Ategrity Specialty Insurance Co Holdings (ASIC) Q2 2026 Earnings Call Transcript

Good afternoon, everyone, and thank you for joining us today for Integrity's second quarter fiscal year 2026 earnings results conference call. Speaking today are Justin Cohen, Chief Executive Officer, Chris Schenck, 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. 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 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 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 issue 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 issue 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 second 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. Ategrity delivered another quarter of record results, including our highest ever quarterly written premiums, underwriting income, and net income. In a quarter in which the ENS industry contracted as a whole, we produced 23.4% growth in gross written premiums, alongside an 85.9 percent combined ratio with both metrics well ahead of guidance these results reflect the strength of our productionized underwriting platform and the discipline execution of our strategy growth was broad based across both casualty and property with more than 20 percent premium growth in each driven by expanding distribution relationships targeted regional strategies and new products launched over the past year. Importantly, our operating model demonstrated further scale this quarter. The combined ratio improved three points year over year, driven primarily by a reduction in our operating expense ratio to 9.5%. As premiums have grown, our centralized underwriting platform has processed higher volumes with expanding profitability turning to the market while competitive pressure continued to intensify across portions of the ens market our differentiated positioning contributed to outperformance we continue to identify attractive market segments in the small and medium-sized space that have less competition and in which we offer unique solutions that are resonating with our growing network of distribution partners the strengths we've built across the business are increasingly reinforcing one another, and Chris will explain how that played out this quarter later in the call. But first, I would like to turn it over to Neil Adler, our Chief Financial Officer, to review our financial results.

Thank you, Justin. We delivered another strong quarter with adjusted net income of $33.5 million, up from $17.9 million in the same quarter last year, driven by top-line growth, improving margins, and continued strength in investment income. gross written premiums were up 23.4 percent with casualty premiums up 24.7 percent and property premiums up 21.3 percent net written premiums increased 30.8 percent which reflects higher retention year over year while net earned premiums were up 30.9 percent fee income was 3.4 million compared to one and a half million a year ago with growth coming from standard policy fees introduced over the course of 2025 our underwriting income for the quarter was 16 million of 66.9 year over year that translated into a combined ratio of 85.9 compared to 88.9 last year driven primarily by a reduction in our expense ratio our loss ratio came in at 58 and a half percent which was up a half a percentage point year over year reflecting the continued shift and business towards our brokerage channel and lower catastrophe activity in prior year quarter. Catastrophe losses were 4.3 percent of net earned premiums up from 4.1 percent last year. We also had favorable developments this quarter equal to 0.9 percent of net earned premium. On expenses, the overall expense ratio improves three and a half points to 27 and a half percent. Our operating expense ratio declined 2.9 points year over year to nine and a half percent of net earned premiums. Their improvement reflected earned premiums growing faster than operating expenses together with higher fee income. Policy acquisition costs as a percentage of net earned premiums also declined in the second quarter to 17.9 percent from 18 and a half percent. The continued shift in our business mix towards the brokerage channel also reduced policy acquisition costs resulting in an overall economic benefit to our margins. Moving on to investment results. Net investment income was $12.7 million up from $11.9 million last year, reflecting a larger investment portfolio partially offset by lower short-term interest rates. Realized and unrealized gains were $18.6 million or $14.9 million net of non-controlling interest supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20%, bringing net income to stock holders to $33.5 million. Adjusted net income was also $33.5 million, or $0.67 per diluted share. Turning briefly to the balance sheet, cash and investments increased by $62.3 million from the first quarter to $1.2 billion, reflecting strong operating cash flow. Book value increased by $33.4 million since the first quarter driven by retained earnings and an increase in AOCI offset by the impact of shares purchased in the quarter under our stock repurchase program. Our book value per share ended the quarter at $13.86 per share of 31% since our IPO. With that I'll turn it over to Chris to discuss underwriting and operating performance.

Thank you Neil. When you consider this quarter's results, record direct premium, an underwriting operating expense ratio that we believe is among the best in our peer group, and continued underlying improvement in our loss performance, any one of those metrics would represent a strong quarter on its own, especially against the backdrop of an increasingly competitive market. Taken together, they speak to how the capabilities we have built are increasingly reinforcing one another and helping us overcome the usual trade-off between growth cost this is why we believe these results are not only repeatable but sustainable over the long term let me explain starting with revenues growth this quarter wasn't driven by a single initiative first we benefited from a larger renewal portfolio year-over-year we have consistently acquired new business on our terms at the right technical rates. This compounded into our largest renewal portfolio ever entering this quarter. In addition, new business growth was broad-based. On our last earnings call, I talked about the record submission volumes we were seeing across the business. Those submissions reflected the investments we have made in distribution, regional strategies, and new products those submissions became premium this quarter existing distribution partners continued to place more business with us newer relationships became increasingly productive project heartland continued to outperform our new england strategy launched in april got off to an excellent start property growth accelerated and our newer professional liability and management liability products contributed meaningfully, turning to operating expense. This quarter, we processed record premium volume while simultaneously launching new products and executing new growth initiatives. Yet, our underwriting expense ratio improved to 9.5%. This isn't simply a function of scale. Technology and AI are a big part of the story. Our technology platform is built on a modular architecture that means every capability we develop can be reused across products channels and growth initiatives in addition we are increasingly benefiting from magentic ai this is now being used across functions ranging from marketing to governance notably our architects and engineer product was brought to market earlier this month using what we estimate to be approximately 60% fewer resources because of AI. We have all but eliminated the fixed cost of launching a new product while accelerating speed to market. We believe our underwriting model, technology design, and innovations help deliver one of the lowest underwriting operating expense ratio in our peer group. Finally, underwriting performance. Importantly, we did not need to compromise underwriting standards to achieve growth. A larger opportunity set simply allowed us to remain selective, maintain technical pricing, and continue delivering fast response times to our partners. We continued to price the business using an 18-month forward view of expected loss costs rather than reacting to short-term pricing trends. That gives us confidence that our technical margins remain stable. Our prior year reserves continue to develop favorably during the quarter. Supporting our view that our underwriting discipline continues to produce consistent outcomes over time. Taken together, these three metrics tell the story of a business that can grow faster than its peers without sacrificing underwriting quality or inflating expenses. We believe this is because our approach to the market and the way we build the business are self-reinforcing. Investments in distribution, products, and technology expand our opportunity set. A larger opportunity set allows us to underwrite more selectively. Selective underwriting generates stronger margins. Stronger margins allows us to continue investing in technology, products, and distributions. And those investments further expand our opportunity set. We have intentionally built integrity to become stronger as it grows, and we believe this quarter demonstrated exactly that. With that, I'll turn it back to Jeff. Thanks, Chris.

This quarter demonstrated that the investments we've made over the past several years continue to translate into profitable growth. While we expect competitive pressure to continue in the ENS market, we believe our ability to identify differentiated growth opportunities and execute them through our scalable operating platform positions us to continue gaining profitable market share, which leads to our guidance for the third quarter. We expect to achieve further market share gains, with gross-written premiums growing more than 20 percentage points above the ENS market. from an underwriting margin perspective we expect a combined ratio of approximately 87 representing continued year-over-year improvement with that we thank you for your time and operator please open the line for questions we will now begin the question and answer session please limit yourself to one question and one follow-up if you would like to ask a question please press star 1 to raise your hand.

To withdraw your question, press star 1 again. We ask that you pick up your handset when asking the question to allow for optimum sound quality. 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 Elise Greenspan with Wells Fargo. Elise, your line is open.

Please go ahead. hi thanks um hi thanks good evening um you know my my first question um just wanted to um i guess you know flush out i guess you know on the top line as you guys are thinking about growth from here um i think you said in the third quarter more than 20 percent how do you see that trending um between property and casualty and then can you just give us a sense of just um the current pricing conditions you guys are seeing in both?

Yep. Thanks, Elise. This was a good top line quarter for the company, and we did give that guidance, and we expect to see continued momentum in both property and casualty along the lines of what you've seen this quarter.

Chris, do you want to talk about it?

Yes.

We are seeing a lot of momentum in property. That is unusual in this market, but it is somewhat explainable by primarily our strategies. So Project Heartland the New England strategy those are both product centric strategies that are really unique to us very differentiated they take a lot of research a lot of technology a lot of capabilities so they're not it's not easy to follow us on those in those specific regions so that alone is contributing when it comes the rates uh we uh we were effectively flat um low low negative single digits uh on property and that is because we chose to protect our renewal portfolio uh in some key uh regions where uh it made sense uh for us from a portfolio balance standpoint and also because of the fact that those were accounts that were performing well, were preserving. On new business, the pricing levels on new business is up like year for year. That's not a metric we have disclosed, but directionally, it is something that, you know, we keep an eye on internally to tell us how we're pricing new business.

Okay, thank you.

And then my second question, you guys called out, you know, some reserve releases this quarter um and i was just hoping to get a sense i guess i think it was just under a point um what was what was driving the reserve releases just um what what years what years in lines thanks alice so this is similar and a continuation of what we discussed last quarter which was in the past few years we have booked our property results with a degree of prudence expecting reported losses to come in over the course this year they have not materialized to the degree that we expected and that's what led to the reserve releases your next question comes

from pablo singham from jp morrigan pablo your line is open you can now go ahead um hi good afternoon first question are you able to quantify or provide more context than uh the new business submissions that you saw uh did the pace of growth accelerate from last quarter and you know just in general like want to get a sense of the magnitude of growth there we're not we're not providing the act the the number itself but what we can say is that was an excess of our premium growth yeah it was an excess of our premium growth we continue to remain selective we are finding excellent opportunities

on new business across all products first of all so there are some beyond property which tends to be the headline when there's a discussion around soft market it is there's also a soft market in management liability and to some extent professional liability but we continue to find unique opportunities there also in casualty some say they're softening parts of that market and nevertheless we are coming across great opportunities from not just the areas where we have a regional strategy, but across the country in, you know, some very low volatility jurisdictions. And that is a factor of our distribution network, who very often, you know, are in those smaller markets.

Thank you.

And then second question, I was hoping you could discuss, I guess, the midshift dynamics that are affecting the year-over-year compare in attritional.

I think you guys are a bit unique right where you spent the book property losses actually above casualty picks but anyway you sort of like talk through what why that attritional uh went up year over year thank you yep thanks this is really driven by mix shift and the mix shift into our brokerage channel so we have two channels brokerage and small business the brokerage channel has a a book loss ratio that is above the small business so as you've seen that mix come through that's been what's driving that at the same time that's also driving our commission ratio lower so that is an offsetting dynamic so a couple elements there but from a loss ratio perspective it is having written greater brokerage business with a higher that comes with a higher loss ratio and there has been no change in our underlying loss picks by line of business and channel your next question comes from Andrew Kligerman with TD Cowan.

Andrew, your lining is open. Please go ahead.

Hey, good afternoon slash evening. So I want to touch on the growth initiatives. And the part A of it kind of revolves around your regional growth, where, you know, I think over a year ago, it was Project Heartland in the Midwest, and then it moved to New England. And I think Last quarter, you talked a little bit about Texas and Florida. So the part A of it is, do you see a lot of geographic opportunity post these regions that I just touched on? And the part B is in the press release, I didn't hear it on the call, I don't think anyway, that you see opportunities for middle market growth. I think last quarter you talked about it in Texas, I think, mixed use to retail, but maybe it's the management and professional liability that you mentioned on this call, but I would like a little more clarity around your middle market segment growth.

Yeah. What you're seeing in our numbers were the seeds that were planted, as you were saying, back many months ago and those seeds continue to be planted and that is what's fueling our growth I'll pass it to Chris to talk about that.

Yep so I think you we can take a step if you take a step back and look at the regional strategies they they're not just a benefit to us they're a benefit to our partners because we are stepping in to fill a market need that we typically identify very early on and we also are very intentional about how we craft solutions for those markets so there's the initial entry there's the initial strategy and then there is there are the residual benefits that we get from that so I mentioned we are seeing attractive business and lower volatility lower volatility jurisdictions those are you know so we are in the Midwest we have a a very specific set of states that we characterize under the Midwest strategy. But Wyoming is not on that list, but we're seeing business in Wyoming because we were in Nebraska. That's just an example of just how the regional strategies work and what's beneath that is the fact that we are really solving a market problem And by doing so, we are, you know, we're really becoming important to our distribution partners.

And from the middle market perspective, I think that's your question was about middle market. That goes back to that earlier question on brokerage versus small business. Small business is the more micro type accounts and middle market are small accounts, but they're in the, you know, we call them in the midsize range. And so we have been growing in that brokerage channel in a meaningful way.

And that's been part of these numbers that you're seeing here. yeah we have talked about this also before but for us small is you know like two gas stations and then it goes into medium once it goes above five so let's say a family uh you know are running three gas stations they purchase two more uh we uh take a long-term view on risk so we are very we tend to stay on those accounts and as they grow they move into our middle market segment so there's some of that dynamic happening also.

Got it. So, it sounds like both are in your key verticals. And then, if I would like to follow up on the prior year development question, so you got the release and property.

It sounds like casualty was just kind of a nothing positive or negative, but any color you could share on how your casualty book is developing and how you feel about that book over the last several years yep you characterized it correctly there's nothing in the casualty book in terms of development this quarter and as the book is developing well our actuals our actual reporters are coming in below expected as you know we're a quantitative firm and we do a lot of analytics around that and the firm-wide casualty actuals coming in below expected and that's reflective of strong performance yeah we we have maintained

underwriting discipline on how we deploy coverage uh furthermore we charge for the trickier coverage on the casualty side many of our peers do not um that is um that ensures that you know as as the exposure within a million dollar limit if it is slightly higher uh we are getting adequate rates so that technical pricing discipline which can sound a little abstract really has layers to it uh and what it does though is it it insulates us from some of the um usual casualty um pitfalls uh so things like uh those are for that we have very very specific there's casualty then there's We tend to be a conservative side, what we call sensible coverage. And when we deploy coverage in those categories, we charge for it.

The next question comes from Alex Scott with Barclays. Alex, your line is now open. Please go ahead.

Hi, good afternoon. First one I had, Pia, is just maybe some broad commentary on the marketplace. I mean, I've kind of thought about you all, as you say, you know, coming into the regions and solving coverage gaps and issues and finding interesting niches to play. And does that get harder as the market is becoming more competitive?

And are you seeing any of that kind of activity where, you know, maybe some of the issues out there get solved by capacity and it gets a little harder to find places to go? or you know are there still lots of regions and products i'm just trying to understand how it's shifting we believe we are in a we're in some unique spaces um uh one because we take we took the time to understand them but um we're succeeding in those spaces and this is really the catalyst because we are providing a unique solution we're taking the time to design the intake rules in the right way to craft the product in the right way and develop the pricing in the right way for those markets most of our peers if they're participating in those spaces they tend to take a very generic approach and as a result we are seeing more more momentum and more opportunities there there's always going to be a shift of business in and out of the space I think the competitive advantage here is the fact that we have a machine to study that external environment, and we are able to quickly, and when I say quickly, I mean in a matter of weeks, go from research to deployment of solutions.

Got it. That's all helpful. Next question, I wanted to see if I could just get you to give a little color around, I guess, the CFO transition and how that's proceeding and just sort of what led to that. Is there anything operationally we should expect to change, that sort of thing?

Thanks for the question, Alex. So, in terms of the transition, this was a scheduled expiration of a existing contract and we were excited to have the opportunity to have neil join our company i've known neil for seven years and he is an extraordinary cfo he's been around this business since since its foundation and he really takes a forward looking view uh into how we can scale this business as you're seeing us grow we have we are looking to have a finance department that scales in the same way so focused on on automation and and streamline processes. So that is it. Neil, is there anything you want to add about your outlook or any changes?

No, I would just reinforce that. You know, I've been involved in Integrity since its founding, and everything I've seen since taking the reins have just been reinforcing that it's an experienced finance group with, you know, established reporting.

Your next question comes from Matthew Heimermann with Citi. Matthew, your line is now open. Please go ahead.

Good morning. Good evening, everybody. Tomorrow. A couple of numbers questions, and I have just a business development question. Do you have the paid loss number in the quarter by chance? I just want to double check my math.

I don't have the dollars, but the paid to incur, so you can back into it, was in the high 50s.

All right, then I'm roughly close. Okay, it looked like the recoverable balance popped up in the quarter. I wasn't sure if that was a reflection of losses picking up sequentially and you just haven't got recoveries yet, or if that was a function of some of the growth you have is is naturally larger size. And so there's a bit more session to reinsurers just as you manage your own limits.

Yep. That is associated with the shift to the brokerage channel, as we said previously. You also saw that retentions like net written to gross was also down at an usually low quarter. But that's all associated with having more reinsurance in the brokerage channel. So So those are mid-sized accounts, and we have more programs there, more reinsurance placements So that's what you've probably been seeing in the numbers.

Okay. Thank you for confirming that. And then I guess the last question is just thinking about as you grow, you're eventually going to have some claims or a greater volume of it. So I'm just curious how the staffing plans have unfolded in the claims operation to date. I know it's something we talked about as you guys were going public, but I'm just curious if you could give an update and just are we staffing ahead or in step with that? Just be curious. Thank you.

Yep. We have over 30 people in our in-house claims team. We have a sophisticated staffing model that they utilize, and we make sure that we are ahead of the curve. We have actuals versus expected on claim counts so that all feeds into that and so we are we're very focused on making sure we have the right resources we're also doing working to do some more innovative things on claims over time which we'll introduce at a later date but the idea is that there is uh we are well resourced for the claim volume that we are receiving and and uh and we're also deploying technology as well yeah so our um in parallel with uh our core operating system improvements there is a uh we've been uh deploying new capabilities product by product uh on the claim side uh i'd say um it includes uh integration uh estimation tools it includes a number an array of

you know new functionality that allows us to get more precise um on how we do case reserves but Also, it allows us to handle claims. We, you know, across the business, including in finance, as Neil mentioned, we are looking to utilize the current technology to get core staffing.

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

Well, thank you so much all for your questions and for taking your time this evening. We appreciate your interest and integrity, and we look forward to having further conversations with you in the months ahead. All the best.

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