Ategrity Specialty Holdings Stock

Good afternoon, everyone, and thank you for joining us today for Ategrity's Third Quarter Fiscal Year 2026 Earnings Results Conference Call.

Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neil Adler, Chief Financial Officer. After Justin, Chris and Neil have made their formal remarks, we will open the call to questions. [Operator Instructions]

Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements, relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today. Our final prospectus and other filings filed with the SEC.

We do not undertake any obligation to update the forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com.

I will now turn the call over to Justin 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.

Ategrity delivered an exceptional underwriting quarter, achieving our lowest ever combined ratio of 84.7% and underwriting income growth of 83.7% year-over-year. These results demonstrate the strength of our underwriting strategy and the compounding benefits of our productionized platform.

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 2 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 entered the fourth quarter with 4 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 adjusted net income of $14.7 million, compared to $22.8 million a (sic) [ $22.7million ] 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 written premiums were up 14.7% with property premiums up 25% and casualty premiums up 10%. Net written premiums increased 25.8%, which reflects higher retention year-over-year, while net earned premiums were up 35.7%. 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%, compared to 88.7% last year, driven primarily by a reduction in both our loss and expense ratios. Our loss ratio came in at 57.5%, which was down 2.5 points year-over-year, reflecting favorable underwriting performance across both property and casualty, including 1.6 points of favorable development. Catastrophe losses were 4.2% of net earned premiums, up from 4% last year. On expenses, the overall expense ratio improved 1.5 points to 27.2%.

Our operating expense ratio declined 0.8 points year-over-year to 10% of net earned premiums. 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 noncontrolling interest, primarily reflecting a normalization of the substantial gains recorded earlier this year in our utility and infrastructure investments, which have 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 performance.

Thanks, Neil. Our third quarter results demonstrate the power of our productionized underwriting strategy. We delivered our strongest combined ratio in the company's near decade history and grew submissions by 30%. Both our property and casualty businesses grew at rates we believe outpaced their respective markets. This happened as we continue to take market share. In addition, our current policy year loss ratio indications continue to trend favorably, while prior year results developed better than expected.

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 4 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 4 areas that illustrate how we are expanding our business, while strengthening underwriting performance. First, coverage 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 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 4 new specialty products: Life Sciences, Energy, Environmental and Sports & Entertainment. These offerings were already on our product road map, but we used AI to accelerate their launch in order to meet growing demand from our partners. All in, total development was 4 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 enter the fourth quarter, this implementation is starting to produce greater throughput, faster response times and more competitive quotes.

Finally, our loss ratio performance continued to validate our underwriting approach. 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 noncontrolling 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 3-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% of our total investment portfolio, from the current level of approximately 80%.

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 Ategrity 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.

[Operator Instructions] Your first question comes from the line of Pablo Singzon with JPMorgan.

Can you unpack 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 new product designs, that we have rolled out are effectively for competitive reasons. What I will say is that due to a number of municipal level changes, things like residential real estate putting up habitability coverage is now in scope. There's a new market norm, that is evolving. There are obscure coverages, such as human trafficking that are also evolving in terms of a market requirement. In terms of what we have done on our specific products, those are being made clear to the market with our new, We Cover What Matters campaign.

Some of it -- some of the need for more coverage has to do with fear around what might be happening at a municipal level, fear around how entanglement with immigration and sort of ICE raids and such might affect landlords. Some of it is a genuine need for a coverage adequacy, which could come from a lender or it could come from the insured clients themselves. But some of it is having to do with responsiveness around political trends. So where we are drawing the line, that is being made clear to our trading partners through our new campaign, but we're not disclosing it on this call for competitive reasons.

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

Yes. So our technology rollout have performed better, in terms of stabilization with our employees and training and all of that. We've been able to make meaningful improvements in this rollout via the last time -- compared to the last time we rolled out technology and a lot of that has to do with delivery of training. So we have moved faster than expected, when it comes to adoption. One of the things we did anticipate going into the quarter was the need for additional capacity, underwriting capacity in order to absorb some of the inefficiencies, that typically follow a rollout of any type, there will always be inefficiency. We planned for that.

There were some timing delays around hiring and start dates and such that led into the quarter. And that -- so effectively where we are, we are on the other side of a very meaningful change for the organization. And we effectively have some additional capacity to cushion, because we are an organization that, we are doing, I believe we're doing interesting things. We are on the leading edge and what we have planned for that, because over my career and I think it's just widely known in the industry, any technology change will have a lag in terms of productivity. But where this -- what this sets us up for is breakthrough productivity, as we go into this quarter and we have some cushion in terms of capacity.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

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 rate. 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, we have -- and micro-segments rather, we have designed a new offering. So as you may know, our product strategy has to do with predesigning coverage. So we studied the insured needs before they effectively come in the door. That allows us to be explicit to the market about what we are willing to cover and not cover. And complementary with that is a technical pricing approach where we charge for optional coverage in a very explicit and a very mathematical and economically sound way.

So the rate increases that you mentioned have to do with adding coverages to our base product in, for several casualty lines. We are not going to disclose those specifics here either for competitive reasons. But it is -- what it allows us to do is provide what the market needs, while charging adequate rates. This is the same approach we have used consistently over the last 5 years, as we became solidly committed to technical underwriting. We have deployed the same approach whenever we have made product adjustments, we charge for the additional coverage.

Now, that is very different than what many do in the industry. They will put on a lot of trickier potential high volatility type of coverages and not charge for them. And in my view, if you think about the pitfalls of our casualty performance and going back to pre-2020, if you think about what led to that, it was this kind of -- erratic kind of talk, enhance the product, but do not raise the rates kind of approach. We have continuously been disciplined about it from day 1. When we started engaging with you all as a public company, we have talked about technical pricing being sacred to us. That is exactly what we have done here.

We -- so where we are right now is, we are providing what the market needs and we are charging for it. Where the rest of the market is, is they're either struggling to figure out what the market needs or they are providing it and not charging for it. If they're providing it and not charging for it, the natural evolution of that will be a deterioration in results. And what we have learned over multiple cycles of doing this again is that we tend to be a beneficiary of that.

So while this first mover -- being a first mover on rates, did have the effect of a lower conversion ratio, and we had planned for that, and we had a plan to hire more because, frankly, our move on a lower conversion is to simply produce more quotes. We can do that very efficiently and very cost effectively. So that has been our consistent approach, and that's just what we did here. We had high conviction in the rates. We wanted to meet the needs of the market, and we accordingly put together a plan to do so, while maintaining a 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% growth in the fourth quarter, right, that's 15% to 20% above the E&S market. And it sounds like you went into the quarter with 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 Elyse, we haven't -- we're not going to disclose our 2027 view, but we'd say the trajectory hasn't changed. Part of this guidance around 15% to 20% is the fact that when we used the stamping data as an adjusted stamping data as a source of what is the market. And we saw the market that ourselves being down 0% to 5% this quarter. But the stamping data, as you know well, was negative 2%, then 19%, then negative 5% 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 the line of Andrew Kligerman with TD Cowen.

So a 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, kind of a mixed bag, right? People want the coverage certainty, but they don't like the higher rate. But then you've got 4 new specialty products rolled out. You were talking a little bit about some pressure as you rolled out the technology, but that's all done. You've got a couple of big time pluses. And so I know your guidance is 15% to 20%, but it would strike me that you might feel extra good about that 15% to 20%, 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 those and you can actually give some extra marks to some of them, because they are still trending in that direction. That is, if you consider those the leading indicator or the consistent indicator that has led to our growth, those are unchanged. So let me take you through a couple of those. So first, the regional strategies. They continue to contribute upwards of 50% of our growth. Second, our distribution strategy and our distribution reach. That continues to grow exponentially at higher clicks higher than prior quarters, as we have onboarded new partners to complement the New England strategy and the Texas strategy, that we launched as well as continue to appoint partners in the Midwest.

We have also invested to entrench ourselves in the Midwest strategy, which is now leading to a new wave of growth. So we had marketing campaigns, sponsoring events across the Midwest over the summer. That has really cemented our commitment to that region, and it's really resonating well with our partners. 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 quotes faster with less burden on our partners, because of the current system. That is one of the biggest improvements here. So not only do we have a growing submission funnel and more engagement with our partners, we are able to increase our level of service as well as the rigor around the quotes we're providing. So that is all very positive.

Now on the new products, we are particularly proud of this because we consider ourselves to be a very execution-oriented company. We believe that the key to winning is to look for opportunities in the market and move fast to build solutions around them and move intelligently. That is exactly what we did for these 4 new products. So they are in market. We are not -- we have not modeled too much into our plans for these. So there is -- the reception has been tremendous. I will -- we just came back from one of the big industry conferences. This was -- that was our key focus in conversations with partners and the reception for those 4 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 4 weeks, which is I -- no one on our team who have been in insurance have ever done that. Frankly, we -- until these products have never done that. Insurance just does not move that fast. And we were able to do it, and we were able to do it with a high level of sophistication. What we're doing with these products is not just -- we're not just entering as a participant in Life Sciences, for example. We are introducing a brand-new way to underwrite Life Sciences, that will remove all the back and forth and the hassle, that tends to accompany that line.

Everyone thinks that just because it has science in the name, that it needs to be complex or 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 when someone looks at our appetite guide, it's a digital appetite guide, where they can literally open up their phone and describe what they're trying to write and see exactly what we're trying to put up. So when I'm saying like we did something in 4 weeks, that's a giant leap. And in our numbers right now, we are not even accounting for any upside from that. So yes, to put a finer point on it and agree with you effectively, we have a lot of positives here and a lot of momentum in the business. The fundamentals are strong. And yes, so I'd say that is a comfortable number.

Yes. That sounds compelling. And maybe shifting to the other part of the income statement. The expense ratio moving from 28.7% to 27.2%, year-over-year is a nice move and with a 10% operating expense ratio, as you scale up, and as the mix changes a little bit more and more toward brokers, how do you see that expense ratio not necessarily trending next year, but over the next 2, 3, 4 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.

Yes. So we are able to take our efficiency level -- sorry, competitiveness here, but to the next level. It is a -- that is what our new platform or this version of our platform does. 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 carries 0 upfront investment. It is -- 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 -- nothing is ever truly 0, but this is as 0 upfront -- 0 fixed cost, as you could get. The technology, the forms, the pricing, it's all Ategrity'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, it will give you an idea of what the 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 in a parallel work stream that involves lawyers and coverage counsel review, right? So the back and forth will have a high cost. What we have done is we have used AI for the first draft of very sophisticated forms and then we simply send them for a quick review by coverage counsel, cutting out the back and forth, like going to coverage counsel with a first draft versus trying to explain what you want the form to be 400 times.

Just that cost alone should give you a sense. And given where legal cost is, that compounds. So small kind of very, very nuanced example there. But when you think about what it takes to launch a sophisticated product in market, it's IT development, it's legal cost, it's pricing, it's analytics, it is purchasing data. It's all of these things that previously were hard to absorb during the first year of a product launch, and we were proud that we were able to do that historically. But now we have nothing to absorb in that first year launch.

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

First one, I had is on just investment concentration in digital infrastructure and I would 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?

Yes. Got it. As I mentioned in the prepared remarks, we have had about an 80% allocation to fixed income during -- 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 in utilities, those are liquid assets that are not -- that are market neutral and those are not -- those types of loans that you're referring to there. So that is a very different exposure is a market-neutral exposure, that has a significant track record of never having had a down year and it is actively managed. So that is -- those are the 2 components of our portfolio, and we don't have the -- I think, the kind of exposure that you're highlighting there.

Got it. That's clear. I just wanted to make sure on the Zimmer piece. Okay. Second question, I had is just I wanted to better understand what you're saying about casualty. And I understand there's a new structure of the product and it does require rate increases relative to what you were selling and -- but I guess it was characterized as part of the reason you didn't hit the 20% growth. So I guess what is it about that switch of product? Like when I hear you talk about it, it sounds like it's going to be more appealing and maybe drive more growth, but yet it actually, it maybe constrained your growth relative to what you thought. So what was it in the older casualty product, that you had to adjust and do people, like I'm just trying to understand why was it a growth headwind, if it's like this new exciting product.

Yes. So imagine if you're buying a car and you wanted leather seats and previously, you could get leather seats for free and -- or there were enough car sellers in the market -- car dealers in the market, who would give you leather seats for free or whatever accessory you want, frankly. And then leather seats became a requirement for cars. And now one car dealer is charging for it and one is not, right? It is -- 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 whether you characterize it 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 leather seats. And there are other dealers out there who are providing the leather seats for free. So that's the dynamic that we went into this quarter adjusting for. We are willing to provide it, but we are going to charge for it, because it increases the cost of product.

We have done this over and over again, and it is so fundamental to our playbook to underwrite to a cost of product that is realistic. And we do not want to have our heads in the sand and think that offering a coverage doesn't really add to the cost of product. It very literally does. And we don't want to have our head in the sand, right? So we have been explicit. And what happens is that the rest of the market, they start to feel the pain and then that business comes back to us. It has happened over and over again.

Now we are always ahead on pricing, and this is a big part of our strategy to ensure that we are studying the cost of product and adjusting rates on a prospective basis. We have always done that. If you recall, we did that on property in response to tariffs last year. And if you look at the property growth rate and how that has trended, since we implemented those changes, it's a cycle. We have a path. We understand this pattern. And so while we recognize that would have led to a lower conversion ratio, we had more than enough submissions to compensate. And all that was required was a few additional underwriters to increase production and that is the piece that had a timing delay.

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

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

I guess, I was struggling with Scott a little bit to put context to the rate change in the casualty growth, and I think you addressed most of it, in response to his question. But the only thing I would be curious about is, what was the catalyst, I guess, for charging for leather seats now? 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, that's what it is, right? It is not a...

But 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 your experience or you see on the horizon? I'm just trying to get some context.

Yes. So I'll answer your question. Let me give you a little bit of background on what we are doing. We're studying the insurance 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 needs, which could include a set of fears and a set of true requirements from their lenders, from regulators, from their clients. So we study all of that, and we made an explicit decision to not offer some coverages that were kind of more optional or nice to have. Typically, larger, more complex accounts would really want that coverage.

But what has happened over the last 18 months, I mentioned this a couple of quarters ago, that coverage certainty was coming into focus. That was being driven by political climate, which includes things like immigration and which impacts the need for human trafficking coverage or Fannie Mae, Freddie Mac, imposed requirements for real estate investment companies. They have to have 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 we have avoided a number of high severity coverages, because when it was optional, the market was not willing to pay. So our base product considered that. When they became required for smaller accounts, we decided that, okay, we will respond. That's consistent with our approach. We will provide what is required. That's consistent with our approach, but we will charge for it. So it's not a -- it's a difference. It is a change for us in the risk profile. If you were to imagine not offering it and not charging for it, that will have a knock-on effect on the results.

So effectively, we executed our playbook: provide coverage, charge for it. Our peers where the adverse impact that they might see down the road is from not charging for that. If you look back, again, if you look back at the history of casualty insurance, you will see that pattern, and it typically does have to do with coverage expansion, be it the history on auto or covering auto or considering auto a -- ancillary auto an unimportant exposure that no one should even charge for. That was once the norm in this industry where auto coverage, ancillary auto, hired and non-owned auto was provided at no charge.

And then we all know how that played out as carriers saw the losses come through on that ancillary auto and excess casualty in particular, it really did burn a lot of people. And that's what I was referring to, when I say that there is another side to this sort of trend and it is the exiting of other carriers as those losses catch up. And if you think about how these things might play out, these are probably going to come in at the earliest, and they will -- in terms of, based on the new coverages that are provided, these losses are likely to come in the earliest and they're likely to be very high.

Okay. I wanted to follow up on, I'm 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 don't want to give anything, but a directional signpost on that. But I'd be curious if you maybe give us an example with these new products you're rolling out, like the number of underwriters that were required to be added to support that rollout. And as you think about the growth using -- if you think about what -- how much growth you might be able to capture in the market, how many underwriters per that market opportunity does Ategrity need versus maybe if you were thinking about in your prior life, your former firm or other contemporary firms to, or traditional firms would they need this, how many underwriters would they need to support this type of endeavor?

Yes. For these lines, if I were to ballpark it, you need about one underwriter -- you would need one underwriter for about $750,000 in new business premium in a traditional legacy carrier, that is because you could spend 2 days working on a quote for Life Sciences. It typically involves things like visiting the FDA website to look at or even calling a consulting pharmacist, which is typically on staff to find out information. So much information gathering is required. That's why the new business production level tends to be so low. I -- again, we are not -- we are just in this space, but -- so we're not going to give you a number. I don't have a benchmark number for us. But I can assure you we are not going to take more than a few hours for even these complex quotes, as we enter the market. So you can take a relative -- kind of gauge a relative difference there.

But it is a -- that is what we have done. And if you think about what the potential for AI is and how it can help you these aggregate information, compile a digital underwriting file, so that the individual can spend their brainpower assessing the data rather than compiling the data. If you think about where we're gaining the efficiencies, I think it paints a picture of a highly intelligent underwriting process that is extremely fast and efficient and actually probably more will produce a much better and more competitive quote for the best risk.

It is remarkable how many -- how inefficient some of these lines have been underwritten and that's -- if you want to -- I think we mentioned this one of the reasons we launched these lines is because of that slow turnaround time and the back and forth that has -- that so many brokers have to endure, if they're trying to write business in these spaces. We are offering everything that we have offered on our, in terms of speed, intelligence, efficiency, hassle-free process, predictability in our pricing, a predesigned product. We're offering all of that for these complex products. And it was a specific response to a huge gap in the market that has primarily been caused by other carriers refusing to modernize. It is a -- 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 remarks.

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.

Good afternoon, everyone, and thank you for joining us today for Ategrity's Second Quarter Fiscal Year 2026 Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neil Adler, Chief Financial Officer. After Justin, Chris and Neil have made their formal remarks, we will open the call to questions. [Operator Instructions]

Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements.

The risk factors that may affect results are referred to in our press release issued today, our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today.

Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com.

I will now turn the call over to Justin.

Good evening, and thank you all for joining Ategrity's 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 E&S industry contracted as a whole, we produced 23.4% growth in gross written premiums alongside an 85.9% combined ratio with both metrics well ahead of guidance. These results reflect the strength of our productionized underwriting platform and the disciplined execution of our strategy.

Growth was broad-based across both casualty and property with more than 20% 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 3 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 E&S 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% with casualty premiums up 24.7% and property premiums up 21.3%. Net written premiums increased 30.8%, which reflects higher retention year-over-year, while net earned premiums were up 30.9%. Fee income was $3.4 million compared to $1.5 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, up 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 58.5%, which was up 0.5 percentage point year-over-year, reflecting the continued shift in business towards our brokerage channel and lower catastrophe activity in prior year quarter. Catastrophe losses were 4.3% of net earned premiums, up from 4.1% last year. We also had favorable developments this quarter equal to 0.9% of net earned premium.

On expenses, the overall expense ratio improved 3.5 points to 27.5%. Our operating expense ratio declined 2.9 points year-over-year to 9.5% 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 second quarter to 17.9% from 18.5%. 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 noncontrolling interest, supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20%, bringing net income to stockholders 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, up 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 and 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 and underwriting quality. 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 are seeing across the business. Those submissions reflected 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 Agentic 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 continue 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 continued to develop favorably during the quarter. supporting our view that our underwriting discipline continues to produce consistent outcomes over time. Taken together, these 3 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 Ategrity to become stronger as it grows, and we believe this quarter demonstrated exactly that.

With that, I'll turn it back to Justin.

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 E&S 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 E&S 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.

[Operator Instructions] Your first question comes from the line of Elyse Greenspan with Wells Fargo.

My first question, I just wanted to, I guess, flesh out, I guess, on the top line as you guys are thinking about growth from here. I think you said in the third quarter, more than 20%. How do you see that trending between property and casualty? And then can you just give us a sense of just the current pricing conditions you guys are seeing in both?

Yes. Thanks, Elyse. 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 that?

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 in those specific regions. So that alone is contributing.

When it comes to rates, we were effectively flat, low negative single digits on property, and that is because we chose to protect our renewal portfolio in some key regions where it made sense for us from a portfolio balance standpoint and also because of the fact that those were accounts that were performing well, worth preserving.

On new business, the pricing levels on new business is up slightly year-over-year. That's not a metric we have disclosed, but directionally, it is something that we keep an eye on internally to tell us how we're pricing new business.

Okay. And then my second question, you guys called out some reserve releases this quarter. And I was just hoping to get a sense, I guess, I think it was just under 1 point. What was driving the reserve releases, just what years and lines?

Thanks, Elyse. 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 of 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 Singzon from JPMorgan.

First question, are you able to quantify or provide more context on the new business submissions that you saw? Did the pace of growth accelerate from last quarter? And just in general, I want to get a sense of the magnitude of growth there.

We're not providing the number itself, but what we can say is that it was in excess of our premium.

Yes. It was in 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 there are 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 some very low volatility jurisdictions. And that is a factor of our distribution network who very often are in those smaller markets.

And then second question, I was hoping you could discuss, I guess, the mix shift dynamics that are affecting the year-over-year compare in attritional. I think you guys are unique, right, where you tend to book property losses actually above casualty picks. But anyway, you sort of like talk through why that attritional went up year-over-year.

Yes. Thanks. This is really driven by mix shift and the mix shift into our brokerage channel. So we have 2 channels, brokerage and small business. The brokerage channel has a booked 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 of 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 Cowen.

So I want to touch on the growth initiatives. And the part A of it kind of revolves around your regional growth where 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 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.

Yes. 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.

Yes. So I think we can take a step -- if you take a step back and look at the regional strategies, they're not just a benefit to us, they are 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 jurisdictions. Those are -- so we are in the Midwest.

We have 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'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 -- 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.

Yes. Yes, we have talked about this also before. But for us, small is like 2 gas stations, and then it goes into medium once it goes above 5. So let's say, a family are running 3 gas stations, they purchased 2 more. We 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've got the release in property. It sounds like casualty was just kind of 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?

Yes. You characterized it correctly. There's nothing in the casualty book in terms of development this quarter. And the book is developing well. Our actual reportings 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 are coming in below expected, and that's reflective of strong performance.

Yes. We have maintained underwriting discipline on how we deploy coverage. Furthermore, we charge for the trickier coverage on the casualty side. Many of our peers do not. That is -- that ensures that as the exposure within a $1 million limit, if it is slightly higher, we are getting adequate rates. So that technical pricing discipline, which can sound a little abstract, really has layers to it. And what it does, though, is it -- it insulates us from some of the usual casualty pitfalls. So things like putting up assault and battery limits too liberally or deploying human trafficking limits.

Those are -- many of our peers do not have a rule book for that. We have very, very specific prescriptive rules. So there's casualty, then there's what are you covering and how broad is that coverage. We tend to be on 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.

First one I had for you is just maybe some broad commentary on the marketplace. I mean, I've kind of thought about you all, as you say, coming into regions and solving coverage gaps and issues and finding interesting niches to play in. Does that get harder as the market is becoming more competitive? And are you seeing any of that kind of activity where it's maybe some of the issues out there get solved by capacity and it gets a little harder to find places to go? Or are there still lots of regions and products? I'm just trying to understand how it's shifting.

We believe we're in some unique spaces, one, because we took the time to understand them. But we are 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 are participating in those spaces, they tend to take a very generic approach. And as a result, we are seeing 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 and 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 an existing contract, and we were excited to have the opportunity to have Neil join our company. I've known Neil for 7 years, and he is an extraordinary CFO. He's been around this business since its foundation, and he really takes a forward-looking view into how we can scale this business as you're seeing us grow. We are looking to have a finance department that scales in the same way. So focused on automation and streamlined 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 I've been involved in Ategrity since its founding. And everything I've seen since taking the reins have just been reinforcing that it's an experienced finance group with established reporting and control processes.

Your next question comes from Matthew Heimermann with Citi.

A couple of numbers questions, and then I have just a business development question. Just do you have the paid loss number in the quarter by chance? I just want to double check on that.

I don't have the dollars, but the paid to incurred, 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 naturally larger size, and so there's a bit more session to reinsurers just as you manage your own limits.

Yes. 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. It's an unusually low quarter. But that's all associated with having more reinsurance in the brokerage channel. So those are midsized accounts, and we have more programs there, more reinsurance placements there. So that's what you've probably been seeing in the numbers.

Okay. 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 curious.

Yes. 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'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 -- we are well resourced for the claim volume that we are receiving, and we're also deploying technology as well.

Yes. So in parallel with our core operating system improvements, there is a -- we've been deploying new capabilities product-by-product on the claims side. I'd say it includes integration estimation tools and includes an array of new functionality that allows us to get more precise on how we do case reserves, but also it allows us to handle claims in the right way and put each claim on a track to resolution. So we -- across the business, including in finance, as Neil mentioned, we are looking to utilize the current technology to get the most benefits. But when it comes to core staffing, we're really looking for strong people, not more man hours necessarily as the path forward.

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 in Ategrity, 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.

Good afternoon, everyone, and thank you for joining us today for Ategrity's First Quarter Fiscal Year 2026 Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neelam Patel, Chief Financial Officer. After Justin, Chris and Neelam have made their formal remarks, we will open the call for questions. [Operator Instructions] Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today, our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today.

Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com. I will now turn the call over to Justin.

Good evening, and thank you all for joining Ategrity's first quarter earnings call. This is Justin Cohen, and I'm joined today by Chris Schenk, our President and Chief Underwriting Officer; and Neelam Patel, our CFO.

Ategrity delivered another quarter of record earnings, generating outstanding margins while gaining market share. We produced a combined ratio of 87.4% and grew gross written premiums by 23.1% in an industry that was relatively flat with both metrics better than guidance.

We are winning by identifying underserved segments, building solutions that give our distribution partners an advantage and improving the quality and renewability of our portfolio. While competition is increasing, we are defining distinct markets where we can compete on our own terms. This quarter, we extended that momentum by launching several new strategic initiatives, including new regional strategies in Texas, Florida and New England while maintaining strict technical rigor in risk selection and pricing. We will discuss these initiatives in more detail later in the call.

As our footprint expands, we are demonstrating operating leverage. Our expense ratio improved 2.5 percentage points year-over-year as earned premium growth outpaced expenses. We continue to optimize our business mix and leverage our centralized underwriting model to improve profitability and lower unit costs. At the same time, we are investing in the business, both to support our growth initiatives and to advance automation and AI across the organization.

Turning to the market. Competitive pressure continued to intensify in parts of the E&S market this quarter, but its impact on our business remain limited. By focusing on small- and medium-sized businesses and delivering differentiated solutions, we continue to operate outside the more commoditized parts of the market.

We are seeing this play out consistently across the portfolio, reinforcing our confidence that we can continue to build profitable market share.

With that, I'll turn it over to Neelam to review our financials, followed by Chris to discuss our underwriting performance and go-to-market strategy.

Thanks, Justin. We delivered another strong quarter with adjusted net income of $25.6 million, up from $8.5 million in the same quarter last year, driven by top line growth, improving margins and continued strength in our investment income. Gross written premiums were up 23% in the quarter and growth was broad-based. Casualty premiums grew 27% and property premiums grew 13%.

Net written premiums increased 32%, which reflects higher retention year-over-year, while net earned premiums were up by 34%. Fee income was $2.2 million compared to $0.6 million a year ago, reflecting standard policy fees introduced over the course of 2025.

Our underwriting income for the quarter was $13.3 million, up 87% year-over-year. That translates into a combined ratio of 87.4% compared to 90.9% last year due to reductions in both our loss and expense ratio.

Our loss ratio came in at 58.8%, down 1 point year-over-year, driven by strong underlying results in our property business. We had favorable development this period equal to 0.5% of net earned premium. Catastrophe losses were 4% of net earned premium, down from 6.2% last year due to very few CAT events in the first quarter compared to the prior year, where we had modest losses from California wildfires.

On expenses, the overall expense ratio improved 2.5 points to 28.6% Operating expense was 10.9% of net earned premiums, down 1.4 points year-over-year. That improvement was driven by earned premiums growing faster than operating expenses, along with the benefit of higher fee income. Policy acquisition costs as a percentage of net earned premiums declined to 17.6% from 18.8%. The improvement was primarily mix driven as growth has been concentrated in lines of business carrying lower acquisition costs and higher ceding commissions.

Moving on to investment results. Net investment income was $12 million, up from $7.9 million last year, reflecting a larger investment portfolio. Realized and unrealized gains were $9.5 million, supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20.6%, bringing the net income to $25.5 million.

Adjusted net income was $25.6 million or $0.51 per diluted share.

Turning to the balance sheet. Cash and investments increased by $42 million from the fourth quarter to $1.15 billion, reflecting strong operating cash flow. Book value increased by $17 million, driven by retained earnings, offset by a decrease in AOCI. Our book value per share ended the quarter at $13.13, up 24% since the IPO.

Overall, the quarter reflects strong growth, underwriting discipline and increased operating leverage.

With that, I'll turn it over to Chris to discuss underwriting and operating performance.

Thanks, Neelam. Last quarter, we described our business as having multiple differentiated pathways for growth and how that has allowed us to operate independently of market cycles. This quarter is another validation of that model. In a competitive environment, Ategrity delivered another record quarter with all of our key metrics trending favorably. Top line growth of 23.1% with more than 50% coming from strategies unique to us.

Expense ratio declined even as we continued investing in production capacity, technology, marketing and partnership management. Rate change remained positive. Cost of product indicators continued to track favorably. We are succeeding because our model is built on two key principles: a long-term view of customer value and a deliberate approach to creating new markets for growth. These are uncommon in E&S. At a fundamental level, all carriers operate within the same growth equation, renewal contribution plus new business production. These are driven by the same inputs.

What is your renewal base? What is your retention ratio, average premium, submission growth, quote ratio and buying ratio. The difference in carrier results is driven by which levers they can move and which levers they're willing to move. For us, what we adjust is driven by our view of risk taking and that long-term view is measured in terms of customer lifetime value. For several years, we have optimized the inputs that matter to us. And as the market shifted, these became a clear structural advantage.

On renewal inputs, since 2021, we have focused on writing durable, sticky business. That showed up this quarter in a record renewal base and our highest retention since going public.

We optimized our retention rate through targeted rate actions while maintaining positive rate across the portfolio. On new business, the levers we can actively manage are submission growth, quote production and average premium. Submission growth was strong. This was driven by our distribution investments as well as our strategic initiatives.

Quote production reached an all-time high, supported by the submission volume as well as the quality of those submissions. Our investments in AI and our operating model allowed us to process that volume efficiently while maintaining fast turnaround.

Shifting to conversion. Conversion moderated modestly, but that was expected. Conversion is often the least controllable lever for a technical underwriting organization. We were able to win at a higher rate in areas where we have a regional strategy.

And finally, average premium. As the competition intensified in larger accounts, we leaned into small and middle market risk in our core verticals where precision, speed and consistency matters most. Those dynamics combined improved the overall quality and renewability of the portfolio. Our results this quarter is straightforward.

We retained more of what we wanted, and we added new business with higher expected lifetime value. Our model only works if we acquire business on the right terms, which is why we continue to build targeted growth pathways that position us where competition is less aggressive. This quarter, we launched three new regional strategies in areas with attractive economics and lower competition. Let me take you through how we did this.

While headlines suggest that the E&S market is losing share to admitted carriers, the reality is there's a two-way flow, and we are focused on the inflows. Ultimately, there are 50 state-level markets, each with its own distinct dynamics and even more localized submarkets beneath that.

Dislocations are constant, and our advantage is identifying them early. To be clear, what we're doing goes beyond simply tracking state-level trends. We analyze municipal level economic, legal and policy trends. We look at submission flows and loss experience, and we even look at admitted market filings to pinpoint opportunity. That work drove targeted strategies in Texas, New England and Florida in the last quarter. Those strategies are focused at a city and even at a neighborhood level.

For example, along the I-10 corridor in Texas, we have seen wholesale trade moving into the E&S space, while in Springfield, Massachusetts, older mixed-use properties are flowing into the market. We have built strategies around these specific profiles, and we are offering solutions.

And furthermore, we equip our partners with the insights through interactive city guides and targeted marketing, enabling them to source the business more effectively. In doing so, we're establishing ourselves as the go-to-market for these risks. This will, in turn, drive future submission growth, provide offsets should there be any declines in conversion rates. and it will allow us to win on our terms. And finally, this will all feed back into our future renewal base. This is how our differentiated growth strategies translate into above-market performance. Combined with our focus on lifetime value, they create a compounding growth model while preserving underwriting discipline, and this ultimately positions us for superior results going forward. With that, I'll turn it back to Justin.

Thanks, Chris. Our model is standing out in an increasingly competitive market as we have built a repeatable advantage and are executing against it with discipline.

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

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

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

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

And then if that's the case, I guess, -- what are you guys seeing from a pricing perspective -- sorry, go ahead.

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

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

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

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

Elyse, if you may recall from the last earnings call, we talked about how we have been very conservative in recent years on both property and casualty. In particular, we spoke about how property, we were booking at a prudent accident year ratio -- current accident year ratio, even though we hadn't quite seen the losses come through. As we went through this quarter, that continued. So we haven't seen that development that we expected. And even into this quarter as well, that trend continues. So we think we're very prudently reserved there. And that this quarter was a release of some of those reserves in property 2025.

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

Your attritional loss ratio, I think, was up year-over-year. And then I guess if you take a step back and look at it on an annual basis, it seems like it's been going up as well. And I assume that's mainly mix. I was wondering if you could talk to what's going on beneath the surface there?

Yes. We have not changed our underlying liability loss pick. So there is a component of that, that is mix. And the other component is that, again, in this year, we are booking our attritional property in a conservative way relative to last year and especially relative to the losses that emerged in the first quarter that have actually emerged in the first quarter.

Makes sense. And then second question on reinsurance retention. So that stepped up year-over-year as you sort of communicated before. How will that ratio look for the balance of the year? And is there more appetite to bring it up in subsequent years?

Yes. There is -- this year should be relatively consistent with regard to reinsurance. We had stopped or nonrenewed a casualty quota share formally this year. So we had done a half step in the beginning of '25 and half step in 2026. And so what you've seen in the first quarter is relatively consistent. There is some mix amongst quarters because there's more property in some quarters than others, but this is a good benchmark.

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

And I'd like to get a sense of pricing a little more granularly. I know Elyse was asking. But on the property that you are writing, and I suspect that's a lot of the smaller property accounts as well as casualty, could you talk about the rate that you're getting there?

Yes. So as part of our renewal playbook, we sought to -- we managed to lifetime value. So we actually had accounts that performed really well, and we give back some rates there, as I said on the call. Overall, we had net positive rate change. In terms of what we're seeing on new business -- there is the pressure on the CAT-exposed business. There's pressure on business in certain parts of Texas, certain parts of Florida. We have a regional strategy for Texas and Florida.

We are -- where we are, there is less competition. So most of the market is competing for and competing on price. In Houston and Galveston, we are in Laredo and Waco and El Paso and San Antonio. Those are -- it's a different risk profile and also smaller markets. That's really what is driving the new business growth.

And we -- as a result, new business rate levels are slightly above our -- what we would expect, if not flat.

Got it. That was helpful. And with regard to those regional strategies, and that was an interesting comment, Chris, about being in some of the smaller markets in Texas, for example. Could you elaborate a little more on what industries you're looking for with these smaller businesses in smaller markets?

Yes. So the binding constraint here is that we do not go beyond our core verticals as we go into a region and build our playbook. So we look for opportunities within our core verticals which we have talked about in the past, construction, hotel, hotels, restaurants, retail, residential real estate. So we are still sticking to our core verticals. We have some emerging verticals like wholesale trade, which we do in small business, and we're now expanding into middle market. That is -- I mentioned that one on the call. A lot of that is emerging in Texas.

In addition, we have mixed-use retail. So those are effectively occupancies that are a little bit more complex because you have multiple types of businesses on the first floor of a building with an apartment building with apartments above. So that type of mixed occupancy is something that you need specialized knowledge for, right? So we are a restaurant and a retail on the first floor is something we can figure out. Those are the types of classes. So we are not deviating from our core specialist classes because, in fact, it's the specialized knowledge that makes the difference.

That sounds very thoughtful. And if I could sneak one last one in. So with the policy acquisition costs at $17.6 million and the operating expense at 10.9%, just given the rationale that you provided, these seem like sustainable numbers. So 28.6% on the expense ratio seems like a decent run rate. Am I thinking about it right?

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

We have talked about AI. We have talked about technology that is in development right now. We have a number of solutions that are in pilot phase. And as those get fully implemented, they will provide for further leverage. And as we have been developing those, we are doing them in a relatively cost-effective way. So -- we're not building that legacy tech debt which one might assume based on what the historic cost around these types of solutions might have been.

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

First one is on distribution. Can you talk me through sort of the timing of when you launch some of these new initiatives like the Texas-based initiative in New England? And is that -- are we starting to get new business coming through from that? Are we still in the phase where we're kind of building out distribution? And how will -- if we are building out distribution still, like how does that roll in over the next 12 months?

So the way we approach the regional strategy, it does start with an appointment strategy. So that starts well ahead of our official launches. So New England launched 2 weeks ago, for example. But starting in September, the distribution buildup was in progress. So we actually did get some contributions from New England as a result, even though the official launch event, if you will, was just 2 weeks ago.

Similarly -- similar for Texas, similar for Florida. There is a market -- there's an engagement phase where we get feedback from the market regarding solutions that we're willing to offer, and that alone starts to generate interest in doing business with us. Then there's an appointment phase and then there's the official launch event, which is really a marker more than anything else.

Got it. Okay. Could you talk about gross versus net premiums and just how we should think about your retention and how that will be expected to trend here?

Yes. So as you probably saw the retention is up meaningfully year-over-year, which we expected. And that was, as I referred to earlier, the cessation of the quota share on our primary casualty business, which was purely opportunistic in nature. So we are deploying capital through that, and that's why our retention ratio has gone up into the 80s, which we think is the -- in the low 80s is the right place to think about it going forward.

[Operator Instructions] Our next question comes from the line of Matthew Heimermann with Citi.

Two quick ones or one quick one and then a follow-up. Do you have losses in the quarter, right?

We do -- it will be in the Q, but the -- I think the [ paid-to-incurred ] just to back into it, we're in the mid-50s.

Okay. And then just for -- I don't know if this is for you, Chris or Justin or both. But just thinking about like with the regional strategy going focused on the smaller account sizes, I'm curious just what the -- what competitors you're potentially displacing there? And is it legacy carriers? Is it some of the MGAs that maybe are -- is it traditional MGAs or tech-enabled MGAs where maybe the cost structure is a little less advantageous relative to what you can do? Just be curious your thoughts on kind of who you might be competing with there, given it's different than the majority of the calls that we would listen to as we go through the quarter?

Yes. So on the E&S side, very few carriers truly have a playbook for the places that we are -- where we're competing. We are positioning ourselves to absorb business coming out of the admitted market. Part of this is studying what is flowing in E&S and being proactive in designing solutions. That is very different than what many of our peers do. And in fact, is a more traditional E&S playbook would be take whatever comes in, wait to see what comes in, build solutions in a bespoke way for whatever comes across the underwriter's desk.

We are studying what's actually exiting the market, building a solution. And as I mentioned on the call, we have these city guides, right? So we are actually giving our partners, our wholesale partners, wholesale distributors, the city guides, they're interactive. The up on their iPhone and they can have a conversation with their retailer that says, this is what's coming out of the admitted markets. I have a home for it. It's called Ategrity. And that is what we're doing here. So it's less about displacing more so kind of guerrilla marketing, if you will.

Okay. And it does sound like it's fair to read you a few carriers doing this as it is other intermediaries who might be aggregating or it's just rifle shot -- excuse me, it's just kind of a shotgun approach for a retailer if they have one of these particular risks previously?

You're asking do the retailers have this risk, the wholesalers to the retailers. I think as Chris was saying, we're helping -- we're providing the opportunity for growth for our retail partners more than anything else.

For our wholesale partners...

For our wholesale partners.

Their clients are the retailers in a framework.

My question was as they're going -- yes, but is that like -- sorry, I should have said wholesaler, not retailer. But the point was, is that wholesaler kind of like shotgun isn't quite sure where to go in the market in the past or it's still going to traditional carriers? Or are there, in your mind, some other intermediaries kind of playing in these channels? That's -- I get what you're doing. I'm just trying to figure out what the home -- what might have been in the past for this business if you haven't stuck in front of it?

So that retailer did not need to work with a wholesaler because they would have been able to go to an admitted market. So in this scenario, now that they need to find a home for that specific profile, we are being proactive in telling them where that home is. That's what our wholesalers are doing. And that's why we invested in the marketing because we want to be the first in the door to make sure that we establish ourselves in that way.

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

I just want to see if you could give us a feel for how persistency has been running. Any kind of metrics you can give us and particularly as you've kind of lapped some of these bigger initiatives, how is that trending?

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

Okay. But you guys aren't willing to offer up just at a high level how persistency is running for the overall book?

When you say persistency, you mean the retention rate? Policy retention rate?

Yes. Yes, correct.

We're not disclosing it.

Okay, all right.

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

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

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

Good afternoon, everyone, and thank you for joining us today for Ategrity's Fourth Quarter Fiscal Year 2025 Earnings Results Conference Call. Speaking today are: Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neelam Patel, Chief Financial Officer. After Justin, Chris and Neelam have made their formal remarks, we will open the call to questions. [Operator Instructions]

Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today, our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today.

Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com.

And with that, I will now turn the call over to Justin.

Good evening, and thank you all for joining Ategrity's fourth quarter earnings call. This is Justin Cohen, and I'm joined here today by Chris Schenk, our President and Chief Underwriting Officer; and Neelam Patel, our CFO.

Ategrity once again delivered record results in Q4, demonstrating strength on both the top and bottom line. Gross written premiums grew 30% year-over-year, exceeding our guidance of outperforming E&S industry growth by 20 percentage points. Our 84.9% combined ratio in the quarter is a new record for the company. We continue to profitably grow our market share in the small and midsized E&S space because of the 3 key factors.

First, in our core specialty verticals, we have identified market gaps and built targeted products around them, producing structural growth while maintaining strict technical discipline.

Second, we have grown our distribution network of nearly 600 partners. Through tight alignment of product and execution, we have driven strong submission volume, including nearly 90% year-over-year growth this quarter.

Third, we have engineered our workflows and automation to deliver speed with precision, responding quickly to brokers while maintaining rigorous standards at scale. Together, these factors have driven both growth and margin expansion in a moderating E&S market.

Turning to additional dynamics from the quarter. In property, we grew 18% year-over-year with strong sequential acceleration in stark contrast to the overall property market, which contracted as a whole. By focusing on small- and medium-sized attritional risks where we have an underwriting advantage, we positioned ourselves away from the more cyclical large account catastrophe-exposed market.

Our 84.9% combined ratio reflects favorable loss experience, business mix and operating leverage. Net earned premiums grew 25 percentage points faster than operating expenses net of fees, driving a 6.1 percentage point improvement in our overall expense ratio even as we continue to invest in growth initiatives and technology.

On technology, in recent weeks, the capital markets have focused on the risks of AI to the specialty insurance industry. At Ategrity, over 2 years ago, we developed a clear road map for integrating AI and made critical investments in that direction. Those investments have now been operationalized, and we will provide some additional context later in the call.

Finally, stepping back to broader E&S market dynamics, while industry growth has decelerated, it is less the case in our small and midsized segment. Competitive intensity increased marginally again this quarter, but we continue to stand out through our business model and execution, driving growth in our market share.

With that, I will turn it over to Neelam to discuss the financial results.

Thanks, Justin. We delivered another strong quarter with adjusted net income of $25.4 million, up from $22.7 million in the same quarter last year, driven by top line growth, improving margins and continued strength in our investment income. Our gross written premiums were up 30% in the quarter, and the growth was broad-based.

Casualty premiums grew 38% and property premiums grew 18%. Net written premiums increased 44%, which reflects higher retention year-over-year. Net earned premiums were up 34%, which is less than net written premium growth because of the natural lagged recognition of our growth trajectory. Net earned premium growth accelerated sequentially due to our expanded premium base and the impact of the reduction in our quota share reinsurance in 2025.

Our fee income was $2.3 million compared to $0.4 million a year ago, reflecting standard policy fees implemented in 2025. Our underwriting income for the quarter was $15.5 million, up 160% year-over-year. That translates into a combined ratio of 84.9% compared to 92.3% last year due to reductions in both our loss and expense ratios. The loss ratio came in at 57.1%, down 1.2 points year-over-year driven by strong underlying results in our property business. We again had no prior year development. Catastrophe losses were 3.2% of net earned premium, down from 3.7% last year due to very few catastrophe events in the fourth quarter.

On expenses, the overall expense ratio improved 6.1 points to 27.8%. Operating expense was 10.5% of net earned premiums, down 2.4 points year-over-year and lower than Q2 and Q3 of 2025. That improvement was driven by earned premiums growing faster than operating expenses, along with the benefit of higher fee income. Policy acquisition costs as a percent of net earned premiums declined to 17.3% from 21%. The improvement was primarily mix driven as growth has been concentrated in lines of business carrying lower acquisition costs and higher ceding commissions.

Moving on to investment results. Net investment income was $11.6 million, up from $6.3 million last year, reflecting a larger investment portfolio. Realized and unrealized gains were $6.7 million, supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20.2%, bringing net income to $25.3 million. Adjusted net income was $25.4 million or $0.51 per diluted share.

Turning to the balance sheet. Cash and investments increased by $45 million from the third quarter to $1.1 billion, reflecting strong operating cash flow. Book value increased by $26 million, driven by retained earnings. Our book value per share ended the quarter at $12.78, up 21% since the IPO. Overall, the quarter reflects strong growth, underwriting discipline and operating leverage.

With that, I'll turn it over to Chris to discuss underwriting and operating performance.

Thanks, Neelam. With 30% growth and an 84.9% combined ratio, this was another record quarter for Ategrity. Core operating metrics, including retention, hit ratios, submissions and rate change were in line with or above our plan. And our cost of product indicators, including frequency and severity signals, continue to track favorably. These results reflect the strength of our productionized underwriting model, which is built on vertical specialization, deep expertise and structured underwriting.

I want to highlight 3 drivers behind our results. First, we have capitalized on growth opportunities that have been overlooked by peers. These are differentiated pathways for growth that we can uniquely identify because we specialize in specific verticals and micro segments. Approximately half of our growth this quarter came from strategic initiatives like Project Heartland, retail trade and our multifamily developer product.

In Property, we exited 2025 with premium growth and renewal rate increases. We grew 18%, while many peers contracted. This growth came from states that are often overlooked like North Dakota, Ohio and Nebraska. In property, we also achieved full year rate change in the high single digits.

Turning to Casualty. There, we grew 38% and achieved low teens full year rate increases. Our management and professional liability lines were strong contributor with premium more than tripling despite broader softening conditions.

Second, we achieved greater wallet share with our partners. Notably, our 2023 and 2024 distribution cohorts delivered over 100% same-store growth. These partners had strong renewals and increased new business placement with Ategrity. Meanwhile, our 2025 cohort added 25% more new partners to our distribution network, and we are seeing strong early signs of engagement. Our submissions increased roughly 90% year-over-year. We achieved premium growth by quoting more business from a larger opportunity set while maintaining pricing discipline.

Third, our underwriting platform is driving speed and operating leverage. We are delivering fast, predictable and market-ready quotes without diluting technical rigor. In our brokerage channel, policy count increased 3.5x along record high transaction volumes. Our underwriting efficiency more than doubled. We produced record high quotes while reducing turnaround times. Process standardization and tech automation allowed us to absorb that growth while driving operating leverage. This contributed to a 2.4-point reduction in our operating expense ratio year-over-year.

Looking ahead to 2026, we are executing on initiatives for the next wave of growth. This includes intensifying our regional strategies. In Florida, we launched a brokerage package product supported by a dedicated underwriting team. It is one of the few products of its kind in the market. In New England, we are stepping up to fill a market gap with a playbook for older buildings and dense mixed-use exposures. And in the Midwest, we are doubling down on Project Heartland with a comprehensive branded product. These growth pathways are unique and should allow us to continue to outpace the market.

Finally, I want to build on Justin's earlier comments on AI. We have been executing on a distinct road map for over 2 years now. AI has already been deployed in our back office, improving risk qualification, data preparation and parameter optimization. In 2026, we are now embedding AI capabilities directly into underwriting workflows with solutions that were built by our in-house innovation lab.

Our underwriting model is perfect for implementing AI because it is structured and built on technical pricing with clear risk selection criteria. And the way we select risk and deviate from technical rates is very prescriptive. And as such, we can integrate AI with disciplined guardrails and extract real economic value. We see this as a step change for the company. Much of the heavy lifting has been done, but we are taking a responsible approach and we'll be testing and ramping deployment over the course of this year. We expect this to drive our expense ratio lower once it is fully deployed this year.

With that, I'll turn it back to Justin for closing comments.

Thanks, Chris. This was a strong quarter by any measure. We grew top line, expanded margins and continued to deepen distribution relationships, all while maintaining underwriting discipline in a moderating market. Our performance reflects a purpose-built model that is being executed with rigor. With that context, let me turn to our outlook.

Our guidance for Q1 '26, consistent with last quarter's guidance is for a growth rate that is 20 percentage points above E&S market growth, reflecting more market share gains and the strength of our approach. Further, we are anticipating a combined ratio just below 90%. One last item to cover. Today, we filed an 8-K announcing a share repurchase program, and we are happy to address any questions on that in the Q&A.

With that, we thank you for your time listening. And operator, can you please open it up for questions?

[Operator Instructions] All right. It looks like our first question today comes from the line of Hristian Getsov with Wells Fargo.

My first question is, can you parse out the rate environment you're seeing, particularly in casualty and property separately relative to loss trends? And is it safe to assume just given the current rate environment, we should see your mix continue to shift towards casualty in 2026?

Chris?

Yes. So I'll start with casualty. The rating environment there is still strong in our verticals. There's a good deal of demand. We're seeing that come through in submission flow, and we're holding firm on pricing. Our technical rates are on a prospective basis. So we have achieved rates above trend, and we don't see that slowing down in the short term. However, given market dynamics and given where we're competing, we have left the flexibility to protect our renewals if there's a shift in the market on all of our lines. So there should -- if there's anything that will -- if there's any slowdown in rates, that will be from that source.

On property, we are playing in a very -- on a very differentiated play field -- playing field in the Midwest. We're not seeing a lot of competition going after the type of business we're winning. So we are able to get the rates that we require for that. We have priced in for tariffs and other factors that are affecting severity. So we are rate adequate on property also. And we have achieved rates above trend.

And on mix, to your question on mix, we said in the past that 60% to 70% casualty is the target range for where we expect to be on casualty. We were at 67% this quarter, and we will continue to be within the range, and we wouldn't -- shouldn't expect us to deviate from there. So around where we are is a strong expectation for mix.

Got it. And then on Project Heartland, I guess, can you guys quantify how much runway there is in expanding distribution? And any quantification of how much this initiative has added to premium growth in the year?

Yes. So there's 2 parts to Project Heartland. It is -- there's an appointment component, adding more partners, and we are nearing the end of that phase. It's more about getting more wallet share from partners. So we're just at the beginning of that phase. That is a -- we feel like the investments we have made in the Midwest along -- not just in distribution, but in terms of developing products and really making a unique play for -- in our verticals is really what's allowing us to stand out. So we see a huge runway for growth.

As I mentioned in the comments, we are launching a Heartland product that will allow us to stand out in the market. It's really a marketing tactic, but it's also a way for our coverage and our offering to be instantly recognized. That's going to be the next phase of our efforts there. It does present to us much more -- a longer runway for growth.

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

So many other insurance companies, some of them are quite large with well-established platforms have shown a strong interest in small commercial E&S and have publicly disclosed growth metrics that are quite impressive. So the question is, do you see any evidence of them showing up in the markets where you compete in?

You're asking it, have there been new players coming in?

Right. And I'm thinking specifically without naming names, like large companies that have an intense interest in small commercial E&S.

We have not experienced any pressure from that and have not seen that. You saw some of our metrics as they emerge from this quarter, and I think it demonstrates that we are gaining traction ourselves, and we have not experienced that type of competition.

Okay. And then second question, just on the guidance. Last I checked, I think E&S market is running high single digits. So your 20-plus-percent guidance suggests a high-20s growth rate for 1Q, Justin? Is that a [indiscernible]

Yes. We've been very deliberate about shifting our guidance to a growth rate above the market. That's because we don't forecast the market. That's not how we spend our efforts, and we don't think that's -- that would be productive for us to describe our guesses on that. But I think, if you think about where we -- based on what we've heard and seen in the market, we think that maybe mid- to high single digits would be an appropriate place to benchmark that.

And our next question comes from the line of Andrew Kligerman with TD Securities.

84.9%, you mentioned that it was your record combined ratio. And I'm wondering, you've put up some pretty good numbers for the last few years. Could you -- and you had no prior year development as well, I think Neelam said on the call. Could you talk a little bit about your reserving methodology? How much, if any, conservatism you're putting in those numbers? Are there -- maybe talk a little bit about that.

Andrew, our reserves are in a very strong position overall, both in property and casualty. You heard Chris mention in the prepared remarks that the early indicators for the recent years are coming in very strong. And so we are highly confident in our reserves there. And then in addition, we really had a low quarter of losses and frequency and severity in property, but we have booked losses -- we have booked reserves in anticipation of maybe late reporting. So we think that both property and casualty are in strong position.

That's very helpful. And I want to talk a little bit -- I'm on the road, so I did not see the 8-K. It's great to hear about a buyback authorization. Could you talk about the amount and the -- the want to administer it to really utilize it? And then just in general, could you size up redeployable capital? I know you have de minimis leverage. Do you have the capital on balance sheet to meet this really robust growth of 30% a quarter?

Yes. So Andrew, the size of it is $50 million. And the rationale is that we have a -- we're a company that has increased its book value per share since the IPO of about 21%. We trade at 9x consensus forward, and we've generated excess capital in just the quarters that we've been talking about -- in the last 3 quarters that we've been reporting to you. So we believe we're supposed to buy the stock here. I will say we are committed to increasing the float over time. It will just be at a different price.

So in terms of excess capital, if you look back to the amounts that we have generated in just the past 3 quarters, that's actually a fairly sizable number, and it positions us well for deploying the capital in a buyback as well as continuing to grow. So the capital outlook and the growth trajectory with respect to deploying capital has not changed.

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

A couple of questions. One would be just with the AI in the back office already implemented. I'd be curious with respect to the claims organization, if that has been helping at all -- excuse me, LAE costs, whether allocated or unallocated?

With respect to AI, we have seen the opportunity set, first and foremost, for us on the underwriting side. So we have not deployed it in a meaningful way yet in the claims side, if you're referring to that.

Did you have a follow-up there?

Yes. So well, let's -- I have 2 follow-ups to that. One would be just on the -- what are, do you think, the use cases for your company on the claims side? And I'd be curious about that. And just part of that is just maybe my own confusion around what's more back office versus front-of-the house function. So maybe you could actually roll through what you consider to be in back office just so we can maybe level set with that as well?

Just on claims, one of the things that's clear is there is a processing component to incoming claims. And so deploying it there as we do on our intake process in submissions that is -- that will ultimately be an easy win. But we're not, on this call, going to describe how we're going to be deploying claims in AI.

Chris, do you want to talk a little bit about where you're at?

Yes. Just on what's back office in the context of my comments, we consider that to be everything that happens before an account gets to an underwriter's desk. So intake to data prep to prequalification. So we have been using AI for prequalification. That allows us to screen out accounts that are not in appetite.

The next phase is with risk assessment once the account is on the underwriter's desk. So there, there's a spectrum of utilization. It could range from everything from full automation for simple accounts to partial automation of the risk assessment. So this is an individual account level underwriting, where we assess for a specific criteria.

Because our model is structured, we are able to identify use cases that are very value-added in multiple ways, one, in making a clearer assessment, a more quantitative assessment; and two, in driving a better quality decision if it's not a purely quantitative automated assessment. If it goes to the underwriter's judgment, [ sort of ] guiding that judgment is the second and third use case there.

All right. Thank you so much for the question, Matt. And that does conclude our Q&A session for today. So I will now turn the call back over to Justin for closing remarks. Justin?

Well, we thank you all very much for listening and for those questions, and we look forward to seeing you in the weeks and months ahead. Thank you very much.

Good afternoon, everyone, and thank you for joining us today for Ategrity's Third Quarter Fiscal Year 2025 Earnings Results Conference Call. Speaking today are Justin Cohen, Chief Executive Officer; Chris Schenk, President and Chief Underwriting Officer; and Neelam Patel, Chief Financial Officer. After Justin, Chris and Neelam have made their formal remarks, we will open the call to questions. [Operator Instructions]

Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements.

The risk factors that may affect results are referred to in our press release issued today, our final prospectus and other filings filed with the SEC. We do not undertake any obligation to update the forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today, a copy of which may be obtained by visiting the Investor Relations website at investors.ategrity.com.

I will now turn the call over to Justin.

Good evening, and thank you all for joining Ategrity's third quarter 2025 earnings call. This is Justin Cohen, and I am joined here today by Chris Schenk, our President and Chief Underwriting Officer; and Neelam Patel, our CFO.

Ategrity delivered record results this quarter. Gross written premiums grew 30% year-over-year, including accelerating growth in property lines. Our combined ratio improved to 88.7% as we began to demonstrate operating leverage. With investment income, our adjusted net income was $22.8 million, translating into 78% year-over-year growth.

These results were ahead of guidance despite industry data pointing to a deceleration in the E&S market. We believe that's because we are executing a model that is truly differentiated. It's built on specialization, analytics, automation and distribution, and we are capitalizing on these strengths to drive sustainable growth and profits.

This was a quarter characterized by expanding top line, operating leverage and improved economics. First, on top line growth. We achieved a 30% increase in gross written premiums, supported by 70% submission growth. That's 7-0, not 17. Our distribution network is exceptionally large for a company our size, and we are driving deeper engagement by bringing new and attractive solutions to the market.

Second, on operating leverage. Our operating expense ratio improved 2.7 percentage points as prior investments in infrastructure and process efficiency began to deliver. Expense growth moderated while earned premiums accelerated, and we are realizing this upside even as we invest in new lines of business and next-generation technologies that are expected to drive the next phase of leverage.

Finally, on improved economics. Our policy acquisition ratio improved 1.8 percentage points as we continue to optimize our business mix. We have been deliberately increasing the percentage of our premiums written in our brokerage channel where acquisition costs are lower. This has been underway for several quarters and is now earning through in our results.

Now turning back to the broader E&S market, where headwinds have emerged in certain areas. Competitive intensity has increased, but conditions remain rational in the small- and medium-sized space. This segment has remained relatively insulated given the challenges that new entrants face in trying to profitably write $10,000 policies without the requisite scale. Against that backdrop, we are focused on extending Ategrity's structural advantages of speed, competitive products and technical pricing to drive disciplined share gains.

So with that, I'll now turn it over to Neelam for the financials.

Thanks, Justin. We delivered another strong quarter of financial performance. Adjusted net income came in at $22.8 million, up from $12.9 million in the same quarter last year, driven by top line growth, improving margins and higher investment income. Let me walk you through the main line items, starting with premiums.

Gross written premiums grew by 30% in the quarter. Casualty premiums increased by 41%, while property premiums went up by 11%, both contributing meaningfully to our overall growth. Net written premiums grew by 42%, reflecting a higher retention rate year-over-year. Net earned premiums were up by 29%, reflecting the natural led earnings recognition of our growth trajectory and a quota share reinsurance treaty we placed in 2024.

Net earned premium growth accelerated sequentially, consistent with our prior comments of abating headwinds in the second half. Our fee income came in at $2.2 million compared to $0.2 million a year ago, reflecting higher policy fees as we continue to implement standard market practices.

Turning to underwriting results. Our underwriting income for the quarter was $10.6 million, up nearly 208% year-over-year. This translates into a combined ratio of 88.7%, an improvement from 95.3% last year due to reductions in both our loss and expense ratio. The loss ratio declined 2.1 points to 60% with strong underlying results in our property business. In the current quarter, we had no prior year development compared to 1.7 points last year that were related to a change in how we reserved for legal expenses.

Catastrophe losses represented 4% of net earned premium this quarter, down from 12.1% last year, which had an active hurricane season.

Our expense ratio declined 4.5 points to 28.7%, reflecting improvements in both operating efficiency and business mix. Operating expenses represented 10.8% of net earned premiums, down 2.7 points from last year and also lower than the second quarter of 2025. The declines were driven by expense leverage and higher fee income.

Policy acquisition costs as a percentage of net earned premiums declined to 17.9% from 19.7%. The improvement was primarily driven by favorable mix shift as growth has been concentrated in lines of businesses carrying lower gross commission rates and higher ceding commissions.

Moving on to investment results. Net investment income was $11 million in the third quarter, up from $6.8 million last year, driven by increased assets from our IPO and higher yields on our fixed income portfolio. Realized and unrealized gains contributed another $9.2 million, supported by strong results in our absolute return portfolio.

Our effective tax rate for the quarter was 20.6%, bringing the net income to $22.7 million. Adjusted net income, which adds back IPO-related compensation costs was $22.8 million or $0.46 per diluted share.

Turning briefly to the balance sheet. Our cash and investments grew by $86 million from the second quarter to $1.1 billion, reflecting strong operating cash flow. Book value increased by $29 million, driven by $23 million attributable to increased retained earnings and the rest to increased AOCI. Our book value per share ended the quarter at $12.24.

With that, I will hand it over to Chris to talk about our underwriting and operating performance.

Thanks, Neelam. Ategrity grew 30% and improved margins this quarter. I'll talk to you about the contributors to those results, and then I will provide some perspective on why our differentiated underwriting approach is resonating in the current market. I'll start with top line production. Retentions remained stable. We achieved mid- to high single-digit renewal rate increases. That was in both property and casualty and new business growth was very strong.

Four key points illustrate the quality of this growth. First, there was record high demand for Ategrity quotes. This was in both property and casualty, where we saw submissions increase more than 70% year-over-year. Second, we saw stronger partner engagement. Our 2023 and 2024 distribution cohorts contributed meaningfully. They delivered same-store growth in the range of 80%.

Third, we expanded our distribution reach. After more than doubling our distribution network from 2022 to 2024, the number of active distribution partner once again grew this year by another 25%. This extends our runway for growth. And fourth, we maintain discipline underwriting. Our hit ratio was in line with plan. That is low single digits in brokerage, and this is because we are staying selective and firm on price.

Last quarter, we highlighted 3 growth initiatives: the retail trade vertical, which we launched in brokerage, our professional liability lines and Project Heartland, our Midwest regional strategy. Each once again contributed meaningfully in Q3. Together, they accounted for about half of our growth.

Turning to underwriting margins. In our property book, we experienced lower frequency and lower severity. And relative to expectations, casualty losses are developing favorably. We recorded a conservative firm-wide loss ratio of 60%, although our pricing loss ratio is meaningfully lower.

From an operating leverage standpoint, while net written premium grew more than 40%, we realized efficiency gains across our business. This translated into only moderate expense growth. In Q3, we processed record submissions and quotes and manage a larger in-force book, all while delivering the speed and service that our brokers expect. As we maintain a conservative hit ratio, automation continues to safeguard operating margins.

We also reduced acquisition costs. This is because we wrote more business in our broker channel and capitalized on 2 new growth initiatives. The first initiative is our digital brokerage channel. We launched a technology-enabled solution that provides small business agents with streamlined access to our brokerage product. These agents occasionally need to place midsized policies and have limited options to do so. Through Ategrity's digital brokerage, they can now receive quotes on midsized accounts with what we believe is market-leading response times.

The second initiative is a specialty offering for our real estate vertical. We innovated a product that addresses the evolving lending requirements for multifamily developers. These requirements are imposed by Fannie Mae, Freddie Mac and the larger banking sector, and we have developed a casualty product that responds to those requirements. This is very different than our standard casualty offering. And as far as we know, there's nothing comparable in the market. As a result, we have been able to distribute it while achieving superior policy acquisition economics.

Finally, turning to our competitive positioning. In Q3, a record number of brokers wanted to present an Ategrity quote to their clients. As we have talked about, our pricing tends to be higher than our competitors. So we believe that this demand is driven by the appeal of our product. Instead of relying on unfair exclusions and wording ambiguity, we deliver fast, high-quality quotes with coverage that the insured actually needs. And for that, we charge a fair and technically sound price.

Brokers are telling us that they want an integrity quote because they know and trust our product. With tighter lending standards and a more volatile political and judicial environment, there is heightened focus on coverage quality and contract certainty. And our product strategy, which offers clear comprehensive coverage with only the necessary exclusions is standing out in a very crowded marketplace.

So those are some of the dynamics behind our results. In short, Ategrity's productionized underwriting model is doing exactly what it was designed to do. It's delivering disciplined growth and expanding margins and at the same time, it's strengthening our position in the market.

With that, I'll hand it back to Justin.

Thanks, Chris. This was another strong quarter for Ategrity. It reflects an organization that is analytical, efficient and innovative. We are a company that does what we say we're going to do, and we remain focused on driving towards sustainable world-class returns. For the second quarter in a row, we delivered gross written premium growth more than 20 percentage points above the E&S market.

As we look toward the fourth quarter, we believe we have the partner engagement, submission flow and delivery capabilities to achieve that outcome again. Based on the industry's current growth pace, we believe that would translate into roughly 30% year-over-year growth. From a margin perspective, we are aiming to deliver a 90% combined ratio in the fourth quarter.

Finally, we look forward to spending time with investors and analysts in the days ahead. In addition to discussing our results and strategy, we would love to hear investor input on balancing additional insider support through open market purchases with the desire to increase public float. We intend to increase our float in the course of time at appropriate valuations, as other specialty insurance companies have after their IPOs. We greatly care about doing the right thing for investors, so I would appreciate your feedback on this topic.

With that, I thank you again for your time and interest in Ategrity. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Alex Scott with Barclays.

First one I had is on the property market and just what you're seeing in the environment. On the casualty side, it sounded like some of the things you're doing are pretty bespoke and nuanced. Do you feel like as we head into 2026, you're going to be able to continue growing in property, the rates you've been growing though?

Yes. In property, if you'll recall, we talked about last quarter that in the third quarter of 2024, we began raising rates actually somewhat materially in small- to medium-sized property. In the third quarter of this year, therefore, we lapped those rates. We're not going to get into 2026. But as we're looking forward, you see that we accelerated. Well, you see that we accelerated in this quarter from the growth from last quarter, and we're hopeful that we can achieve the same. It is more of just doing -- executing our business model and having now gotten ahead of the curve on pricing.

That's really helpful. Second thing I wanted to ask you about is just some of the continuation of what we've been doing with technology, but I think it was mentioned earlier on the call that you were looking to advance some of that further. And I was just interested in some of the things you're working on, some of the areas you might push on the tech front to further what you're doing in the market.

Great. I'll pass it over to Chris to talk about some of the innovations that are actually launching now and others as well in the future.

Yes. So as you know, we've been launching pre-price solutions and some OCR AI-enabled intake automation processes and a number of different innovations across the business. We have an innovation lab that we funded about a year ago that is now bringing all of these stand-alone solutions into one single platform. That is going to be a critical unlock for us in the coming quarters. But what it does, it makes delivery of innovation much more efficient and which we already have an efficient approach to development. But in terms of maintenance of an innovation ecosystem, having everything in one platform allows us to get more value out of it and also enhance it as technology evolves.

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

With the employment picture and small business optimism softening a bit, have you seen any change in the economic health of your clients?

We have not seen any direct change, but it really matters vertical by vertical.

Yes. So in the small -- you said change in our clients?

Yes, the end clients. The end clients. So there is a dynamic of what we call nano accounts. Nano accounts are accounts that they're very -- they're priced at admitted market pricing. So let's say, a small business with sub-$1,000 pricing. That business is always in between E&S and admitted and there is some pulling back of it into the admitted space. Sometimes a lot of that business also go away. So it has never been core to us, and they don't provide really good economics because lower retention and they could be volatile. So we are seeing that sort of disappearance again of the nano accounts. So it's not a lot of premium.

It can be volume. But in terms of the -- we are 2 degrees removed from our end clients, but we do study that, and we study the economy. We talked about last quarter how each of our verticals has a different sensitivity. But overall, we have not seen any material change in our end clients' financial and economic health.

Yes. So what -- where we are seeing some change in consumer preference or insured preferences is in the midsized middle market clients. So think of a family real estate investment firm, 5 apartment buildings. They're now facing tougher lending requirements from Fannie Mae and Freddie Mac. Banks are scrutinizing their financing. Meanwhile, there is regulatory uncertainty that's being driven by adoption of building codes on the property side as well as some things like even the New York City municipal elections, which would affect housing and real estate development.

So you have all these dynamics that they are really attentive to coverage. So I've had the privilege of meeting some of our retailers and actually some end insurers over the last quarter. And that's what I'm hearing from them. They're worried about these developments and how they will affect coverage.

Okay. And then my second question, the submission volumes, interesting data point there. Are you able to process and quote as much of those submissions as you're seeing? Or is there any bottleneck in your operations right now?

No, we have a very efficient operation, and that's been part of our story is to be able to handle this kind of volume, and we've done it. And we talked about during the IPO process, how we had front-loaded the investments ahead of growth to be able to manage these. One thing we have done is we've been very conservative about the box and our underwriting appetite. Chris, do you want to talk about that?

Yes. So on the underwriting -- sorry, the restriction. Ultimately, what you're seeing is a lower hit rates for our business or stable hit rates at relatively low levels, which really speaks to the conservatism of what we're doing, but we can handle this volume.

Yes. Sorry. Yes. So in one of the -- in my comments, I said also quote volumes went up, right? I think that's a really strong story for us because we have been investing in the technology capability to handle high volume at the top of the funnel, the top of the funnel being submissions, right, where you need to sort through a lot and not everything is going to fit the box, and we have been tightening the box in each of our channels.

So we are able to -- we were able to handle and absorb that volume with significantly lower relative cost. And when it comes to quotes, our streamlined quoting process for the small to medium-sized to low medium-sized accounts, which is our simplified productionized underwriting where we're looking at the essential things that matters for the risk at hand and not following the industry's randomness, if you will. For that category, we were able to crank through a lot of quotes with the resources we had in place.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

My first question, within the fourth quarter guide, right, you guys said that you expect to continue to grow about 20% above the industry. Is that a target? Like when we think out to '26, '27 and beyond, is that something that you guys think you can kind of hit on a consistent basis?

So thanks for that question. We're not going to talk about '26 guidance, but this is the way we think about the business. And you can -- as we come to the next quarter, you'll hear from us in how we describe how we expect to take share, and we measure that in outsized growth relative to the market. We obviously think we have a big runway here.

Our network continues to grow, and we have lots of -- not only our existing growth initiatives that you've been hearing about are still in the early days. We also have new growth initiatives in the pipeline that are to come. As you heard, these type of growth opportunities are really truly proprietary to us, and therefore, we think we have an edge to be able to continue taking share in the market.

And then the fee income, right, piece continues to grow a little bit over $2 million in the quarter, and I think, right, just around 2.4 points a contra on the expense ratio. Is that -- how do we think about modeling going forward just relative to the fee income contribution?

Yes. The fees can be variable depending on the type of business that we write in the quarter. This happened to be a quarter that lined up for higher fees. We think that we'll even guide to here that as we look to Q4, we think the number would be more like $1.5 million. But furthermore, when you think about how you model that as well, there are direct third-party expenses that go along with those fees. So it's not just a pure top line adjustment.

So it's really important to understand there's a service at the end of the fee, right? So if the service is required for the insured at hand, that's when we charge it. So depending on what we're writing, it's not premium driven, it's volume driven.

That makes sense. And then from a loss ratio perspective, it doesn't sound like there was anything one-off in the loss ratio. Obviously, some shifting with mix shift towards casualty. But anything within the loss ratio? I know there was no PYD and a small amount of cat, but anything else you would call out in the quarter?

No. I would just describe that if you're looking at our ex-cat ratios, for example, and you will see that there was some increases there. This is really all associated with conservatism in property. And so we have had a lower, effectively a lower amount of claims. But as a public company, we are not taking any risk in terms of late claims coming in. So we have booked at higher losses. So that's really the dynamic that you're seeing there, conservatism in our property.

And with the conservatism in property, would you settle that in the fourth quarter like in the current year? Or if there's favorable development? Or would that be something you would think about next year?

It really is rolling, and it's really actuarial based. And so we leave that to our Head of Reserving to do that and look at it on a claim-by-claim basis as well as the trends and the expected downside in terms of late reported claims.

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

Justin, I think you guided to just a little while ago to like a 90% combined in the next quarter. And I was -- I thought that the expense ratios were particularly compelling, particularly the operating expense ratio at 10.8%, but the acquisition expense ratio worked better than I had expected as well. Should we be looking at the overall expense ratio at about 29%, maybe a touch less than that as a run rate in that 90% combined ratio that you just cited?

Yes. That is not far from it. We -- there will be some small benefits coming through on the commission ratio sequentially. but that is going to be an overtime type situation. On a gross basis, it is -- there are strengths there. Remember also that we have the quota share rolling off, which is going to provide more income to us, but that will be an offset as we move forward as well. And then with the operating expense ratio, with the adjustment in fees, there will be a tick up in the fourth quarter, but we are very enthusiastic about our ability to continue to drive operating leverage over time. And so those are some of the dynamics there, and that would lead to that 90% combined.

Got it. That was helpful. And yes, I mean, pretty exciting 70% increase in submissions and I know earlier you were talking about the hit ratio not being super high. But what I'm kind of interested in is the expansion of your distribution and the type of expansion? Is this coming mostly from the brokers as opposed to the agents that are doing kind of smaller ticket stuff? Like maybe a little color around the type of distribution expansion you're seeing more of.

Yes. It is very broad-based across both brokers and agents, and it also weighs in with our growth initiatives, which are -- we're obviously opening new relationships for these growth initiatives. I'll pass it over to Chris to talk further about the details there.

So we're attracting sort of a broad spectrum of agents and brokers who focus on the small and medium-sized risk that we are aligned to plus those who have access to unique geographies such as the Midwest. So it's really exciting to watch the numbers come in on our Midwest strategy because these are partners who are -- they are in South Dakota, and you may not think many of our peers would maybe not even visit them, and we have and we have built a strong relationship and explain the value proposition, it's appealing. So that's one demographic that's driving it.

The other demographic is really what we've talked about before. It's the digital native brokers. It is that new generation of brokers who are a little bit fed up with the way the business is transacted in this space. And the 5 days -- waiting 5 days to hear back if you're even going to get a quote is just not working for them. we are able to offer something that is appealing. There's a lot of enthusiasm there.

And then there is your sort of more established brokers within the larger agencies within the larger brokerages who really value just the straightforwardness of what we're offering to the market. They know what they're getting. They have gone through cycles. They've seen p gimmicks and they're kind of over it. And when you can speak plainly to them and say, this is what we offer, this is what we don't do, it works.

Got it. And maybe if I can just sneak one more in. I was on the Chubb call this morning, and they talked about pricing being particularly soft in property in the large end of the market, and now it's kind of seeped into the larger end of mid but the lower end of mid, it just hasn't gotten there yet and certainly not in small per their commentary as well as many others. So my question to you is, how are you thinking about pricing down the road? Do you think your small business and maybe the lower end of mid will hold up for a long period of time? Or do you see this pricing pressure keeping in eventually and maybe sooner than later?

Thanks, Andrew. We are endeavoring not to make a market call here. We are -- what we are seeing is we are getting mid- to high single-digit rate increases in property, which is in our space, which is really quite good. You'll remember that we -- I mentioned earlier that we had higher rate increases that we've anniversaried, but we're getting solid rates.

Yes. So pricing is one of those foundation stones for us. Technical pricing cost, charging the cost of product is essential. So I mentioned product, and that's becoming more and more the requirement. It's not optional for the insured, right? So there's been this hypothesis that it's all about pricing, customers don't care about coverage once they're in E&S. Well, that's not the case anymore because there's a mandate. There's a requirement at the federal level.

So I'll give you -- if you'll indulge me, I'll give you a very obscure example that is really impactful and what's happening in the industry right now is nobody else is thinking about it, which is a problem. So there were -- there's new national electrical codes that were established in 2023 that have to do with things like basically grenifying of buildings, right? So when there's a coverage on the property, ordinance and law, where you have to effectively coverage for bringing buildings back up to code once they are repaired.

Well, these new requirements are driving up the requirements for ordinance law. So people might say property market is soft, but someone is going to get a loan and they need to now have 25% of their value -- building value towards ordinance and law. So when you start talking about coverage and what is required, they're going to pay a premium for that because they need the loan. So it's not a -- in that mid space, I don't see a soft market or a perceived soft market filtering up. I see actually maybe a hardening in that space because of lending requirements.

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

A couple of quick ones, I think. Just it's not like you're growing property very rapidly relative to total. But I'm just curious, how much more growth before we have to think about reinsurance structures changing relative to how you've historically articulated PMLs and other risk tolerance metrics.

Yes. No. If you'll recall, we operate a limited cat strategy, and so we are not exposing ourselves to incremental amounts of cat risk. And our growth is manageable here, and it's well within the context of our existing reinsurance contracts.

Okay. And that's just tying the -- or connecting the dots that's a lot of the property growth you talked about getting was going to come out of Midwest strategy, and that's effectively what we're seeing at this point?

Yes. So we have talked about our geospatial spread approach to writing property. That's really coming through in the Midwest. There are about 730 hamlets, I'll call them across the Midwest where we never had a footprint, and we are now writing business there. Those are large spaces where we are spread out, right? So that geospatial spread element is coming through as we win in the Midwest. The Midwest, as I mentioned, was along with some other initiatives was responsible for about 50% of our growth, and that was particularly strong in property. So we are not adding in Florida. That's the thing. We're not adding in Texas. We're not only adding in Texas and Florida rather. We are everywhere.

Okay. That's good. As a Minnesota kid, I never really thought about my backyard as the English Country side, but I appreciate the compare. The other -- a couple of other questions I have was just, can you give us any sense of just kind of what the growth rates look by maybe the premium cohorts because you add a couple of brokerage clients through your digital channel with a small agent in the Midwest, right, like that's a disproportionate kind of impact. So I'm just wondering if there's other -- another lens on growth kind of by account size or cohorts.

Yes. The account size bands have not changed meaningfully in any way. We have -- as Chris mentioned earlier, we've written less of these nano accounts, but we're also writing small midsized accounts. So there are offsets there. So really, overall, the bands themselves are not changing very much.

That's helpful. And I guess the last one is -- well, one numbers question quick was just can you give the -- can you split the utility income disclosure in the press release between kind of income and mark -- sorry, in your investment income disclosure, can you split the utility income between income and marks?

Yes. It's less than $100,000 net in core NII for the utility and infrastructure investments in NII. Are you asking for further split in the realized and unrealized gains?

No. If I've got that, I can -- I think I can back that out of the utility, and then I can wait for the queue for the rest. The other question was just can you elaborate -- you used this term improved economics, and it wasn't clear as I was listening and maybe I didn't hear what you were trying to say. But in your opening comments, you talked about improved economics. in the quarter. And it implied more than just kind of what's happening with the expense ratio, but I just wondered if you could revisit that if there's anything you'd embellish or clarify there.

Yes. We were referring to the holistic nature of now that we have scale in brokerage that as we're writing more business in brokerage, that is accretive to our bottom line. And you're seeing that in the commission ratio. You can see it in the expense ratio, but you can't exactly see how that's coming through, but that's what's happening.

That was helpful. I was trying to contrast that with your rate comment, and it wasn't obvious from that, but that would have in and of itself explain it.

We're expecting for that to acquire an account to fill it.

Your last question comes from the line of Alex Scott with Barclays.

I just wanted to see if you could give any color on products that you may be prepping to expand into the brokerage area like going upmarket a bit. Can you talk about if you have any of that kind of activity going on over the next, call it, 6 months or so?

Right. In terms of the -- this question of upmarket, what you've seen, we don't think of it that way. What we've done in the past 6 months is we have taken products and verticals that we underwrite and we have opened them in the brokerage channel. Those are paying off. And those -- we're going to continue to have those work over the next several quarters. Anything else, Chris, you'd like to add to that on product?

Yes. So we launched a retail vertical, most recently in brokerage, that's an example of what's to come. In terms of true product launches, nothing on the road map that we can discuss now. And what we are continuously doing, though, for the micro segments we're in, we are genuinely studying the external environment and trying to model out those cause and effect scenarios and optimize our offering within each of those verticals. So when we think of product, we don't think about doing more products, we think about like really meeting the evolving needs of these markets that we're already in, and that's a huge opportunity for us.

There are no further questions at this time. Management, do you have any closing remarks?

No. We just want to thank everyone for joining and listening, and we look forward to catching up with many of you in the days ahead. Take care.

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.