Mount Logan Capital Inc. Common Stock 2026 Q2 Earnings Call

You may begin. Thank you, and good morning, everyone.

Thank you for joining us today. The second quarter represented another step forward in our effort to build a larger and more durable earnings base around Mount Logan's integrated asset management and insurance platform. Segment income increased to $4.3 million, up from $3.3 million in the first quarter. Fee-related earnings increased sequentially to $1.4 million, while spread-related earnings increased to $2.9 million, up $0.9 million from the first quarter of 2026, and $3 million as compared to the prior year's quarter. These results reflect continued improvement in the profitability of our base of business, a positive indicator as we execute against the strategic initiatives we outlined in the first quarter, which we expect to convert into increased earnings power during the second half of 2026 and into 2027.

After quarter end, we achieved three significant milestones against our stated strategic initiatives, including the receipt of Ability's B+ financial strength rating, and a triple B- long-term issuer credit rating from AM Best, which was a process spanning several quarters and is a key catalyst for growth in our insurance segment. Building directly on that rating, this morning, Ability announced the launch of its initial suite of multi-year guaranteed annuity products on its flagship Reliability brand, marking Ability's entry into direct origination of retirement solutions and an important inflection point for our insurance segment. Additionally, Yieldstreet shareholders recently approved the proposed merger of more than $100 million of assets into SOFIX from its Alternative Income Fund. The vote was overwhelmingly positive, and we achieved over 50% of the vote in less than four weeks from the release date of the Yieldstreet proxy.

We currently expect the Yieldstreet transaction will close during the third quarter. We are also pleased to announce that we are maintaining our quarterly distribution of $0.03 per share, marking the fourth consecutive quarterly dividend following the completion of our business combination, further extending Mount Logan's longstanding dividend record. Before reviewing our strategic growth initiatives in more detail, I want to review the performance across our core managed portfolios, which provides the foundation for our business. We built our private credit franchise with the goal of being able to invest across all market cycles and environments. We believe performance within the vehicles we manage reflect that. Within Insurance Solution, the investment portfolio generated a yield of 6.2% during the second quarter or 6.6%, excluding funds withheld in ModCo assets. Spread-related earnings increased by $0.9 million sequentially to $2.9 million.

The improvement was driven primarily by a favorable Guardian reserve assumption update and lower all-in cost of funds. The opportunistic credit interval fund, or SOFIX, generated a return of 8% over the trailing 12 months ending June 30th, 2026, and 2.5% year to date. SOFIX remains a differentiated interval fund that invests in a broad range of credit assets such as privately originated loans, asset-based investments, dislocated credit, and other such situations, which gives the fund flexibility to opportunistically deploy capital across all market cycles. At BCP Investment Corporation, managed by Sierra Crest Investment Management, in which Mount Logan holds a 24.99% interest, portfolio quality remained resilient during the second quarter. Debt investments on non-accruals improved to 5.7% of the portfolio at amortized cost, down from 6.2% in the prior quarter.

The debt portfolio remains highly diversified across 71 portfolio companies and 33 industries, with approximately 63% in first lien senior secured loans and a weighted average yield of 12%, excluding non-accruals and CLO income. The broader private credit market remained resilient during the quarter, though transaction volumes were lower and remained selective across the opportunities we saw in the market. Software credit spreads widened further and now sit several hundred basis points wide of the broader single B-rated loan index, reflecting sector-specific sentiment around AI disruption rather than broad-based credit deterioration. Our software exposure across our managed portfolios remains concentrated in mission-critical, vertically specialized businesses with proprietary data, embedded workflows, high switching costs, and first lien seniority, and the underlying portfolio companies continue to perform.

We view the current environment as one that rewards discipline and selectivity and believe any further dislocation should create attractive deployment opportunities for our credit strategies. The same discipline also informs how we are thinking about inorganic growth, and the Yieldstreet transaction is a clear example of a unique opportunity for our business. As we announced in March, one of our core asset management vehicles, SOFIX, entered into a definitive agreement to acquire the assets of Yieldstreet Alternative Income Fund, managed by Willow Wealth. As of July 31st, I am pleased to report that over 50% of Yieldstreet shareholders have voted to approve the transaction. As a result, we believe the transaction will close during the third quarter, with benefits beginning to accrue in the fourth quarter and ramping into 2027. The addition of Yieldstreet is expected to nearly double SOFIX net assets, adding over $100 million to the fund.

We continue to believe this transaction will unlock at least $2.8 million of run rate FRE annually to Mount Logan, which represents approximately 30% growth over our 2025 FRE. The transaction is expected to be immediately accretive to our earnings per share once closed. We believe this is an important step in scaling our asset management platform and increasing our recurring fee-related earnings. As mentioned, the current environment in private credit is creating additional opportunities for disciplined, well-capitalized companies like Mount Logan to acquire strategic assets at attractive valuations. We are pursuing an active pipeline of potential opportunities, and we look forward to updating investors on the progress we're making executing against our M&A growth strategy. Another important component of our strategy for SOFIX is improving the fund's retail distribution, which will be a larger fund with broader appeal following the close of the Yieldstreet transaction.

We've recently added a third-party distribution partner, and through our staffing and servicing agreement with BC Partners, have made an internal investment to expand the sales team that Mount Logan leverages. We believe the combination of select third-party relationships and targeted internal sales resources provides a balanced structure that broadens our reach while maintaining our cost discipline. Over time, we believe our investment in distribution will drive additional fundraising, increased assets under management, and support growth in recurring fee related earnings. The last initiative I want to review today is our focus on unlocking organic growth within our insurance segment and its permanent capital base. In July, we announced that AM Best, a leading global credit agency specializing in the insurance industry, assigned an investment-grade rating to our wholly owned life and annuity subsidiary, Ability Insurance Company.

This was a significant milestone for Mount Logan and Ability, providing an independent third-party validation of Ability's financial position. The investment-grade credit rating underscores the strength of Ability's financial profile and reflects the significant capital we've invested since we acquired it in 2021. We believe AM Best's rating is key to unlocking the full earnings potential of our platform and supports future distribution of Ability's insurance products. Following the receipt of Ability's rating this morning, we announced the next step in our insurance journey by officially launching Ability's initial suite of multi-year guaranteed annuity products available in three, five, seven, and 10-year terms. To support this distribution, Ability has partnered with one of the nation's leading independent marketing organizations and is initially able to write across our existing multi-state licensed footprint, with plans to expand into additional states over the coming quarters.

Direct origination gives us greater control over product design, pricing, and the pace of liability generation. Importantly, every incremental dollar of retained liabilities has the potential to generate both spread-related earnings within Ability and management fees at the Mount Logan Management, the flywheel we have been investing towards. We view the controlled liability origination and product innovation as core to building durable spread-related earnings. We cannot understate the significance of this launch, which we believe will drive a meaningful step-up in the long-term earnings power and outlook for the insurance segment, as well as drive increases in fees earned by Mount Logan Management for its efforts managing Ability's investment portfolio. Before I turn the call over to Brandon, I want to emphasize the progress we are making against several key strategic initiatives across the Mount Logan platform.

During the first half of 2026, we solidified our insurance growth strategy, progressed the inorganic expansion of our managed AUM, strengthened SOFIX distribution capabilities, all while working towards the completion of the Yieldstreet transaction. Each of these initiatives are designed to increase our scale, expand recurring revenue, and enhance the earnings power of our asset management and insurance solutions businesses, further enhancing our business' foundation underpinning future durable long-term organic growth. We are encouraged by the momentum already reflected in our results, particularly the continued growth in segment income and the increasing contribution from insurance solutions. At the same time, many of our most important initiatives remain in the early stages of contributing to our reported financial results. As we continue to execute, we expect these efforts to drive further momentum during the balance of 2026, with their financial impacts becoming more meaningful in 2027.