Pelagos Insurance Capital Limited 2026 Q2 Earnings Call

Good morning, and welcome to the Pelagos Insurance Capital's second quarter 2026 earnings conference call. With me today are Dan Burrows, our CEO, Allan Decleir, our CFO, and Jonny Strickle, our Group Managing Director. Before we begin, I'd like to remind everyone that statements made during the call, including the question and answer section, will include forward-looking statements. Management's comments regarding expectations, projections, targets, and any future results are based upon our current assessment and assumptions and are subject to a number of risks, uncertainties and emerging information developing over time. It is important to note that actual results may differ materially from those expressed or implied today. Additional information regarding factors shaping these outcomes can be found in our SEC filings, including our earnings press release issued last night. Management will also make reference to certain non-GAAP and proprietary measures of financial performance.

The reconciliations to US GAAP for non-GAAP financial measures, as well as descriptions of proprietary financial measures, can be found in our earnings press release and financial supplement available on our website at www.pelagosinsurancecapital.com. With that, I turn the call over to Dan.

Thank you, Miranda. Good morning, everyone, and thank you for joining us today. This marked our first quarter as Pelagos Insurance Capital, and we are already benefiting from the increased clarity around our strategy as a capital allocator with a unique position in the market. This is driving broader interest and an increased flow of opportunities. As I reflect on our second quarter performance, I want to highlight three key themes that continue to reinforce our confidence in our strategy and long-term outlook. First, we grew gross premiums written by over 6%, both in the quarter and year to date. In line with our expectations, growth was driven by strong performance from our new underwriting partners and targeted deployment into areas where we continue to see attractive risk-adjusted returns.

This ability to allocate capital across a diverse and expanding universe of distribution networks with multiple points of access to the market is a key differentiator and one that is enabling us to grow in areas that we know and like, and that meets our return thresholds. Second, we manage portfolio volatility within an annual time horizon. As a short-tail specialty insurance business, we do not expect an even distribution of losses. That is why looking at our loss profile over a longer period is the best lens with which to assess our performance. In that context, our higher loss activity this quarter should be viewed together with our lower loss activity last quarter. When we look at our performance year-to-date, our combined ratio is 93.1%. Over the last 12 months, our combined ratio is 86.4%, in line with our through-the-cycle expectations.

Third, we continued our strong track record of capital returns. During the quarter, we returned $73 million to shareholders, including repurchasing $60 million of common shares. This includes $32 million in privately negotiated transactions with Pine Brook, one of our original and long-term sponsors. Pine Brook remains a significant shareholder and a valued long-term supporter of the company. While our first priority is pursuing attractive growth opportunities, we believe repurchasing our shares is an accretive use of capital, and our strong capital position gives us the flexibility to pursue both. Taken together, we are confident in our long-term outlook and our strategy. Our book value per diluted common share increased by 23% year-over-year, reflecting our business and our continued focus on creating long-term value for shareholders through disciplined execution and capital allocation. Turning to the top line.

Within insurance, we delivered modest growth in gross premiums written in the second quarter. Growth was driven by strong performance in property, marine, and asset-backed financing portfolio credit. This was partially offset by our continued selectivity in areas where pricing no longer meets our return hurdles, reflecting our ongoing focus on portfolio quality and underwriting margin. Property again delivered strong performance with growth driven by expansion of our relationship with bundled insurance. Across our broader portfolio, we leveraged our leadership position and our ability to navigate dynamic market conditions to capitalize on compelling new business opportunities in areas where clients value underwriting expertise and lead capacity. Overall, the property market remains competitive following a number of years of compound rate increases.

Against this backdrop, we maintained our disciplined underwriting approach and drove margin improvement through successful execution of our outwards reinsurance strategy. Marine political risk and political violence all saw increased demand because of elevated geopolitical uncertainty during the quarter, particularly across the Middle East, where disruption to trade flows and heightened conflict-related risks resulted in strong demand and favorable pricing. We responded by deploying capital selectively into areas where we believed risk-adjusted returns were most attractive, working closely with our underwriting partners to actively shape the portfolio as conditions evolved. This experience highlights the flexibility and agility of our operating model. Through our ability to dynamically allocate capital, partner with leading underwriters, and respond quickly to changing market conditions, we are able to capitalize on periods of dislocation, but also to pull back when conditions no longer align with our underwriting appetite.

While this was a highly profitable approach in the quarter, with the re-escalation of conflict in the region and the increased competition in these lines, we are maintaining our commitment to underwriting discipline and our focus on long-term profitability. Within asset-backed finance and portfolio credit, we continue to generate high-quality opportunities. This year, growth in these lines was driven by one of our new underwriting partners. These more bespoke specialty lines support portfolio diversification and provide favorable returns as the buying motivation is often driven by capital relief or underlying transaction facilitation, and therefore are insulated from traditional insurance pricing cycles. Finally, we maintained underwriting discipline in our aviation book, taking a highly selective approach when evaluating risks. Within reinsurance, we saw strong growth in gross premiums written, driven by expanding relationships with existing clients and selectively increasing participation on programs where pricing remained attractive.

We have taken advantage of the rate environment in the underlying direct market by shifting capacity towards quota share deals over excess of loss. While our growth was strong, we remain selective in areas where pricing has moderated and competition is elevated. We are not chasing premium at the expense of returns, and our PMLs have remained relatively stable. We continue to prioritize portfolio quality and pricing adequacy and our client relationships, portfolio management, and differentiated view of risk enable us to identify and execute on profitable opportunities. Before turning it over to Allan, I wanted to take a step back and share some thoughts on the market. The market remains bifurcated, and we are seeing the difference between lead and follow markets becoming more pronounced. Increased capacity is driving continued softening in certain areas of the market, with rate contraction across a number of classes.

This has further highlighted the need to be selective and strategic with capital deployment and through the use of outwards reinsurance to improve margin and protect underwriting profitability. As a market leader, we continue to see strong pricing, retention levels, and access to business. Our ability to quickly adapt as market conditions evolve has long been one of the defining characteristics of our business as we actively shape the portfolio to optimize margin in response to market changes. Today, we write over 100 product lines, and across those, we are able to pick and choose not only where we underwrite, but also who we underwrite with, dampening the impact of cyclical market influences. This differentiated access to the market through our broadening network of underwriting partners sets us apart and has driven our growth here today.

Our leadership position allowed us to retain attractive lines, grow with high-quality clients, and maintain favorable terms and conditions at mid-year renewals. At the same time, we continue to make disciplined portfolio decisions, including purchasing additional protection where we believe it improves the overall risk-adjusted return profile of the portfolio. Looking ahead, we are encouraged by the momentum we are seeing across our underwriting partnership strategy and expect this to remain the key driver of our growth. Our pipeline is strong. We continue to attract interest from high-quality underwriting teams, and we see opportunities to deploy additional capital through both existing and new partnerships. Importantly, these opportunities allow us to pursue attractive business while maintaining the underwriting rigor and portfolio quality that have always been central to our approach. In conclusion, we are pleased with our performance through the first half of the year.

The flexibility of our capital allocation model, the exceptional execution of our team, and our underwriting discipline position us well to continue creating value for our shareholders throughout market cycles. With that, I'll turn the call over to Allan.

Thanks, Dan. Pelagos Insurance Capital delivered operating net income of $29 million, or $0.34 per diluted common share in the second quarter, and our annualized operating return on average equity was 5.1%. This brings our six-month operating net income to $117 million, or $1.31 per diluted common share. An annualized operating return on average equity was 10.1%. Our book value for diluted common share grew to $26.56. Including cumulative dividends, this is an increase of 23% over the past 12 months, creating significant value for our shareholders. Taking a closer look at our quarterly results, we grew our gross premiums written by 6% versus the same quarter last year to $1.3 billion. The growth in our insurance segment was primarily driven by growth from our broader network of new underwriting partners in our asset-backed finance and portfolio credit and property lines of business.