Speaker #1: Officer, Chris Schenk, President and Chief Underwriting Officer, and Neil Adler, Chief Financial Officer. After Justin, Chris, and Neil have made their formal remarks, we will open the call to questions.
Speaker #1: All lines have been placed on mute to prevent any background noise. If you would like to ask a question during this time, simply press * followed by the number 1 on your telephone keypad.
Speaker #1: If you would like to withdraw your question, press * 1 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.
Speaker #1: 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.
Speaker #1: Our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call.
Speaker #1: 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 which may be obtained by visiting the Investor Relations website at investors.ategrity.com.
Speaker #1: I will now turn the call over to Justin Cohen.
Speaker #2: Good evening, and thank you all for joining Ategrity's third quarter earnings call. This is Justin Cohen, and I'm joined today by Chris Schenk, our President and Chief Underwriting Officer, and Neil Adler, our Chief Financial Officer.
Speaker #2: Ategrity delivered an exceptional underwriting quarter. Achieving our lowest ever combined ratio of 84.7% and underwriting income growth of 83.7% year over year. These results demonstrate the strength of our underwriting strategy and the compounding benefits of our productionized platform.
Speaker #2: Our rigorous technical underwriting and centralized operating model are driving lower loss and expense ratios, while our differentiated products and solutions are generating strong business momentum and market share gains.
Speaker #2: Submissions grew 30% in the quarter, reflecting exceptional demand for our offerings that give our distribution partners a competitive edge. Gross written premiums grew approximately 15% year over year, substantially outpacing a relatively flat E&S market.
Speaker #2: While we expected to outperform the market by even more this quarter, we made two deliberate choices to prioritize long-term growth and profitability. First, we implemented meaningful rate increases on new casualty business to reflect the cost of expanded coverage and strengthen underwriting margins.
Speaker #2: Second, we rolled out our next-generation underwriting technology, temporarily reducing productivity in exchange for substantially greater underwriting throughput and efficiency going forward. Chris will discuss these decisions and our new growth initiatives in greater detail later in the call.
Speaker #2: We enter the fourth quarter with four new specialty products, an expanded underwriting team and distribution network, and a more powerful underwriting system. Together, these capabilities expand our capacity to serve growing demand, capture additional market share, and profitably compound growth.
Speaker #2: With that, I'll turn it over to Neil Adler to review our financial results.
Speaker #3: Thank you, Justin. We produced adjusted net income of 14.7 million compared to 22.8 million a year ago. Underwriting income grew 83.7% and net investment income increased 19.1%, with those gains offset by realized and unrealized investment losses.
Speaker #3: Gross written premiums were up 14.7%, with property premiums up 25%, and casualty premiums up 10%. Net written premiums increased 25.8%, which reflects higher retention year over year while net earned premiums were up 35.7%.
Speaker #3: Fee income was 2.6 million compared to 2.2 million a year ago, with growth coming from standard policy fees introduced over the course of 2025.
Speaker #3: Our underwriting income for the quarter was 19.5 million, producing a combined ratio of 84.7% compared to 88.7% last year, driven primarily by a reduction in both our loss and expense ratios.
Speaker #3: Our loss ratio came in at 57.5%, which was down 2.5 points year over year, reflecting favorable underwriting performance across both property and casualty, including 1.6 points of favorable development.
Speaker #3: Catastrophe losses were 4.2% of net earned premiums, up from 4% last year. On expenses, the overall expense ratio improved 1.5 points to 27.2%. Our operating expense ratio declined 0.8 points year over year to 10% of net earned premiums.
Speaker #3: The improvement reflected earned premiums growing faster than operating expenses, together with higher fee income. Policy acquisition cost, as a percentage of net earned premiums, also declined in the third quarter to 17.2% from 17.9%.
Speaker #3: The continued shift in our business mix toward the brokerage channel reduced policy acquisition cost and benefited underwriting margins. Moving on to investment results. Net investment income was 13.1 million, up from 11 million last year, reflecting a larger investment portfolio and higher interest rates.
Speaker #3: Realized and unrealized losses were 17.2 million, or 13.7 million net of non-controlling interest, primarily reflecting a normalization of the substantial gains recorded earlier this year in our utility and infrastructure investments, which had been running well ahead of long-term street expectations of 5.5% annually.
Speaker #3: As of the end of the third quarter, year-to-date returns remained above that annual expectation. Our effective tax rate was 24%, bringing net income to stockholders to 14.6 million.
Speaker #3: Adjusted net income was 14.7 million, or 29 cents per diluted share. Turning briefly to the balance sheet, cash and investments increased by 33.5 million from the second quarter to 1.24 billion, reflecting strong operating cash flow.
Speaker #3: Book value decreased by 6.7 million from the second quarter, as an increase in retained earnings was offset by a decline in AOCI due to the material move in U.S.
Speaker #3: Treasury yields in the third quarter. We did not repurchase any shares during the quarter, our book value per share ended the quarter at $13.72, up 30% since our IPO.
Speaker #3: With that, I'll turn it over to Chris to discuss underwriting and operating performance.
Speaker #4: Thanks, Neil. Our third quarter results demonstrate the power of our productionized underwriting strategy. We delivered our strongest combined ratio in the company's near-decade history, and grew submissions by 30%.
Speaker #4: Both our property and casualty businesses grew at rates we believe outpaced their respective markets. This happened as we continued to take market share. In addition, our current policy-year loss ratio indications continue to trend favorably, while prior-year results developed better than expected.
Speaker #4: Our property business grew strongly, this is counter to the prevailing market trends. During the quarter, we continued to expand our distribution network, generated value through our regional strategies and launched four new specialty products in record time.
Speaker #4: We also developed and deployed the next-generation of our underwriting platform across our established brokerage businesses, while improving our unit economics. I would like to highlight four areas that illustrate how we are expanding our business while strengthening underwriting performance.
Speaker #4: First, covered certainty is becoming a key differentiator in the casualty market and an important consideration for brokers and insureds. We have studied our clients' businesses and the emerging insurance requirements they face from customers, lenders, regulators, and their contractual counterparties.
Speaker #4: During the quarter, we redesigned several of our core casualty offerings to address this demand for expanded coverage. In parallel, we launched a marketing campaign called "We Cover What Matters" to drive home the guiding principle of our product strategy.
Speaker #4: Consistent with our technical approach to pricing, we effectively implemented rate increases on new casualty business to cover the higher cost of product, resulting from this expanded coverage.
Speaker #4: This enables continued price adequacy as casualty loss trends evolve. Second, we launched four new specialty products. Life Sciences, Energy, Environmental, and Sports and Entertainment.
Speaker #4: These offerings were already on our product roadmap, but we used AI to accelerate their launch in order to meet growing demand from our partners.
Speaker #4: All in, total development was four weeks, down from our originally budgeted 12 weeks, which included technology, product design, form development, and pricing. These launches demonstrate the productivity gains AI is delivering across our business, both in development cost and speed to market.
Speaker #4: What is most exciting about these new growth opportunities is that we are bringing to the market predictability, speed, and simplicity in lines of business that others have deemed to be highly complex and bespoke.
Speaker #4: Using our micro-segmentation and risk modeling methodologies, we have built a repeatable process for underwriting this business. Third, we deployed our next-generation underwriting platform during the quarter, this adds to the analytical depth of our underwriting.
Speaker #4: It enhances the value of our micro-segmentation and risk selection while reducing the work time per quote. Productivity temporarily declined this quarter as our underwriting teams adopted the system.
Speaker #4: As we entered the fourth quarter, this implementation is starting to produce greater throughput, faster response times, and more competitive quotes. Finally, our loss ratio performance continued to validate our underwriting approach.
Speaker #4: Our results this quarter, including favorable prior-year development, reflect our commitment to technical underwriting, which includes strategic deployment of coverage, rigorous risk selection, and pricing that anticipates a higher cost of product.
Speaker #4: In sum, we believe our product strategy, technology, operational capabilities, and differentiated distribution strategies positions us to grow profitably in the current environment. Our priority is to translate those advantages into further loss ratio improvements and durable underwriting income, with that I'll turn it back to Justin.
Speaker #2: Thanks, Chris. We see significant opportunities to gain market share while driving strong underwriting profitability. For our fourth quarter guidance, we expect gross written premium growth to exceed E&S market growth by 15 to 20 percentage points, sustaining our strong business momentum while retaining the flexibility to drive further underwriting margin improvement.
Speaker #2: Accordingly, we expect our combined ratio to again be below 87% in Q4. On investments, we have produced 8.9 million dollars of year-to-date realized and unrealized gains net of non-controlling interests.
Speaker #2: In line with street assumptions, we are using a long-term annualized return assumption of 5.5% for our utility and infrastructure investments. We believe that our differentiated access to these strategies creates meaningful value for shareholders, supported by a nearly three-decade track record of strong annualized returns without a calendar-year loss.
Speaker #2: At the same time, given the higher interest rate environment, it is our intention to increase our allocation to fixed income investments toward 90% of our total investment portfolio from the current level of approximately 80%.
Speaker #2: Finally, on our share repurchase program, while we were able to make stock purchases in the high teens during the second quarter, the stock moved up meaningfully in the third quarter, making it more difficult to execute open market purchases.
Speaker #2: We will endeavor to buy more shares in Q4 in the open market using the 47 million dollars outstanding in our buyback program. And we note that our excess capital far exceeds our remaining buyback capacity.
Speaker #2: To sum it up, we believe Ategrity is just getting started. Our new products, expanded coverage, next-generation technology, and implementation of AI are creating an expanding opportunity set in our runway for further profitable market share gains.
Speaker #2: With that, we thank you for your time and operator, please open the line for questions.
Speaker #1: We will now begin the question and answer session. Please limit yourselves to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand.
Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.
Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Pablo Singzon, with JP Morgan.
Speaker #1: Pablo, your line is open. Please go ahead.
Speaker #4: Hey, Pablo.
Speaker #3: Hi, good afternoon. Can you hi. Hi, Justin. Can you unpack what additional coverages you're providing in casualty and I guess how you're offering compares to what's widely available in the market?
Speaker #4: Chris.
Speaker #5: We're not disclosing on this call what additional coverages and new product designs that we have rolled out are. Effectively, for competitive reasons. What I will say is that due to a number of municipal-level changes, things like residential real estate putting up habitability coverage is now in scope.
Speaker #5: There is a there's a new market norm that is evolving. They're obscure coverages such as human trafficking that are also evolving in terms of a market requirement.
Speaker #5: In terms of what we have done on our specific products, those are being made clear to the market, but our new we cover what matters campaign.
Speaker #5: Some of it some of the need for more coverage has to do with fear around what might be happening at a municipal level, fear around how entanglement with immigration and sort of ICE raids and such might affect landlords.
Speaker #5: Some of it is genuine need for a genuine need for a for coverage adequacy, which could come from a lender. Or it could come from the insured's client themselves.
Speaker #5: But some of it is having to do with responsiveness around political trends. So where we are drawing the line that is being made clear to our trading partners through our new campaign, but we're not disclosing it on this call for competitive reasons.
Speaker #3: Understood. And thanks for that. And I guess for the second question, the expected return to normal productivity for you, just given the rollout of the new underwriting system, or should we expect some maybe continued disruption into the next quarter here?
Speaker #3: Thanks.
Speaker #4: Yeah. So our technology is our technology rollout has performed better in terms of stabilization with our employees and training and all of that. We've been able to make meaningful improvements in this rollout via the last time we compared to the last time we rolled out technology.
Speaker #4: And a lot of that has to be with delivery of training. So we have moved faster than expected when it comes to adoption. One of the things we did anticipate going into the quarter was the need for additional capacity, underwriting capacity, in order to absorb some of the inefficiencies that typically follow a rollout.
Speaker #4: Of any type, they will always be inefficiency. We planned for that. There were some timing delays around hiring and start dates and such, that led into the quarter.
Speaker #4: And that so effectively, where we are, we are on the other side of a very meaningful change of what organization and we effectively have some additional capacity to cushion because we are an organization that we are doing I believe we're doing interesting things.
Speaker #4: We are on the leading edge and what we have we have planned for that because over my career and I think it's just widely known in the industry any technology change will have a lag in terms of productivity.
Speaker #4: But we're just what this sets us up for is breakthrough productivity as we go into this quarter and we have we have some cushion in terms of capacity.
Speaker #1: Your next question comes from the line of Elyse Greenspan, with Wells Fargo. Elyse, your line is open. Please go ahead.
Speaker #6: Hi, thanks. Good evening. I guess my first question, so also probably touches on some of the new products that you were talking about on the casualty side.
Speaker #6: So you said that you increased rates. So I guess can you give us a sense of the price differential, I guess, between the new offerings and the old offerings that you guys were writing?
Speaker #4: Yes. So just to just for clarity, we have launched a set of new products and for our existing casualty verticals, we have a micro-segments, rather, we have designed a new offering.
Speaker #4: So as you may know, our product strategy has to do with pre-designing coverage so we studied insured's needs before they effectively come in the door.
Speaker #4: That allows us to be explicit to the market about what we are willing to cover, not cover, and complementary with that is a technical pricing approach where we charge for optional coverage in a very explicit and a very mathematical and economically sound way.
Speaker #4: So the rate increases, as you mentioned, have to do with adding coverages to our base product in for several casualty lines. We are not going to disclose those specifics here either for competitive reasons, but it is what it allows us to do is provide what the market needs while charging adequate rates.
Speaker #4: This is the same approach we have used consistently over the last five years. As we became a solidly committed to technical underwriting, we have deployed the same approach whenever we have made product adjustments.
Speaker #4: We charge for the additional coverage. Now, that is very different than what many do in the industry. They will put on a lot of sort of trickier potential high volatility type of coverages and not charge for them.
Speaker #4: And in my view, if you think about the pitfalls of casualty performance and going back to pre-2020, if you think about what led to that, it was this kind of erratic kind of enhance the product, but do not raise the rates, kind of approach.
Speaker #4: We have continuously been disciplined about it from day one. When we started engaging with you all as a public company, we have talked about technical pricing being sacred to us.
Speaker #4: That is exactly what we have done here. We so where we are right now is we are providing what the market needs and we are charging for it.
Speaker #4: Where the rest of the market is, is they're either struggling to figure out what the market needs or they are they're providing it and not charging for it.
Speaker #4: If they're providing it and not charging for it, then natural evolution of that will be deterioration and results and what we have learned over multiple cycles of doing this again, is that we tend to be beneficiary of that.
Speaker #4: So while this first mover being a first mover on rates, did have a effect of a lower conversion ratio and we had planned for that and we had a plan to hire more because frankly, our move on a lower conversion is to simply produce more quotes.
Speaker #4: We can do that very efficiently and very cost-effectively. So that has been our consistent approach and that's just what we did here. We had high conviction in the rates we wanted to meet the needs of the market.
Speaker #4: And we, accordingly, put together a plan to do so. While maintaining a level of production that would lead to the growth.
Speaker #6: Thanks. And then I guess my second question, right, so you guys are talking, right, about 15 to growth in the fourth quarter, right, that's 15 to 20 percent above the E&S market.
Speaker #6: And it sounds like you went into the quarter with the new next the next gen rolled out. So would you expect, I guess, going into '27, is that kind of the new run rate range expected to be in the 15 to 20 percent range versus the market?
Speaker #4: So Elyse, we haven't we're not going to disclose our 2027 view, but we'd say that your trajectory hasn't changed. Part of this guidance around 15 to 20 is the fact that when we've used the stamping data as a adjusted stamping data as a source of what is the market.
Speaker #4: And we saw the market that ourselves being down 0 to 5 percent this quarter, but the stamping data, as you know well, was negative 2, then 19, then negative 5 in the quarter across the months.
Speaker #4: And so this adjustment is really to reflect that there's more variability in those numbers. And to give room for that dynamic.
Speaker #3: Your next question comes from a line of Andrew Kligerman with TD Callan. Andrew, your line is now open. Please go ahead.
Speaker #7: Good evening. So follow-up on the growth written premium growth. And Justin, you've been very clear 15 to 20 percent, but when I'm hearing you and Chris talk about coverage certainty, which includes higher rate kind of a mixed bag, right?
Speaker #7: People want the coverage certainty, but they don't like the higher rate. But then you've got four new specialty products rolled out. You were talking a little bit about some pressure as you rolled out the technology, but that's all done you've got a couple of big-time pluses.
Speaker #7: And so I know your guidance is 15 to 20 percent, but it would strike me that you might feel extra good about that 15 to 20 percent given all that you accomplished during the quarter, meaning maybe the higher end, maybe better, but it feels like there's some real momentum there.
Speaker #7: And I want to get your read on that.
Speaker #4: Andrew, the momentum in the business is outstanding. With the 30 percent submission growth, this business is really resonating in the market. And even on the coverage point, we had our soft market playbook is to quote more in a soft market.
Speaker #4: So we had this temporary hiring gap that was filled by the end of the quarter. Which Chris alluded to. So we feel very strong about where the business is going.
Speaker #7: Yeah. So you can check every box that led to our growth numbers in the prior quarter. You can check those and you can actually give some extra marks to some of them because they are still trending in that direction.
Speaker #7: That is if you consider those the leading indicator to consistent indicator that has led to our growth. Those are unchanged. So let me take you through a couple of those.
Speaker #7: So first, the regional strategies. They continue to contribute upwards of 50 percent of our growth. Second, our distribution strategy and our distribution reach. That continues to grow exponentially.
Speaker #7: At higher clicks, than prior quarters as we have onboarded new partners to complement the New England strategy and the Texas strategy that we launched.
Speaker #7: And as well as continue to appoint partners in the Midwest. We have also invested to entrench ourselves in the Midwest strategy, which is now leading to a new wave of growth.
Speaker #7: So we had marketing campaigns sponsoring events across the Midwest over the summer. That has really cemented our commitment to that region. And it's really resonating well with our partners.
Speaker #7: So we're seeing submission growth boom there again. So all of those raw materials to production, are there. In addition, we are able to produce a quote faster with less burden on our partners.
Speaker #7: Because of the current system. That is one of the biggest improvements here. So not only do we have a growing submission funnel, and more engagement with our partners, we're able to increase our level of service as well as the rigor around the quotes we're providing.
Speaker #7: So that is all very positive. Now, on the new products, we are particularly proud of this because we consider ourselves to be a very execution-oriented company.
Speaker #7: We believe that the key to winning is to look for opportunities in the market and move fast to build solutions around them. And move intelligently.
Speaker #7: That is exactly what we did for these four new products. So they are in market. We are not we have not modeled too much into our plans for these.
Speaker #7: So there is the reception has been tremendous. I will we just came back from one of the big industry conferences. It was this was that was our key focus in conversations with partners.
Speaker #7: And the reception for those four new lines have been tremendous. There's a lot of dislocation in those lines in the current market. And we saw an opportunity and in four weeks, which is I no one on our team who have been in insurance have ever done that.
Speaker #7: Frankly, we until these products have never done that. Insurance just does not move that fast. And we were able to do it and we were able to do it with a high level of sophistication.
Speaker #7: What we're doing with these products is not just we're not just being entering as a participant in life sciences, for example. We are introducing a brand new way to underwrite life sciences that will remove all the back and forth and the hassle that tends their company that line.
Speaker #7: Everyone thinks that just because it has science in the name, that it needs to be complex or it needs are they there's a mystique around it, right?
Speaker #7: We have demystified it. We have used our segmentation approach, our pricing approach, our form design approach, all of that is in place. And when someone looks at our appetite guide, it's a digital appetite guide where they can literally open up their phone and describe what they're trying to write and see exactly what we're trying to put up.
Speaker #7: So when I'm saying we did something in four weeks, that's a giant leap. And in our numbers right now, we are not even accounting for any upside from that.
Speaker #7: So yes, to put a finer point on it and agree with you effectively, we have a lot of positives here. And a lot of momentum in the business, the fundamentals are strong.
Speaker #7: And yeah, so it's a that is a comfortable number. Yeah. That sounds compelling. And maybe shifting to the other part of the income statement, the expense ratio moving from 28.7 to 27.2 year over year is a nice move.
Speaker #7: And with a 10 percent operating expense ratio, as you scale up and as the mix changes a little bit more and more toward brokers, how do you see that expense ratio not necessarily trending next year, but over the next two, three, four years?
Speaker #7: I mean, are there a few points of expense ratio reduction that might be in the cards?
Speaker #5: Andrew, there are significant opportunities for scale in this business. We have built a centralized business where there is meaningful headcount and expenses that are ready to scale as we grow.
Speaker #5: So we see a lot of opportunity. We won't quantify it here, but that is the way we envision it rolling out. And that's part of the opportunity.
Speaker #5: And that's how we continue to become more effective in a competitive market.
Speaker #7: Yeah. So we are able to take our efficiency level to sorry for repetitiveness here, but to the next level. It is a that is what our new platform, our this version of our platform does.
Speaker #7: We had described previously that we already have a very efficient quote process and a very intelligent quote process. We have amplified both of those elements.
Speaker #7: In addition to that, the products that we are launching right now carry zero upfront investment. It is there is no additional cost that we need to recoup as we go to market with those products.
Speaker #7: There is not a fixed cost. We are already very good at that, at managing down fixed costs, right? But these are we're now nothing is ever truly zero, but this is as zero upfront zero fixed cost as you could get.
Speaker #7: The technology, the forms, the pricing, it's all a Tegrity's framework. But it is being applied with the help of AI. And if you can think about some of the cost that goes into launching a product will give you an idea of what the upside in future years.
Speaker #7: Could be. As those products ramp up. So one, forms. For these products, we had to write over 400 forms. Those would go through a month-long process month-long process in a parallel workstream that involves lawyers and coverage counsel review.
Speaker #7: Right? So the back and forth will have a high cost. What we have done is we have used AI for the first draft of very sophisticated forms and then we simply send them for a quick review by coverage counsel, cutting out the back and forth by going to coverage counsel with a first draft versus trying to explain what you want the form to be 400 times.
Speaker #7: Just that cost alone should give you a sense. And given we're a legal costed, cost is that compounds. So small kind of very, very nuanced example there, but when you think about what it takes to launch a sophisticated product in market, it's IT development.
Speaker #7: It's legal cost. It's pricing. It's analytics. It is purchasing data. It's all of these things that previously were hard to absorb. If you're in the first year of a product launch and we were proud that we were able to do that historically, but now we have nothing to absorb in that first year launch.
Speaker #3: Your next question comes from the line of Alex Scott with Barclays. Alex, your line is now open. Please go ahead.
Speaker #5: Hey.
Speaker #6: Good afternoon. First one I have is on just investment concentration in digital infrastructure. And it would be interested in maybe your fixed income portfolio and if you have any of that in there.
Speaker #6: But also importantly, if there's any exposure in the Zimmer infrastructure fund that we should consider as we watch those trends.
Speaker #5: No. Yeah. Got it. As I mentioned in the prepared remarks, we have had about an 80% allocation to fixed income. talked now about how we are going to be aiming for a 90% allocation.
Speaker #5: When you think about the Zimmer investments in utilities, those are liquid assets that are not that are market neutral. And those are not those types of loans that you're referring to there.
Speaker #5: So that is a very different exposure. It is a market neutral exposure that has a significant track record of never having had a down year and is actively managed.
Speaker #5: So that is those are the two components of our portfolio. And we don't have the I think the kind of exposure that you're highlighting there.
Speaker #6: Got it. That's clear. I just wanted to make sure on the Zimmer piece. Okay. Second question I had is just I wanted to better understand what you're saying about casualty in this I understand there's a new structure to the product and it does require rate increases relative to what you were selling and but I guess it was characterized as part of the reason you didn't hit the 20% growth.
Speaker #6: So I guess what is it about that switch of product? When I hear you talk about it, it sounds like it's going to be more appealing and maybe drive more growth, but yet it actually it maybe constrained your growth relative to what you thought.
Speaker #6: So what was it in the older casualty product that you had to adjust the and do people I'm just trying to understand why was it a growth headwind if it's like this new exciting product?
Speaker #5: So yeah. So imagine if you're buying a car and you wanted leather seats and previously you could get leather seats for free. And or there were enough car sellers in the market who are car dealers in the market who would give you leather seats for free or whatever accessory you want, frankly.
Speaker #5: And then leather seats became a requirement for cars. And now one car dealer is charging for it and one is not, right? That's what the approach to coverage in this market has been.
Speaker #5: It's been the pitfall of so many carriers. We have one of the best performing casualty books. In our view, in the industry. The way we have done that is we have been meticulous about understanding the cost of product.
Speaker #5: So what are you characterize it as a true rate increase or just a charge for the enhancements to the product? It is a additional cost to the insured.
Speaker #5: It's charging for the leather seats. And they are other dealers out there who are providing the leather seats for free. So that's the dynamic that we went into this quarter adjusting for.
Speaker #5: We are willing to provide it. But we are going to charge for it because it increases the cost of product. We have done this over and over again and it is so fundamental to our playbook to underwrite to a cost of product that is realistic and we do not want to have our heads in the sand and think that offering a coverage doesn't really add to the cost of product.
Speaker #5: It's very literally does. And we don't want to have our heads in the sand, right? So we have been explicit and what happens is that the rest of the market, they start to feel the pain.
Speaker #5: And then that business comes back to us. It has happened over and over again. Now, we're always ahead on pricing and this is a big part of our strategy to ensure that we are studying the cost of product and adjusting rates on a prospective basis.
Speaker #5: We have always done that. If you recall, we did that on property in response to tariffs last year. And if you look at the property growth rates and how that has trended, since we implemented those changes, it's a cycle.
Speaker #5: We have a pattern we understand this pattern. And so while it we recognize that would have led to a lower conversion ratio, we had more than enough submissions to compensate.
Speaker #5: And all that was required was a few additional underwriters to increase production. And that is the piece that had a timing delay. Yeah. So that was that that headwind we're referring to is doing this type of this type of offerings and then having a delay in the headcount.
Speaker #3: Your next question comes from the line of Matthew Heimerman with City. Matthew, your line is open. Please go ahead.
Speaker #2: Thank you. Good evening, everybody. I guess I was struggling with Scott a little bit to put context to the rate change and the casualty growth.
Speaker #2: And I think you addressed most of it in response to his question. But the only thing I would be curious about is what was the catalyst, I guess, for charging for leather seats now?
Speaker #2: Was there some emerging claims data you're responding to? Or was this I'm just because when you first described it, it didn't really sound like a rate change, but a coverage form change.
Speaker #2: But it's kind of but either regardless, what was the catalyst?
Speaker #5: Yeah. It's a product enhancement. That's the that's what it is. Right? It is not a.
Speaker #2: But Chris, what I'm struggling with is when you describe it, say it's a product enhancement, but then you say other people are going to be adversely impacted by not doing this.
Speaker #2: That change sounds like it's in response to something. Either something you're experienced or you see on the horizon. I'm just trying to get that context.
Speaker #5: Yeah. Yeah. So I'll answer your question and give you a little bit of background on what we are doing. We're studying the insured's needs.
Speaker #5: So we launched a campaign to complement our product strategy to drive home our philosophy. It's called We Cover What Matters. What we do is we study the insured's needs of which could include a set of fears and a set of true requirements from their lenders, from regulators, from their clients.
Speaker #5: So we study all of that and we made an explicit decision to not offer some coverages that were kind of more optional or nice to have.
Speaker #5: Typically, larger, more complex accounts would really want that coverage. But what has happened over the last 18 months, I mentioned this a couple of quarters ago, that covered certainty was coming into focus.
Speaker #5: That was being driven by political the political climate, which includes things like immigration and which impacts the need for human trafficking coverage. Or Fannie Mae, Freddie Mac imposed requirements for real estate investment companies they have to have a salt and battery coverage it cannot be an animal exclusion on the policy there are a couple of other things that they must have.
Speaker #5: Now, we have avoided a number of severity high severity coverages because when it was optional, the market was not willing to pay so our base product considered that.
Speaker #5: When they became required for smaller accounts, we decided that, okay, we will respond. That's consistent with our approach. We will provide what is required.
Speaker #5: That's consistent with our approach. But we will charge for it. So it's not a it's a difference. It is a change for us in the risk profile.
Speaker #5: If you were to imagine not offering it and not charging for it, that will have a knock-on effect. On the results. So effectively, we executed our playbook.
Speaker #5: Provided coverage, charged for it. Our peers where the adverse impact that they might see down the road is from not charging for that. If you look back again, if you look back at the history of casualty insurance, you will see that pattern.
Speaker #5: And it typically does have to do with coverage expansion. Be it the history on auto or covering auto or considering auto a ancillary auto an unimportant exposure that no one should even charge for.
Speaker #5: That was once the norm in this industry where auto coverage, ancillary auto, hired a non-owned auto was provided at no charge. And then we all know how that played out as carriers saw the losses come through on that ancillary auto and excess casualty in particular.
Speaker #5: It really did burn a lot of people. And that's what I was referring to when I say that there is another side to this.
Speaker #5: Sort of trend. And it is the exiting of other carriers as those losses catch up. And if you think about how these things might play out, these are probably going to come in the earliest and they will in terms of based on the new coverages that are provided, these losses are likely to come in the earliest and they're likely to be very high.
Speaker #2: Okay. I wanted to follow up on spacing on names tonight. So sorry. But anyways, the whole question around what's the floor for your operating expense ratio with respect to productivity.
Speaker #2: And maybe I know you don't want to give you clearly didn't want to give anything but a directional signpost on that. But I'd be curious if you maybe give us an example with these new products you're rolling out.
Speaker #2: Like the number of underwriters that were required to be added to support that rollout. And if you think about the growth using if you think about what how much growth you might be able to capture in the market, how many underwriters per that market opportunity does Ategrity need versus maybe if you were thinking about in your prior life your former firm or other contemporary firms to or traditional firms, would they need to how many underwriters would they need to support this type of endeavor?
Speaker #5: Yeah. For these lines, if I were to ballpark it, you need about one underwriter. You would need about one underwriter for about 750,000 in new business premium.
Speaker #5: If in a traditional legacy carrier, that is because these you could spend two days working on a quote. For life sciences, it typically involves things like visiting the FDA website to look at or even calling a consulting pharmacist, which is typically on staff.
Speaker #5: To find out information. So much information gathering is required. That's why the new business production level tends to be so low. Again, we are not we are just in this space, but so we're not going to give you a number.
Speaker #5: I don't have a benchmark number for us. But I can assure you we are not going to take more than a few hours. For even these complex quotes.
Speaker #5: As we entered market. So you can take a relative kind of gauge a relative difference there. But it is a that is what we have done.
Speaker #5: And if you think about what the potential for AI is and how it can help you do these aggregate information, compile it digital underwriting file.
Speaker #5: So the individual can spend their brainpower assessing the data rather than compiling the data. If you think about where we're gaining the efficiencies, I think it paints a picture of a highly intelligent underwriting process that is extremely fast and efficient and actually probably more will produce a much better and more competitive quote for the best risk.
Speaker #5: It is remarkable how many how inefficient some of these lines have been underwritten. And that's if you want to I think we mentioned this one of the reasons we launched these lines is because of that slow turnaround time and the back and forth that has that so many brokers have to endure if they're trying to write business in these spaces.
Speaker #5: We are offering everything that we have offered on our in terms of speed, intelligence, efficiency, hassle-free process, predictability in our pricing, pre-designed product. We're offering all of that for these complex products.
Speaker #5: And it was a specific response to a huge gap in the market that is primarily being caused by other carriers refusing to modernize. It is a the opportunities are endless.
Speaker #5: We saw them and we leaned in very quickly.
Speaker #3: There are no further questions at this time. I will now turn the call back to Justin for closing remarks.
Speaker #1: Great. Well, thank you very much for taking the time with us today. And we look forward to catching up with you in the months ahead.
Speaker #1: All the best.
