Ategrity Specialty Insurance Co Holdings (ASIC) Q3 2026 Earnings Call Transcript

Good afternoon, everyone, and thank you for joining us today for Integrity's third quarter fiscal year 2026 earnings results conference call. Speaking today are Justin Cohen, Chief Executive Officer, Chris Chank, 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 the 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 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. This 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 Cohen.

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. Integrity 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. 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. 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. 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. 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. 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. With that, I'll turn it over to Neil Adler to review our financial results.

Thank you, Justin. We produced a Justin 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. Gross rent premiums were up 14.7%, with property premiums up 25%, and casualty premiums up 10%. Net earned premiums increased 25.8%, which reflects higher retention year over year, while net earned premiums were up 35.7%. 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. Our underwriting income for the quarter was $19.5 million, producing a combined ratio of 84.7 percent compared to 88.7 percent last year, driven primarily by a reduction in both our loss and expense ratios. Our loss ratio came in at 57.5 percent, 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. Catastrophe losses were 4.2 percent of net earned premiums, up from 4 percent last year. On expenses, the overall expense ratio improved one and a half points to 27.2 percent. Our operating expense ratio declined 0.8 points year over year to 10 percent of net earned premiums. The 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 third quarter to 17.2% from 17.9%. The continued shift in our business mix towards the brokerage channel reduced policy acquisition costs 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. 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. 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. Adjusted net income was $14.7 million, or $0.29 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. 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. 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. With that, I'll turn it over to Chris to discuss Underwriting and Operating.

Thanks, Neil. Our third quarter results demonstrate the power of our ProductionAid's Underwriting strategy. We delivered our strongest combined ratio in the company's near decade history and grew submissions by 30%. 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 develop better than expected. 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. 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. First, covered certainty is becoming a key differentiator in the casualty market and an important consideration for brokers and insurers. We have studied our clients' businesses and the emerging insurance requirements they face from customers, lenders, regulators, and their contractual counterparties. 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. 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. 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. 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. 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 costs and speed to market. 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. 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. 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. As we entered 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. 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. 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. 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. Accordingly, we expect our combined ratio to again be below 87% in Q4. On investments, we have produced $8.9 million of year-to-date realized and unrealized gains net of non-controlling interests. 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. At the same time, given the higher interest rate environment, it is our intention to increase our allocation to fixed income investments toward 90 percent of our total investment portfolio from the current level of approximately 80 percent. 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. We will endeavor to buy more shares in Q4 in the open market using the $47 million outstanding in our buyback program. And we note that our excess capital far exceeds our remaining buyback capacity. To sum it up, we believe Integrity is just getting started. Our new products, expanded coverage, next-generation technology, and implementation of AI are creating an expanding opportunity set and a runway for further profitable market share gains. 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 questions who 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 Pablo Singban with J.P. Morgan. Pablo, your line is open. Please go ahead.

Hey, Pablo. Hi, good afternoon.

Hi. Hi, Justin.

Can you impact what additional coverages you're providing in casualty and, I guess, how your offering compares to what's widely available in the market?

We're not disclosing on this call what additional coverages and, you know, new product designs that we've rolled out are, you know, 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. There is a new market norm that is evolving, you know, there are obscure coverages such as human trafficking that are also, you know, evolving in terms of a market requirement. In terms of what we have done on our specific products, those are even made clear to the market, but our new We Cover What Matters campaign, some of it, some of the need for more coverage has to do with fear, what might be happening at a municipal level, fear around how entanglement with immigration and sort of ICE rates and such might affect a genuine need for creating partners.

Understood, and thanks for that. And I guess for the second question, do you expect to return to normal productivity in 4G just given the rollout of the new underwriting system, or should we expect, you know, some maybe disruption into the next quarter here?

Yeah. So our technology rollout has performed better in terms of stabilization with our employees and training and all of that.

Hi, thanks. Good evening. I guess my first question also probably touches on some of the new products that you were talking about on the casualty side. So you said that you increased rates. So, I guess, can you give us a sense of, like, the price differential, I guess, between the new offerings and the old offerings that you guys are writing?

Yes. So, just for clarity, we have launched a set of new products, and for our existing casualty verticals, and micro segments, rather, we have designed a new offering. 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. That allows us to be explicit to the market about what we are willing to cover or 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. It has to do with adding coverages to our base product for several casualty lines. We are not going to do it, but what it allows us to do is provide what the market needs while charging adequate rates. 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 new coverage. Now, that is very different than what many do in the industry. They will put on a lot of utility, not charge for them. And in my view, deterioration, and we have learned over multiple, the beneficiary of that. So while being a first mover on rates, Our move, that has been our consistent approach, and that's just what we did here. We high conviction in the rates of the market, put together a plan to do so, while maintaining the level of production that would lead to the growth.

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. and it sounds like you went into the quarter, you know, with the, you know, the new, you know, the new next gen, like, rolled out. So would you expect, I guess, going into 27, is that kind of the new run rate range expected to be, like, in the 15% to 20% range versus the market?

So, Elise, we haven't – we're not going to disclose our 20-27 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 use the stamping data as a adjusted stamping data as a source of what is the market. And we saw the market ourselves being down zero to five percent this quarter. But the stamping data, as you know well, was negative two, then 19, then negative five in the quarter across the months. And so this adjustment is really to reflect that there's more variability in those numbers. and to give room for that dynamic.

Your next question comes from a line of Andrew Kligerman with TD Cowan. Andrew, your line is now open. Please go ahead.

Good evening. So I follow up on the gross written premium growth. And, Justin, you've been very clear, 15% to 20%. But when I'm hearing you and Chris talk about coverage certainty, which includes higher rate, it's kind of a mixed bag, right? 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, you know, as you rolled out the technology, but that's all done. You've got a couple of big-time pluses, 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, and I want to get your read on that.

Andrew, the momentum in the business is outstanding. With the 30% 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, 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.

So you can check every box that led to our growth numbers in the prior quarter. You can check in that direction. That is, you know, if you consider those the leading indicator or the consistent indicator that has led to our growth, those are unchanged. So we continued to region, you know, resonating well with our partners, 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 because of them. 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 are able to increase the rigor so that is you know all very positive now on the new products we are particularly proud of this because we you know we consider ourselves to be this exactly what we did for these four new products so they are in market and for these so there's there is from one of the big industry conferences. This was, that was our key focus in conversations with partners. 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, we were able to do it, and we were able to do it with a high level of sophistication. What we're doing with these products is not just, We're not just entering as a participant in life sciences, for example. We're introducing a brand-new way to underwrite life sciences that will remove all the back-and-forth and the hassle. It has science in the name. You know, there's a mystique around it, right? We have demystified it. We have used our segmentation approach, our pricing approach, our form design approach. All of that is in place and 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. So when I'm saying, like, we did something in four weeks, that's a giant leap, and in our numbers right now, we are not even accounting. So it's an aggressive positive here and a lot of momentum in the business, the fundamentals.

Yeah, that sounds compelling. And maybe shifting to the other part of the expense ratio, moving from 28.7 to 27.2 year over year is a nice move. And, you know, with a 10% operating expense ratio, you know, 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? I mean, are there a few points of expense ratio reduction that might be in the cards?

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. 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, and that's how we continue to become more effective in a competitive market.

So we are able to take our efficiency level to the next level. That is what our new platform or just version of our platform does. You know, 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 in addition to that the products that we are launching right now carry zero upfront investment you know it is there there is no additional cost that we need to recoup as we go to market with those products 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 you know nothing is ever truly zero but this is as zero upfront zero fixed cost as you could get the technology the forms of pricing you know it's all integrity'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 upside in future years 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 work stream that invoice involves lawyers and coverage counsel review right so the back and forth will call 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 you know versus on trying to explain what you want the form to be for hospital loans to give you a sense and you know give or legal cost is, that's compound. So small, you know, kind of very nuanced example there, but when you think about what it takes to launch a sophisticated product in market, it's IT development, it's legal cost, it's 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.

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

Good afternoon. First one I have is on investment concentration in digital infrastructure. And we'd be interested in maybe your fixed income portfolio and if you have any of that in there. But also, importantly, if there's any exposure in the Zimmer Infrastructure Fund that we should consider as we watch those trends.

Yeah, got it. As I mentioned in the prepared remarks, we have had about an 80% allocation of fixed income since we've been public, and we've talked now about how we are going to be aiming for a 90% allocation. When you think about the Zimmer investments and utilities, those are liquid assets that are market neutral, and those are not those types of loans that you're referring to there. So that is a very different exposure. It is a market-nuclear exposure that has a significant track record of never having had a down year, and it is actively managed. So those are the two components of our portfolio, and we don't have, I think, the kind of exposure that you're highlighting there.

Got it. That's clear. I just wanted to make sure on the Zimmerbees. Okay. Second question I had is just I wanted to better understand what you're saying about categories. authority. I understand there's a new structure to the product, and it does require rate increases relative to what you were selling, but I guess it was characterized as part of the reason you didn't hit the 20% growth. 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 what was it in the older casualty product that you had to adjust just try to understand why why was it a gross headwind if it's a product yeah so imagine if you're buying a car and you know you you wanted leather seats in the market who are car dealers in the market who would give you leather seats for free or whatever accessory you want

frankly these became a requirement for cars there's charging for it and one is not, right? That's what the approach to coverage in this market has been. 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. So, as a true rate increase or just a charge for the enhancement to the product, it is an additional cost to the insured. It's charging for the letter seats. And, you know, there are other dealers out there who are providing the letter seats for free. So that's the dynamic that we went into this quarter adjusting for. 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 the coverage doesn't really add to the cost of product right so we have been explicit and what happens is that the rest of the market thinks it has happened over and over again now we are always ahead on pricing and we this is if you may if you recall we did that on property in response to tariffs last year and if you look at the property growth rate and how that has trended since we implemented those change it's a cycle it's we we have a path you know we understand this pattern and and so you know while more than enough submissions to compensate and all that was required with a few additional underwriters to increase production, and that is the piece that had a timing delay.

So that headwind we're referring to is doing this type of offerings and then having a delay in the headcount.

This comes from the line of Matthew Heimann with Citi. Matthew, your line is open. Please go ahead.

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. And I think you addressed most of it in response to this question. But the only thing I would be curious about is what was the catalyst, I guess, for charging for leather seats now? Was there some emerging claims data you're responding to? Or was this like – I'm just – that's – because when you first described it, it didn't really sound like a rate change, but a coverage form change. But it's kind of, but either, regardless, what was the catalyst?

It's a product enhancement.

What I'm struggling with is when you describe it, say it's a product enhancement, then you say other people are going to be adversely impacted by not doing this. That change sounds like it's in response to something, either something you experience or you see on the horizon. I'm just trying to get that context.

Yeah, so I'll answer your question. let me give you a little bit of background on what we are doing. We're studying the insured's needs, 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, which could include a set of fears and a set of true, and we made an explicit decision to not offer typically larger, more complex accounts would really want that coverage, but what What has happened over the last 18 months, I mentioned this a couple of quarters ago, that coverage certainty was coming into focus. That was being driven by the political climate, which includes things like immigration and, you know, which human trafficking coverage, or Fannie Mae Freddie's requirements for real estate investment companies. They have to have assault and battery coverage. It cannot be an animal exclusion on the policy. There are a couple of other things that they must have. Now, severity, high severity coverages, not willing to pay for a base product, consider that. When they became required, we decided that, okay, we will respond. That's consistent with our approach. We will provide what is required. We will charge for it. So it's not a – that will have our peers where the adverse – if you look back, again, if you look back at the history of casualty insurance, you will see that pattern, and it typically does have to do with coverage expansion, you know, be it, you know, the history on auto or, you know, covering auto or, you know, considering auto a – auto coverage, ancillary auto, higher than non-auto, was provided at no charge. And then, you know, we all know how that played out as carriers thought of losses going through on that, ancillary auto on excess casualty in particular. It really did burn a lot of people, and that's what I was referring to when I say that there is another side that 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 what, based on the new coverages that are provided, these losses are likely to come in the earliest and they're...

Okay, I wanted to follow up on spacing on names tonight, so sorry. But anyway, the whole question around what's the floor for your operating expense ratio with respect to productivity, 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'd maybe give us an example with these new products you're rolling out, like the number of underwriters that were required to be added to support that rollout. And if you think about the growth, if you think about how much growth you might be able to capture in the market, how you know how many underwriters per that market opportunity does integrity need versus maybe if you were thinking about in your prior life you know your former firm or other contemporary firms to or traditional firms would they need to you know how many underwriters would they need to support this type of endeavor

yeah for these lines if I were to all park it need about one underwriter You would need about one underwriter, if any, that is working on a core life sciences to look at,

or even take a relative difference there, of a highly intelligent underwriting process that is extremely fast and efficient and actually probably more, you know, will produce a much better and more competitive quote for the best risk. It is remarkable because the speed, intelligence, efficiency, hassle-free process, predictability, pricing, pre-designed product, we're offering all of that for these complex products. The response to a gap in the market that has primarily been caused by other carriers refusing to modernize. The opportunities are endless. We saw them, and we leaned in very quickly.

There are no further questions at this time. I will now turn the call back to Justin for closing the month.

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. All the best.

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