Earnings Call Transcript - RYAN Q2 2023

Operator, Operator

Good afternoon, and thank you for joining us today for Ryan Specialty Holdings' Second Quarter 2023 Earnings Conference Call. In addition to this call, the company filed a press release with the SEC earlier this afternoon, which has also been posted to its website at rryanspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward-looking statements. Investors should not place undue reliance on any forward-looking statement. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Listeners are encouraged to review the more detailed discussion of these risk factors contained in the company's filings with the SEC. The company assumes no duty to update such forward-looking statements in the future, except as required by law. Additionally, certain non-GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release, which is filed with the SEC and available on the company's website. With that, I'd now like to turn the call over to the Founder, Chairman and Chief Executive Officer of Ryan Specialty, Pat Ryan.

Patrick Ryan, CEO

Good afternoon, and thank you for joining us to discuss our second quarter results. With me on today's call is our President, Tim Turner; our CFO, Jeremiah Bickham; our CEO of Underwriting Managers, Miles Wuller; and Nick Mezick from Investor Relations. Ryan Specialty had a great quarter with strong momentum continuing across all of our strategic financial and operational objectives. We grew total revenue by 19.1% led by organic growth of 16.1%, building on the 22.3% organic growth in the second quarter of 2022. We also achieved double-digit growth in adjusted EBITDAC and adjusted net income on a year-over-year basis. We saw broad-based strength across our specialties, particularly in property and in many individual lines of business. The specific headwinds we noted on our prior calls were in line with our expectations and partially offset some of the very strong tailwinds we experienced in property. Overall, I'm very pleased with our performance in the quarter and throughout the first half of 2023. In addition to delivering great results, we continue to execute on our M&A strategy. In July, we completed three attractive and strategic acquisitions, which added scale and scope to our wholesale specialty and benefits practice. The first is Socius Insurance Services. Approximately $40 million of annual revenue Socius adds high-quality talent to our professional lines and cyber teams and deepens our scale and scope in key hubs like San Francisco, Tampa and Miami. We are confident in the outlook for this business, given our long-standing familiarity with the team and our proven ability to help firms grow on our platform through our relationships with the top 100 retail brokers, access to our proprietary products, and expanded carrier relationships. We also completed two employee benefits acquisitions. Point6 Healthcare and ACE Benefit Partners, adding just under $10 million of annual revenue. These firms provide exceptional talent and foundational capabilities for Ryan Specialty Benefits. We have diligently assessed opportunities in the benefits market, targeting firms that have a track record of both growth and long-term margin greater than the industry average. And these medical stop-loss focus firms are perfectly aligned with those attributes. Medical stop-loss insurance plays a vital role by smoothing the volatility in health care spending through reinsuring a self-funded benefits plan against high-cost claims. We expect medical stop-loss insurance to continue to play a crucial role in financing and risk mitigation strategies, particularly as health care innovation accelerates in high-cost drugs and gene therapies become more prevalent. We are pleased to enter this niche that boasts over $25 billion in premium in the U.S. with a 12% compound annual growth rate since 2014. We believe there is a long runway for both organic and inorganic growth in benefits and are excited to have these capabilities added to our specialties. Further on the M&A front, our pipeline remains robust. We remain disciplined in our pursuit of acquisitions, particularly in the current environment, as we will only move forward when all of our criteria are met. Each acquisition must be a strong cultural fit, strategic, and accretive. We continue to make targeted investments during the quarter as we brought on additional talent to further enhance our current capabilities and develop areas where we anticipate our clients need us in the future. These investments, particularly in the recruitment of new colleagues, offer the greatest returns for our shareholders and are part of a proven winning formula to maintain our long-term growth prospects. That takes us to ACCELERATE 2025, our two-year restructuring program announced earlier this year. We are making investments that will enable continued growth, drive innovation, deliver sustainable productivity increases over the long term, and accelerate margin improvement. We have made solid progress in the second quarter, which Jeremiah will discuss further. We remain on track to generate a targeted annual savings of at least $35 million in 2025 with cumulative special charges expected to be at least $65 million through the end of 2024. Throughout the second quarter, the E&S marketplace remained robust. E&S continues to provide solutions that are otherwise not available for hard-to-place risks. As we previously noted, we've invested significantly in those lines where we see clear opportunities to grow in addition to bolstering the lines of business our clients need us the most. We've also continued to expand our ability to serve brokers, agents, and carriers through innovation and creating alternatives to traditional insurance placements in areas like cat property and transportation. Looking ahead, we expect favorable specialty insurance market dynamics to persist, and we remain confident that 2023 will continue to be another strong year for our firm. We are in a prime position to capture broader E&S tailwinds and also further capitalize on our specific lines of accelerated growth. Our differentiated business model allows us to remain ahead of the competition, and our flexibility enables us to quickly adapt and pivot when market conditions shift. We continue to expand our total addressable market through innovation and strategic acquisitions and further deepen our moat with scale and scope of intellectual capital. We're able to do all of this because of our exceptional team, who consistently deliver impressive results and value for our clients, trading partners, and ultimately, our shareholders. Now I'm pleased to turn it over to Tim. Tim?

Timothy Turner, President

Thank you very much, Pat. As Pat noted, it was another strong quarter across our specialties as we continue to successfully execute on winning new business and producing innovative solutions for our clients. The effects of industry trends such as climate change and natural disasters, accelerating social inflation, and broad-based economic inflation happening concurrently with reduced insurance capital, a pullback in underwriter appetite, and market exits make for an incredibly challenging insurance market. Additionally, continuous change in the loss environment and growing uncertainty in reserve adequacy is driving more risks into the E&S marketplace, which offers significantly more freedom of rate and form. Given our specialized and industry-leading team's ability to navigate the complexities of the market, we plan to continue delivering for our clients and expect to further expand our market share. Diving into our specialties, our Wholesale Brokerage specialty generated another quarter of strong growth. In property, elevated levels of attritional and secondary perils, including severe convective storms and persistent inflation from higher costs of materials and labor shortages are driving up loss costs. Additionally, market conditions, including higher reinsurance costs, reduction in available capacity, and ongoing requirements for proper valuations are driving higher retentions of risk and ultimately more volatility into the U.S. direct property market. These factors are continuing to drive flow of new business into the E&S market. The E&S market is responding, yet it is also experiencing more conservative appetites, significant rate increases, and tighter limit management, especially on coastal property, severe convective storms, wildfire, flood, and earthquake risk. We are well positioned to assist our clients in navigating the complexities of this market. Our A+ team of experts are working tirelessly to bring important and creative solutions to our retail brokers and trading partners in this challenging market. Our transportation practice continued to see substantial flow in the quarter fueled by social inflation, carrier need for continued rate increases, and a pullback in underwriter appetite and market exits. We continue to win more than our fair share of new business and remain well positioned to capitalize on additional growth opportunities. Our casualty practice also performed very well in the quarter. We continue to see higher loss trends, inflation, and reserving issues driving more flow into the E&S channel across both primary and excess casualty, particularly in lines like health care, habitational, and real estate. And as Pat noted, we completed the acquisition of Socius at the beginning of July and are excited about the addition of new teammates who have hit the ground running and are a clear cultural match with Ryan Specialty. Overall, our Wholesale Brokerage specialty continues to successfully execute its game plan, and we see a long runway of consistent growth ahead. In our Binding Authority specialty, we saw another quarter of solid growth in traditional binding, which includes small commercial business and growth in personal lines despite continued capacity constraints. We continue to see further potential for panel consolidation as a long and steady growth opportunity, and we are well positioned to execute. Our Underwriting Management specialty also generated strong results led by continued steady and profitable growth in property and casualty and our reinsurance MGU, Ryan Re. We also launched our benefits practice with the acquisitions of Point6 Healthcare and ACE Benefit Partners. Our team was extremely thoughtful in determining where we could best add value in this large and important market and medical stop loss is where we see a clear opportunity for rapid expansion within this fast-growing specialty niche. John Zern and his team are hard at work expanding our sales force in this practice. We look forward to updating you on the progress of benefits in the quarters ahead. As we had mentioned on our prior call, and as Pat just noted, the specific headwinds in certain lines in the second quarter, namely public company D&O, lower external M&A volumes, and transactional liability and delayed starts in construction remained in line with our expectations. We expect any growth benefit in these three lines to be modest in the second half of the year. Turning to price. Through Q2, we remained in the prolonged stages of a historically hard market. Pricing in the E&S market largely held firm or accelerated in many lines of business with property continuing to see the strongest rate momentum. Exceptions remain public company D&O and cyber where we saw further pressure. As with all cycles, as pricing continues to increase and certain lines are perceived to reach pricing adequacy, we see admitted markets step back in on certain placements, particularly within large towers. But overall, we still have yet to see the standard market meaningfully impact rate or flow in the aggregate. We continue to expect the flow of business into the non-admitted market to be a significant driver of Ryan Specialty's growth more so than rate. With that, I will now turn the call over to our Chief Financial Officer, Jeremiah Bickham, who will give you more detail on the financial results of our second quarter. Thank you.

Jeremiah Bickham, CFO

Thank you, Tim. In Q2, we grew total revenue by 19.1% period-over-period to $585 million fueled by another strong quarter of organic revenue growth at 16.1% as we continue to benefit from the ongoing tailwinds in much of the E&S market, particularly property, broad-based strength in many of our individual lines, and our ability to win substantial amounts of new business. Net income for Q2 '23 was $84 million or $0.26 per diluted share. Adjusted net income for the quarter was $124 million or $0.45 per diluted share. Adjusted EBITDAC for the second quarter grew 16.9% period-over-period to $194 million, while adjusted EBITDAC margin declined 60 basis points to 33.2%. Our EBITDAC margin was impacted by continued investments in our business, including last year's hiring, and T&E continuing to return to normalized levels, both of which were partially offset by higher fiduciary investment income. Turning to our ACCELERATE 2025 program. We had approximately $17 million of charges in the quarter as the program was able to move into full swing, slightly ahead of schedule. We remain well on track to generate annual savings of at least $35 million in 2025 with cumulative special charges projected to be at least $65 million through the end of 2024. As Pat noted, we also continued to make targeted investments in the quarter, adding underwriting and broking talent to our ranks, and expect consistent recruitment efforts to continue in the back half of the year. The cost of these investments, along with the annualization of our 2022 headcount growth, will continue to impact margin but will be partially offset by increases in fiduciary investment income. These investments in talent, particularly recruiting new colleagues, offer the highest returns for our shareholders and are part of a proven winning formula to maintain our long-term growth prospects. Based on our current forecast, we expect to record GAAP interest expense, which is net of interest income on our operating funds, of approximately $31 million in Q3 and $29 million in Q4. As a quick reminder, we paid for our three most recently announced acquisitions at the beginning of Q3, which reduced our operating funds relative to the 6/30 balance sheet. We are now guiding organic revenue growth rate for the full year 2023 to be between 13.0% and 14.5%, up from our previous guide range of 10.5% to 13.0%. We are maintaining our full year adjusted EBITDAC margin guidance range of 29.0% to 30.0%. In summary, it was an excellent second quarter and first half performance by Ryan Specialty. We remain very excited for both our near- and long-term prospects. With that, we thank you for your time, and we'd like to open up the call for Q&A.

Operator, Operator

The first question we have is from Elyse Greenspan of Wells Fargo.

Elyse Greenspan, Analyst

My first question is on the updated organic growth, right, 13% to 14.5%. You guys were 14.6% for the first half of the year. And it sounds like there will still be some impact of the headwinds in the second half, but we are annualizing them. So why wouldn't organic growth be stronger in the back half, or is there just some level of conservatism built into the guidance update?

Jeremiah Bickham, CFO

Hi, Elyse, thanks for the question. So first off, I just want to acknowledge, we had a very good quarter that we're quite proud of and really the end to a very solid first half of the year. As you noted in our prepared remarks, we got a big boost from property this quarter. And because seasonally, Q2 has the highest amount of property and property cat business in our portfolio, that's why. And thus, we are expecting less of a lift from property in the second half of the year. But otherwise, we're implying that H2 will play out very similarly to H1, which means strong growth across the board, including double-digit growth contribution from our very balanced casualty portfolio as well. So overall, we feel great about where we're headed in H2, and we're very confident we can land within our increased organic growth guide range, which we feel would represent another very solid year for Ryan Specialty.

Elyse Greenspan, Analyst

Jeremiah, regarding Q2, I understand that it is the quarter with the highest property concentration. For the other three quarters, are they all fairly uniform in terms of property concentration, or does one of them have a notably higher concentration compared to Q2?

Jeremiah Bickham, CFO

So Q2 is far and away the largest. And if you're just looking at percentage attribution of business, it doesn't even tell the whole story because not only does it have the highest overall property contribution but it's the highest cat property quarter of the year by far. The next highest is Q4, but we did experience a benefit in the last couple of weeks of Q4 from property rates surging. So we're not counting on the exact same growth in Q4 proportionately as we would a quarter like Q2, if that makes sense.

Elyse Greenspan, Analyst

That does make sense. And then in terms of the M&A pipeline, you guys highlighted some of the activity during the quarter. How does the rest of the pipeline look, just in terms of other potential deals out there?

Patrick Ryan, CEO

Thank you, Elyse. The pipeline looks good. As I said, it's a robust pipeline. We are in discussions on additional benefits opportunities that will help round out our offering to our clients, add some significant new management talent and production talent. There's no way of knowing when, but it could be quite soon. We're in serious discussions.

Operator, Operator

The next question is from Weston Bloomer of UBS.

Weston Bloomer, Analyst

My first question is on the margin guidance. You raised the full year organic that left the margin unchanged. Can you just talk to the types of investments you're making in the back half of the year and maybe what impact you're expecting within your margin guidance around normalization of T&E or wage inflation or other investments?

Jeremiah Bickham, CFO

Yes. Thank you, Weston. So as we said for multiple quarters now, the biggest impact to our margin at the moment is our outsized hiring activity from last year, which we know is the right investment for our long-term growth prospects, and we're confident it'll pay off in the long term. And with regard to the guidance, I mean, a quarter like Q2, 33.1% adjusted EBITDAC margin, more than anything makes us confident in our guide range and increases the likelihood that we'll end up at the high end of that range. And again, just to remind everyone, we had 25% margins in 2019, so our model definitely scales. And next year, we won't have the same margin impact from our hiring this year, so we feel very good about margin improvement as time goes on. But in the meantime, as you said, T&E is still ramping up. It's not ramping up as significantly as it was in '22 relative to '21, but still an impact there. And then the biggest impact, again, is just the annualization of last year's hiring. And we're not making outsized hires at that same scale, but we are making a more normalized maintenance and growth level of hiring this year that we're really excited about.

Weston Bloomer, Analyst

Great. That's helpful. And the three M&A deals that you did in the quarter, does that impact your margin profile either favorably or adversely or maybe change the seasonality of your EBITDAC or revenue?

Jeremiah Bickham, CFO

They're too small to have an impact. And then generally, what we tell people is to think of acquisitions as coming on at the same margin and the same growth rate. If there's an acquisition that is significantly different enough and significant in size enough to move the needle, we will let investors know.

Weston Bloomer, Analyst

I have one final question. I understand you have a partnership with Nationwide, but they have withdrawn from the E&S commercial auto sector. Did that have any effect on your numbers? Also, could you provide an update on your relationship with them?

Timothy Turner, President

Yes, we certainly noted Nationwide's withdrawal from commercial auto but we have a wide product line and several other carriers that we can deploy to absorb that business. We're expanding our transportation department, as we've mentioned before, and we were ready for that change. The acquisition of Crouse and Associates really strengthened our bench and gave us a national breadth and depth in not just brokerage transportation but underwriting. So we're looking ahead and we can absorb and make those changes without any effect.

Weston Bloomer, Analyst

Great. Are you sizing that impact at all? Is that something you can...

Timothy Turner, President

We're looking at double-digit growth in transportation in underwriting and broking. We're creating facilities, MGUs, expanded binding authority product lines, and that really doesn't put or have any negative impact on our ability to grow.

Operator, Operator

The next question we have is from Mike Zaremski of BMO Capital Markets.

Michael Zaremski, Analyst

My question is a follow-up regarding the relationship between margins and the pace of hiring. Are there any figures you could share to provide context on the accelerated hiring that took place? We can compare the number of people hired in 2022 to 2021, but we lack a long-term average for better understanding. I’m trying to gauge whether the hiring pace was significantly higher than what you consider "normal" so we can assess its impact on your margins more accurately.

Jeremiah Bickham, CFO

So I won't be able to put it in basis points for you, Mike, but think of it as over 1.5 times normal-sized production class relative to a normal year. And you're right, looking at headcount won't tell you the whole story because it's generally the production folks that are the needle mover. One thing we can tell you, and we said this a bunch, is that production classes as a cohort will cover their costs after two years and generally be margin accretive sometime in the third year. So that's why we're confident that the '22 class won't be weighing down margin come '24. And like I said, we're not onboarding an outsized class in '23. If we only made normal-sized hiring classes, there wouldn't be an impact in the following year. We can still scale somewhat if we're just hiring at an average level.

Michael Zaremski, Analyst

Okay. That does help. Regarding margins, I'm curious if there are any other changes we should consider, such as adjustments to commission rates or wage inflation, that differ from what we were thinking three to six months ago.

Jeremiah Bickham, CFO

Nothing on commission rates. Those are stable. Great question. Regarding wage inflation, we are not unaffected by it since many employees are on salaries; however, most of our compensation expenses are commission-based and thus are not as directly influenced by wage inflation. So, yes, it affects us, and you've probably heard others mention it, but it wouldn’t have the same effect on margins as the numerous hires we made last year on the production side.

Michael Zaremski, Analyst

Okay. Great. And lastly, just you gave us some good commentary about flows into the E&S marketplace, but you also talked about there being even some appetite constraints within the E&S marketplace. But just curious, anything you've seen, any stats you want to talk about that you've seen in July, if you're seeing any change in acceleration or deceleration in flows over the past month?

Timothy Turner, President

No, it's been quite steady. The flow has been measurable and increased in many lines, some deceleration as we talked about in public D&O and widely noted in cyber, but so many other lines, not just cat property, but many casualty lines continue to harden. And so the flow into the channel and our ability to capture it continues to get stronger, and we feel we're converting a higher percentage of that business, and we've been building our bench for years to win as much of that business as we can. It's working out very well.

Michael Zaremski, Analyst

Tim, what casualty lines are there? Are they more kind of large account or small accounts? And I promise that's my last follow-up.

Timothy Turner, President

No problem. It's a combination of small commercial, certainly in our binding authorities and our MGUs, but it's larger brokerage business as well, large habitational schedules in the casualty side continue to pour into our channel. Residential construction, New York construction to name a few, transportation, as we've mentioned. Health care, nursing homes, assisted living, certain social and different types of health care. Sports and entertainment continue to be a very difficult line where they need our help, consumer products. And maybe lastly, public entity, real demand for property and casualty solutions in the specialty side across the whole public entity sector.

Operator, Operator

The next question we have is from Rob Cox of Goldman Sachs.

Robert Cox, Analyst

So I noticed the adjusted compensation margin was down a good bit year-over-year despite the talent investments, but the adjusted G&A ratio was higher than the first quarter when it's seasonally lower. So I would have thought that would be a little bit lower. I think as the first quarter, if I recall correctly, was your toughest comp with respect to travel and entertainment. So is there any additional color you can provide there?

Jeremiah Bickham, CFO

Yes. Some of that is related to travel and entertainment, and another part is due to a significant increase in professional services this quarter compared to previous quarters, which is tied to a new revenue stream that requires more professional services. Over time, this might affect compensation if we choose to bring some of those services in-house, but for now, they are handled through professional services.

Robert Cox, Analyst

Got it. And maybe just another question on the state of California, which I think is nearly 15% of the E&S market based on data that we look at. I think it's been a net drag on overall E&S industry premium since November of last year. But we've seen it tick up positively in the double digits in the last two months, which I suspect might be driven by personal lines and property. So I'm wondering if you see growth in California in the back half of the year and how well positioned Ryan is to potentially take advantage of some of those tailwinds, if they're there.

Timothy Turner, President

We're very well positioned in the state of California. We have multiple offices, and two of our last large brokerage acquisitions are in the state of California. We've strengthened ourselves there, deep benches in property and casualty and binding. We're building and finishing up a high-net-worth personal lines facility to complement what we've already been doing in personal lines. So we're there to capture that business and to deliver for our clients across California and the West Coast.

Robert Cox, Analyst

That's great. I have another question about cyber. Tim, you recently mentioned that the cyber market is becoming uncertain again, but I still see pricing declines in that area. So my question is, are you experiencing growth in that market? And do you anticipate that growth will either increase or decrease in the second half of the year?

Timothy Turner, President

Well, there's no question there's rate deceleration, and the flow has slowed a bit. But we're still capitalizing on it. It's still a very great opportunity for us. We're well positioned in binding authorities, MGUs which Miles Wuller can talk about a little further. But our cyber team is number one in the country, and they're performing at a very high level. Our clients still need us.

Miles Wuller, CEO of Underwriting Managers

Yes, I'll chime in that. So we have noted deceleration in cyber previously, and there has been modest negative change, most observable on the excess layers. But please keep in mind this was relative to the market, particularly us achieving an 85% rate increase in the first half of last year. Investments by corporate risk managers that curb losses, substantial price hikes that helped rate adequacy. It has brought some new capital space. But however, despite the shift in pricing, the overall opportunity remains immense, the cyber threats persist, and the industry is still anticipating structural growth averaging 20% per annum for the foreseeable future. So we're well positioned with people and product to capitalize on that.

Operator, Operator

The next question we have is from Meyer Shields of KBW.

Meyer Shields, Analyst

I want to follow up on cyber if I can. Is there any seasonality analogous to what we're seeing in property where cyber is a bigger factor in a particular quarter?

Miles Wuller, CEO of Underwriting Managers

There is not material seasonality to Cyber.

Meyer Shields, Analyst

Okay. Perfect. And second question, I think this is probably for Jeremiah. Very significant pickup in fiduciary assets going from the end of the first quarter to the end of the second quarter. Is the seasonality that we've seen historically still a good proxy for how fiduciary funds will come and go?

Jeremiah Bickham, CFO

When you say recently, are you talking about first half of this year, or since you've been following us? I just want to make sure I understand the question.

Meyer Shields, Analyst

I mean the first half this year, in other words. We saw a pretty big increase going from the first quarter to second quarter last year and also this year. And just wondering whether that the ebbs and flows should be roughly the same every year.

Jeremiah Bickham, CFO

I spoke with the Treasurer earlier this week about this. I believe that everything you're observing in our fiduciary balances falls within normal factors and timing variations that can occur. Our Days Sales Outstanding has not changed, and there hasn't been a significant shift in our business mix, even though wholesale and delegated authority operate with different payment terms and Days Sales Outstanding. When we acquire new businesses, it does affect fiduciary balances, but there’s no indication of any significant change; it’s just normal timing factors.

Meyer Shields, Analyst

Okay. Perfect. And then a final question, if I can, for Tim. It sounds based on everything that we're seeing that maybe T&E growth will slow down because we're lapping normal quarters. Are you seeing competitors pull back on that? Is there a specific opportunity from that particular aspect of marketing?

Timothy Turner, President

No, we're not seeing any real pullback on that. But I'm not sure I understood the question. Could you repeat that?

Meyer Shields, Analyst

Yes. I'm just wondering with travel and entertainment observably much more expensive. I'm wondering whether you're starting to see some competitors say we're just going to do less of that and whether there's an opportunity for growth when that happens.

Timothy Turner, President

No, I haven't seen that. In fact, I think it's as competitive in our space as it's ever been. We're attending events and on the road seeing our clients and our underwriters continuously. We're back to full speed ahead, and I don't see any pullback from our competitors actually.

Operator, Operator

The next question we have is from Michael Ward of Citi.

Michael Ward, Analyst

Was wondering in benefits what capabilities you might be looking to add. Is it more medical stop loss or other areas?

Patrick Ryan, CEO

Yes. Medical stop loss is rapidly growing, transitioning from fully funded benefit plans to self-insured plans. We are particularly interested in the trend of employers moving toward self-insurance and funding through group captives, which involves pooling with other employers of similar size and characteristics. Our strategy focuses on an integrated health solution driven by self-insured clients, who we believe will increasingly be interested in funding through their own capital and group captives. We aim to provide services to retail brokers who may lack the resources for these offerings. Our skilled team is dedicated to delivering innovative, integrated health solutions alongside the self-insured plans I mentioned and an innovative funding mechanism. We believe our benefit strategy will significantly expand our total addressable market, attracting many clients interested in our offerings. Furthermore, we see opportunities for cross-selling into the P&C side, which excites us greatly.

Michael Ward, Analyst

That's helpful. On the 2025 savings plan, could we expect to see savings a bit earlier, or is the timing still the same?

Jeremiah Bickham, CFO

We are slightly ahead of schedule on execution, but the material impact on the profit and loss statement remains on the same timeline. Therefore, there will be no savings this year. Some savings are expected in 2024, which will be included in our guidance for next year, and then the full annual $35 million is anticipated in 2025.

Operator, Operator

The next question we have is from Tracy Benguigui of Barclays.

Jeremiah Bickham, CFO

Tracy, do we have you?

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

We can now.

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

Yes.

Tracy Benguigui, Analyst

Sorry. It would be great to learn more about your property E&S wholesale brokering and underwriting management capabilities. Are you more known by the market on the transactional E&S side or you're more known in the larger property direct and facultative market?

Miles Wuller, CEO of Underwriting Managers

Tracy, it's Miles Wuller. So I'll start on the delegate authority side. Our property capabilities span habitational property, builders risk, renewables, energy, and most certainly cat property. We're able to efficiently service both the middle market and large accounts. Our cat practice is predominantly shared and layered, working some of the largest and most complex risks out there. As far as positioning and expectations, so we've noted previously that with our results and expert teams, we increased cat capacity post-Ian. I'm pleased to say we continue to add cat commitments, even as recently as this week. We've been prudent in deploying our cat aggregate and have substantial dry powder, which points to a continued great contribution into the end of the year.

Timothy Turner, President

And I would just add, our brokerage capabilities are industry-leading. We've been capturing a high percentage of this new business pouring into the channel. I believe our outstanding leadership team in the brokerage cat property arena is doing a fabulous job, and that was a big part of our success in the quarter. We look forward to capturing other difficult property risks as we move on through the year. There's much more to it than just cat wind.

Tracy Benguigui, Analyst

Okay. Excellent. There's a number of new E&S carriers, including some U.K. insurers, which may be a move to be more efficient on the Lloyd's distribution efforts. What I'd like to know is, does this move just cut one layer in that value chain, like business you would have seen anyway? Or does bypassing Lloyd's give you a new business opportunity?

Timothy Turner, President

No, I would say that the net positive on that is it enhances and strengthens our ability to market the business. Lloyd's is obviously an industry leader in the E&S market, but there are multiple access points, and they're a major player in our binding authorities, our MGUs, open brokerage, and London access points. So it's a heavy-duty player, and then creating these two E&S facilities that we've been reading about, I see that as a very positive influence on our ability to solve these catastrophic challenges.

Tracy Benguigui, Analyst

Okay. Just to be clear, that business you would have seen anyway or is that new business that you would now see?

Timothy Turner, President

It's a combination of new and renewal business that just enhances our capabilities and strengthens them.

Operator, Operator

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Ryan Tunis with Autonomous Research.

Ryan Tunis, Analyst

Just another follow-up on cyber, trying to understand some of the businesses that are capable of moving the needle on your organic when you have sharp inflections. Obviously, we know D&O can do it, property can do it. But is cyber one of those businesses where we really do have big pricing swings? It's something that can notably move your headline organic growth rate?

Jeremiah Bickham, CFO

So I would just say broadly this is Jeremiah, Ryan. Cyber can be viewed as a product category that we have publicly stated contributes only single digits to our overall portfolio. Specifically, cyber represents low single digits, while property constitutes a substantial portion of our portfolio as a whole. Therefore, they are quite different. Cyber is significant to discuss because it is a vital issue for insureds and serves as a key tool for our professional lines team, with much activity surrounding it. As Miles mentioned, the potential is large enough that we anticipate it will become a relevant topic in the future. However, it is not as impactful as D&O, which has been quite significant over the past several quarters.

Miles Wuller, CEO of Underwriting Managers

Even though rates are under pressure, we continue to find ways to grow through new products, new clients, and increased capacity. So we are achieving growth. It's also important to note that last year was relatively calm in terms of losses. Many were watching how the Ukraine-Russia conflict would impact us, but that did not materialize. However, there are year-over-year increases in attach rates, and there have been some malware incidents, so the threat remains an active risk environment.

Operator, Operator

The next question we have is from Meyer Shields of KBW.

Meyer Shields, Analyst

I want to follow up on cyber if I can. Is there any seasonality analogous to what we're seeing in property where cyber is a bigger factor in a particular quarter?

Miles Wuller, CEO of Underwriting Managers

There is not material seasonality to cyber.

Meyer Shields, Analyst

Okay. Perfect. And second question, I think this is probably for Jeremiah. Very significant pickup in fiduciary assets going from the end of the first quarter to the end of the second quarter. Is the seasonality that we've seen historically still a good proxy for how fiduciary funds will come and go?

Jeremiah Bickham, CFO

When you say recently, are you talking about the first half of this year or since you've been following us? I just want to make sure I understand the question.

Meyer Shields, Analyst

I mean the first half of this year, in other words. We saw a pretty big increase going from the first quarter to second quarter last year and also this year. And just wondering whether the ebbs and flows should be roughly the same every year.

Jeremiah Bickham, CFO

I spoke with the Treasurer earlier this week. I would describe the changes in our fiduciary balances as normal factors and timing variations. There has been no change to our Days Sales Outstanding, and there has not been a significant shift in our business mix, despite the differences in payment terms and DSO between wholesale and delegated authority. While acquiring businesses may affect fiduciary balances, there is no indication of a significant change; it's just normal timing variations.

Meyer Shields, Analyst

Okay. Perfect. And then a final question, if I can, for Tim. It sounds based on everything that we're saying that maybe T&E growth will slow down because we're lapping normal quarters. Are you seeing competitors pull back on that? Is there a specific opportunity from that particular aspect of marketing?

Timothy Turner, President

No, we're not seeing any real pullback on that. But I'm not sure I understood the question. Could you repeat that?

Meyer Shields, Analyst

Yes. I'm just wondering with travel and entertainment observably much more expensive. I'm wondering whether you're starting to see some competitors say we're just going to do less of that and whether there's an opportunity for growth when that happens.

Timothy Turner, President

No, I haven't seen that. In fact, I think it's as competitive in our space as it's ever been. We're attending events and on the road seeing our clients and our underwriters continuously. We're back to full speed ahead, and I don't see any pullback from our competitors actually.

Operator, Operator

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Michael Ward of Citi.

Michael Ward, Analyst

Was wondering in benefits what capabilities you might be looking to add. Is it more medical stop loss or other areas?

Patrick Ryan, CEO

Yes, medical stop loss is experiencing rapid growth as companies shift from fully funded benefit plans to self-insured plans. We are particularly interested in the trend of employers transitioning to self-insurance and funding through group captives, which involves pooling resources with other employers of similar size and characteristics. Our strategy focuses on providing integrated health solutions tailored for self-insured clients who we believe will increasingly invest their own capital alongside group captives. We aim to offer services to retail brokers that may lack the necessary resources, leveraging our talented team's professional skills to deliver innovative, integrated health solutions along with the self-insured plans mentioned earlier and a unique funding mechanism. We anticipate that our benefit strategy will significantly enhance our total addressable market by attracting many clients interested in our offerings. Additionally, we foresee cross-selling opportunities in the property and casualty sector, which we find very exciting.

Michael Ward, Analyst

That's helpful. Regarding the 2025 savings plan, could we expect to see savings a little earlier, or is the timing still the same?

Jeremiah Bickham, CFO

We are slightly ahead of schedule with execution, but the impact on profit and loss is on the original timeline. Therefore, there will be no savings this year. Some savings are expected in 2024, which will be included in our guidance for next year, and we anticipate the full annual savings of $35 million in 2025.

Operator, Operator

The next question we have is from Tracy Benguigui of Barclays.

Jeremiah Bickham, CFO

Tracy, do we have you?

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

We can now.

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

Yes.

Tracy Benguigui, Analyst

Sorry. It would be great to learn more about your property E&S wholesale brokering and underwriting management capabilities. Are you more known by the market on the transactional E&S side or you're more known in the larger property direct and facultative market?

Miles Wuller, CEO of Underwriting Managers

Tracy, it's Miles Wuller. So I'll start on the delegate authority side. Our property capabilities span habitational property, builders risk, renewables, energy, and most certainly cat property. We're able to efficiently service both the middle market and large accounts. Our cat practice is predominantly shared and layered, working some of the largest and most complex risks out there. As far as positioning and expectations, we've noted previously that with our results and expert teams, we increased cat capacity post-Ian. I'm pleased to say we continue to add cat commitments, even as recently as this week. We've been prudent in deploying our cat aggregate and have substantial dry powder, which points to a continued great contribution into the end of the year.

Timothy Turner, President

And I would just add, our brokerage capabilities are industry-leading. We've been capturing a high percentage of this new business pouring into the channel. I believe our outstanding leadership team in the brokerage cat property arena is doing a fabulous job, and that was a big part of our success in the quarter. We look forward to capturing other difficult property risks as we move on through the year. There's much more to it than just cat wind.

Tracy Benguigui, Analyst

Okay. Excellent. There's a number of new E&S carriers, including some U.K. insurers, which may be a move to be more efficient on the Lloyd's distribution efforts. What I'd like to know is, does this move just cut one layer in that value chain, like business you would have seen anyway? Or does bypassing Lloyd's give you a new business opportunity?

Timothy Turner, President

No, I would say that the net positive on that is it enhances and strengthens our ability to market the business. Lloyd's is obviously an industry leader in the E&S market, but there are multiple access points, and they're a major player in our binding authorities, our MGUs, open brokerage, and London access points. So it's a heavy-duty player, and then creating these two E&S facilities that we've been reading about, I see that as a very positive influence on our ability to solve these catastrophic challenges.

Tracy Benguigui, Analyst

Okay. Just to be clear, that business you would have seen anyway or is that new business that you would now see?

Timothy Turner, President

It's a combination of new and renewal business that just enhances our capabilities and strengthens them.

Operator, Operator

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Ryan Tunis with Autonomous Research.

Ryan Tunis, Analyst

Just another follow-up on cyber, trying to understand some of the businesses that are capable of moving the needle on your organic when you have sharp inflections. Obviously, we know D&O can do it, property can do it. But is cyber one of those businesses where we really do have big pricing swings? It's something that can notably move your headline organic growth rate?

Jeremiah Bickham, CFO

So I would just say broadly this is Jeremiah, Ryan. Cyber can be considered as a product category that, as we've stated publicly, represents only low single digits in our overall portfolio. In contrast, property is a larger category that constitutes a significant portion of the portfolio. Therefore, they are quite different. Cyber is worth discussing because it is an important issue for our clients and serves as a valuable tool for our professional lines team, and there are many developments happening. As Miles mentioned, the opportunity is substantial enough that we anticipate it will continue to be a relevant topic as time progresses. However, it is not as significant as D&O, which has been prominent over the past several quarters.

Miles Wuller, CEO of Underwriting Managers

And Ryan, I want to emphasize that despite the pressure on rates, we are finding ways to grow through new products, new clients, and increased capacity. We are achieving growth. It's also worth noting that last year was relatively calm in terms of losses. Many were curious about the implications of the Ukraine-Russia conflict, which did not manifest in significant ways. However, we are seeing year-over-year increases in attachments and some malware incidents, so the risk environment remains active.

Operator, Operator

The next question we have is from Meyer Shields of KBW.

Meyer Shields, Analyst

I want to follow up on cyber if I can. Is there any seasonality analogous to what we're seeing in property where cyber is a bigger factor in a particular quarter?

Miles Wuller, CEO of Underwriting Managers

There is not material seasonality to cyber.

Meyer Shields, Analyst

Okay. Perfect. And second question, I think this is probably for Jeremiah. Very significant pickup in fiduciary assets going from the end of the first quarter to the end of the second quarter. Is the seasonality that we've seen historically still a good proxy for how fiduciary funds will come and go?

Jeremiah Bickham, CFO

When you say recently, are you talking about first half of this year or since you've been following us? I just want to make sure I understand the question.

Meyer Shields, Analyst

I mean the first half this year, in other words. We saw a pretty big increase going from the first quarter to second quarter last year and also this year. And just wondering whether that the ebbs and flows should be roughly the same every year.

Jeremiah Bickham, CFO

I spoke with the Treasurer about this earlier this week. I would consider everything you see in our fiduciary balances as normal factors and timing that can occur. There has been no change to our DSO or to the business mix, although wholesale and delegated authority have different payment terms and DSO. When we acquire businesses, it does affect fiduciary balances, but there's no reason to interpret this as a material change. It's just normal timing factors.

Meyer Shields, Analyst

Okay. Perfect. And then a final question, if I can, for Tim. It sounds based on everything that we're seeing that maybe T&E growth will slow down because we're lapping normal quarters. Are you seeing competitors pull back on that? Is there a specific opportunity from that particular aspect of marketing?

Timothy Turner, President

No, we're not seeing any real pullback on that. But I'm not sure I understood the question. Could you repeat that?

Meyer Shields, Analyst

Yes. I'm just wondering with travel and entertainment observably much more expensive. I'm wondering whether you're starting to see some competitors say we're just going to do less of that and whether there's an opportunity for growth when that happens.

Timothy Turner, President

No, I haven't seen that. In fact, I think it's as competitive in our space as it's ever been. We're attending events and on the road seeing our clients and our underwriters continuously. We're back to full speed ahead, and I don't see any pullback from our competitors actually.

Operator, Operator

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Michael Ward of Citi.

Michael Ward, Analyst

Was wondering in benefits what capabilities you might be looking to add. Is it more medical stop loss or other areas?

Patrick Ryan, CEO

Yes. Medical stop loss is rapidly growing, transitioning from fully funded benefit plans to self-insured plans. We are particularly interested in the trend of employers moving towards self-insurance and funding through group captives, which involves pooling resources with other employers of similar size and characteristics. Our strategy focuses on offering integrated health solutions, primarily targeting self-insured clients who we believe will increasingly seek to fund through their own capital and group captives. This involves providing services to retail brokers that might lack the necessary resources. With our skilled team, we aim to deliver innovative, integrated health solutions alongside the self-insured plans mentioned, complemented by a creative funding mechanism. We believe our benefit strategy will significantly enhance our total addressable market, attracting many clients who will be interested in our offerings. Additionally, we foresee cross-selling opportunities into the property and casualty side, which has us very excited.

Michael Ward, Analyst

That's helpful. Regarding the 2025 savings plan, could we expect to see savings a bit earlier than planned, or is the timing still the same?

Jeremiah Bickham, CFO

No timing is confirmed; we're slightly ahead on execution, but the significant impact on the P&L will follow the same timeline. There won't be savings this year, some will occur in 2024 and will be included in our guidance for next year, with the full annual savings of $35 million expected in 2025.

Operator, Operator

The next question we have is from Tracy Benguigui of Barclays.

Jeremiah Bickham, CFO

Tracy, do we have you?

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

We can now.

Tracy Benguigui, Analyst

Can you hear me?

Jeremiah Bickham, CFO

Yes.

Tracy Benguigui, Analyst

Sorry. It would be great to learn more about your property E&S wholesale brokering and underwriting management capabilities. Are you more known by the market on the transactional E&S side or you're more known in the larger property direct and facultative market?

Miles Wuller, CEO of Underwriting Managers

Tracy, it's Miles Wuller. So I'll start on the delegate authority side. Our property capabilities span habitational property, builders risk, renewables, energy, and most certainly cat property. We're able to efficiently service both the middle market and large accounts. Our cat practice is predominantly shared and layered, working some of the largest and most complex risks out there. As far as positioning and expectations, we've noted previously that with our results and expert teams, we increased cat capacity post-Ian. I'm pleased to say we continue to add cat commitments, even as recently as this week. We've been prudent in deploying our cat aggregate and have substantial dry powder, which points to a continued great contribution into the end of the year.

Timothy Turner, President

And I would just add, our brokerage capabilities are industry-leading. We've been capturing a high percentage of this new business pouring into the channel. I believe our outstanding leadership team in the brokerage cat property arena is doing a fabulous job, and that was a big part of our success in the quarter. We look forward to capturing other difficult property risks as we move on through the year. There's much more to it than just cat wind.

Tracy Benguigui, Analyst

Okay. Excellent. There's a number of new E&S carriers, including some U.K. insurers, which may be a move to be more efficient on the Lloyd's distribution efforts. What I'd like to know is, does this move just cut one layer in that value chain, like business you would have seen anyway? Or does bypassing Lloyd's give you a new business opportunity?

Timothy Turner, President

No, I would say that the net positive on that is it enhances and strengthens our ability to market the business. Lloyd's is obviously an industry leader in the E&S market, but there are multiple access points, and they're a major player in our binding authorities, our MGUs, open brokerage, and London access points. So it's a heavy-duty player, and then creating these two E&S facilities that we've been reading about, I see that as a very positive influence on our ability to solve these catastrophic challenges.

Tracy Benguigui, Analyst

Okay. Just to be clear, that business you would have seen anyway or is that new business that you would now see?

Timothy Turner, President

It's a combination of new and renewal business that just enhances our capabilities and strengthens them.

Operator, Operator

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Ryan Tunis with Autonomous Research.

Ryan Tunis, Analyst

Just another follow-up on cyber, trying to understand some of the businesses that are capable of moving the needle on your organic when you have sharp inflections. Obviously, we know D&O can do it, property can do it. But is cyber one of those businesses where we really do have big pricing swings? It's something that can notably move your headline organic growth rate?

Jeremiah Bickham, CFO

I would say that cyber is a product category that we’ve mentioned publicly does not represent more than a small portion of our overall portfolio. Specifically, cyber accounts for a low single-digit share compared to property, which constitutes a much larger part of the portfolio. They are quite different. However, cyber is still an important topic for our clients and a valuable tool for our professional lines team, and there are many developments in this area. As Miles pointed out, the potential in this sector is large enough that we believe it will be significant to discuss in the future. But currently, it is not as impactful as D&O, which has been more substantial in the past few quarters.

Miles Wuller, CEO of Underwriting Managers

Even though rates are under pressure, we continue to find ways to grow through new products, new clients, and increased capacity. We are achieving growth. It's also important to mention that last year was relatively low in losses. Many were wondering about the outcomes of the Ukraine-Russia conflict, which did not materialize. However, there have been year-over-year increases in attachments and some malware incidents, so the threat environment remains very active.

Operator, Operator

The next question we have is from Meyer Shields of KBW.