Ategrity Specialty Insurance Company Holdings 2026 Q3 Earnings Call

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 two deliberate choices to prioritize long-term growth and profitability. First, we implemented meaningful rate increases on new casualty business to reflect the cost of expanded coverage and strengthen underwriting margins. Second, we rolled out our Next-Gen underwriting technology, temporarily reducing productivity in exchange for substantially greater underwriting throughput and efficiency going forward. Chris will discuss these decisions and our new growth initiatives in greater detail later in the call. We enter the fourth quarter with four new specialty products, an expanded underwriting team and distribution network, and a more powerful underwriting system. Together, these capabilities expand our capacity to serve growing demand, capture additional market share, and profitably compound growth. With that, I'll turn it over to Neil Adler to review our financial results.

Thank you, Justin. We produced adjusted net income of $14.7 million compared to $22.8 million a year ago. Underwriting income grew 83.7% and net investment income increased 19.1% with those gains offset by realized and unrealized investment losses. Gross 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 developments. 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 non-controlling interest. Primarily reflecting a normalization of the substantial gains recorded earlier this year in our utility and infrastructure investments, which had been running well ahead of long-term street expectations of 5.5% annually. As of the end of the third quarter, year-to-date returns remained above that annual expectation. Our effective tax rate was 24%, bringing net income to stockholders to $14.6 million. Adjusted net income was $14.7 million or $0.29 per diluted share. Turning briefly to the balance sheet. Cash and investments increased by $33.5 million from the second quarter to $1.24 billion, reflecting strong operating cash flow.

Book value decreased by $6.7 million from the second quarter as an increase in retained earnings was offset by a decline in AOCI due to the material move in US 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 outpace their respective markets. This happened as we continued to take market share. In addition, our current policy year loss ratio indications continued 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 four new specialty products in record time. We also developed and deployed the Next-Gen underwriting platform across our established brokerage businesses while improving our unit economics.

I would like to highlight four areas that illustrate how we are expanding our business while strengthening underwriting performance. First, coverage certainty is becoming a key differentiator in the casualty market and an important consideration for brokers and insureds. We have studied our clients' businesses and the emerging insurance requirements they face from customers, lenders, regulators, and their contractual counterparties. During the quarter, we redesigned several of our core casualty offerings to address this demand for expanded coverage. In parallel, we launched a marketing campaign called We Cover What Matters to drive home the guiding principle of our product strategy. Consistent with our technical approach to pricing, we effectively implemented rate increases on new casualty business to cover the higher cost of product resulting from this expanded coverage. This enables continued price adequacy as casualty loss trends evolve.

Second, we launched four new specialty products: Life Sciences, Energy, Environmental Liability, and Sports & Entertainment. These offerings were already on our product roadmap, but we used AI to accelerate their launch in order to meet growing demand from our partners. All in, total development was four weeks, down from our originally budgeted 12 weeks, which included technology, product design, form development, and pricing. These launches demonstrate the productivity gains AI is delivering across our business, both in development costs and speed to market. What is most exciting about these new growth opportunities is that we are bringing to the market predictability, speed, and simplicity in lines of business that others have deemed to be highly complex and bespoke. Using our microsegmentation and risk modeling methodologies, we have built a repeatable process for underwriting this business. Third, we deployed our Next-Gen underwriting platform during the quarter.

This adds to the analytical depth of our underwriting. It enhances the value of our microsegmentation 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 15-20 percentage points.

sustaining our strong business momentum while retaining the flexibility to drive further underwriting margin improvement. Accordingly, we expect our combined ratio to again be below 87% in Q4. On investments, we have produced $8.9 million of year-to-date realized and unrealized gains, net of non-controlling interests. In line with street assumptions, we are using a long-term annualized return assumption of 5.5% for our utility and infrastructure investments. We believe that our differentiated access to these strategies creates meaningful value for shareholders, supported by a nearly three-decade track record of strong annualized returns without a calendar year loss. At the same time, given the higher interest rate environment, it is our intention to increase our allocation to fixed income investments toward 90% of our total investment portfolio from the current level of approximately 80%.