Verisk Analytics, Inc. Common Stock U.S. All Stars Conference

Hello, everyone. My name is Alex Hess, and I am a Vice President on Andrew Steinerman's U.S. Business and Information Services Equity Research Team. It is great to be here today with Verisk CFO, Elizabeth Mann. Elizabeth has been Verisk's CFO for four years now, and has played a massive role in many of the firm's key initiatives during her time at Verisk. At this point, many of you in the room and many of you listening know Elizabeth quite well. That being said, it is still very much a privilege to welcome you here to All Stars, Elizabeth.

It is great to be here, great to see so many of you here. Thank you for having me in this beautiful room today.

I want to start with Verisk's performance historically in hard markets for insurance versus soft markets. About 20%-25% of your revenues have some linkage to some element of net written premium growth, and you have historically averaged, on an organic constant currency basis, about 6.8% growth in soft markets and 7.3% top line growth in hard markets. Help us understand, as you see the P&C market presently, it has been softening. Will the next move be towards continued softening? Will it be to firming? What impacts does that have for Verisk?

Yeah. Thanks for the question, Alex. Verisk was founded as a consortium of the U.S. property and casualty insurers over 50 years ago. One of the benefits of coming out of that historical model, as we separated from the industry, we set the expectation, and we set the revenue model for that business, that we would grow as our clients' businesses grew. Our pricing component on some of our contracts have an input from premium growth. That is a good thing in the long run because that has tied us to a large, stable, and growing market. It means that we have a correlation to pricing growth in some years. There are also various pricing components.

There is also the fact that we sell our business according to the value that it creates, and there are also kind of cross-sell and up-sell and other product dynamics. All of which has contributed to the stability of our revenue growth being in the 6%-8% organic constant currency range very consistently over time. In fact, each and every year since we went public back in 2009. But yes, there is a slight tailwind to our pricing in strong premium, hard premium years, and maybe a modest headwind in softer premium years, so that when we take an average going back to 2009, you get the stats that Alex Hess quoted, which is 7.3% growth in hard market years, 6.8% in soft market years. Modest differential there. Still very consistent with the average of about 7% organic constant currency revenue growth.

As to where we are right now in the cycle, we are coming off a couple of years of very strong premium growth, and entering a period with more normalized premium growth. So, premium growth over a historical average period being in the low to mid-single digit range, but can range from negative premium in the mid-2010s, I think, to very strong almost double digit premium growth. Again, we have a consistent track record of delivering growth in all of those premium environments.

Understood. So, maybe we will dive into the performance of the subscription business versus the transactional or non-subscription piece, if you will. It is about, I think, last quarter, 83% of your revenues were subscription driven, so 17% aren't. 80%-plus is a very high number for an info services firm. And obviously, over time, you have focused a bit on transitioning products from transactional pricing to subscription-based models. But maybe just lay out for us, is the revenue growth story today in subscription still as strong as it was a year or two ago, where you were realizing good price increases and pricing to value nicely? Has there been any change in the underlying drivers this year?

Yes. Yes, it is as strong as it was a couple of years ago. We think that is coming from the importance of our products for our customers' business and the need in this environment to continue to have the best possible data and analytics to select the right risk and to price it accordingly. And so you have seen us kind of consistently, throughout, report our subscription revenue growth, which has been fairly strong.

Got it. The underlying drivers of that, is it still pricing-led to the same degree it was two, three years ago, or the last two, three years? Or is it leaning more on, say, new product innovation? How do we think about the balance there?

Yeah. It is both of those things over time. The pricing, we give a build to our overall 6%-8% organic constant currency growth rates based on pricing versus new products versus cross-sell and up-sell. Pricing contributes slightly more than half of the growth. I think 350 to 450 basis points is our target for the three-year cycle starting in 2026. There may be just a hair less contribution from pricing as we move into a more normalized premium environment, and more coming from new products and from cross-sell and up-sell.

Got it. Then conversely, whereas the subscription business has, in many periods in recent years, run above that 6% to 8% number, the transaction business has sort of been, again, smaller piece, has been in retreat a bit. Part of that is by design. You guys have switched a lot of products to the subscription model, maybe as they've matured and grown into the market and developed market adoption. Just help us think about, if I look the last 12 months, $510 million from those transactional products, that's down a couple tens of millions from peak. Obviously, there's discrete headwinds like weather, usage in some small products. Should investors think of this level, this $510 million level, as a floor off which that transaction business can return to growth and be a quality contributor?

Yeah. First of all, we don't run the business separately by transaction and subscription. We have a number of different businesses and products, and each of those is looking to maximize revenue according to whatever model fits that customer set best. That's our overall goal, is point one. There have been some puts and takes on the transactional side that you've heard us talk about over time. The largest one probably being a lighter weather year in 2025. So far, appearing to be slightly light versus average in 2026 as well. Let me maybe level set with an example that has been helpful for investors as they think about the mix of our subscription and transactional revenues. This comes particularly on some of our claims businesses, which provide property estimates for carriers and contractors for property repair that's associated with an insurance claim.

A tree falls on a house, the contractor goes on site, they develop the estimate of what materials and labor are going to be needed, and therefore, what the price of that repair is going to be for the carrier. That is a product that is sold both to the carriers and to the contractors. The carriers use that product on a subscription basis, on a subscription for a certain number of claims assignments. Above that number, they go into overage. They pay more per claim above their subscription level, at a price that is more attractive on the overage. The overage is a transactional revenue. Simplistically, let's say you have a customer with a GBP 100 subscription, GBP 100 I should say here. So a GBP 100 subscription, and they have GBP 10 of overage charges.

We are going to go back to them the next year and say this has been our focus of, yes, converting some products from transactional to subscription, but also just increasing the subscription tier for customers. Which is good for them. It gives them more visibility and certainty. If you have a customer that has the GBP 10 of overage one year, we will go to them and say, "Don't you want to resubscribe at 105 next year and have more volume included in that? Then you could have overages above that." If, let's say, the following year, the volume is lower than it was before, now we have locked in 105 of subscription revenue. But the transactional may go to zero because the volume is lower. In that situation, it is better for us.