid to high 20s growth rate year over year in gross written premiums and a combined ratio in the low 90s. That outcome assumes competitive dynamics stay consistent with what we've experienced to date. Even if competition intensifies beyond our expectations, we expect to continue taking share in the market. Meanwhile, behind the scenes, we are advancing our next phase of productionized underwriting. We're developing automation and pre-price solutions that we believe will solidify our position in the market. We will share more with you on that as we move closer to deployment.
That outcome assumes competitive dynamics stay consistent with what we've experienced to date, but even if the competition intensifies beyond our expectations. We expect to continue taking share in the market.
Meanwhile, behind the scenes we are advancing our next phase of production is the underwriting we're developing automation and pre price solutions that we believe will solidify our position in the market. We will share more with you on that as we move closer to deployment for now we thank you again for your support and for spending time with US today, and we look forward to updating you on our progress in the quarters.
Justin Cohen: For now, we thank you again for your support and for spending time with us today. We look forward to updating you on our progress in the quarters ahead. With that, Eric, you can please open it up for Q&A.
And with that Eric you can please open it up for Q&A.
At this time I would like to remind everyone in order to ask a question. Please press star followed by the number one on your telephone keypad.
Operator: At this time, I would like to remind everyone, in order to ask a question, please press star followed by the number one on your telephone keypad. Your first question comes from the line of Alex Scott with Barclays.
Your first question comes from the line of Alex Scott with Barclays.
Please go ahead.
Hi, Thanks for taking the question.
[Analyst 1]: Please go ahead.
Chris Schenck: Hi. Thanks for taking the question.
First of all I wanted to ask is on the I guess the mix shift towards casualty.
[Analyst 2]: First.
[Analyst 3]: One I wanted to ask you is on the, I guess the mix shift towards casualty. If I look at the mix year over year, it is a pretty meaningful change. I just wanted to understand is that changing at all like the duration of the liabilities and just the way you have to think about the tail on the loss reserves.
If I look at the mix year over year, it is a pretty meaningful change.
And so I just wanted to understand is that changing at all like the duration of the liabilities.
And just the way you have to.
Think about the tail on.
On the loss reserves.
Yes.
These actions of having more casualty business is extending the tail of the liabilities.
[Analyst 1]: Yep.
Justin Cohen: These actions of having more casualty business is extending the tail of the liabilities just in terms of making sure that we understand the drivers. The drivers is excellent performance in our casualty business. As Chris Schenck was talking about, we did raise rates in Q3 of last year and that decelerated growth this year. That's what's driving that mix shift. We are very comfortable with it and our overall targets of casualty within the 60 to 70% range is on a clear path now.
To make sure that we understand the drivers the drivers of this excellent performance in our casualty business and as Chris was talking about we did raise rates in the third quarter of last year and that decelerated growth. This year. So that's what's driving that mix shift, but we are very comfortable with it and our overall targets of casualty within the 60% to 70% range is on.
On a clear path down.
Got it that's helpful. And then can you provide us a little more color on just the update on project Heartland.
Chris Schenck: Got it.
Chris Schenck: That's helpful.
[Analyst 3]: Could you provide us a little more color on just the update on Project Heartland? You know how many distributors you're adding, how far along in that process, how much more growth is there to come from those initiatives?
How many distributors you are adding how far along in that process, how much more growth is there to come from those initiatives.
And this project is really just getting going because we want to give some detail.
Justin Cohen: Yeah, this project is really just getting going.
Chris Schenck: Chris, you want to give some details? Yep, it is. We are just starting to see the.
We are just starting to see the dividends from the investment last year come through.
Chris Schenck: Dividends from the investment last year come through. We have activated more than three dozen partners, and most of them are just starting to come online in terms of production.
We have activated.
More than <unk>.
Three dozen partners and.
Most of them are just starting to come online in terms of production. So there is a it's just the beginning there's a huge runway.
Chris Schenck: It's just the beginning. There's a huge runway.
Yeah.
Got it thank you.
Thanks, Alex.
[Analyst 1]: Got it.
Justin Cohen: Thank you.
Okay.
[Analyst 1]: Thanks, Alex.
The next question comes from the line of Andrew Killen Hagerman with TD. Please go ahead.
Operator: The next question comes from the line of Andrew with TD Securities. Please go ahead.
Hey, Thanks, a lot.
[Analyst 4]: Hey, thanks a lot. Apologize if I go over something. I had a little technical difficulty, but just getting a sense on the property component growing 3.7%. Could you clarify how much pricing was down, if at all, and then how much of that kind of lower premium level was due to you more effectively managing your PMLs for catastrophe exposures?
Apologize if I go over something I had a little technical difficulty but.
Just getting a sense on the property component.
Growing three 7% could you could you clarify.
How much pricing was down if at all and then how much of that kind of.
Lower premium level was due to you more effectively managing <unk>.
Task Trophy exposures.
Yes.
We actually achieved meaningful rate increases in property I'll pass it over to Craig to talk about that so our property rate increases were in the low teens.
[Analyst 1]: Yep.
Justin Cohen: We actually achieved meaningful rate increases in property. I'll pass it over to Chris to talk about that.
Chris Schenck: Our property rate increases were in the low teens. It is.
It is.
We we stay firm on rates.
Chris Schenck: We stayed firm on rates. We were targeting a higher number, but we made concessions to protect our renewal base.
We're targeting a higher number, but we made concessions to protect our renewal base.
That was prudent and on new business, we have firm, we are seeing attractive rating opportunities.
Operator: That was prudent.
Chris Schenck: On new business, we have firm. We are seeing attractive rating opportunities not just from the new Midwest business coming in, but elsewhere around the country. Generally, most of our peers are concentrating on the big E.N.S. states. The opportunities elsewhere seem to be somewhat unaffected. Beyond just geography, there is also the size element. Smaller business tends to be a lot more sticky. There's less of a desire to dislocate those accounts, and part of our philosophy of pricing.
Not not just from the new Midwest business coming in but elsewhere around the country.
Generally most of our peers are concentrating on the peak.
Ines date.
Opportunities elsewhere, it seems to be somewhat unaffected beyond just geography. There is also the size element.
Smaller business.
To be a lot more sticky there is less of a desire to dislocations accounts and part of our philosophy.
Pricing the account right in year, one so that we can.
Chris Schenck: The account right in year one.
Maintain maintain it.
Chris Schenck: That we can maintain it for a.
For our own.
Lifetime around three years.
Chris Schenck: Lifetime around three years.
Part of that involves pricing.
Chris Schenck: Part of that involves pricing discipline upfront and making sure that we made the process simple downstream. By making the process simple, it somewhat insulates you from the rate change dynamics.
Discipline upfront and making sure that we made some process simple downstream so by making the process simple it's somewhat insulates you from the rate change dynamics, if we hadn't taken our view on tariffs, which we did we could have grown more meaningfully in that area and then there were certain geographic zones.
Justin Cohen: If we hadn't taken our view on tariffs, which we did, we could have grown more meaningfully in that area. There were certain geographic zones, coastal zones, coastal states, I should say, where we did reduce exposure. That did drive down policy count, but it will improve our CapEx costs.
<unk> co.
Coastal zones coastal states I should say, where we did reduce exposure and that will that did drive down policy count, but it will improve our cap ex ol costs.
Thank you for that and <unk>.
[Analyst 4]: Thank you for that. Justin, you just mentioned tariffs. How are you thinking about the impact now that it looks like we've gotten a little more clarity there?
Can you just mentioned tariffs.
How are you thinking about the impact now.
It looks like we've gotten a little more clarity there.
Yes, we are.
We're anticipating that the inflationary environment still does come through on building costs.
Justin Cohen: We are anticipating that the inflationary environment still does come through on building costs, and we've done the analytics to do that. If we were to find out that we were ahead of the curve and tariffs didn't have as much of a bite, that would be a bigger opportunity for us given that we've priced for it.
And we've done the analytics to do that if we were to find out that we were ahead of the curve in it.
The tariffs didn't have as much of a bite that would be.
Bigger opportunity for us given that we've priced for it so.
So but.
We are anticipating around.
Chris Schenck: We are anticipating around.
Mid mid single digits increases due to tariffs costs, that's a combination of.
Chris Schenck: Mid single.
Chris Schenck: Digits increases due to tariff-related cost inflation. That's a combination of building material as well as labor dynamics. Purely, you know, just if you.
Building material as well as labor.
<unk> dynamics.
But purely.
Just.
If you were to isolate building material that tends to be very sensitive to even the threat of tariffs.
Chris Schenck: Were to isolate building material, that tends.
Chris Schenck: To be very sensitive to even the threat of tariffs. The majority of a lot of buildings in the excess and surplus insurance base tend to be frame hat.
And a majority of.
A lot of a lot of building in the E&S space tend to be frame have.
Frame buildings right. So we're talking about lumber prices and just even relations with Canada can affect that Barry.
Chris Schenck: Frame buildings.
Chris Schenck: Right. We're talking about lumber prices, and even relations with Canada can affect that. It's very, you know, there's a reality.
<unk>.
There is a reality of tariffs and then Theres a trip of tariffs and what that does in the short term.
Chris Schenck: Of tariffs, and then there's the threat.
Chris Schenck: Of tariffs and what that does in the short term.
Yes.
So maybe if I could sneak one last point in does.
[Analyst 4]: Maybe if I could sneak a last one in, does Q2 kind of feel like a snapshot of what we may see in the next quarter or two in terms of premium growth? I mean, I know casualty is super robust and you seem a bit more cautious on the property, but are these numbers that might be in the ballpark for the upcoming quarters?
<unk> kind of feel like.
Kind of a snapshot of what we may see in the next quarter or two in terms of premium growth.
No casualties super robust and you've seen a bit more cautious on the property, but are these numbers.
Might be in the ballpark for the upcoming quarters.
Yes, Andrew at the end of those prepared remarks.
Justin Cohen: Yeah. Andrew, at the end of those prepared remarks, we gave a confirmation of what we had previously talked about, which was mid to high 20s growth for 2H. That gives you a sense of what we're expecting. We also said that assumes that we do not see a change in the competitive intensity in the environment, that it remains what we are seeing today, which is modest. It's different in the small and medium sized space. That's the premise there. That is the outlook that we confirmed that makes.
Gave a confirmation of what we had previously talked about which was mid to high <unk> growth for two H. So that gives you a sense of what we're expecting and we also said that that assumes that we are we do not see a change in the competitive intensity in the environment that it remains what we are seeing today, which is modest.
And the small and medium sized space, but that's that's the premise there. So that is the thought at that is the outlook that we confirmed.
That makes a lot of sense and sorry, I had a little technical difficulty.
Operator: A lot of sense.
[Analyst 4]: Sorry, I had a little technical difficulty at the beginning.
Yes.
And overall just to say that we are not.
[Analyst 1]: Yeah.
Justin Cohen: Overall, just to say that we are not, I said in the beginning of the remarks we are not top line focused. We really are focused on delivering alpha. You've heard that in the way that we've done that throughout this call. We are finding unique situations and opportunities that are driving growth in excess of the market, but they are not based on the beta of the market growth. That is really what we're focused on and that's what we're endeavoring to deliver. Thank you. Thanks, Andrew.
I said in the beginning of the remarks, we are not top line focused we really are focused on delivering alpha <unk> heard that in the way that we've done that throughout this call. We are finding unique situations and opportunities that are driving growth in excess of the market, but they are not based on the beta of the market growth. So that's really what we're focused on and that's what we're endeavoring to.
Deliver.
Thank you.
Thanks, Andrew.
Your next question comes from the line of Pablo <unk> with Jpmorgan. Please go ahead.
Operator: Your next question comes from the line of Pablo Sinzon with J.P. Morgan. Please go ahead.
Hi, Thank you.
So from my seat that's always hard to parse the drivers of growth for companies such as yourself right Youre growing fast pursuing a bunch of initiatives and are you guys. Just Mike Fair question, but I was wondering if you could provide some perspective on some metrics for same store sales growth rates, whether it's growth from existing agencies without considering recent additions.
Chris Schenck: Hi.
[Analyst 2]: Thank you. For my feet, it's always hard to parse the drivers of growth for companies such as yourself.
Justin Cohen: Right.
[Analyst 2]: You're growing fast, pursuing a bunch of initiatives. I realize this might be an unfair question, but I was wondering if you could provide some perspective on some metric for same store sales growth.
Justin Cohen: Right.
[Analyst 2]: Whether it's growth from existing agencies without considering recent additions or maybe freezing verticals or products, just sort of some sense of what growth is coming from, what's already in the book versus what you're actively pursuing.
Maybe freezing or verticals or products.
Some sense of what the growth is coming from what's already in the book versus what Youre actively pursuing quarter to quarter.
One of the things that we that was mentioned in the call, but just to reiterate here is that almost half of our growth came from the new initiatives and so if you back that out you get a sense of what the same store it looks like but we are seeing compounding of our existing cohort the older. The more recent and the other cohorts of brokers and agents because you want to add anything that it is it is.
Justin Cohen: Quarter to quarter.
[Analyst 1]: Yeah.
Justin Cohen: One of the things that was mentioned in the call, just to reiterate here, is that almost half of our growth came from the new initiatives. If you back that out, you get a sense of what the same store looks like. We are seeing compounding of our existing cohort, the more recent and the older cohorts of brokers and agents. Chris, you want to add anything there?
Hard to fully dissect it because initiatives overlap. So for example in heartland in the Midwest as part of the project Heartland.
Chris Schenck: It is hard to.
Chris Schenck: Fully dissect it because initially initiatives overlap. For example, in the Midwest, as part of Project Heartland, we are gaining significant market share in our legacy verticals. Those are, you know, residential real estate, restaurants, and hotel motels, you know.
We are gaining significant market share in neuro legacy verticals. So those are.
Residential real estate.
Restaurants and hotel motels.
Jos we've written those for a very long time, and we are gaining a lot of traction in the heartland our offering there is strong.
Chris Schenck: We've written those for a very long time.
Chris Schenck: We are gaining a lot of traction in Project Heartland. Our offering there is bronze.
Because it's much more mature.
Similarly, however, we are also seeing more we're gaining much more market share.
Chris Schenck: Because it's much more mature. Similarly, however, we are also seeing more.
Chris Schenck: We're gaining much more market share across other geographies in the Northwest, for example, we have seen significant growth in those classes, in our core classes.
Across other geographies in the northwest.
For example, we have seen significant growth in our in those classes and our core classes.
Thank you.
And then second question.
Justin Cohen: Thank you.
Do you think about the current economic environment, and perhaps some more permanent impact from tariffs which are.
[Analyst 2]: Second question, as you think about the current economic environment and perhaps a more permanent impact from tariffs, which of your small business end markets are you most concerned about?
For your small business end markets are you most concerned about and if the economy does slow what kind of impact are you expecting on your growth trajectory you talked about the inflation piece of it.
Justin Cohen: If the economy does slow, what.
[Analyst 2]: kind of impact are you expecting on your growth trajectory? You talked about the inflation piece, but you know, from an economic fundamental perspective, are you assuming some headwinds there?
From an economic fundamental perspective are you assuming some headwinds there.
So.
Just.
To add some context.
Chris Schenck: To add some context around.
<unk> surround it we are continuously study environment and observing new inferred.
Chris Schenck: We are continuously studying the environment.
Chris Schenck: Observing new.
Trends that are emerging we are monitoring a number of trends. So it is a.
Chris Schenck: Trends that are emerging. We're monitoring a number of trends. It is, you know, whether.
Whether or not.
What is it that whatever we reacted might be a very contained a few things, but we have had to take action on something similar to tariff tariffs such as.
Chris Schenck: What is it that whatever.
Chris Schenck: We react to might be a very contained few things, but we have had to take action on something similar to tariffs, such as inflation in 2022.
Inflation in 2020 to what we experienced there is initially we we took the same we did the same.
Chris Schenck: What we experienced there is initially we took the same, we did the same, executed the same playbook. We saw that severities were going to increase, we price on a prospective basis.
Excuse the same playbook.
Thought at severities were going to increase we price on a prospective basis. So were looking 18 months out expecting higher severities, we implemented rate increases that were meaningful now.
Chris Schenck: We're looking 18 months out, expecting higher severities. We implemented rate increases that were meaningful. Now what happens is initially the market.
What happens is initially to market.
It doesn't fully understand why we are an outlier we are willing to be an outlier in that case, but the market contemplated for a while and then eventually or competitors catches back up it catches up to us.
Chris Schenck: Doesn't fully understand why we're an outlier. We are willing to be an outlier in that case, but the.
Chris Schenck: Market contemplates it for a while, and then eventually our competitors catch back up.
They pushed their rate increases so we on what we experienced there as the market comes back to us in droves.
Chris Schenck: Catches up to us and you.
Chris Schenck: They push their rate increases. What we experience there is the market comes back to us in droves.
It's a we've had a few cycles like that so that's what we're expecting here in.
Chris Schenck: We've had a few cycles like that. That's what we are expecting here.
And in terms of the defensiveness of a portfolio that we may have talked about that in the past we have a fairly defensive set of industries that we focus on multifamily.
[Analyst 1]: Yep.
Justin Cohen: In terms of the defensiveness of our portfolio, we may have talked about that in the past. We have a fairly defensive set of industries that we focus on: multifamily, the non-profits, and certain others as well, gas stations and grocery stores. The ones that would have an impact would be potentially contractors, but the contractors we focus on are of a smaller scale and less economically sensitive, and then hospitality. Those would be the areas if there were to be an economic shift.
The debt.
Nonprofits.
And sorry, and others as well gas stations in grocery stores.
The ones that would have an impact would be potentially contractors, where there are but the contract as we focus on are of a smaller scale and less economically sensitive and then hospitality those would be the areas. If there were to be an economic shift yet.
Thank you Bob.
Keith.
[Analyst 2]: Thank you both.
Justin Cohen: Thank you.
Your last question comes from the line of Elyse Greenspan with Wells Fargo. Please go ahead.
Operator: Your last question comes from the line of Elise Greenspan with Wells Fargo Securities. Please go ahead.
Hi, Thanks, Good evening My first question.
Neelam Patel: Hi.
[Analyst 5]: Thanks. Good evening. My first question on the 20%, sorry, mid to high 20% growth rate that you highlighted for the second half of the year, reaffirming your outlook, what's embedded within that for property versus casualty growth?
No on the 20% sorry mid to high <unk> growth rate that you highlighted for the second half of the year reaffirming outlook.
What's embedded within that for property versus casualty growth.
So we have at least we have not broken that down in terms of the guidance, but we will say is that we are.
Justin Cohen: We have not broken that down in terms of the guidance. What we'll say is that we are somewhat optimistic on the property book in that we applied our rate increases in Q3 of last year, but that was opportunistic in nature. What happened this year was we maintained those rate increases because of our view on tariffs. As we get towards the back end of this year, there's some potential for us to not be changing rates on those accounts. Therefore, we may see some potential additional benefit there. We're not breaking down the projected growth by product yet.
Somewhat optimistic on the property book and that we applied our rate increases and <unk> of last year, but that was opportunistic in nature and what happened. This year, whether we maintain those rate increases because of our view on tariffs and so as we get towards the back end of this year. There is some potential for those for us too.
Not be changing rates on on our on those accounts and therefore, we may see some potential.
Additional benefit there, but we're not breaking down that the projected growth byproduct yet.
And then.
As part of the go ahead, Justin you said just now that it's based on consistent competitive dynamics.
[Analyst 5]: As part of the guide, Justin, you said that it's based on consistent competitive dynamics. Did you guys see any pricing changes in July relative to what you observed in Q2 in either property or casualty lines?
You guys did you guys see any pricing.
Changes in July relative to what you saw on the observed in the Q2 in either property or casualty lines.
No it's been consistently marginally tightening pressure, but nothing material to talk about so there is nothing embedded within that other than to say that we can't predict where we're not we're not in the business of predicting the beta of this market competitors will do what they're going to do we are we are trying to lay out that we have these initiatives and these approaches that we.
Justin Cohen: No. It's been consistently, marginally tightening pressure, but nothing material to talk about. There's nothing embedded within that other than to say that we can't predict where. We're not in the business of predicting the beta of this market. Competitors will do what they're going to do. We're trying to lay out that we have these initiatives and these approaches that we take that are truly differentiated. Even in a tougher market, we're going to still keep winning. That's really where we want to focus. We know the top line is strong and we're just caveating with all that.
We take that are truly differentiate it so even in a tougher market, we're going to still keep winning and so thats really where we want to focus we know the top line is strong and we're just caveat with all of that.
More time.
More generally our peers.
Chris Schenck: More generally, our peers, you.
Chatter, there's discussions around that but we're not necessarily focused in the same geographies. They are that is coming out of <unk>.
Chris Schenck: There's chatter, there's discussions around that, but we're not necessarily focused in the same geographies they are. That is coming out of the three big E&S states. A lot of that talk of our own property. In a way, where we are going is fairly overlooked by the market and opportunities there are so great.
Three big E&S States Milan.
Along with that.
Talk about the properties so.
In a way we are where we're going.
Fairly overlooked by the market and the opportunities there are still great yeah, and overall as you know we're technical underwriting firm. So we have a technical rate and we're not going to go below that so that is also <unk>.
[Analyst 1]: Yep.
Justin Cohen: Overall, as you know, we're a technical underwriting firm, so we have a technical rate, and we are not going to go below that. That is also important to keep in mind.
Important to keep in mind.
And then one last one I think the paid to incurred ratio did go up in the <unk>.
[Analyst 5]: One last one. I think the paid to incurred ratio did go up in the quarter. Was there something related to business mix or something else that impacted that in the second quarter?
Quarter was there something related to business mix or something else that impacted that in the second quarter.
Are you talking sequentially or year over year.
Justin Cohen: Are you talking sequentially or year over year?
I think it went up.
So any any color you could provide would be helpful. Overall, the pay to encourage were actually lower than our internal expectations.
[Analyst 5]: I think it went up both. Any color you could provide would be helpful.
Justin Cohen: Overall, the paid to incurred were actually lower than our internal expectations. On a year over year basis it's partly due to just the maturation of a casualty book. There is, as you're describing, some shift in having had more property previously. We were growing property pretty quickly previously, and that may be contributing to the higher that we're seeing today. You will see that transition going forward as you're seeing this deceleration in property going forward. A little bit of mix, but more just the casualty reserves which we have been accelerating higher because of our growth rate just starting to pay.
On a year over year basis.
Partly due to them just a maturation of our casualty book and also there is as you are describing there is some shift in the having had more property previously we were growing property pretty quickly previously and so that may be contributing to the higher that we're seeing today, but now youll see that transition going forward as youre seeing this deceleration in property.
<unk>.
Going forward, so a little bit of mix.
But more just the <unk>.
Casualty reserves, which we have been accelerating higher because of our growth rate just starting to pay.
Thank you.
Great.
[Analyst 5]: Thank you.
There are no further questions at this time I would now like to turn the call back over to management for closing remarks.
Chris Schenck: Great.
Operator: There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.
Well. Thank you all very much we appreciate your support again, and we look forward to being in touch with you in the months and quarters ahead. Thank you very much.
Justin Cohen: Thank you all very much. We appreciate your support again, and we look forward to being in touch with you in the months and quarters ahead. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you all for joining.
Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining.