Ategrity Specialty Insurance Company Holdings Q2 2026 Earnings Call

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. All lines have been placed on mute to prevent any background noise. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business, and the future financial performance of the company that are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release 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 three points year-over-year, driven primarily by a reduction in our operating expense ratio to 9.5%. As premiums have grown, our centralized underwriting platform has processed higher volumes with expanding profitability. Turning to the market. While competitive pressure continued to intensify across portions of the 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. 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 a half a 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 three and a half 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 non-controlling 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, an underwriting operating expense ratio that we believe is among the best in our peer group, and continued underlying improvement in our loss performance, any one of those metrics would represent a strong quarter on its own, especially against the backdrop of an increasingly competitive market. Taken together, they speak to how the capabilities we have built are increasingly reinforcing one another and helping us overcome the usual trade-off between growth, cost, 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're seeing across the business. Those submissions reflected the investments we have made in distribution, regional strategies, and new products. Those submissions became premium this quarter. Existing distribution partners continued to place more business with us. Newer relationships became increasingly productive. Project Heartland continued to outperform. Our New England Strategy, launched in April, got off to an excellent start. Property growth accelerated, and our newer professional liability and management liability products contributed meaningfully. Turning to operating expense. This quarter, we processed record premium volume while simultaneously launching new products and executing new growth initiatives. Yet our underwriting expense ratio improved to 9.5%. This isn't simply a function of scale. Technology and AI are a big part of the story.

Our technology platform is built on a modular architecture. That means every capability we develop can be reused across products, channels, and growth initiatives. In addition, we are increasingly benefiting from 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 continued to price the business using an 18-month forward view of expected loss costs rather than reacting to short-term pricing trends. That gives us confidence that our technical margins remain stable. Our prior year reserves continued to develop favorably during the quarter, supporting our view that our underwriting discipline continues to produce consistent outcomes over time. Taken together, these three metrics tell the story of a business that can grow faster than its peers without sacrificing underwriting quality or inflating expenses. We believe this is because our approach to the market and the way we build the business are self-reinforcing. Investments in distribution, products, and technology expand our opportunity set. A larger opportunity set allows us to underwrite more selectively. Selective underwriting generates stronger margins. Stronger margins allows us to continue investing in technology, products, and distributions. Those investments further expand our opportunity set.

We have intentionally built Ategrity to become stronger as it grows. 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. Operator, please open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Elyse Greenspan with Wells Fargo. Elyse, your line is open. Please go ahead. Hi, Elyse.

Thanks. Hi, thanks. Good evening. My first question, just wanted to flush out 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? Can you just give us a sense of just the current pricing conditions you guys are seeing in both?

Yep. Thanks, Elyse. This was a good top-line quarter for the company. 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, you want to talk about 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. 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, it's not easy to follow us in those specific regions. That alone is contributing. When it comes to rates, we're effectively flat. Low negative single digits on property, 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, 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, directionally it is something that we keep an eye on internally to tell us how we're pricing new business.

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

Thanks, Elyse. This is similar 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, that's what led to the reserve releases.

Your next question comes from Pablo Singzon from J.P. Morgan. Pablo, your line is open. You can now go ahead.

Hi, good afternoon. 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? Just in general, 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 was in excess of our premium.

Yeah. 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. There are some beyond property, which tends to be the headline when there's a discussion around soft market. There's also a soft market in management liability and to some extent professional liability. We continue to find unique opportunities there also. In casualty, some say they're softening parts of that market, nevertheless, we are coming across great opportunities from not just the areas where we have a regional strategy, but cross-country, in some very low volatility jurisdictions. That is a factor of our distribution network, who very often are in those smaller markets.

Thank you. Second question. I was hoping you could discuss 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.

Yeah Can you talk through why that attritional wound up year-over-year?

Thank you. Yep. Thanks. This is really driven by mix shift and the mix shift into our brokerage channel.

We have two channels, brokerage and small business. The brokerage channel has a booked loss ratio that is above the small business. 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. That is an offsetting dynamic. A couple elements there, but from a loss ratio perspective, it is having written greater brokerage business 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. Andrew, your line is open. Please go ahead. Hey, good afternoon/evening.

I want to touch on the growth initiatives. 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. The part A of it is, do you see a lot of geographic opportunity post these regions that I just touched on? The part B is in the press release, I didn't hear it on the call, I don't think anyway, that you see opportunities for middle market growth. I think last quarter you talked about it in Texas, I think, mixed use to retail. Maybe it's the management and professional liability that you mentioned on this call.

I would like a little more clarity around your middle market segment growth.

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

Yeah. I think if you take a step back and look at the regional strategies, they're not just a benefit to us, they're a benefit to our partners because we are stepping in to fill a market need that we typically identify very early on. We also are very intentional about how we craft solutions for those markets. There's the initial strategy, and then there are the residual benefits that we get from that. I mentioned we are seeing attractive business in lower volatility jurisdictions. We are in the Midwest. We have a very specific set of states that we characterize under the Midwest strategy. 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.

What's beneath that is the fact that we are really solving a market problem. By doing so, we're really becoming important to our distribution partners.

From the middle market perspective, I think that's your question was about middle market. That bit goes back to that earlier question on brokerage versus small business. Small business is those more micro type accounts, and middle market are small accounts, but we call them in the mid-size range. We have been growing in that brokerage channel in a meaningful way, and that's been part of these numbers that you're seeing here.

Yeah. We have talked about this also before, but for us, small is like two gas stations, and then it goes into medium once it goes above five. Let's say a family are running three gas stations, they purchase two more. We take a long-term view on risk. We tend to stay on those accounts, and as they grow, they move into our middle market segment. There's some of that dynamic happening also.

Got it. It sounds like both are in your key verticals. If I would like to follow up on the prior year development question. You've got the release in property. It sounds like casualty was just kind of a nothing positive or negative, but any color you could share on how your casualty book is developing and how you feel about that book over the last several years?

Yep. You characterized it correctly. There's nothing in the casualty book in terms of development this quarter. As 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. The firm-wide casualty actuals are coming in below expected, and that's reflective of strong performance.

Yeah. 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 ensures that as the exposure within a $1 million limit, if it is slightly higher, we are getting adequate rates. That technical pricing discipline, which can sound a little abstract, really has layers to it. What it does, though, is it insulates us from some of the usual casualty pitfalls. Things like putting up assault and battery limits too liberally or deploying human trafficking limits. Many of our peers do not have a rule book for that. We have very specific prescriptive rules. There's casualty, then there's what are you covering and how broad is that coverage? We tend to be on the conservative side, what we call sensible coverage.

When we deploy coverage in those categories, we charge for it.

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

First one I had for you is just maybe some broad commentary on the marketplace. 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? Are you seeing any of that kind of activity where maybe some of the issues out there get solved by capacity and it gets a little harder to find places to go? Is 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're participating in those spaces, they tend to take a very generic approach. 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 what led to that and if there's anything operationally we should expect to change, that sort of thing.

Thanks for the question, Alex. 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 seven 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. That is it. Neil, is there anything you want to add about your outlook or any changes?

I would just reinforce that I've been involved in Ategrity since its founding and everything I've seen since taking the reins has 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. Matthew, your line is now open. Please go ahead. Hey, good morning.

Good evening, everybody. It's Saturday tomorrow. A couple numbers questions. 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 my math.

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

Okay. All right, I'm roughly close. 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, there's a bit more cession to reinsurers just as you manage your own limits.

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

Okay. Thank you for confirming that. 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. 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 just curious if you could give an update and just are we staffing ahead or in step with that?

Yep. Just curious. Thank you.

Yep. We have over 30 people in our in-house claims team. We have a sophisticated staffing model that they utilize. We make sure that we are ahead of the curve. We have actuals versus expecteds on claim counts. That all feeds into that. We're very focused on making sure we have the right resources. We're also working to do some more innovative things on claims over time, which we'll introduce at a later date. The idea is that we are well resourced for the claim volume that we are receiving and we're also deploying technology as well.

Yeah. In parallel with our core operating system improvements, we've been deploying new capabilities product by product on the claims side. I'd say it includes integration estimation tools. It includes an array of new functionality that allows us to get more precise on how we do case reserves. It allows us to handle claims in the right way and put each claim on a track to resolution. Across the business, including in finance as Neil mentioned, we are looking to utilize the current technology to get the most benefits. 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.

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.

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