Ategrity Specialty Insurance Co Holdings Q1 FY2026 Earnings Call

Good afternoon, everyone, and thank you for joining us today for Ategrity's First Quarter Fiscal Year 2026 Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neelam Patel, Chief Financial Officer. After Justin, Chris and Neelam have made their formal remarks, we will open the call for questions. Operator Instructions: 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, 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. 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. I will now turn the call over to Justin.

Good evening, and thank you all for joining Ategrity's first quarter earnings call. This is Justin Cohen, and I'm joined today by Chris Schenk, our President and Chief Underwriting Officer; and Neelam Patel, our CFO. Ategrity delivered another quarter of record earnings, generating outstanding margins while gaining market share. We produced a combined ratio of 87.4% and grew gross written premiums by 23.1% in an industry that was relatively flat with both metrics better than guidance. We are winning by identifying underserved segments, building solutions that give our distribution partners an advantage and improving the quality and renewability of our portfolio. While competition is increasing, we are defining distinct markets where we can compete on our own terms. This quarter, we extended that momentum by launching several new strategic initiatives, including new regional strategies in Texas, Florida and New England while maintaining strict technical rigor in risk selection and pricing. We will discuss these initiatives in more detail later in the call. As our footprint expands, we are demonstrating operating leverage. Our expense ratio improved 2.5 percentage points year-over-year as earned premium growth outpaced expenses. We continue to optimize our business mix and leverage our centralized underwriting model to improve profitability and lower unit costs. At the same time, we are investing in the business, both to support our growth initiatives and to advance automation and AI across the organization. Turning to the market. Competitive pressure continued to intensify in parts of the E&S market this quarter, but its impact on our business remained limited. By focusing on small- and medium-sized businesses and delivering differentiated solutions, we continue to operate outside the more commoditized parts of the market. We are seeing this play out consistently across the portfolio, reinforcing our confidence that we can continue to build profitable market share. With that, I'll turn it over to Neelam to review our financials, followed by Chris to discuss our underwriting performance and go-to-market strategy.

Thanks, Justin. We delivered another strong quarter with adjusted net income of $25.6 million, up from $8.5 million in the same quarter last year, driven by top line growth, improving margins and continued strength in our investment income. Gross written premiums were up 23% in the quarter and growth was broad-based. Casualty premiums grew 27% and property premiums grew 13%. Net written premiums increased 32%, which reflects higher retention year-over-year, while net earned premiums were up by 34%. Fee income was $2.2 million compared to $0.6 million a year ago, reflecting standard policy fees introduced over the course of 2025. Our underwriting income for the quarter was $13.3 million, up 87% year-over-year. That translates into a combined ratio of 87.4% compared to 90.9% last year due to reductions in both our loss and expense ratio. Our loss ratio came in at 58.8%, down 1 point year-over-year, driven by strong underlying results in our property business. We had favorable development this period equal to 0.5% of net earned premium. Catastrophe losses were 4% of net earned premium, down from 6.2% last year due to very few CAT events in the first quarter compared to the prior year, where we had modest losses from California wildfires. On expenses, the overall expense ratio improved 2.5 points to 28.6%. Operating expense was 10.9% of net earned premiums, down 1.4 points year-over-year. That improvement was driven by earned premiums growing faster than operating expenses, along with the benefit of higher fee income. Policy acquisition costs as a percentage of net earned premiums declined to 17.6% from 18.8%. The improvement was primarily mix driven as growth has been concentrated in lines of business carrying lower acquisition costs and higher ceding commissions. Moving on to investment results. Net investment income was $12 million, up from $7.9 million last year, reflecting a larger investment portfolio. Realized and unrealized gains were $9.5 million, supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20.6%, bringing the net income to $25.5 million. Adjusted net income was $25.6 million or $0.51 per diluted share. Turning to the balance sheet. Cash and investments increased by $42 million from the fourth quarter to $1.15 billion, reflecting strong operating cash flow. Book value increased by $17 million, driven by retained earnings, offset by a decrease in AOCI. Our book value per share ended the quarter at $13.13, up 24% since the IPO. Overall, the quarter reflects strong growth, underwriting discipline and increased operating leverage. With that, I'll turn it over to Chris to discuss underwriting and operating performance.

Thanks, Neelam. Last quarter, we described our business as having multiple differentiated pathways for growth and how that has allowed us to operate independently of market cycles. This quarter is another validation of that model. In a competitive environment, Ategrity delivered another record quarter with all of our key metrics trending favorably. Top line growth of 23.1% with more than 50% coming from strategies unique to us. Expense ratio declined even as we continued investing in production capacity, technology, marketing and partnership management. Rate change remained positive. Cost of product indicators continued to track favorably. We are succeeding because our model is built on two key principles: a long-term view of customer value and a deliberate approach to creating new markets for growth. These are uncommon in E&S. At a fundamental level, all carriers operate within the same growth equation, renewal contribution plus new business production. These are driven by the same inputs. What is your renewal base? What is your retention ratio, average premium, submission growth, quote ratio and buy ratio. The difference in carrier results is driven by which levers they can move and which levers they're willing to move. For us, what we adjust is driven by our view of risk taking and that long-term view is measured in terms of customer lifetime value. For several years, we have optimized the inputs that matter to us. And as the market shifted, these became a clear structural advantage. On renewal inputs, since 2021, we have focused on writing durable, sticky business. That showed up this quarter in a record renewal base and our highest retention since going public. We optimized our retention rate through targeted rate actions while maintaining positive rate across the portfolio. On new business, the levers we can actively manage are submission growth, quote production and average premium. Submission growth was strong. This was driven by our distribution investments as well as our strategic initiatives. Quote production reached an all-time high, supported by the submission volume as well as the quality of those submissions. Our investments in AI and our operating model allowed us to process that volume efficiently while maintaining fast turnaround. Shifting to conversion. Conversion moderated modestly, but that was expected. Conversion is often the least controllable lever for a technical underwriting organization. We were able to win at a higher rate in areas where we have a regional strategy. And finally, average premium. As the competition intensified in larger accounts, we leaned into small and middle market risk in our core verticals where precision, speed and consistency matters most. Those dynamics combined improved the overall quality and renewability of the portfolio. Our results this quarter are straightforward. We retained more of what we wanted, and we added new business with higher expected lifetime value. Our model only works if we acquire business on the right terms, which is why we continue to build targeted growth pathways that position us where competition is less aggressive. This quarter, we launched three new regional strategies in areas with attractive economics and lower competition. Let me take you through how we did this. While headlines suggest that the E&S market is losing share to admitted carriers, the reality is there's a two-way flow, and we are focused on the inflows. Ultimately, there are 50 state-level markets, each with its own distinct dynamics and even more localized submarkets beneath that. Dislocations are constant, and our advantage is identifying them early. To be clear, what we're doing goes beyond simply tracking state-level trends. We analyze municipal-level economic, legal and policy trends. We look at submission flows and loss experience, and we even look at admitted market filings to pinpoint opportunity. That work drove targeted strategies in Texas, New England and Florida in the last quarter. Those strategies are focused at a city and even at a neighborhood level. For example, along the I-10 corridor in Texas, we have seen wholesale trade moving into the E&S space, while in Springfield, Massachusetts, older mixed-use properties are flowing into the market. We have built strategies around these specific profiles, and we are offering solutions. Furthermore, we equip our partners with the insights through interactive city guides and targeted marketing, enabling them to source the business more effectively. In doing so, we're establishing ourselves as the go-to market for these risks. This will, in turn, drive future submission growth, provide offsets should there be any declines in conversion rates, and it will allow us to win on our terms. And finally, this will all feed back into our future renewal base. This is how our differentiated growth strategies translate into above-market performance. Combined with our focus on lifetime value, they create a compounding growth model while preserving underwriting discipline, and this ultimately positions us for superior results going forward. With that, I'll turn it back to Justin.

Thanks, Chris. Our model is standing out in an increasingly competitive market as we have built a repeatable advantage and are executing against it with discipline. Turning to our outlook. Our top line guidance for the second quarter of 2026 remains consistent with last quarter. We expect direct written premium growth of approximately 20 percentage points above the E&S market, reflecting continued market share gains and the strength of our model. From an underwriting margin perspective, we expect a combined ratio in the 87s, representing continued year-over-year improvement. We thank you for your time listening. And operator, can you please open the line for questions?

Operator Instructions: Our first question comes from the line of Elyse Greenspan with Wells Fargo.

I was hoping, going back and tying it to your growth outlook, if you could give us a sense of when you think you'll be 20% above the industry for the second quarter. What are you thinking about in terms of property versus casualty top line growth?

Elyse, at this stage, we're not breaking out the growth by property and casualty, although what I would say is that we do believe that there is an opportunity in the second quarter for property to accelerate a little bit compared to the first quarter.

And then, if that's the case, what are you seeing from a pricing perspective? Sorry, go ahead.

Yes. So the catalyst for growth, as we mentioned, are the regional strategies and those are all packaged products. So that alone should give you a signal in terms of how they will move.

Okay. That's helpful. But then what are you seeing when we've heard a lot of aggressive price cuts on the property side within the E&S market? What are you seeing from a pricing perspective, both in property as well as within casualty?

There are two dynamics. There is CAT-exposed property where there's very aggressive competition. Those tend to be larger accounts, and we are not in that space, so we have not observed those dynamics as severely as some peers. For large non-CAT accounts, we did see some more pressure, and we chose to walk away because the rates were not right. We had more than enough opportunities in small and medium accounts to compensate.

Okay. And then I think you said there was 0.5 point of favorable development for the quarter. What drove that? Can you give color on lines and accident years?

Elyse, if you recall from the last earnings call, we talked about how we have been very conservative in recent years on both property and casualty. In particular, we spoke about how for property we were booking at a prudent accident year ratio even though we hadn't quite seen the losses come through. As we went through this quarter, that conservatism continued. This quarter was a release of some of those reserves in property 2025. We still think we're very prudently reserved.

Our next question comes from the line of Pablo Singzon with JPMorgan.

Your attritional loss ratio was up year-over-year, and looking at it on an annual basis it seems like it's been trending up. I assume that's mainly mix. Could you talk to what's going on beneath the surface there?

Yes. We have not changed our underlying liability loss pick. There is a component that is mix. The other component is that this year we are booking our attritional property conservatively relative to last year and especially relative to the losses that emerged in the first quarter. That conservatism is part of what you are seeing.

Makes sense. Second question on reinsurance retention: that stepped up year-over-year as you communicated before. How will that ratio look for the balance of the year? Is there appetite to bring it up in subsequent years?

Yes. This year should be relatively consistent with regard to reinsurance. We had stopped or nonrenewed a casualty quota share formally this year, so we had done a half step in the beginning of 2025 and a half step in 2026. What you've seen in the first quarter is relatively consistent. There is some quarter-to-quarter mix because there's more property in some quarters than others, but this is a good benchmark.

Our next question comes from the line of Andrew Kligerman with TD Cowen.

I'd like to get a sense of pricing more granularly. On the property that you are writing, which I suspect includes many of the smaller property accounts as well as casualty, could you talk about the rate that you're getting there?

As part of our renewal playbook, we manage to lifetime value. We had accounts that performed really well, and we gave back some rates there. Overall, we had net positive rate change. For new business, there is pressure on CAT-exposed business and business in certain parts of Texas and Florida. We have regional strategies for Texas and Florida where there is less competition. In the markets where we are active—Laredo, Waco, El Paso, San Antonio—there is a different risk profile and smaller markets. That is driving new business growth. As a result, new business rate levels are slightly above, if not flat to, what we would expect.

Got it. That was helpful. Regarding the regional strategies in smaller markets, could you elaborate on what industries you're looking for with these smaller businesses?

The constraint is that we do not go beyond our core verticals as we enter a region and build our playbook. We look for opportunities within our core verticals: construction, hotels, restaurants, retail, residential real estate. We have some emerging verticals like wholesale trade, which we do in small business and are now expanding into middle market—this is emerging in Texas. In addition, mixed-use retail is an important class—older mixed-use properties with retail on the first floor and apartments above. Those occupancies are more complex and require specialized knowledge, which we have. So we are not deviating from our specialist classes because that specialized knowledge makes the difference.

That sounds thoughtful. One last quick one: with policy acquisition costs at 17.6% and operating expense at 10.9%, the total 28.6% expense ratio seems like a decent run rate. Are those sustainable?

Yes, Andrew, I think that's right. The 17.6% acquisition cost is a strong ratio and it's been declining because we've been mixing into brokerage, which has lower commissions. There will be a very modest upward trend as the earning of ceding commissions on the quota share goes away, but that will be modest. We still believe we have meaningful opportunity on the expense ratio over time because we have a scalable model.

We have talked about AI and technology that is in development now. We have a number of solutions in pilot phase. As those get fully implemented, they will provide further leverage. We've been developing them in a relatively cost-effective way, so we're not building legacy tech debt, which one might assume based on historic cost around these solutions.

Our next question comes from the line of Alex Scott with Barclays.

First, on distribution: can you talk through the timing of when you launch some of these new initiatives like the Texas initiative and New England? Are you already getting new business from those launches or are you still building out distribution? How does that roll in over the next 12 months?

The regional strategy starts with an appointment strategy that begins well ahead of official launches. New England launched two weeks ago, but the distribution buildup started in September. We actually did get contributions from New England as a result, even though the official launch was just two weeks ago. The approach is similar for Texas and Florida. There is an engagement phase where we get feedback from the market regarding solutions we're willing to offer, and that alone starts to generate interest. Then there's an appointment phase and the official launch event, which is more of a marker than anything else.

Got it. Could you talk about gross versus net premiums and how we should think about retention and how that will trend?

Retention is up meaningfully year-over-year, which we expected. That was, as I referred to earlier, tied to the cessation of the quota share on our primary casualty business, which was opportunistic in nature. We are deploying capital through that, and that's why our retention ratio has moved into the low 80s, which we think is the right place to think about going forward.

Our next question comes from the line of Matthew Heimermann with Citi.

Two quick ones: do you have paid losses in the quarter?

We do. It will be in the quarter, and thinking about paid-to-incurred just to back into it, we're in the mid-50s.

With the regional strategy focusing on smaller account sizes, who are you potentially displacing? Is it legacy carriers, traditional MGAs, or tech-enabled MGAs? I'm trying to understand who you're competing with in these smaller markets.

On the E&S side, very few carriers truly have a playbook for the places where we're competing. We are positioning ourselves to absorb business coming out of the admitted market. Part of this is studying what is flowing into E&S and being proactive in designing solutions. That is different from many peers who wait to see what comes in and then build bespoke solutions. We study what's exiting the admitted market, build a solution, and provide our wholesale partners with city guides and insights. Those guides are interactive, so a wholesaler can discuss with a retailer, 'This is what's coming out of the admitted markets; I have a home for it; it's called Ategrity.' It's less about displacing incumbents and more about being proactive and creating a clear home for that business.

Okay. So that wholesaler previously may have gone to the admitted market, but now that this business needs a home, you're positioning the wholesaler to come to you?

Yes. We're helping provide the opportunity for growth for our wholesale partners. Their clients are the retailers in a framework, and our investment in marketing is to make sure we are first in the door to establish that relationship.

For our wholesale partners, this creates a defined destination for the risks that are moving out of the admitted market. That is really what we're doing.

Our next question comes from the line of Alex Scott with Barclays.

Could you give us a feel for how persistency has been running? Any metrics you can provide, particularly as you've lapped some of these bigger initiatives? How is that trending?

Our retention rate was the highest since we've gone public, and we had a larger renewal pool, which means our theory of high lifetime value for each account acquired is starting to prove out. With newer strategies, for example Project Heartland, where we're now two or three renewals in, we are starting to see that lifetime value target come into place, which we have not disclosed, but we do have a target.

Are you willing to share a high-level figure for persistency or retention for the overall book?

When you say persistency, you mean the policy retention rate? We're not disclosing it.

We have reached the end of the Q&A session. I will now turn the call back to Justin for closing remarks.

Well, thank you all for joining us this evening. We thank you for your interest in the company, and we look forward to speaking with you in the weeks ahead. Take care.

This concludes today's call. Thank you for attending. You may now disconnect.