Mark Hughes

Mark Hughes questioned whether the uptick in the current accident year loss ratio was primarily due to more large claims than anticipated or normal volatility, and what AMERISAFE's loss pick for 2026 would be. He also inquired about the year-over-year decrease in favorable development, asking if it was influenced by the frequency and severity issues or simply variability, and sought observations on underlying medical inflation, particularly for the 25 large claims. Finally, he asked about the current competitive landscape and the sustainability of AMERISAFE's growth initiatives, including distribution network refinements and renewal premium success.

Answer

Janelle Frost, President and CEO of AMERISAFE, confirmed the loss ratio increase to 72% was due to an increase in "frequency of severity" and stated her inclination to maintain the 72% loss pick for 2026 given continued mid-single-digit loss cost pressure. She clarified that the favorable development decrease was unrelated to 2025's large claims, attributing it to normal variability in claims closures and reaffirming consistent reserving practices. Ms. Frost noted sustained medical inflation pressure from home health and DME (prosthetics) with no signs of easing. Vincent J. Gagliano, EVP and Chief Risk Officer, described competition as "relatively steady" and highlighted the sustainability of growth efforts through reduced contracted agencies (over a third in 4 years), improved agent relationships, strong operational execution, and high collaboration across sales, safety, and underwriting.

Mark Hughes from Truist Securities asked if the uptick in the current accident year loss ratio to 72% was primarily due to more large claims than initially expected and if it represented normal volatility. He also inquired about the projected loss pick for 2026, the reasons behind the year-over-year decrease in favorable development, observations on underlying medical inflation, the current competitive landscape, and the sustainability of AMERISAFE's growth initiatives.

Answer

Janelle Frost, President and CEO, confirmed that the loss ratio adjustment to 72% was due to an increase in the 'frequency of severity.' She indicated an inclination to maintain the 72% loss pick for 2026, citing continued rate pressure and mid-single-digit underlying loss costs. Ms. Frost clarified that the variability in favorable development was not linked to 2025's large claims but rather to the lumpiness of claims closures and settlements, with no changes in reserving practices. She noted sustained medical inflation pressure, particularly in home health and prosthetics (DME), with no signs of easing. Vincent J. Gagliano, EVP and Chief Risk Officer, described competition as 'relatively steady.' He also affirmed the sustainability of growth, citing increased agency effectiveness (reduced contracted agencies by over a third while increasing opportunities), strong operational execution, and high-level collaboration between sales, safety, and underwriting.

Mark Hughes of Truist Securities inquired about the key drivers for the strong 12.8% voluntary premium growth, changes in average policy size, medical inflation trends, new business production, the outlook for the construction sector, and the reasons behind the increase in policyholder dividends.

Answer

CEO & President G. Janelle Frost attributed the premium growth to enhanced agent effectiveness and scalability, which drove a 3.4% increase in policy count while maintaining disciplined risk selection. She noted that wage inflation has now balanced out with loss cost changes, keeping average policy size relatively stable. Regarding medical inflation, Frost acknowledged industry-wide severity increases but stated AMERISAFE's long-term reserving practices remain unchanged due to their consistent claims experience. On the construction sector, she observed continued wage growth but a slight decrease in new employee counts, which could impact frequency trends. Frost also explained that the rise in policyholder dividends reflects a combination of competitive positioning and loss experience, particularly in key states like Florida.

Mark Hughes of Truist Securities asked about the competitive dynamics, the drivers of the higher expense ratio, state loss cost trends, medical inflation, industry reserve adequacy, wage inflation specifics, the discontinuation of ELCM disclosure, and the number of large losses in the quarter.

Answer

President and CEO G. Frost stated that competition is stable, state loss cost rates continue to decline by an average of 6-8%, and medical inflation is noticeable in physician care. She also noted wage inflation is slightly above the national average and confirmed two large losses in the quarter. CFO Anastasios Omiridis added that the expense ratio increased due to a $1.9 million rise in investments to support growth, which he expects to moderate.

Mark Hughes inquired about AMERISAFE's policy count growth trends, the average policy size, and the impact of renewal rate strategies. He also asked about reserve gains from post-COVID years, elevated ceded premiums, construction industry payrolls, large claim frequency, medical inflation, rate filing trends, the outlook for audit premiums, and the competitive landscape.

Answer

President and CEO G. Frost clarified that policy count grew 9.6% for the full year and 2.6% sequentially in Q4. She noted that strong policy retention of 94.1% was impactful and that favorable reserve development included gains from 2020-2022. Frost also addressed large claims, calling them 'lumpy' at 18 for the year, up from 2023 but near the five-year average. She expects the 2025 loss pick to hold at 71% and believes the market remains highly competitive. CFO Anastasios Omiridis explained that higher ceded premiums were due to growth and a Q4 true-up, expecting them to normalize around 6% of gross written premiums.

Mark Hughes of Truist Securities asked for more detail on the recent uptick in growth from agent engagement, whether specific markets were responding better, and the competitive dynamic with multiliner carriers. He also questioned the risk of medical inflation, the number of large claims, the outlook for NCCI loss costs, the sustainability of growth, and the new money investment yield.

Answer

President and CEO G. Frost explained that growth stems from internal strategic positioning and reinforcing their underwriting appetite with agents, not a change in the competitive landscape. She noted the business mix remains consistent and that while competition is intense, AMERISAFE's value proposition is resonating. Frost also reported 13 large claims year-to-date, in line with prior years, and sees no immediate threat from medical inflation. CFO Anastasios Omiridis stated the new money yield was approximately 5% and the portfolio's tax-equivalent book yield was 3.84%.

Mark Hughes asked about Frontdoor's assumptions for the 2026 real estate market, specifically regarding existing home sales and the impact of discounting. He also inquired about the potential impact of Assurant's new home warranty product, particularly its relationship with Compass. Additionally, he sought elaboration on the meaningfulness and development of the B2B sales channel with builders and the outlook for promotional or marketing spend in 2026 versus 2025.

Answer

Chairman and CEO Bill Cobb stated that Frontdoor anticipates a modest increase of 3-4% in existing home sales for 2026, not sharing NAR's more bullish outlook, and is encouraged by increased inventory and real estate team efforts. Regarding Assurant, Bill Cobb acknowledged them as a terrific company and noted their Anywhere marketing services agreement is not exclusive, emphasizing Frontdoor's 50+ years of experience, comprehensive coverage (27 systems/appliances), and established contractor network. He clarified that the B2B builder channel is not meaningful for 2026 and is in early development, exploring procurement assistance for small/mid-sized builders. For marketing spend, Bill Cobb confirmed it would be in line with 2025 dollars, driven by efficiencies in search marketing, AI advancements, website, and SEO conversion. Senior Vice President and CFO Jason Bailey added that spending might be paced differently, with more loaded in the first half of 2026.

Mark Hughes further questioned the meaningfulness and details of Frontdoor's B2B sales channel development with builders.

Answer

Chairman and CEO Bill Cobb clarified that the B2B builder channel is not expected to be meaningful in 2026 and is still in early development. Frontdoor is exploring ways to leverage its supply chain and purchasing power to assist small and mid-sized builders with procurement, viewing it as a potential new revenue stream.

Mark Hughes of Truist Securities questioned the sales momentum of 2-10's structural warranty business, asked if the company is seeing an impact on attach rates from rising housing inventories, and inquired about any claims development on 2-10's reserves.

Answer

CEO Bill Cobb reported that they are pleased with the 2-10 structural warranty sales, hitting their targets with a smooth transition. CFO Jessica Ross added that while revenue recognition is long-term, new business is landing well. Regarding attach rates, Cobb stated that while he couldn't comment on the current quarter, data suggests the market is moving in a favorable direction. Ross confirmed there has been no significant claims development on 2-10's reserves.

Mark Hughes of Truist Securities questioned the sales momentum of 2-10's core new home structural warranty business. He also asked if the company has observed a tangible impact on home warranty attach rates from rising housing inventory and inquired about any claims development on 2-10's reserves.

Answer

CEO Bill Cobb reported that the 2-10 structural warranty sales team is performing well, hitting its targets, and that the business integration is proceeding smoothly. Regarding attach rates, Cobb noted that while he couldn't comment on the current quarter, market indicators suggest a favorable trend toward a more balanced market, which benefits attach rates. CFO Jessica Ross confirmed there was nothing to report regarding claims development on 2-10's reserves.

Mark Hughes of Truist Securities inquired about the potential impact of tariffs on HVAC equipment, the effects of new refrigerant standards on repairs versus sales, and requested a breakdown of the $7 million in favorable reserve development between Frontdoor's core business and the 2-10 acquisition.

Answer

CEO Bill Cobb stated that Q1 inflation was negligible, with HVAC costs even declining. He confirmed that conservatism for potential future tariff impacts is built into the second-half guidance. On refrigerants, he noted the company is managing the transition well, which has been a net benefit. CFO Jessica Ross clarified the favorable development was about $7 million, attributing it 'mostly' to the core Frontdoor business.

Mark Hughes asked about the future growth potential for the on-demand HVAC sales business and whether the Moen partnership could become material in 2025. He also sought clarification on the duration of the claims frequency dampening effect from higher trade service fees.

Answer

CEO Bill Cobb and CFO Jessica Ross confirmed there is significant 'blue sky' growth potential for HVAC sales as the program continues its market-by-market rollout. Cobb deferred providing a 2025 outlook for the Moen partnership until the February Investor Day. Regarding trade service fees, Ross explained that the behavioral impact on claims frequency typically lasts about a year and confirmed that the effect from the recent increases has now largely run its course.

Mark Hughes from Truist Securities followed up on the timing of the recently announced $80 million share repurchase program.

Answer

CEO Paresh Patel stated that the share repurchase program is expected to commence as early as mid-next week, subject to regulatory requirements and ensuring all shareholders are amply informed during an open window.

Mark Hughes from Truist Securities inquired about HCI Group's pricing outlook for the next year, potential rate easing across the book, and any risk of refunding excess profits to policyholders. He also asked about the starting point for net premiums earned in 2026, observations on weather in the quarter, and the sustainability of the gross loss ratio. Finally, he questioned the potential for acquiring books and current market pricing for such deals.

Answer

Paresh Patel, Chairman and CEO, indicated a competitive environment where rate increases are a thing of the past, with a focus on maintaining or easing rates, as anticipated. He noted Homeowners Choice had already reduced Florida rates by 3.5% in January. Mark Harmsworth, CFO, clarified this reduction was specific to Homeowners Choice and not expected to significantly impact consolidated metrics. Mr. Patel dismissed the risk of refunds, emphasizing HCI's measured approach amidst market volatility. Mr. Harmsworth explained that Q4's net premiums earned did not reflect a full quarter from recent assumptions, suggesting Q1 2026 gross premiums earned should be higher, aligning with an 11-12% increase in gross premiums in force. He described Q4 as a quiet weather quarter, with the normalized loss ratio at 17.5%, noting the average ex-cat loss ratio over the last 10 accident quarters is around 20%. Mr. Patel added that HCI's stable portfolio makes current numbers sustainable and predictable. Regarding acquisitions, Mr. Patel acknowledged opportunities but highlighted a bid-ask spread, with sellers viewing 2025 as an average year while buyers consider a multi-year average, questioning the repeatability of 2025's performance.

Mark Hughes of Truist Securities asked about the impact of weather on the loss ratio, the disclosure of Exeo financials, the sustainability of investment income, future interest expense, the quality of remaining Citizens takeout policies, drivers of premium growth, and the components of the 70% net combined ratio guidance.

Answer

CFO Mark Harmsworth clarified that while weather was slightly higher, the loss ratio improved due to lower non-weather claim frequency. He confirmed Exeo's financials will be in the 10-Q, investment income is at a good run-rate due to higher balances, and interest expense will drop to about $950k quarterly. Chairman & CEO Paresh Patel noted the Citizens book has more 'red houses' but HCI's tech can select the 'greenhouses'. Mark Harmsworth added that the 70% combined ratio is a fully normalized figure.

Mark Hughes of Truist Securities asked about the impact of weather on the Q2 loss ratio, the disclosure of Exeo's financials, the sustainability of investment income, future interest expense, the quality of remaining policies for takeout, drivers for gross written premium growth, and clarification on the normalized 70% net combined ratio.

Answer

CFO Mark Harmsworth explained that while weather claims were slightly higher, a significant drop in non-weather claims frequency drove the loss ratio down. He confirmed Exeo's financials will be in the 10-Q, that current investment income is a good run-rate, and that quarterly interest expense will drop to about $950,000. CEO Paresh Patel noted the pool of desirable takeout policies is shrinking but HCI's technology helps select the right ones. Harmsworth added that the 70% normalized combined ratio accounts for the full reinsurance load, policy acquisition costs, and a buffer for the loss ratio.

Mark Hughes of Truist Securities questioned the planned structure of the Exzeo spin-off, specifically regarding consolidation. He also asked about any reserve gains during the quarter, the loss experience on policies assumed from Citizens, the outlook for rate filings, and potential public market peers for Exzeo.

Answer

Chairman and CEO Paresh Patel and CFO Mark Harmsworth confirmed the plan is for a total separation, resulting in two distinct, non-consolidated public companies. Harmsworth reported no prior period reserve development and noted that the loss experience on Citizens take-outs was slightly better than expected and similar to the rest of the book. Patel explained that while rate filings are an ongoing process, no changes are imminent. He differentiated Exzeo from peers by comparing it to a complete solution like Uber, rather than just a software product.

Mark Hughes asked about the go-to-market strategy for the Axio technology platform, including the potential for fronting, the drivers of the strong Q4 loss ratio, whether recent success enables more Citizens takeouts, and the outlook for the reinsurance market.

Answer

CEO Paresh Patel stated that Axio is already profitable with its internal clients and the separation allows it to serve external carriers in other states. He distinguished HCI's model from fronting, emphasizing their focus on underwriting profitability with their own capital at risk. CFO Mark Harmsworth and CEO Paresh Patel attributed the low loss ratio to fundamental improvements in claim frequency and the strong performance of takeout business, driven by technology. Patel confirmed this success opens up more takeout opportunities and noted that the reinsurance market now views Florida as a stable, 'boring' market compared to more volatile regions like California.

Mark Hughes inquired about the run-rate premium from the Citizens takeout, the normalized ceded premium, the loss breakdown for Hurricane Milton, holding company cash levels, details on the new carrier, G&A run rate, and the competitive landscape in Florida.

Answer

Executive Mark Harmsworth clarified that the $35 million in Q4 premium from the takeout is prorated and that the normalized quarterly ceded premium is about $102 million, excluding a $50 million Q4 adjustment for Milton. He confirmed holding company cash is over $200 million and the G&A run rate is stable. Executive Paresh Patel added that the new carrier, Taro, is a Florida-based reciprocal set to launch in 2025 to drive future growth, and that the competitive environment is currently focused on claims processing.

Mark Hughes from Truist Securities inquired about Octave Specialty Group's 2026 de novo startup pipeline, cash flow dynamics including non-controlling interest buy-ins, projections for equity-based compensation and net investment income, expected quarterly earnings seasonality, and the current pricing environment across non-cat property, casualty, and A&H segments.

Answer

President and CEO Claude LeBlanc discussed targeting 2-4 new U.S. market startups annually while focusing on existing growth, and detailed pricing trends: 5-10% rate reductions in non-cat property, blended rates with double-digit increases in excess casualty, and double-digit organic growth in A&H. EVP, CFO and Treasurer David Trick projected NCI buy-ins under $50 million, flat to marginally higher net investment income, reduced equity comp, and explained that while new startups would shift earnings to the back end, overall seasonality (Q1 and Q4 heavy) would persist, especially for A&H businesses.

Mark Hughes from Truist Securities inquired about Octave Specialty Group's pipeline for de novo startups in 2026, cash flow expectations including non-controlling interest buy-ins, projections for equity-based compensation and net investment income, the expected quarterly earnings spread given seasonality and new MGA profitability, and the pricing environment across Accident & Health, Casualty, and non-cat Property segments.

Answer

CEO Claude LeBlanc stated that Octave is targeting 2-3 new MGA launches in 2026, primarily in the U.S. market, focusing on diversifying and broadening writings while emphasizing growth of existing ventures. CFO David Trick projected NCF buy-ins to be less than $50 million, funded by cash and marginal borrowing, with net investment income remaining relatively flat to marginally higher and equity compensation decreasing by a few million dollars in 2026. Mr. Trick also noted that while overall seasonality still favors Q1 and Q4, the improving profitability of new MGAs will modestly shift earnings towards the back end of the year, with A&H businesses heavily weighted to Q1. Mr. LeBlanc further detailed pricing trends, indicating 5-10% rate reductions in some non-cat property programs, a blend of stable to increasing rates in casualty (with double-digit increases in excess casualty), and strong double-digit organic growth and pricing (10-12%) in A&H due to new products and volume.

Mark Hughes asked whether the pricing pressure on very large property accounts has worsened or stabilized over the last quarter or two. He also inquired about the source of competition on the liability side, specifically if it's from existing public players or new MGAs/capital.

Answer

Chairman and CEO Andrew Robinson confirmed that pricing pressure on large property accounts has worsened, noting that the market is approaching the point where rates began to decline in Q2 2025. He stated that Skyward's global property business has done an extraordinary job limiting net margin impact despite writing less. Regarding liability competition, Robinson indicated that while responsible public competitors exist, caution is warranted with companies lacking a casualty track record that are growing significantly, as they often gain share through price and terms rather than superior underwriting. He emphasized Skyward's strategy of redeploying capital away from overly competitive or unpredictable areas.

Mark Hughes asked whether the pricing pressure on very large property accounts has worsened or stabilized over the last quarter or two. He also inquired about the source of competition on the liability side, specifically whether it comes from existing public players or new MGAs/capital.

Answer

Andrew Robinson, Chairman and CEO, stated that pricing pressure on large property accounts has worsened, not stabilized, and the market is approaching a point where it will be clear if it settles or if 'bad behavior' continues. For liability, he noted that responsible competitors are acting responsibly, but cautioned against companies without a strong casualty track record growing significantly, often doing so with aggressive pricing and terms, which Skyward avoids by redeploying capital from overly competitive areas.

Mark Hughes from Truist Securities inquired about the catastrophe loss assumption for the rest of the year, whether the current accident year loss pick is a new run rate, and if any lumpiness or seasonality would affect premium trends in the second half of the year.

Answer

CFO Mark Haushill stated there is no change to the full-year cat loss guidance of roughly two points. Both he and CEO Andrew Robinson confirmed they are not changing loss picks, attributing the strong quarterly result to favorable business mix rather than a new run rate. Robinson projected a 'very good third quarter' driven by broad-based strength across the portfolio, not just lumpy program business, underscoring their ability to pivot capital to the most attractive areas.

Mark Hughes of Truist Securities asked if the first quarter's accident year loss pick is a good run rate for the future. He also inquired about the current climate and company appetite for hiring new talent to build out business lines, and requested the cash from operations figure.

Answer

CEO Andrew Robinson advised that while Q1 delivered the company's best-ever ex-cat accident year loss result, the full-year guidance remains the most appropriate reference point. On hiring, he described a more selective approach compared to the 'pedal to the metal' pace of prior years, with resource decisions now more closely tied to market conditions in specific lines. CFO Mark Haushill estimated that cash from operations for the quarter was approximately $100 million.

Mark Hughes of Truist Securities inquired about the adequacy of pricing in the casualty market, its potential as a growth area, the company's hiring pace for 2025, and the full-year cash from operations.

Answer

CEO Andrew Robinson expressed caution on casualty growth, citing uncertainty around loss cost inflation despite high rates, and affirmed a selective approach. He highlighted strong talent acquisition, with 19 underwriters hired in Q4, as a key advantage for 2025. CFO Mark Haushill confirmed full-year cash from operations was approximately $300 million.

Mark Hughes asked for an assessment of the property market, including competition and supply-demand dynamics, and followed up by asking if Global Property would be a growth business over the next year.

Answer

CEO Andrew Robinson detailed a varied property market: Marine sees pressure on terms, transactional E&S remains attractive despite some competition, but the Global Property market has 'irresponsible' pricing from competitors. Consequently, he stated Global Property is not planned as a growth business for the next four quarters, as Skyward will hold the line on pricing and let business go rather than follow the market down.

Mark Hughes asked about the commercial fee per file outlook for 2026, seeking indications from the deal pipeline regarding transaction sizes, and inquired about the stabilization and potential increase of the inHere platform's engagement numbers.

Answer

Mike Nolan, CEO, noted that Q4 2025 saw larger commercial transactions, leading to a significant increase in national commercial fee per file, and expects 'nice deals' in the 2026 pipeline, though the fee per file remains a 'wild card' due to mix uncertainty. He expects inHere platform engagement to increase, with a goal of over 90%, explaining that fluctuations were due to migrating new operations onto the SoftPro platform, which initially have lower engagement. Mature operations are already achieving over 90% engagement. On the regulatory front, Mike Nolan stated that the FHFA pilot program has been quiet, is set to expire in May (possibly extended), and has not significantly impacted refi deal flow.

Mark Hughes inquired about the commercial fee per file outlook for 2026, the current engagement levels and future expectations for the inHere digital transaction platform, and any updates on the regulatory front, specifically regarding the pilot program or FHFA.

Answer

CEO Mike Nolan stated that while strong deals are in the pipeline, the commercial fee per file for 2026 is a "wild card" due to mix. He expects inHere platform engagement to increase beyond the current 80% as new operations mature. He noted the regulatory pilot program has been quiet and hasn't impacted deal flow, with its expiration set for May.

Mark Hughes from Truist Securities inquired about any regulatory updates from the FHFA, the nature of the recent recruiting success, and the breakdown of commercial order growth in July.

Answer

CEO Mike Nolan reported no significant regulatory changes, viewing the FHFA pilot as a limited-scope program and emphasizing ongoing collaborative discussions. He confirmed the new hires are "100% revenue attached," functioning like mini-acquisitions. He also provided July's open order growth figures: national commercial orders were up 22% and local orders were up 8% year-over-year.

Mark Hughes of Truist Securities inquired about any regulatory updates from the FHFA, whether the recent recruiting hires were revenue-attached, and asked for the specific July growth figures for national versus local commercial orders.

Answer

CEO Mike Nolan reported no significant changes to the FHFA's limited-scope pilot, noting a collaborative call with the director. He confirmed that the recruiting was 100% focused on revenue-attached professionals, which is akin to making mini-acquisitions. For July, Nolan provided that national open orders were up 22% year-over-year, and local open orders were up 8%.

Mark Hughes of Truist Securities, Inc. inquired about emerging regulatory issues at the federal and state levels, including the CFPB and state rate changes like in Texas. He also asked for an update on the inHere platform's progress and financial impact.

Answer

CEO Mike Nolan stated that federal regulatory concerns from the CFPB have abated and the title waiver pilot program has a de minimis impact. On the state level, he noted the proposed Texas rate reduction is being contested and is not yet in effect. CFO Tony Park quantified the potential pre-mitigation impact of the Texas change at approximately $15 million in profit. Regarding the inHere platform, Mr. Nolan highlighted its full rollout across the company's footprint and its role in driving future margin improvements.

Mark Hughes inquired about any potential Q1 impact from the recent wildfires and whether the NAR settlement has led to any observable changes in the real estate broker community or referral patterns.

Answer

CEO Mike Nolan stated that the impact from the wildfires is de minimis, as the affected areas have low transactional volume. Regarding the NAR settlement, he reported seeing no significant changes in business flow, noting it seems to be 'business as usual,' although there has been increased interest from brokers in the company's SkySlope transaction management platform.

Mark Hughes from Truist Securities asked if the 8% year-over-year growth in October commercial orders was due to an easy comparison. He also sought clarification on the calculation of the $1.37 adjusted EPS and requested a brief outlook on sales and spreads for the F&G business.

Answer

CEO Mike Nolan stated that while commercial orders typically see a seasonal falloff, October's decline was less pronounced than the prior year, indicating underlying strength, particularly in national orders. CFO Tony Park clarified that the $1.37 adjusted EPS is reached by adjusting for F&G's alternative investment underperformance and other smaller significant items. F&G CEO Chris Blunt added that F&G's sales outlook remains robust, driven by policy exchanges and demographics, with spreads holding up well and benefiting from flow reinsurance and owned distribution.

Mark Hughes inquired about the expected trajectory of RILA sales over the next couple of years, noting its steady improvement from a small base.

Answer

President and CFO Conor Murphy expressed strong satisfaction with RILA's progress, acknowledging it's off a small base and takes time to gain momentum. He also highlighted continued positive trends in FIA and IUL sales, while noting PRT sales are typically seasonal.

Mark Hughes with Truist Securities inquired about the latest thoughts on the trajectory of RILA (Registered Index-Linked Annuities) sales over the next couple of years.

Answer

President and CFO Conor Murphy expressed satisfaction with RILA sales, noting they are off a small base but growing well, and are considered a core product alongside FIA and IUL.

Mark Hughes from Truist Securities asked for an update on the sales outlook for MYGAs and funding agreements for Q3. He also questioned the balance of opportunity between FIAs and RILAs, and requested a reconciliation from the Q2 return on assets to the company's Investor Day targets, including the impact of alternative investments.

Answer

CEO Chris Blunt stated that MYGA sales will likely see a 'more normalized rate' with some volatility, as they are opportunistic. He noted the new sidecar makes FIAs more attractive, potentially shifting the sales mix. President & CFO Conor Murphy added that the funding agreement market looks 'reasonably attractive' for Q3 and that RILAs remain a key, though smaller, part of their expansion. Regarding ROA, Mr. Blunt confirmed they are tracking well towards their 2023 Investor Day goals, with the TTM ROA in the high 120s bps, and noted alternative investments contributed about 37 bps to that figure.

Mark Hughes of Truist Securities, Inc. asked whether the rebound in MYGA sales was a market-wide phenomenon or a company-specific decision. He also sought historical context for the current market volatility and asked for details on the one-time investment made by an owned distribution company.

Answer

CEO Christopher Blunt clarified that the MYGA rebound was a company-driven decision to lean back in after gaining clarity on rates and spreads. He compared the current volatility to the COVID period, noting that the business model proved resilient then by recapturing spread targets within a year. He described the distribution partner's investment as an opportunistic and attractive acquisition of a stake in a smaller IMO, which he expects to be a one-time event. CFO Conor Murphy added that the MYGA rebound did not detract from strong sales in other retail products.

Mark Hughes of Truist Securities asked about the market conditions needed for F&G to increase its MYGA activity, the appropriate baseline for ROA expectations, the drivers of owned distribution EBITDA growth, and the competitive dynamics and growth drivers in the FIA market.

Answer

CEO Christopher Blunt clarified that the Q4 reduction in MYGA sales was a deliberate capital allocation decision to fund record FIA demand, not a result of market weakness. He confirmed the full-year 127 basis points is the correct ROA baseline, with future growth expected to be more moderate. The $65M to $90M owned distribution EBITDA growth is driven by both the full-year impact of an acquisition and strong organic performance from well-chosen partners. He attributed the strong FIA growth to both a rising tide of industry adoption and F&G's success in deepening penetration within its distribution channels.

Mark Hughes from Truist Securities asked for an update on the elevated investment spending planned for 2026. He also inquired about the proportion of the 2.3 million potential mortgages from enterprise sales and other partners that are currently active, and the expected cadence for bringing the rest online. Additionally, he sought clarification on the volatility in new business royalty fees and underlying franchise productivity, and the anticipated trend for corporate sales headcount in 2026.

Answer

CFO and COO Mark Jones Jr. confirmed that the 2026 investment spending remains $25 million-$35 million total cash, with $8 million-$11 million hitting the P&L, noting $2.9 million hit the P&L in Q4 2025 related to Digital Agent. He stated that only a small percentage of the 2.3 million potential mortgages are currently live, but the pipeline is strong, and embedded franchises are performing well. Mark Jones Jr. expressed confidence in the franchise community's health, citing 19% same-store sales growth in Q4 and 29% gross payments per franchise, expecting new business royalties to accelerate in 2026. He also anticipated corporate sales headcount to grow in 2026, driven by enterprise sales, improved agent retention, and geographic expansion. President and CEO Mark Miller added that new office openings reflect confidence in growing the corporate staff.

Mark Hughes asked for an update on the elevated investment spending planned for 2026, the active percentage of the 2.3 million potential mortgages from enterprise sales partners, the volatility in new business royalty fees and franchise channel productivity, and the expected trend for corporate sales headcount in 2026.

Answer

CFO and COO Mark Jones Jr. confirmed 2026 investment spending at $25M-$35M total cash, with $8M-$11M impacting the P&L, and noted a $2.9M P&L impact in Q4 2025 from Digital Agent. He stated that only a small percentage of the 2.3 million potential mortgages are currently live, but embedded franchises are performing well. Mark Jones Jr. expressed confidence in the franchise community's health, citing 19% same-store sales growth and 29% gross payments to agencies in Q4, expecting new business royalties to accelerate in 2026. President and CEO Mark Miller added that consolidation allows larger franchises to hire more easily. Mark Jones Jr. expects corporate sales headcount to grow in 2026, driven by enterprise sales, improved agent retention, and geographic expansion, with President and CEO Mark Miller noting new offices reflect confidence in growth.

Mark Hughes asked about any one-time revenue adjustments in the current quarter, the incremental nature of the $8M-$11M OpEx investment for 2026/2027, and specific reasons for the surge in new business royalty fees and franchise productivity in Q3. He also followed up on the dip in renewal commissions in Q3 after double-digit growth in Q2.

Answer

Mark Jones (CFO and COO) confirmed no one-time revenue adjustments in Q3, clarifying that the Q2 recovery was a permanent commission rate improvement. He stated the $8M-$11M OpEx for digital agent investment is incremental to normal business. For franchise productivity, he attributed the surge to continued execution, hiring by top agencies, and consolidation efforts removing less productive agencies. He explained the renewal commission dip was a function of math, as Q2 included a $3M recovery, and Q3's revenue retention rate actually improved.

Mark Hughes asked about any one-time revenue adjustments this quarter, whether the $8-11 million in digital agent OpEx for 2026-2027 is incremental to prior projections, the reasons behind the surge in franchise new business royalty fees, and the dip in renewal commissions in Q3.

Answer

Mark Jones (CFO and COO) confirmed no one-time revenue adjustments in Q3 and clarified that the $8-11 million in OpEx is an incremental investment for long-term growth. He attributed the surge in franchise new business royalty fees to continued execution, hiring from top agencies, positive franchise feedback, and consolidation efforts. Regarding renewal commissions, Mark Jones explained that after removing a Q2 recovery, the revenue retention rate actually improved in Q3, with the overall decline being a function of consistent corporate team production over four years, now seeing renewed growth.

Mark Hughes from Truist Securities requested a breakdown of the $4 million commission gain, asked about any changes in lead conversion rates, and inquired about the magnitude of corporate hiring this year.

Answer

CFO Mark Jones Jr. specified the $4 million recovery consisted of $3 million in renewal commissions and $1 million in renewal royalty fees. He noted that lead conversion is currently affected by an increase in 'false starts' from mortgage application cancellations. Regarding hiring, he stated this year's class was more front-loaded in June compared to last year, but headcount will still grow sequentially in Q3.

Mark Hughes asked about potential differences in client retention between the corporate and franchise channels and requested a good run-rate for interest expense following the recent debt offering.

Answer

CFO Mark Jones Jr. explained that the corporate channel's retention is lower due to its heavy concentration in Texas, a challenging market, whereas the franchise book is more geographically diversified. For interest expense, he guided analysts to use the $300 million term loan at a rate of SOFR plus 3.50%.

Mark Hughes sought confirmation on the outlook for contingent commissions and asked if the mix of business was influencing the gap between written premium and core revenue growth.

Answer

CFO Mark Jones Jr. stated that based on strong core loss ratio performance with underwriters, there is potential upside to the previous full-year contingent commission expectation of 35 basis points of total written premium. He clarified that the premium-to-revenue gap is not driven by business mix but by the accelerated growth of the franchise channel, where 100% of premium is recognized immediately but only 20% of the revenue.

Mark Hughes asked if the influx of competition from London and MGAs seen in property also affected casualty lines. He questioned the reasons for industry-wide casualty deceleration from Q3 to Q4 and the impact of mix shift on the expense ratio. He also asked about new business trends in excess versus primary.

Answer

Stuart Winston, Chief Underwriter, noted ongoing casualty competition from MGAs but no significant increase in the quarter, attributing industry deceleration to normal market variability. Bryan Petrucelli, CFO, stated net commissions were constant with Q3, with Michael Kehoe, Chairman and CEO, confirming mix might slightly impact the expense ratio. Stuart Winston added that the excess vs. primary mix has remained balanced.

Mark Hughes asked for Kinsale's perspective on the potential for AI to displace some of the roles traditionally held by brokers, questioning its likelihood, whether it could lead to efficiency through a more direct route, or if it remains a speculative concept.

Answer

Chairman and CEO Michael Kehoe stated that the outcome is uncertain but referenced Pat Ryan's view that customers still need advisors and advocates, which he believes AI doesn't change. He emphasized that AI is a powerful new tool that businesses across all industries must adopt to enhance operations and customer service.

Mark Hughes asked about the increase in the current accident year loss ratio, whether the ceded premium and expense ratio are reasonable starting points for future quarters, and if there's faster growth or more opportunity in coastal E&S states compared to non-coastal states.

Answer

Michael Kehoe, CEO and Chairman, attributed the loss ratio increase to normal variability, emphasizing strong overall numbers and cautious reserving. He confirmed that the ceded premium and expense ratio are good estimates for future quarters, subject to business mix. Brian Haney, President and COO, and Michael Kehoe advised against reading too much into state E&S data, stating the mix of business across states has remained relatively consistent.

Mark Hughes from Truist Securities asked about the slight increase in the current accident year loss ratio, inquiring if it was due to mix or competitive pressure. He also asked if the ceded premium at 17% and expense ratio at 21% are reasonable starting points for future quarters given the new reinsurance structure. Finally, he questioned if faster growth in coastal states like Florida, Texas, and New York, as suggested by state E&S data, implies slower growth or more competition in non-coastal states.

Answer

Michael Kehoe, CEO and Chairman, attributed the loss ratio increase to normal variability, emphasizing strong overall numbers and cautious reserving. He confirmed that the 17% ceded premium and 21% expense ratio are reasonable starting points for the next few quarters, as this was the first full quarter with the new reinsurance term, though business mix could introduce variability. Brian Haney, President and COO, advised against reading too much into state E&S data, suggesting a longer-term view. He added that the dynamic between core E&S states and others has remained relatively consistent over time.

Mark Hughes inquired about sequential commercial property pricing, the trajectory of the current accident year loss pick, the E&S market dynamics in Florida, and the top-line growth needed to sustain cash flow growth.

Answer

President & COO Brian Haney confirmed commercial property pricing was stable sequentially. Chairman & CEO Michael Kehoe saw no change to the reserving pattern, noting caution on casualty and good results from property. He attributed Florida's E&S growth to broader market acceptance and carrier flexibility. EVP & CFO Bryan Petrucelli affirmed that top-line growth should drive cash flow, with Mr. Kehoe adding that recent cat loss payouts temporarily depressed the cash flow growth rate.

Inquired about the state of competition in commercial property, whether hit rates have stabilized, and the typical long-term mix between property and casualty in the E&S market.

Answer

Competition in commercial property is described as steady, and hit rates have stabilized at current levels. The typical E&S market mix is about one-third property and two-thirds casualty, which serves as a good benchmark, though Kinsale's expansion in homeowners could slightly increase its property weighting.

Mark Hughes inquired about the drivers of the higher Q4 expense ratio, the outlook for operating cash flow in a more modest growth environment, and the potential top-line contribution from the company's increased focus on personal lines. He also asked for commentary on January results.

Answer

CEO Michael Kehoe declined to comment on January results but reiterated the 10-20% growth outlook. CFO Bryan Petrucelli attributed the higher Q4 expense ratio to variable compensation, advising a focus on the more stable full-year figure. Michael Kehoe projected that operating cash flow would remain steady and grow with premiums. President and COO Brian Haney noted a significant opportunity in personal lines, which Michael Kehoe confirmed would be a gradual expansion over time.

Mark Hughes of Truist Securities asked about the trajectory of competition throughout the third quarter and into October. He also inquired about the deceleration in Casualty growth and sought to characterize the types of competitors becoming more aggressive.

Answer

Executive Michael Kehoe stated he could not comment on intra-quarter competitive trends due to the high volume of small transactions. He noted that while Casualty growth ebbs and flows, it has been fairly steady, and market tightening could occur due to recent catastrophe losses and potential industry-wide casualty reserve deficiencies. He suggested looking at the Schedule P exhibits of large front-end companies to identify competitors.

Mark Hughes asked about the sequential trend of competitive pressure in commercial earthquake, specifically whether the 15% rate decline is stabilizing or continuing to worsen, and inquired if the crop retention, now at 50%, is expected to continue increasing or if 50% is the target maximum.

Answer

Mac Armstrong, Chairman and Chief Executive Officer, expects commercial quake pressure to persist through 2026, particularly in the first half, before potential stabilization as all-risk players manage capacity. For crop retention, he noted that 50% is a strong lever, with potential for further increases beyond the $500 million premium threshold, while carefully monitoring capital allocation.

Mark Hughes of Truist Securities asked why the guidance increase was smaller than the quarter's favorable prior-period development, suggesting a potential reduction in the underlying outlook. He also inquired about the pricing momentum in the casualty business from Q1 to Q2.

Answer

Chairman and CEO Mac Armstrong clarified that the guidance reflects a conservative approach and a consistent pattern of beating and raising estimates, not a weaker outlook. He noted the guidance still includes a full catastrophe load. Regarding casualty, Armstrong stated that pricing remains healthy in areas like excess liability (high-teens increases), while the company has pulled back from softening professional liability lines.

Mark Hughes of Truist Securities questioned why the adjusted net income guidance was raised by an amount less than the favorable prior-period development reported in the quarter. He also asked for an update on the pricing trajectory in the casualty business.

Answer

Mac Armstrong, Chairman, CEO & Founder, responded that the company's practice is to be conservative and consistently beat and raise guidance, noting they have raised it three times this year. He added that the guidance still contains a full catastrophe load. Regarding casualty, he specified that pricing remains strong in excess liability (high-teens increases) but has softened in professional liability, where Palomar has consequently pulled back.

Mark Hughes questioned the magnitude of the earnings guidance increase, noting it was less than the favorable prior-period development recorded in the quarter. He also asked for an update on pricing trends within the casualty business.

Answer

Mac Armstrong, Chairman & CEO, responded that the company maintains a conservative guidance philosophy with a track record of beating and raising, and that the current guidance still contains buffers like a full catastrophe load. Regarding casualty, he stated that pricing remains healthy in excess liability with mid-high teens increases, but has softened in professional liability lines, where Palomar has consequently pulled back.

Mark Hughes of Truist Financial Corporation asked about the drivers of the 113% growth in Casualty gross written premium, the expected split of crop insurance premiums between Q3 and Q4, and the nature of competition in the commercial earthquake market.

Answer

Chairman and CEO Mac Armstrong attributed the casualty growth to new underwriters capitalizing on a dislocated E&S market. Executive T. Uchida detailed that 65-75% of crop earned premium is expected in Q3, impacting ratios for that quarter. Armstrong added that commercial earthquake competition stems from new entrants and increased capacity within layers, particularly from London markets.

Mark Hughes sought clarification on the quarterly cadence of the net earned premium ratio for 2025, inquired about the drivers of commercial earthquake pricing softness, and asked for a high-level view on what is driving the strong 2025 growth guidance.

Answer

Executive T. Uchida confirmed the net earned premium ratio would peak in Q1/Q2 in the low 40s before dropping to the 'low 30s' in Q3 due to increased crop participation. CEO Mac Armstrong attributed commercial quake softness to the 'all risk' market re-entering large layered accounts, but noted terms and conditions are holding firm. Armstrong credited the strong 2025 outlook to broad portfolio strength, highlighting margin improvement in Earthquake, a seasoned and profitable Other Property book, conservative growth in Casualty, and increased risk-taking in the high-performing Crop business.

Mark Hughes inquired about the 2025 growth prospects for Palomar's earthquake business, particularly the commercial versus residential segments, in light of the California Earthquake Authority (CEA) reducing its reinsurance coverage. He also asked about the drivers behind the improved net earned premium ratio and its expected trend into 2025.

Answer

Mac Armstrong, Chairman and CEO, stated that Palomar expects to sustain high-teens growth in its earthquake business, with a balanced approach between commercial and residential lines, though residential may see slightly more relative growth. He noted that while commercial rates are plateauing, the profitability metrics remain compelling, and the CEA's pullback creates more reinsurance capacity. Chris Uchida, executive, explained that the net earned premium ratio improvement is driven by favorable rates, business mix, and a strong 2024 reinsurance placement. He anticipates Q3 will be the ratio's low point, with increases expected through early 2025. Mac Armstrong added that slower growth in the Fronting business also positively impacts this ratio.

Mark Hughes inquired about the drivers behind First American's 90 basis points of organic market share gain. He also asked about the trend in refinance average revenue per order (ARPU) and the potential for purchase ARPU to come under pressure in 2026.

Answer

CEO Mark Seaton attributed the market share gain equally to the agency division and commercial segment. EVP and CFO Matt Wajner noted that refinance ARPO was up year-over-year, mentioning a revision to Q4 refinance order counts impacting historical ARPO. For purchase ARPU in 2026, Matt Wajner expects growth to moderate but remain positive, albeit less than in 2025.

Mark Hughes asked about the drivers behind First American Financial's 90 basis points of organic market share gain, the trend in refinance average revenue per order (ARPO), and potential pressure on purchase ARPO in 2026.

Answer

Mark Seaton (CEO) attributed the 90 basis points of organic market share gain equally to growth in the agency division and the commercial segment. Matt Wajner (EVP and CFO) clarified that the Q4 2025 refinance ARPO increase was influenced by revised historic order counts, maintaining a similar trend. He also stated that purchase ARPU is expected to moderate in 2026, remaining positive but with less growth than in 2025.

Mark Hughes asked about the sustainability of commercial revenue per order (ARPO) and its outlook for Q4, the anticipated investment income for Q4, and the recent trend in daily refinance orders.

Answer

CEO Mark Seaton affirmed the sustainability of commercial ARPO, noting typical seasonality and strong momentum across asset classes, with Q4 expected to continue building on Q3's better-than-expected performance. CFO Matt Wajner projected Q4 investment income to be slightly down sequentially due to rate cut headwinds. He also stated that for the first three weeks of October, refinance open orders were approximately 875 per day.

Mark Hughes inquired about the sustainability of commercial revenue per order (ARPO), its Q4 outlook, the expected trend for investment income in Q4, and the recent daily refinance order count.

Answer

CEO Mark Seaton affirmed the sustainability of commercial ARPO, noting strong momentum and Q4 optimism across most asset classes. CFO Matt Wagner projected a slight sequential decline in Q4 investment income due to rate cuts and reported approximately 875 daily refinance open orders for the first three weeks of October.

Mark Hughes asked about the potential impact of a recession on the business, the company's philosophy on share buybacks, and the strategic initiatives and outlook for the bank.

Answer

CEO Mark Seaton explained that a recession would likely soften the purchase and commercial markets but could be offset by a refinance wave from lower rates. Regarding buybacks, he stated the company acts when it believes the stock is undervalued, which it is currently. He also highlighted the bank as a key strategic asset, providing operational efficiencies and countercyclical earnings, with a key growth initiative being the agent banking strategy to attract third-party deposits.

Mark Hughes asked for clarification on a $6 million change in estimate in the Home Warranty segment, inquired about the performance of the office market within the strong commercial results, and asked about the outlook for the home warranty business in a buyer's market.

Answer

CFO Mark Seaton confirmed the $6 million change in estimate negatively impacted both revenue and pretax income in Q4 but will be recaptured over 2025. CEO Ken DeGiorgio stated that while office was not a major component of Q4 commercial revenue, it is 'coming off the sidelines,' particularly suburban office. He also affirmed that a buyer-driven market should boost home warranty sales through the real estate channel, a trend that was already a driver of performance in Q4.

Mark Hughes sought details on the commercial business, including which property types are seeing price discovery, the nature of the large transaction pipeline, and any updates on the CFPB regulatory front.

Answer

CEO Kenneth DeGiorgio noted that price discovery is occurring broadly across asset classes, with the exception of office properties, and highlighted the company's diversified commercial presence. CFO Mark Seaton added that fee per file is difficult to forecast. Regarding the CFPB, DeGiorgio stated there have been no recent developments but expects activity could increase after the election.

Mark Hughes asked about the magnitude of the 'substitution effect,' where representatives shift their focus from term life to Investment and Savings Products (ISP) due to demographic trends and perceived opportunities. He also asked Tracy Tan for the full-year expense outlook.

Answer

Glenn Williams (CEO) acknowledged that it's hard to measure the substitution effect but noted that momentum in ISP naturally attracts representatives, which he views as healthy diversification. He explained that ISP often attracts more experienced reps, while younger entrepreneurs drive the protection side. Tracy Tan (CFO) provided a full-year 2026 expense outlook of 7%-8% growth, noting that Q1 expenses are typically higher due to equity compensation vesting. She highlighted ongoing proactive organic investments in sales training, technology, and infrastructure to support future growth.

Mark Hughes asked about the magnitude of the 'substitution effect,' where reps might shift their focus to ISP over Term Life due to demographic trends and where opportunities are strongest. He also requested the full-year expense outlook, which he had missed.

Answer

CEO Glenn Williams acknowledged the difficulty in measuring the substitution effect but noted that momentum attracts attention, leading reps to shift focus. He highlighted that this dynamic, where one business segment is strong when the other is weak, diversifies the business and smooths out overall performance. He explained that ISP attracts more experienced reps, while younger entrepreneurs often drive the protection side. CFO Tracy Tan provided the full-year 2026 consolidated expense outlook of 7%-8% growth, noting that Q1 expenses are typically higher due to compensation and vesting, and that Primerica is making proactive organic investments in sales training, technology, and infrastructure to support long-term growth.

Mark Hughes of Truist Securities questioned if the recent market rebound was leading to a pickup in mutual fund activity. He also asked for a comparison of Primerica's term life sales performance relative to the broader industry.

Answer

CEO Glenn Williams opined that shifts in product mix are driven by longer-term sentiment, not short-term market moves. He stated that Primerica's performance is largely in line with peers in its core middle-market demographic, as overall industry growth is skewed towards older ages and larger face amounts.

Mark Hughes asked if the improved performance in the corporate segment was sustainable, sought an update on Term Life guidance for adjusted direct premium (ADP), and questioned if annuity demand might outperform this cycle.

Answer

Executive Nicole Russell confirmed the corporate segment's strength, driven by portfolio growth and higher yields, is expected to be a predictable contributor going forward. She also reiterated the full-year ADP growth guidance of around 5%, noting it's a stable business. CEO Glenn Williams added that the shift to annuities in uncertain times is a common phenomenon and he is not certain it will be more extreme than in the past.

Mark Hughes asked if strong variable annuity (VA) activity represents a persistent demographic tailwind, inquired about mortality trends, and sought clarification on a reserve model refinement.

Answer

CEO Glenn Williams confirmed that VA growth is driven by favorable demographics, product enhancements, and strong markets. CFO Tracy Tan reported that mortality trends have been stable and favorable, particularly in the U.S. She clarified the remeasurement loss was due to a technical software improvement for actuarial calculations under LDTI, not a change in assumptions or experience.

Mark Hughes from Truist Securities asked about any cash tax savings resulting from the senior health business exit and inquired about the trend in the YRT (Yearly Renewable Term) ceded premium ratio.

Answer

CFO Tracy Tan confirmed the senior health exit generated a tax saving of approximately $98 million, with the cash benefit being realized in Q3 and Q4 of 2024. Regarding YRT premiums, she explained that while the ratio to direct premiums can fluctuate, it is offset by growing mortality risk, and the overall benefits and claims ratio is expected to remain stable around 58%.

Mark Hughes asked if the forward flow quota share and XOL reinsurance treaties extending through 2028 represented a longer duration than usual, and what market factors influenced this. He also questioned the outlook for share buybacks and capital management in 2026, and any specific expense initiatives or contributions from AI for efficiencies.

Answer

Aurora Swithenbank, CFO, clarified that extending coverage three years out is consistent with previous actions, but the size and economics for the 2028 year were incrementally better, reflecting a strong reinsurance market. Adam Pollitzer, President and CEO, stated that while there's no set schedule for buybacks, $25 million per quarter remains a good assumption, with flexibility to take advantage of value opportunities. Ms. Swithenbank noted Q4 expenses were $31.1 million, identical to Q4 2024, maintaining an expense ratio within the 20%-25% target, with no specific initiatives planned to change demonstrated expense discipline. Mr. Pollitzer detailed NMI's existing deployment of AI across various departments (indexing, IT, finance, legal, cybersecurity) to drive productivity and scalability, but does not anticipate significant incremental investment or substantial expense stripping, given their already efficient profile.

Mark Hughes of Truist Securities asked a series of questions covering the competitive pricing environment, the drivers of the low operating expense ratio, the source of investment income growth, and specific trends in default notices and cure activity.

Answer

President & CEO Adam Pollitzer described the pricing environment as 'balanced and constructive.' EVP & CFO Aurora Swithenbank attributed the low OpEx to typical Q2 seasonality and disciplined cost management, not one-time items. She also confirmed investment income growth was driven by reinvesting at higher rates. Regarding defaults, Swithenbank noted hurricane-related defaults are curing as expected and wildfire impact is minimal. Pollitzer added that cure activity is supported by the strong labor market, embedded home equity, and seasonal factors like tax refunds.

Mark Hughes of Truist Securities questioned the future stability of the company's premium yield and asked for details on the regulatory outlook following the recent election.

Answer

CFO Aurora Swithenbank and CEO Adam Pollitzer explained that while the core yield is stable, the net yield can fluctuate with claims experience due to reinsurance accounting, though the bottom-line benefit remains. On the regulatory front, Pollitzer noted broad bipartisan support for the MI industry's role and expressed optimism about engaging with the new administration.

Mark Hughes inquired about the expected improvement in persistency for 2026, specifically asking what factors, such as HR Connect and AI-enabled tools, are driving this trend. He also asked about the drivers behind the lower average size of recoveries observed in the disability business, questioning if it's tied to government policy or past trends.

Answer

Chris Pyne, EVP of Group Benefits, stated that 2025 persistency exceeded targets, and the 2026 outlook is strong, driven by investments in technology and services like leave management and HR platform connections. He emphasized that these capabilities attract customers seeking solutions, leading to longer client retention and stable pricing discussions. President and CEO Rick McKenney explained that the lower average size of recoveries in disability was likely due to the mix of recovering claims and was an anomaly, not tied to structural or programmatic factors, noting similar fluctuations in the past.

Mark Hughes asked about the drivers of persistency improvement, including HR Connect and AI-enabled tools, and the expected level of improvement in 2026.

Answer

Chris Pyne, EVP of Group Benefits, highlighted that investments in technology and services, like HR Connect, tie Unum to customers differently, leading to higher persistency. He noted that 2025 exceeded target persistency, and the 2026 outlook is strong, driven by attracting customers who value Unum's capabilities and disciplined approach to benefit packages and pricing.

Mark Hughes asked if the strong recruiting growth at Colonial Life was driven by macro factors or internal efforts, and if there was any change in the government's approach to disability awards.

Answer

EVP Timothy Arnold attributed the 17% recruiting growth primarily to internal initiatives, like a social media campaign, not macro factors. EVP Chris Pyne stated that while the Social Security disability backlog is an industry topic, it is not a major factor in Unum's current performance.

Mark Hughes asked whether Unum prioritizes a full risk transfer solution for its long-term care (LTC) block or if it is open to partial solutions.

Answer

CEO Rick McKenney stated that a full, single-transaction solution is unrealistic given the block's size. He confirmed Unum's strategy is to approach a potential risk transfer in tranches, focusing on divesting the block piece by piece over time.

Mark Hughes asked about the company's priority between achieving a full, single-transaction risk transfer for the LTC block versus a partial solution.

Answer

CEO Rick McKenney stated that a full solution in one transaction is unrealistic given the block's size. The company's strategy is to approach it piece-by-piece, structuring different tranches of the block to appeal to potential counterparties. The ultimate long-term goal is to be off the entire risk, but this will likely be achieved through multiple, smaller transactions over time.

Mark Hughes from Truist Securities inquired about the contribution of natural growth (from employment and wages) to overall U.S. growth and whether its trajectory changed in Q3. He also asked about the sustainability of the strong growth in the international business.

Answer

CFO Steven Zabel noted that natural growth was steady in Q3 at just over 3%, having normalized from higher post-pandemic levels, and that 2-3% is a historical norm. Mark Till, CEO of Unum International, stated that the strong international growth reflects deliberate investments in their proposition and broker relationships in an attractive market, expressing confidence in their choices.

Mark Hughes inquired about additional factors influencing the wide 23%-27% profitability range for the health business, beyond those already discussed.

Answer

Tom Kalmbach, CFO, and Frank Svoboda, Co-CEO, explained that the variability in the health underwriting margin percentage is largely due to the mix of business. Medicare Supplement (MedSup) has a lower underwriting margin (8-10% expected in 2026) compared to other limited benefit products (43-44%). As MedSup grows faster and constitutes a larger portion of total health premium (53% anticipated in 2026 vs. 49% in 2025), it exerts downward pressure on the overall health margin percentage, despite being a good business with lower capital requirements.

Mark Hughes asked if the seasonally higher claims in individual and group health were within normal expectations or exceeded them. He also sought clarification on the factors influencing the 23%-27% profitability range for the health business, particularly what drives the high versus low end of that range.

Answer

Tom Kalmbach, CFO, confirmed that while Q4 typically sees higher claims, the severity in group health lines was slightly above expectations. Tom Kalmbach and Frank Svoboda, Co-CEO, explained that the health profitability range is influenced by the mix of business. Medicare Supplement, which has a lower underwriting margin percentage (8%-10% anticipated for 2026) compared to other limited benefit health products (43%-44% margins), is expected to comprise a larger percentage of total health premium in 2026 (around 53%), thus putting downward pressure on the overall average health underwriting margin percentage, even as dollar margins grow.

Mark Hughes of Truist Securities inquired about lapse experience trends in the life insurance business and asked whether the benefit from rate increases and lower utilization in the health business was fully reflected in Q2 results or if more improvement was expected.

Answer

Executive VP & CFO Thomas Kalmbach noted that life lapse experience was generally consistent, with favorable trends at AIL. Co-Chairman & Co-CEO Frank Svoboda added that overall lapse rates have stabilized at pre-pandemic levels. Kalmbach confirmed that the positive impacts in the health business were fully reflected in the second quarter's results.

Mark Hughes from Truist Securities asked for observations on life insurance lapse experience and whether the benefits from rate increases and lower utilization in the health business were fully reflected in Q2 results.

Answer

Executive VP & CFO Thomas Kalmbach stated that life lapse experience was generally consistent, with favorable results at AIL, though DTC lapses remain slightly elevated. He confirmed the positive impact on the health business was fully reflected in Q2. Co-Chairman & Co-CEO Frank Svoboda added that overall lapse rates have stabilized at resilient levels consistent with pre-pandemic norms.

Mark Hughes of Truist Securities asked for observations on lapse experience in the life insurance business. He also inquired whether the benefit from rate increases and lower utilization in the health business was fully reflected in Q2 results or if more improvement was expected in Q3.

Answer

Executive VP & CFO Thomas Kalmbach noted that life lapse experience has been fairly consistent, with favorable results at AIL and slightly elevated but stable first-year lapses in the direct-to-consumer channel. Co-Chairman & Co-CEO Frank Svoboda added that overall, the business has shown resiliency, with lapses generally in line with pre-pandemic long-term averages. Regarding the health business, Kalmbach confirmed that the impact of rate increases and utilization changes was fully reflected in the second quarter results.

Mark Hughes questioned the drivers behind the strong earnings in the Financial segment, specifically the impact of the light catastrophe season and its expected carry-forward into 2026. He also asked about increased risk retention in the State National business, Thomas Gayner's view on the AI trade in the equity portfolio, and the underwriting actions taken for the personal umbrella product following strong reserve increases.

Answer

Brian Costanzo, CFO, attributed strong Financial segment earnings to performance fees from a light catastrophe season at Nephila and consistent growth in State National's high-margin fee income. Thomas Gayner, CEO, acknowledged competition for State National and, regarding the equity portfolio, emphasized long-term investment discipline over short-term market headlines like AI. Simon Wilson, CEO of Markel Insurance, detailed underwriting actions for personal umbrella, including significant rate increases in 12 states and raising the attachment point to $500,000, particularly for Florida second homes, to mitigate auto losses.

Mark Hughes asked about the strong financial segment earnings, specifically how much was due to the light catastrophe season and its expected carry-forward into 2026. He also inquired about increased risk retention in State National and Markel's strategy for the 'AI trade' within its equity portfolio. Additionally, he asked for details on underwriting actions (price increases, stricter terms) taken for the personal umbrella product after significant reserve build-up.

Answer

Brian Costanzo (CFO, Markel Group) confirmed that a light cat season contributed to Nephila's Q4 2025 performance fees, alongside State National's consistent growth in premium and high-margin fee income. Thomas Gayner (CEO, Markel Group) acknowledged increased risk retention as a market feature for leaders like State National, and for the AI trade, he emphasized Markel's long-term, disciplined equity selection principles. Simon Wilson (CEO, Markel Insurance, Markel Group) detailed personal umbrella actions: significant rate increases (approved in 12 states), increasing attachment points from $250,000 to $500,000, and ceasing to underwrite second homes in Florida to mitigate auto losses.

Mark Hughes of Truist Financial Corporation asked about the expected top-line growth cadence for the remainder of the year and the specific market factors driving optimism for the U.S. wholesale and specialty business.

Answer

CEO of Markel Insurance Simon Wilson described 2025 as a transitional year, with the heavy lifting of re-underwriting complete and growth expected to accelerate in the second half. CFO Brian Costanzo noted that constant-currency international growth was 6%. Wilson expressed optimism for U.S. wholesale and specialty due to a structural shift toward the E&S market, strong customer demand, and significant compounding rate increases in casualty lines (13% in Q1 2025 on top of 10% in 2024), which Markel is now positioned to capitalize on.

Mark Hughes asked about the balance between structural and execution issues driving the business review, how the intrinsic value calculation for Markel Ventures compares to its carrying value, and the outlook for top-line growth in the Insurance segment for 2025.

Answer

Executive Thomas Gayner stated that the review addresses both structure, to improve clarity for investors, and execution, particularly in the Insurance business. He explained the intrinsic value calculation is a consistent methodology to show the rate of change over time, not a precise point estimate, and is higher than carrying value. COO Michael Heaton added it's a blended metric for the entire company. Regarding growth, Gayner prioritized profitable growth, while Executive Jeremy Noble noted that once corrective underwriting actions are fully cycled through in 2025, more normalized growth should resume.

Mark Hughes of Truist Securities asked for details on the benefit to the current year loss ratio from higher ceded loss recovery assumptions on GL and inquired about the implications for the casualty reinsurance program and its pricing.

Answer

Jeremy Noble, President of Insurance Operations, explained that the ceded recovery adjustment was a refinement to align reinsurance estimates with higher gross loss reserves, an effect more pronounced in the quarter. He noted that while casualty reinsurance pricing is expected to rise, Markel's strong underwriting and relationships should be beneficial during renewals.

Mark Hughes inquired whether the low single-digit organic growth outlook for Benefits Delivery and Outsourcing (BD&O), influenced by changes in Medicare, is a one-year phenomenon or if it is expected to extend into 2027.

Answer

Julie Gebauer, President of Health, Wealth and Career, explained that BD&O's 5% growth in Q4 was driven by increased commission revenue in the individual marketplace (Medicare business), new clients, and expanded benefits outsourcing work. She noted that modest headwinds from Medicare changes and lower client headcount are expected to carry over into 2026, resulting in low single-digit growth. Beyond 2026, these challenges are anticipated to dissipate, with momentum from new Medicare marketplace and ICHRA clients supporting mid-single-digit growth. Carl Hess, CEO, highlighted that Newfront's AI capabilities enhance front-office productivity by allowing focus on key activities and drive operating leverage through efficient workflow, reducing personnel needs for specific volumes.

Mark Hughes asked for more details on the low single-digit organic growth outlook for Benefits Delivery and Outsourcing (BD&O), specifically whether the impact of changes in Medicare is a one-year phenomenon or expected to extend into 2027. He also inquired about the Newfront acquisition's AI capabilities, asking how they are driving expense efficiencies and how WTW plans to leverage these across its broader platform.

Answer

Julie Gebauer, President of Health, Wealth and Career, explained that BD&O grew 5% in Q4 and 3% for the full year, with headwinds from Medicare changes and lower client headcount expected to be modest but carry over short-term into 2026, resulting in low single-digit growth. She anticipates these challenges to dissipate beyond 2026, with momentum from new Medicare marketplace and ICHRA clients supporting mid-single-digit growth. Carl Hess, WTW's Chief Executive Officer, described Newfront's AI capabilities as enhancing front-office productivity by allowing staff to focus on key activities and enabling operating leverage through workflow efficiencies, potentially requiring fewer personnel for increased business volumes.

Mark Hughes asked about the strong pipeline in the Health business, specifically how much of its growth is attributable to market share gains versus general demand driven by healthcare inflation, and inquired about the prospects for continued project work in the retirement business if interest rates decline, affecting 2026.

Answer

Carl Hess, CEO, highlighted the Health business's 7% organic growth (8% ex-book settlement) and its sixth consecutive quarter of high-single-digit growth, expecting solid demand and a strong pipeline. Julie Gebauer, President of Health, Wealth, and Career, explained that healthcare inflation is a major driver, with 73% of companies feeling increased cost pressure, leading them to seek WTW's help. She noted strong retention, new business, and success in solutions like global benefits management. For Wealth, she broke it into three pieces: core defined benefit work (including de-risking readiness and data cleanup), emerging defined contribution (LifeSite solution now in 12 countries with over $42 billion AUM), and new product launches in investments, expecting steady growth in the short to medium term and acceleration longer term.

Mark Hughes inquired about the strong pipeline in the Health business, asking if it reflected market share gains or increased demand due to healthcare inflation, and the prospects for continued project work in the retirement business amidst declining interest rates.

Answer

Carl Hess, CEO, highlighted broad-based growth and a strong pipeline in the Health business. Julie Gebauer, President of Health, Wealth, and Career, confirmed that healthcare inflation is a primary driver, with 73% of companies feeling increased cost pressure, leading to strong demand for WTW's solutions. For Wealth, she detailed continued momentum in core defined benefit work, growth in defined contribution (LifeSite solution, AUM), and new product launches in investments, expecting steady growth in the short to medium term.

Mark Hughes from Truist Securities asked if the strong double-digit growth in the Health business outside North America was driven by macro volatility or underlying momentum. He also inquired about the growth trajectory within the Risk & Broking segment during the quarter.

Answer

President of Health, Wealth & Career Julie Gebauer confirmed that the international Health growth was driven by strong underlying momentum and significant healthcare cost inflation. On the Risk & Broking trajectory, management stated they expect to continue delivering mid to high single-digit organic growth for the remainder of the year and in the medium term.

Mark Hughes requested an update on pricing trends by customer size, a metric previously provided by the company.

Answer

Chairman and CEO J. Patrick Gallagher, Jr. stated that pricing is 'basically flat across the book right now.' He noted that large, medium, and small accounts are all experiencing similar decreases and increases, particularly within the casualty book, indicating a leveling of trends that previously saw large accounts receiving more discounts.

Mark Hughes from Truist Securities requested an update on pricing by customer size, a metric previously provided by the company.

Answer

J. Patrick Gallagher, Jr. (Chairman and CEO) stated that pricing is basically flat across the book right now. He noted that large, medium, and small accounts are all experiencing similar decreases and increases, particularly on the casualty book, which is a change from previous periods where large accounts received more discounts.

Mark Hughes asked about the outlook for the employee benefits segment for Q4 and 2026, considering recent slippage in large life cases. He also questioned whether it's easier, harder, or about the same to acquire new business in the current pricing cycle.

Answer

CFO Douglas K. Howell indicated a strong Q4 for employee benefits due to enrollment support, executive compensation, and rising medical inflation. Chairman and CEO J. Patrick Gallagher, Jr. stated that the current environment is positive for new logos due to Gallagher's ability to deliver for clients, but also presents challenges from smaller competitors, requiring re-emphasis on the existing book.

Mark Hughes of Truist Securities questioned the deceleration in workers' comp renewal premium changes, which were up 1% versus 5% in the prior quarter. He also requested the specific organic growth figure for the benefits business.

Answer

CEO J. Patrick Gallagher advised not to read too much into the workers' comp figure, stating the line has been relatively flat for a decade and the quarterly numbers are just moving within a tight range. CFO Douglas K. Howell indicated that the benefits business organic growth was about 1.5 to 2 points better than the overall U.S. retail organic growth of 5%.

Mark Hughes of Truist Securities questioned the deceleration in workers' compensation renewal premium change, which was up 1% in Q2 versus 5% in Q1. He also asked for the specific organic growth rate for the benefits business.

Answer

CEO J. Patrick Gallagher characterized the workers' comp market as being in a "pretty tight range" for the last decade and advised against reading too much into quarterly fluctuations. CFO Douglas K. Howell indicated that the benefits business organic growth was about a point and a half to two points better than the overall U.S. retail organic of 5%.

Mark Hughes asked about the drivers for the 5% increase in workers' compensation renewal premiums and sought J. Gallagher's perspective on how the 'fragile' property market might evolve over the next few quarters.

Answer

J. Gallagher, an executive, and CFO Douglas Howell suggested the workers' comp increase is likely due to a robust economy, higher medical inflation, and increased exposure from employment growth. On the property market, Gallagher described it as 'fragile,' noting that while clients currently deserve some rate relief, the market could change 'on a dime' due to a significant catastrophe season, given increased storm and wildfire risks.

Mark Hughes of Truist Securities asked if the Q1 revenue contribution guidance for AssuredPartners reflects seasonality or just the timing of the deal's close. He also requested more detail on the wholesale business performance within the 9% combined wholesale and reinsurance organic growth figure.

Answer

CFO Douglas Howell clarified that the initial AssuredPartners revenue guidance is a straight-line assumption based on timing and does not yet factor in seasonality, which exists in their benefits and public entity businesses. He then broke down the specialty growth, noting U.K. specialty was around 7% and U.S. specialty was around 10%, which contributed to the overall 9% growth for the combined group in the quarter.

Mark Hughes asked for early 2025 margin thoughts for both segments, a breakout of organic growth for wholesale and reinsurance, and commentary on the market shift from admitted to E&S lines.

Answer

CFO Douglas Howell indicated that with 6-8% organic growth, there is 'absolutely' an opportunity for 2025 margin expansion, driven by scale and technology. He broke down wholesale/reinsurance growth with most components around 8-9%. Executive J. Gallagher noted that submission flow to their wholesale operation (RPS) remains tremendous and accounts are not flowing back to the primary market, indicating sustained growth in the E&S space.

Mark Hughes asked about the typical cadence of business shifting after a team departure, specifically how quickly the broker of record changes, to better understand the potential evolution of the $23 million revenue loss. He also inquired if the cat property market is close to bottoming out.

Answer

R. Andrew Watts, Chief Financial Officer, explained that some accounts, representing the $23 million, moved immediately, likely due to prior discussions. Other clients might review their programs, potentially leading to RFPs, but the ultimate impact is speculative. J. Powell Brown, President and Chief Executive Officer, stated that he wouldn't say the cat property market is bottoming due to the unique dynamic of convective storms and fires versus periods of low hurricane activity, which creates significant competition and pressure on rates, especially between now and May or June.

Mark Hughes asked about the typical cadence of business shifting after a team loss, specifically how quickly the broker of record changes and how the $23 million in lost revenue might progress. He also inquired if the cat property market is close to bottoming, given the anticipated modest decline in rates from Q4 levels.

Answer

R. Andrew Watts, CFO, explained that some accounts ($23 million) moved immediately due to prior discussions, while others might review their programs. He stated it's speculative to predict the ultimate number but emphasized rehiring and leveraging capabilities. J. Powell Brown, CEO, avoided declaring a bottom for cat property rates, citing unique market dynamics (convective storms vs. lack of Florida wind losses) and anticipating significant competition in the near to intermediate term, particularly until May or June.

Mark Hughes inquired about the potential impact on rates if carriers deploy extra capital at year-end after a clean CAT season, and provided commentary on the construction market, particularly in Florida.

Answer

CEO Powell Brown, while prefacing he's not a reinsurance expert, anticipated reinsurance rates could be down 5-15%, leading to similar or higher pressure on admitted primary/E&S. He suggested the possibility of aggressive pricing from carriers with unutilized capacity in late Q4. CFO Andrew Watts added that unusual pricing can occur at quarter-end. On construction, Powell Brown noted rising costs and significant building in Florida, but also slower real estate sales and increasing cost of living (rents, food, insurance) in the state.

Mark Hughes sought clarification on the specialty distribution outlook for Q4, asking if the $28 million in non-recurring revenue, lender-placed business, and wind/quake program pressure summarize the expected mid-single-digit decline.

Answer

Powell Brown, President and CEO, confirmed that these three factors are the primary drivers influencing the specialty distribution outlook for Q4.

Mark Hughes of Truist Securities inquired about the Retail segment's organic growth, asking for details on new business fluctuations and the outlook for Q3.

Answer

President, CEO & Director J. Powell Brown explained that over half of the variance from consensus expectations was due to downward rate pressure, with the remainder from lower new business in the quarter. He expressed confidence in the new business pipeline for Q3 but emphasized the significant impact of moderating rates.

Mark Hughes asked for specifics on the Quintes acquisition's impact on retail margins, the effect of renewal timing on retail organic growth, the outlook for earned premiums in captives, non-cat property pricing stability, and the expected duration of the cat property rate downturn.

Answer

Executive R. Watts explained that Quintes' Q1 revenue seasonality boosted retail margins, which will act as a drag in later quarters, but the full-year impact is as expected. He confirmed retail's Q1 organic growth was anticipated to be lower and that captive premium growth would level off. Executive J. Powell Brown stated that the non-cat property pricing outlook is uncertain and depends on the upcoming storm season. He also noted that the current cat property rate downturn follows an unusually long upcycle and that future rate direction will be heavily influenced by storm activity.

Mark Hughes of Truist Securities asked for clarification on how a $19 million prior-year reinsurance item impacted the Q4 organic growth calculation. He also inquired about the supply of quality contractors in California for post-wildfire rebuilding.

Answer

R. Watts, an executive, confirmed that the $19 million negative adjustment in Q4 2023 created a favorable year-over-year comparison for Q4 2024 organic growth. J. Powell Brown, an executive, speculated that given the potential scale of wildfire damage, there would be an insufficient supply of quality contractors in California, necessitating a large-scale, expedited rebuilding plan from officials.

Mark Hughes inquired about the $15 million in revenue from new customers in the Programs segment, the performance of the advocacy business, and the margin impact from investments in teammates.

Answer

R. Watts, an executive, clarified the $15 million is from onboarding new lender-placed business and will create a tough year-over-year comparison in Q3 2025 as the revenue normalizes. J. Powell Brown, an executive, described the investments in teammates as 'normal opportunistic investing' rather than a formal program and noted the advocacy business performance was similar to recent years.

Mark Hughes sought granularity on the property market's competitive pressure, asking if it had stabilized or was still under incremental pressure through Q4. He also inquired if the lower reinsurance costs were already incorporated into pricing and what impact they might have on market behavior. Finally, he asked for quantification of the additional rate increases being sought in personal umbrella for 2026.

Answer

Jen Klobnak (COO) stated that Q4 is a small quarter for renewals, making it difficult to draw broad conclusions, but confirmed the market remains competitive. She explained that RLI contemplated reinsurance cost decreases in its benchmark pricing for 1/1 renewals, but noted that last year, market behavior changes from reinsurance relief were observed in February, not January. For personal umbrella, Jen Klobnak highlighted a 20% rate increase in California effective December 1st, which will bleed into the book, and mentioned ongoing analyses to identify states requiring additional rate, expecting a 'pretty good amount of rate' to go into the book in 2026 from approved filings.

Mark Hughes asked for granularity on property competitive pressure, specifically if it stabilized in Q4 compared to Q3. He also inquired if lower reinsurance costs were already incorporated into pricing and their near-term market impact, and sought quantification for additional personal umbrella rate increases expected in 2026.

Answer

Jen Klobnak (COO) noted that Q4 is a smaller quarter for renewals, making it difficult to draw monthly conclusions, with 1/1 and spring dates being more significant. She stated RLI had contemplated reinsurance cost decreases in its benchmark pricing and would observe if market behavior changes later in the spring. For personal umbrella, she highlighted a 20% California rate increase effective December 1st, which will contribute to 2026, and ongoing state-level analyses for further rate adjustments.

Mark Hughes asked about the surety segment's expense ratio, specifically concerning technology and personnel investments, and whether the current level is sustainable or expected to taper off. He also inquired about the current state of the property market, including competition, capacity, and potential for stabilization or further softening.

Answer

Todd Bryant, Chief Financial Officer, indicated that investments in technology (digital, CRM) and personnel are ongoing, contributing to the higher expense ratio, along with slight pressure on commissions. He noted that the ratio might appear higher on a written basis for the quarter. These investments are strategically designed to increase top-line revenue, with Jen Klobnak, Chief Operating Officer, emphasizing the focus on 'profitable premiums.' Klobnak described a continued softening in the property market, with admitted markets re-entering the Midwest and MGAs/programs affecting coastal states through decreased rates, deductibles, and expanded terms. Craig Kliethermes, President and CEO, added that future reinsurance renewals could significantly influence market competitiveness.

Mark Hughes from Truist asked about the future trajectory of the surety expense ratio, considering recent investments in technology and personnel, and whether the current level is sustainable. He also inquired about the current state of the property market, specifically regarding competition, capacity influx, and the potential for further softening or stabilization as the storm season concludes.

Answer

Todd Bryant, Chief Financial Officer, indicated that ongoing investments in technology and people are the primary drivers of the increased surety expense ratio, with the goal of leveraging these for increased premium. Jen Klobnak, Chief Operating Officer, described tough property market conditions with continued softening from various players, emphasizing RLI's focus on adequate rates and terms, and strong producer relationships. Craig Kliethermes, President and CEO, added that reinsurance renewals could significantly influence future market competitiveness.

Mark Hughes asked about Heritage Insurance Holdings' growth strategy, specifically evaluating opportunities in Florida versus other states, the competitive pricing environment in Florida, and the company's capacity to support growth with its current surplus. He also inquired about the allocation of new business premium and capital priorities.

Answer

CEO Ernie Garateix detailed the significant runway for growth in Florida, emphasizing strong agent relationships and new business momentum, while also confirming plans for potential low-to-mid single-digit rate decreases in 2026. CFO Kirk Lusk clarified that approximately $17 million of the $36 million new business premium was from Florida, discussed ceded premiums, and outlined the substantial growth capacity provided by the increased statutory surplus. He also explained the company's capital allocation priorities, including growth, stock buybacks, and dividends, noting the board's authorization of an additional $25 million for buybacks.

Mark Hughes with Truist inquired about Heritage Insurance Holdings' growth opportunities in Florida versus other states, the breakdown of new business premium by geography, the competitive pricing environment in Florida for both homeowners and commercial property, the expected trajectory of ceded premiums, the company's capacity to support growth with its current statutory surplus, and the priorities for capital allocation, including potential for further share repurchases.

Answer

CEO Ernie Garateix highlighted significant runway in Florida due to prior de-risking and strong agent relationships, confirming a pending rate decrease filing for 2026. CFO Kirk Lusk specified that $17 million of the $36 million new business premium was from Florida, clarified that seeded premiums for Q4 would be lower due to a one-time $4 million reinstatement premium from Hurricane Ian, and explained that the $352.2 million statutory surplus could support over $225 million-$250 million in premium growth. He also outlined capital priorities: growth, stock buybacks (with an additional $25 million authorized), and then dividends.

Mark Hughes of Truist Securities inquired about the trajectory of attritional losses, the competitive environment in Florida, future rate trends, and the loss experience in growth markets like the Northeast.

Answer

CFO Kirk Lusk explained that attritional losses are stabilizing as frequency trends level off after a period of decline. He noted that while new competition is entering Florida, it is primarily focused on Citizens depopulation, not direct competition. Lusk anticipates that primary rate increases will moderate as the company has now achieved rate adequacy in most markets. He also stated that growth in the Northeast is expected to be beneficial for the overall loss ratio, as those markets are still seeing some rate increases.

Mark Hughes inquired about the future trajectory of insurance rates given Heritage's strong profitability, the potential for rates to decrease, the competitive landscape for personal lines, and the sustainability of the current low underlying loss ratio.

Answer

CEO Ernesto Garateix stated that Heritage will maintain rate adequacy but is open to rate decreases if they correspond with falling loss trends, as seen in Florida. He clarified that they are reopening business with existing distribution partners and are prepared for responsible competition from new entrants. CFO Kirk Lusk added that current favorable loss trends, aided by legislative impacts, appear sustainable.

Mark Hughes asked about the sustainability of the improved underlying loss ratio, the remaining tailwind from rate increases, and which geographies Heritage finds most attractive for growth.

Answer

Executive Kirk Lusk explained that while the third quarter is seasonally strong, the improved attritional loss ratio is 'more close to a new norm' due to successful underwriting actions and legislative reforms. CEO Ernesto Garateix added that significant rate increases will continue to earn through in 2025, and that Florida remains attractive alongside Northeast states like New York and New Jersey, where rates are approaching adequacy. Kirk Lusk confirmed that more rate, on an absolute basis, is expected to earn through in 2025 than in 2024.

Mark Hughes asked for the collections multiples for U.S. core paper and U.K. core paper for Q3 2025. He also inquired about the current pricing and return dynamics, cash efficiency margin guidance for the full year, the impact and implementation status of new technologies and digital enhancements on operations, and the fixed versus floating debt mix of Encore's liabilities.

Answer

Ashish Masih, President and CEO, stated that the collections multiple for both U.S. and Cabot (U.K.) in 2025 was 2.3, remaining stable. He noted that supply is good and pricing is stable, leading to very good returns. Tomas Hernanz, EVP and CFO, provided full-year cash efficiency margin guidance of approximately 58%. Masih explained that new technologies and digital enhancements have been ongoing, primarily impacting recent vintages and early stages of portfolio lifecycles, driving current overperformance. Hernanz added that approximately 75% of Encore's debt is fixed and hedged, with 25% floating.

Mark Hughes asked for the collections multiples for US and UK core paper, insights into pricing and return dynamics, guidance for the cash efficiency margin, the impact and implementation status of new technologies and digital enhancements, and the fixed versus floating split of Encore's debt.

Answer

Ashish Masih, President and CEO, stated collections multiples were 2.3 for both US and Cabot, noting stable pricing and good returns. He explained that new technologies are significantly improving collections, especially for recent vintages, and are in the midst of implementation. Tomas Hernanz, EVP and CFO, guided for a full-year cash efficiency margin of approximately 58% and indicated that approximately 75% of debt is fixed/hedged, with 25% floating.

Mark Hughes of Truist Securities inquired about the full-year interest expense guidance, the outlook for U.S. portfolio supply given recent charge-off trends, updated collection multiples, and the reason for a decline in cash from operating activities.

Answer

EVP & CFO Tomas Hernanz confirmed the $285 million interest expense guidance for the year is accurate and not affected by one-time items. He also explained that the cash from operating activities calculation was impacted by the non-cash accounting for 'changes in recoveries'. President & CEO Ashish Masih added that the U.S. supply environment remains highly favorable, expecting record 2025 purchasing for the MCM business. He also provided the 2025 vintage collection multiples: 2.3x for MCM and 2.4x for Cabot.

Mark Hughes of Truist Securities inquired about the drivers behind Cabot's strong collections performance, the expected collections multiple for Q1 portfolio purchases in the U.S. and Europe, the outlook for U.S. portfolio supply, and any observed volatility in consumer collectability during the recent tax season.

Answer

President and CEO Ashish Masih explained that Cabot's performance was a combination of operational improvements and updated forecasts. He stated that both the U.S. (MCM) and Cabot businesses achieved a 2.3x collections multiple on Q1 purchases. Masih characterized the U.S. supply environment as very favorable and stable at elevated levels, expecting MCM to achieve another record purchasing year. He also noted that the U.S. tax season was normal to slightly better, with overall consumer payment behavior remaining stable.

Mark Hughes inquired about the outlook for cash efficiency in 2025, the specific items driving up G&A expenses in the quarter, the exact amount and cause of the Cabot ERC reduction, and the current state of portfolio pricing in the U.S.

Answer

President and CEO Ashish Masih projected continued improvement in cash efficiency, driven by technology and scale, noting MCM's headcount was flat despite 20% collections growth. He detailed that G&A was impacted by a $6M restructuring charge and a $19M IT asset write-down. He specified the Cabot ERC reduction was ~$453M ($129M revenue impact), primarily from older vintages, resulting from a holistic review rather than a sudden Q4 event. He confirmed U.S. pricing remains stable with strong returns.

Mark Hughes asked about the new capital allocation strategy, questioning the shift in focus to share repurchases given the strong U.S. portfolio supply. He also requested the latest collection multiples for U.S. and Cabot portfolios, inquired about a large spot purchase in Europe, and asked about the outlook for cost efficiency.

Answer

President and CEO Ashish Masih clarified that buying portfolios at strong returns remains the top priority and that the capital allocation update is not a signal of a changing U.S. market. He explained that the company sees limited value in strategic M&A and is more likely to repurchase stock as leverage declines toward the midpoint of their target range. He confirmed the 2024 vintage purchase multiples for both the U.S. and Cabot are 2.3x and noted the large Q4 Cabot purchase was a lumpy spot deal in a steadily improving, but still competitive, European market. He also affirmed that operating leverage should continue to improve, pointing to the recent increase in the cash efficiency margin.

Mark Hughes asked about Assurant's strong pipeline in homeowners and renters, the sustainability of Global Auto's stable loss performance, and the potential impact of a softening housing market on the homeowners' top line.

Answer

Keith Demmings, President and CEO, highlighted momentum across housing, driven by technology investments, market-leading lender-placed solutions, and consistent PMC growth in renters. Keith Meier, CFO, expressed satisfaction with Global Auto's EBITDA growth, noting stable vehicle service contract loss performance due to rate actions and diminishing GAP loss exposures. Demmings also mentioned benefiting from the challenging voluntary market and the countercyclical nature of their business.

Mark Hughes inquired about Assurant's strong pipeline in homeowners and renters, the sustainability of Global Auto's improved loss performance, and the potential impact of a softening housing market on the homeowners' top line.

Answer

CEO Keith Demmings highlighted momentum in housing driven by technology investments, market-leading lender-placed solutions, and consistent PMC growth in renters. CFO Keith Meyer added that Global Auto's improved loss experience in vehicle service contracts and diminishing GAP loss exposures suggest stabilization. Demmings also noted that while the challenging voluntary market has benefited policy growth, the business is countercyclical, potentially seeing an uptick in placement rates during an economic downturn.

Mark Hughes of Truist Securities asked for details on the source of prior year reserve development in Global Housing, the anticipated impact of tariffs, the current dynamics of lender-placed policy retention, and the strength of the new business pipeline for Global Lifestyle.

Answer

CFO Keith Meyer attributed the prior year development to regulatory improvements in Florida, lower claim frequencies, and inflation being lower than expected. President and CEO Keith Demings stated that tariff impacts were minimal in H1 and are considered manageable in the full-year outlook. Demings also confirmed that lender-placed policies are being retained longer due to the hard voluntary market and Assurant's competitive rates, a duration Meyer quantified as 6-12 months longer. Regarding the pipeline, Demings described strong momentum and planned investments for new business, hinting at upcoming announcements for new clients, expanded services, and new products.

Mark Hughes inquired about the new Total Wireless by Verizon partnership, trends in the lender-placed homeowners market, softness in device trade-ins, and the recent acquisition of a renters insurance book.

Answer

President and CEO Keith Demmings described the Verizon deal as a new launch that will ramp over several years and deepen a key client relationship. On homeowners, CFO Keith Meier noted continued policy growth, which Mr. Demmings added has slowed sequentially but is still expected to grow modestly. Regarding the renters book, Mr. Demmings explained it was a strategic acquisition of 250,000 policies that adds scale and reinforces market leadership.

Mark Hughes of Truist Financial inquired about the drivers of the homeowners placement rate, the top-line growth outlook for Global Lifestyle, the specific headwind from foreign exchange in 2025, the source of prior year development in Q4, and the context behind management's comment on the company's valuation deserving to be 'better appreciated'.

Answer

CEO Keith Demmings explained that the 16% policy growth in lender-placed homeowners was driven one-third by client growth, one-third by the hardening California market, and one-third by the rest of the country. For Global Lifestyle, he anticipates continued top-line growth momentum, supported by major mobile client renewals and new programs. He specified the 2025 headwind as a couple of points from FX and 1-2 points from new investments. CFO Keith Meier noted that Q4 prior year development stemmed from the post-inflationary environment and lower-than-expected claims frequency. Finally, Mr. Demmings elaborated that the 'better appreciated' comment refers to the market sometimes overlooking the fundamental strength, low volatility, and consistent outperformance of the Global Housing business, which has a 10-year average combined ratio of 89%.

Mark Hughes inquired about the drivers behind the growth in voluntary business being picked up in Global Housing, whether the recent acceleration in device count was a one-time event, and the timeline for mitigating the elevated losses in the GAAP auto product.

Answer

President and CEO Keith Demmings explained that the higher placement rate in Housing is driven equally by new client growth and a hard voluntary insurance market. He clarified that the Q3 device count growth was a 'natural evolution' rather than a one-time step-change. Regarding GAAP losses, CFO Keith Meier noted the impact is short-term and risk participation has been significantly reduced from 40% of written premium in 2022 to 12% in 2024, with Demmings adding the headwind should not persist into 2025.

Mark Hughes followed up on the 'other liability' line, asking for more detail on the portfolio pivoting and if it was driven by loss development trends. He also inquired about the persistence of volatility in commercial auto.

Answer

Rob Berkley, President and CEO, explained that the portfolio pivoting in other liability is driven by numerous variables, including appetite, state, and attachment point, rather than solely loss development trends. He cautioned against drawing deep conclusions from one quarter's commercial auto volatility.

Mark Hughes followed up on the 'other liability' pivot, asking if it was driven by loss development trends and if the pivot would persist given commercial auto volatility.

Answer

Rob Berkley (President and CEO) clarified that the pivot in other liability is driven by numerous variables, including appetite, state, and attachment point, not solely loss development trends. He cautioned against reading too deeply into one quarter's pivot.

Mark Hughes from Truist Securities asked about the slower growth in the 'other liability' line and whether the company would consider acquiring one of the MGAs being offered for sale.

Answer

President & CEO W. Robert Berkley, Jr. attributed the recalibrated growth outlook to headwinds in commercial property, while noting the opportunity in casualty remains. Regarding MGAs, he stated that while every opportunity is evaluated, the company maintains a very high hurdle for acquisitions, prioritizing expertise and capital stewardship.

Mark Hughes of Truist Securities asked about the slower growth in the 'other liability' line, the market dynamics in general and excess liability, and the company's interest in acquiring MGAs.

Answer

President & CEO W. Robert Berkley, Jr. attributed the moderated growth outlook primarily to headwinds in commercial property, while noting that opportunities in casualty remain strong. Regarding MGAs, he stated that while all opportunities are evaluated, the hurdle for an acquisition is very high given the company's focus on internal expertise and capital stewardship.

Mark Hughes asked for commentary on the mix shift between admitted and E&S business and submission growth trends. He also questioned if the impact of reinsurance purchasing on the underlying loss ratio was an ongoing phenomenon.

Answer

Executive W. Berkley expressed pleasure with continued submission flow in the E&S market, particularly for liability lines, noting the quarter unfolded encouragingly after a challenging January. Principal Financial Officer Richard Baio explained that the reinsurance impact is not due to timing but to the changing composition of business across operating units with different cession levels, while the overall cession rate remains consistent around 14-15%.

Mark Hughes of Truist Securities inquired about the business mix between E&S and admitted lines, asking if the strong flow into E&S continues. He also asked for the drivers behind the confidence that underwriting profitability will improve or not deteriorate, questioning the outlook on loss cost inflation versus pricing gains.

Answer

W. Robert Berkley, Jr. (Executive) stated that submission flow to the E&S market remains robust, with more momentum on the casualty side than property, and confirmed that the E&S business is growing considerably faster than the admitted business. He attributed confidence in future underwriting margins to the significant rate achieved over a long period, growing visibility into underwriting actions, and a favorable view of rate versus loss trend, leading to cautious optimism.

Mark Hughes of Truist Securities sought to reconcile comments about the accident year loss ratio improvement being driven by business mix versus the idea that underwriting margins should improve from rates exceeding loss trends. He also asked for the tax rate outlook.

Answer

Executive W. Berkley explained that the primary driver of the current accident year loss ratio improvement was progress on the property ex-cat attritional loss ratio. While the delta between rate increases and loss trend should theoretically benefit margins, the company is not prematurely declaring victory. CFO Richard Baio projected the tax rate for next year would be in the 23.5% to 24% range, similar to the current year, assuming foreign earnings contributions remain consistent.

Mark Hughes of Truist Securities questioned the higher-than-expected effective tax rate, requested the adjusted cash EBITDA for the current and prior-year quarters, and asked for an update on the Conn's portfolio performance.

Answer

CFO Christo Riloff explained the 23% tax rate was driven by a $12.2 million one-time catch-up adjustment related to the post-IPO C-Corp transition, but noted 23% is a good go-forward estimate. He provided adjusted cash EBITDA of $204 million for Q2 2025 and $127 million for Q2 2024. CEO David Burton added that the Conn's performing portfolio continues to exceed underwriting expectations.

Mark Hughes of Truist Securities questioned the Q2 effective tax rate, which appeared higher than initial expectations. He also requested the adjusted cash EBITDA for the current and prior-year quarters and asked for a performance update on the performing and non-performing segments of the Conn's portfolio.

Answer

CFO Christo Riloff clarified that the 23% effective tax rate was influenced by a significant one-time catch-up provision related to the IPO, but coincidentally, 23% is the expected go-forward rate. He provided the adjusted cash EBITDA figures of $204 million for Q2 2025 and $127 million for Q2 2024. CEO David Burton added that the performing Conn's portfolio continues to exceed underwriting expectations.

Mark Hughes from Truist Securities questioned the higher-than-anticipated effective tax rate, requested specific quarterly adjusted cash EBITDA figures, and asked for a performance update on the Conn's portfolio.

Answer

CFO Christo Riloff clarified that the Q2 effective tax rate of 23% included a significant one-time catch-up adjustment post-IPO but is also the expected go-forward rate. He provided adjusted cash EBITDA figures of $204 million for Q2 2025 and $127 million for Q2 2024. CEO David Burton added that the Conn's portfolio continues to perform above underwriting expectations, with its financial impact expected to diminish through 2025.

Mark Hughes of Truist Securities inquired about the premium outlook for the Everspan segment, the net-to-gross premium ratio, drivers of commission income volatility, the timeline for organic growth stabilization, and performance within the property distribution business.

Answer

EVP, CFO & Treasurer David Trick projected Everspan's gross premium around $400 million for the year, noting that profitability remains the priority. He explained the net retention ratio is expected to average 15-20% going forward due to a shift away from assumed programs. Trick also attributed commission volatility to seasonality and differing reporting methods between BEAT (net) and other MGAs (gross). President and CEO Claude LeBlanc added that the ESL market is stabilizing and expects Q3 and Q4 to be strong. He also noted that while the property market has seen some pressure, Ambac's focus on non-cat exposed areas has limited the impact.

Asked about the future premium trends at Everspan following recent program runoffs, the net-to-gross premium ratio, the drivers behind commission income trends in the distribution business, the outlook for organic growth, and performance within the property business.

Answer

The company expects Everspan's gross premium to be around $400M for the year, with a focus on profitability. The lower net-to-gross ratio is the new normal due to a shift away from assumed programs. Commission income fluctuations are due to seasonality and the business mix (specifically BEAT's net reporting). Organic growth is expected to be strong in Q3/Q4 as the A&H market stabilizes. The property business has seen some pressure but is not a major concern due to their focus on non-cat exposed markets and portfolio diversification.

Mark Hughes of Truist Securities asked about the reasons for lower surrenders in Group Retirement and inquired about the broader market adoption and distribution trends for RILA products.

Answer

CFO Robin Raju attributed lower Group Retirement surrenders to market volatility in April and ongoing client retention efforts. On RILAs, President Nick Lane noted that growing advisor awareness is expanding the total market. He highlighted that Equitable's position as a pioneer allowed it to secure 'privileged distribution' with key third-party partners.

Mark Hughes of Truist Securities asked about the 2025 net flow outlook for AllianceBernstein and the trajectory of alternative investment returns.

Answer

Onur Erzan, Head of AllianceBernstein's Global Client Group, noted a positive start to the year for flows, driven by retail and insurance channels, though institutional equities remain a headwind. CFO Robin Raju projected alternative investment returns would start the year around 5-6% and ramp up to the lower end of the 8-12% target range for the full year, contingent on improving M&A and IPO markets.

Mark Hughes asked about the sensitivity of AllianceBernstein's 33% baseline operating margin guidance for 2025 to stronger market performance. He also inquired if the transfer of annuitized balances from the Legacy segment to Individual Retirement could be material.

Answer

Jackie Marks, AB's CFO, stated that while the 2025 baseline is 33%, they expect further margin expansion over time as the business scales, particularly in private markets. CFO Robin Raju clarified that the annuitization transfers from Legacy are not material, amounting to a consistent $10 million in the quarter, and result in the creation of favorable long-duration, spread-based products.

Mark Hughes of Truist Securities inquired about the growth drivers in the excess casualty segment, asking about the specific end markets being targeted and the impact of shifting to smaller policies. He also asked for clarification on policy and premium retention trends.

Answer

Frank D'Orazio, Director & CEO of James River Group Holdings, explained that the excess casualty portfolio has significantly reduced its commercial auto-driven component, now focusing more on manufacturers, premises risks, and hospitality. He noted that while policy count retention remains stable in the 60-65% range, premium retention has dropped due to a deliberate strategic shift away from larger, more competitive accounts towards smaller, more profitable ones.

Mark Hughes inquired about the growth outlook for the E&S segment, asking if the strong 9% premium growth in March signaled an end to the re-underwriting focus on smaller accounts, and also asked for visibility on the upcoming June E&S reinsurance program renewal.

Answer

CEO Frank D'Orazio responded that while portfolio management is a continuous process, the company intends to profitably grow the E&S book through initiatives in efficiency, technology, and new leadership. He noted the new segment leader will be charged with driving growth. CFO Sarah Doran added that the reinsurance renewal is at the end of June and appears orderly, with more details to be provided next quarter.

Mark Hughes inquired about the normalized go-forward expense ratio and sought confidence regarding the profitability of the 2023 and 2024 accident years, given the adverse development in prior years.

Answer

CFO Sarah Doran clarified that the normalized group expense ratio should be around 28%. CEO Frank D'Orazio explained that the reserve charge was driven by increased severity trends in prior years, not frequency, and expressed strong confidence in recent accident years due to significant underwriting actions and compounded rate increases, which have not yet been fully recognized in the reserves.

Mark Hughes of Truist Securities inquired about the second-half trajectory for Marketplace revenue, the 2026 outlook for incremental technology spending, the bottom-line impact of the new Markel fronting arrangement, current consumer shopping dynamics, and the marginal economics of the risk-free State Farm partnership.

Answer

CFO Patrick McClymont explained that strong Q2 Marketplace revenue was driven by private and inventory sales, with second-half growth fueled by new auctions in Europe and Las Vegas. He clarified the incremental tech spend is a pre-revenue investment that will be leveraged, not eliminated. McClymont detailed that the new Markel arrangement will boost profitability through incremental underwriting profit and investment income. He also clarified the State Farm partnership is a pure, profitable agency relationship with a commission in the 'low 30ish percent' range, leveraging existing infrastructure.

Mark Hughes of Truist Securities questioned the full-year growth outlook for Marketplace revenue, sought details on the 'Enthusiast Plus' program, and asked about the recurring nature of the $20 million strategic spend.

Answer

CFO Patrick McClymont reaffirmed full-year guidance, noting the strong Q1 Marketplace performance was anticipated. CEO McKeel Hagerty described 'Enthusiast Plus' as a new program for modern collectible cars, enabled by the Duck Creek platform. McClymont clarified the $20 million spend creates a new expense baseline to be leveraged for future growth, rather than being a one-time cost.

Mark Hughes from Truist Securities asked for an update on customer shopping behavior, questioning if rising rates in the standard auto insurance market are still a significant driver for new business and how that trend has evolved recently.

Answer

CEO McKeel Hagerty confirmed that the hard standard auto market continues to drive shopping behavior that benefits Hagerty, though the rate of increase may be leveling off. CFO Patrick McClymont added that Hagerty's significant price advantage over the industry is a compelling value proposition, contributing to a record pace of new customer acquisition, with a projection of 275,000 new members in 2024.

Mark Hughes from Truist Securities asked about the drivers behind the 7% collections overperformance in Q2, sought more detail on the U.S. operational restructuring, and questioned the slight sequential dip in U.S. core purchase price multiples.

Answer

Martin Sjolund, President and CEO, attributed the strong European overperformance to operational initiatives and conservative underwriting, while U.S. outperformance was linked to the success of recent initiatives, particularly a 24% growth in legal cash collections. He clarified the U.S. restructuring aims to create an empowered operational team under a single P&L for faster execution, not just cost savings. Both Sjolund and CFO Rakesh Sehgal explained that purchase price multiples fluctuate due to portfolio mix and that the company's global investment framework prioritizes net returns over headline multiples.

Mark Hughes of Truist Securities asked about the drivers of the strong cash efficiency ratio, the reason for lower U.S. portfolio purchases despite good pricing, the outlook for U.S. supply, the trajectory of legal collection costs, and how to model noncontrolling interests.

Answer

President and CEO Vik Atal stated the strong cash efficiency was organic and not due to one-timers, reaffirming the 60%+ target. He and Martin Sjolund, President of PRA Group Europe, explained that lower U.S. purchases reflected a global capital allocation strategy, with attractive opportunities seized in Europe. On supply, management sees U.S. levels remaining elevated but stabilizing. EVP and CFO Rakesh Sehgal projected that legal cost growth would moderate significantly in 2025 and detailed that the noncontrolling interest relates to their 50-50 investment partnership in Brazil.

Mark Hughes inquired about the stability of portfolio pricing in the U.S., whether legal spending might decrease to improve the efficiency ratio, and the comparative productivity and cost of the company's new international collectors.

Answer

Rakesh Sehgal, EVP and CFO, stated that U.S. pricing has stabilized around a 2.1x multiple, which does not yet fully reflect the upside from ongoing cash-generating initiatives. He clarified that legal spending is a strategic investment and is factored into the 2025 efficiency target. Vik Atal, President and CEO, added that offshore collectors are performing on par with similarly tenured U.S. collectors and provide significant cost savings of approximately $30,000 per collector annually.

Mark Hughes inquired about the stability of portfolio pricing, the strategy and potential costs associated with recalibrating the U.S. facility footprint, and the drivers behind the strong Q4 portfolio purchase forecast.

Answer

EVP and CFO Rakesh Sehgal stated that pricing is stable at an attractive 2.1x multiple, reflecting a market in equilibrium. CEO Vik Atal explained the U.S. footprint reduction to three sites is enabled by successful offshoring and work-from-home programs, which will minimize exit costs by retaining staff remotely. Vik Atal also confirmed that the strong Q4 purchase forecast is driven by continued robust supply in the U.S. and a seasonally strong, spot-driven market in Europe.

Mark Hughes of Truist Securities inquired about the emergence of California cumulative trauma (CT) claims, asking what triggered the significant reserve action this quarter, the role of post-employment filings, and the frequency versus severity trends. He also questioned the company's confidence in its current reserve levels, how its book compares to the broader California market, the magnitude of the reserve shift between accident years, and the implications for capital management.

Answer

President & CEO Katherine Antonello explained that while EIG's California book has historically outperformed the industry, a recent rise in CT claim frequency, particularly for older accident years like 2023, prompted the action. She attributed the trend to California's unique laws allowing post-termination and stress-related claims, amplified by attorneys using remote hearings to expand geographically from LA to the Bay Area. Antonello confirmed it's a frequency, not severity, issue and stated that over $50 million in favorable development from older accident years was prudently reallocated to more recent years. EVP & CFO Michael Pedraja added that the company maintains the highest level of excess capital and will be disciplined in its capital management, considering share repurchases when the ROI is compelling.

Mark Hughes of Truist Securities inquired about the emergence of California cumulative trauma (CT) claims, the specific triggers for the significant reserve action this quarter, the frequency versus severity of these claims, management's confidence in current reserve levels, and the implications for capital management.

Answer

President & CEO Katherine Antonello explained that the increase in CT claims, a California-specific issue exacerbated by post-termination filings and remote hearings, became apparent in late 2024. She clarified it is a frequency, not severity, issue and that the company reallocated over $50 million in favorable development from older accident years to recent ones as a prudent measure. EVP & CFO Michael Pedraja added that the company maintains the highest level of excess capital, providing flexibility for strategic capital management, including opportunistic share repurchases.

Mark Hughes of Truist Securities questioned Employers about the drivers behind the increased accident year loss ratio, specifically asking for details on loss trends, geographic scope, and underlying medical inflation. He also probed the rise in California's cumulative trauma claims, its potential link to macroeconomic factors or social inflation, and sought commentary on the broader workers' compensation rate environment and industry-wide reserve adequacy.

Answer

CEO Katherine Antonello explained that the higher loss ratio reflects a competitive rate environment, pressure on recent accident years, and a notable rise in California's cumulative trauma claims, which she characterized as a form of social inflation. She noted that while overall medical severity remains below pre-pandemic levels, the company has taken targeted pricing actions. Antonello confirmed that California's rate filings are advisory, allowing for flexibility, and observed that Employers' own rates have increased 4-5% in the last six months, mirroring broader market firming.

Mark Hughes inquired about the magnitude and timing of the increase in the current accident year loss pick, questioning why the change is happening now. He also asked about the specific actuarial trends driving the decision, the impact of slowing wage inflation, and the outlook for the company's appetite expansion into 2025.

Answer

CEO Katherine Antonello explained that the 2024 accident year loss and LAE ratio was set at 64%, a slight increase from 63.3% in 2023, due to a prudent reserving philosophy and a competitive rate environment. She anticipates a further increase in 2025, driven by higher actuarial trend selections, which will be meaningfully offset by continued expense ratio reductions. Antonello noted that while claim frequency trends downward and severity remains stable, the change is influenced by industry-wide conservatism. She also confirmed that slowing wage inflation is pressuring net written premium and that the company will accelerate its successful appetite expansion program in 2025.

Mark Hughes inquired about the future growth prospects of Employers' appetite expansion initiative, the reasons for a Q3 slowdown in audit premiums, any related feedback from payroll partners, and the outlook for NCCI aggregate loss costs in 2025.

Answer

CEO Katherine Antonello confirmed that the appetite expansion strategy is ongoing and will continue into 2025, with a dedicated working group actively seeking new, profitable class codes. Regarding audit premiums, she noted that while no specific cause was identified, the trend mirrored a broader labor market slowdown over the summer reported by NCCI, which has since seen some recovery. She added that while overall premium growth was modest, policies in force grew, driven by smaller policies. For 2025, she anticipates continued downward pressure on NCCI loss costs but emphasized that Employers retains pricing flexibility in most states.

Mark Hughes inquired about the potential for an uptick in M&A activity following recent events and asked for updated thoughts on the company's leverage trajectory for the remainder of the year.

Answer

CEO Dwayne Hyzak and Managing Director Nicholas T. Meserve stated it was too early to determine the impact of recent events on M&A but viewed them as a net positive, hoping for a long-term resolution to reduce market uncertainty. Regarding leverage, CFO Cory Gilbert and CEO Dwayne Hyzak explained that the Fund's leverage was 0.74x, below the target of 0.85x to 0.95x, due to IPO proceeds. They plan to work towards the target range as they deploy capital, with expanded regulatory leverage capacity becoming available at the end of January 2026.

Mark Hughes from Truist Financial asked for clarification on the activity with existing borrowers, questioning if it was primarily repricing or for growth capital, and whether this activity level was elevated. He also sought general observations on the tariff sensitivity of PFLT's core middle-market portfolio compared to larger businesses.

Answer

Arthur Penn, Chairman and CEO, responded that recent market volatility put an end to repricing activity, so the vast majority of originations for existing borrowers are for growth, primarily through add-on acquisitions. Regarding tariffs, Penn asserted that PFLT's portfolio has very limited exposure due to its focus on sectors like healthcare and government services. He added that most impacted companies had already adjusted their supply chains following the first Trump administration and are structured with low leverage to withstand shocks.

Mark Hughes asked how the portfolio is positioned relative to economic topics like tariffs and government spending, and what to anticipate regarding the volume of portfolio shifts to the PSSL joint venture in the coming quarters.

Answer

Arthur Penn, Chairman and CEO, stated that tariff exposure is limited and the portfolio is well-positioned in its key healthcare and government services sectors by focusing on companies that provide cost savings. He explained that asset transfers to the PSSL JV ebb and flow based on deal flow and the need to accumulate sufficient assets (around $300M+) to execute a securitization efficiently.

Mark Hughes asked about potential portfolio risks related to government spending pressures, particularly in the defense and government services sectors. He also inquired about the pace of investment repayments versus new originations and the ongoing strategy for equity co-investments.

Answer

Chairman and CEO Arthur Penn stated that the government services portfolio is focused on stable areas like cybersecurity and intelligence, not hardware. He emphasized a conservative approach with low leverage to mitigate risks across sectors, including healthcare. Penn estimated that new investments are outpacing repayments at a ratio of roughly 2-to-1 due to a more active M&A environment. He confirmed that the equity co-investment strategy remains a stable part of their approach, citing its strong historical performance.

Mark Hughes of Truist Financial Corporation inquired about the strong Q2 funding activity despite a cautious market outlook, the trajectory of investment spreads, and the sustainability of the dividend relative to Net Investment Income (NII).

Answer

CEO Tanner Powell explained that strong Q2 funding is a lagging indicator of deals initiated before recent market volatility. He noted that spreads stabilized in Q1 and expects a balance between available capital and a muted M&A environment. Regarding the dividend, Mr. Powell expressed confidence in MFIC's earnings power, citing below-target leverage, the low yield from the Merx investment which is being rotated, and potential for higher prepayment fees as factors supporting future NII growth.

Mark Hughes inquired about the drivers behind the quarterly increase in spreads and lower leverage, the potential for refinancing within the existing portfolio, and the expected trend for PIK income through 2025.

Answer

CEO Tanner Powell explained that the spread increase was not a market trend but was driven by the 'power of incumbency' in redeploying capital to existing, well-performing borrowers. He noted it's tough to estimate future refinancing activity. President Ted McNulty added that PIK income trends depend on interest rates and the performance of a few specific names, but overall credit quality remains stable.

Mark Hughes from Truist Securities asked about the reasons behind the increasing average commitment size and higher net leverage in direct originations this quarter. He also inquired about the current competitive environment and its effect on deal spreads.

Answer

CEO Tanner Powell attributed the strong origination volume to a healthy M&A market in Q2 and early Q3 and a strategic effort to deploy capital following the deleveraging merger event. President Ted McNulty described the current market as more 'borrower-friendly,' noting that spreads have compressed from their 2023 highs due to increased competition and a slowdown in M&A. However, he stated that deal terms remain attractive on a historical basis and that MFIC's incumbency provides a competitive advantage.

Mark Hughes asked about the sustainability of non-recurring dividend income, the pipeline for future significant realizations following a recent large gain, and whether economic uncertainty creates unique investment opportunities for Main Street given its long-term holding strategy.

Answer

Executive Dwayne Hyzak acknowledged that dividend income is variable but stated that many portfolio companies are performing very well with low leverage, allowing for continued cash distributions. He clarified that the two major anticipated exits have now occurred, so realization activity should return to 'business as usual.' Hyzak and Executive David Magdol confirmed that market uncertainty absolutely creates opportunities, citing that their strong liquidity and long-term view allowed them to execute highly successful investments during the COVID-19 pandemic. They remain positioned to be active and find best-in-class partners in any environment.

Mark Hughes of Truist Securities questioned the drivers of the external investment manager's Q4 valuation, the future valuation impact from the MSC Income Fund's public offering, and the competitive landscape with banks.

Answer

Dwayne Hyzak (Executive) clarified that the Q4 valuation increase was driven by market-based multiples of publicly traded peers and consistent fee income, not the future MSC Income Fund offering. He explained that the new fee structure for MSC Income Fund is designed to be roughly breakeven at current performance levels. Regarding bank competition, Hyzak and Nicholas Meserve (Executive) noted that while they occasionally lose refinancing deals to banks on seasoned assets, they don't see banks as significant competitors on new LBO transactions.

Mark Hughes from Truist Securities asked if the recent election influenced lower middle market activity. He also inquired about the slight increase in non-accruals, particularly in consumer discretionary, and sought commentary on EBITDA growth trends in the lower middle market portfolio. Finally, he asked if the trend of repayment activity from regional banks had stabilized.

Answer

Executive Dwayne Hyzak asserted that the election had no impact on deal flow; transactions fell through due to due diligence issues and an owner's change of mind. He confirmed the new non-accrual was also a consumer-focused business and that while progress is expected, a full recovery will be a longer-term process. Qualitatively, he described the lower middle market portfolio's top performers as doing 'exceptionally well,' with the middle of the portfolio remaining flat to slightly down. Executive Ryan Nelson characterized the repayment activity from local banks as 'idiosyncratic' rather than a broad trend, often involving banks with long-standing prior relationships with the portfolio companies.

Mark Hughes inquired if the 40% of the backlog from incumbent borrowers was a typical figure and asked if the commentary on potential realized gains was based on specific visibility in the pipeline.

Answer

Incoming CEO Kort Schnabel stated that the 40% incumbent share in the backlog is around the long-term average of 50% and implies a healthy flow of new borrowers. He clarified that potential realized gains would boost taxable spillover income, not necessarily NAV, and that the company is hopeful a couple of appreciated assets could be monetized this year.

Mark Hughes asked for specifics on credit spread trajectory through Q4 and into January. He also questioned if ARCC's growing wallet share with incumbent borrowers was outperforming the broader market.

Answer

Then-CEO Robert DeVeer indicated that spreads, after declining 100-150 basis points last year, have now plateaued, with no further declines seen in early Q1. He affirmed his belief that ARCC is outperforming peers in gaining wallet share with existing borrowers, noting the company has been very focused on this and is 'doing even better than we have in the past.'

Mark Hughes asked about the net negative exit activity early in Q4 and the outlook for the full quarter. He also inquired whether the improvement in interest coverage was driven more by lower portfolio yields or by EBITDA growth.

Answer

Co-President Kort Schnabel advised against over-interpreting the short post-quarter-end period, highlighting the strong $2.8 billion investment backlog as a better indicator of future activity. CEO Robert Kipp DeVeer and Schnabel confirmed that the improved interest coverage was a result of both portfolio company EBITDA growth and slightly lower rates.

Mark Hughes of Truist asked for a breakdown by line of business for the recent change in the company's reinsurance program.

Answer

Daniel Frey, CFO, responded that the change primarily impacts the casualty lines. He specified that it is mostly General Liability (GL) but also broadly helps with core GL and umbrella claims, declining to provide a more granular breakdown.

Mark Hughes of Truist asked about the company's strategy to reduce exposure to ARR loans, the drivers of spread compression, and the outlook for loan repricing activity in the portfolio.

Answer

An executive explained that ARR loan exposure has been more than halved, with a highly selective approach to new deals. They attributed spread compression to a capital supply-demand imbalance and robust BSL market activity. Co-CEO David Miller added that the bulk of portfolio repricing has likely already occurred, with future repricings tied to credit-enhancing events for the borrower.

Mark Hughes asked for subjective impressions on the market's energy and potential for deal activity following the recent election.

Answer

Co-Chief Executive Officer Alex Chi confirmed a post-election sense of excitement and optimism. He noted that conversations with Goldman Sachs bankers and other industry participants point to an energetic outlook for M&A in 2025, particularly from the sponsor community.

Mark Hughes from Truist Securities asked about the potential for further portfolio repricing, the future outlook for PIK income, and the sustainability of direct lenders' dominant market share in middle-market LBOs.

Answer

CFO Shai Vichness stated that most portfolio repricing is complete (estimating 70-75%) and expects PIK income to remain low at around 4%, as it's tied to junior capital, not portfolio stress. CEO Ken Kencel added that he expects direct lenders to maintain their dominance in the core middle market for new LBOs due to advantages in speed, certainty, and relationships, which insulates them from BSL market competition in that specific segment.

Mark Hughes questioned the spread trends within the core middle market on a 'same-store' basis and asked about the competitive dynamics from other direct lenders in that segment.

Answer

Kenneth Kencel, Chairman, President and CEO, acknowledged modest spread compression of roughly 25-50 basis points in the core middle market over the last six months, which is significantly less than the 150-200 basis points of compression seen in the broadly syndicated loan (BSL) market. He described the competitive landscape as a consolidating market where a handful of large, established players like Churchill are capturing quality deal flow, while new, smaller entrants are not significantly impacting the core middle market where NCDL operates.

Mark Hughes asked about the competitive landscape in the fourth quarter for the Specialty P&C business, the outlook for growth in 2025, the specific accident years driving reserve development, and expectations for the current accident year loss pick.

Answer

President and CEO Edward Rand stated that the competitive environment in Q4 was consistent with the rest of 2024, marked by excess market capital leading to aggressive behavior from some players. He reiterated that ProAssurance will continue to prioritize profitability and rate adequacy over growth in 2025. Mr. Rand specified that reserve development came from recent years for the NORCAL business and from 2020 and prior for the legacy business, but declined to provide a specific outlook for the 2025 loss pick.

Mark Hughes inquired about the competitive environment in the fourth quarter for the Specialty P&C business, the outlook for growth in 2025, the specific accident years contributing to reserve development, and expectations for the current accident year loss pick.

Answer

Edward Rand, President and CEO, responded that the competitive landscape in Q4 was consistent with the rest of 2024, marked by excess market capital leading to aggressive behavior from some players. He reiterated that ProAssurance will continue to prioritize profitability and rate adequacy over growth in 2025. Rand specified that reserve development came from more recent years for the NORCAL business and from 2020 and prior for the legacy business. He did not provide a specific outlook for the 2025 loss pick but emphasized the continued push for rate increases.

Mark Hughes asked for the specific rate change in workers' comp, details on reserve development for recent accident years, the potential impact of falling interest rates on industry pricing, and competitive trends in the California market.

Answer

Executive Kevin Shook provided the workers' comp rate change (down 3%). Edward Rand, President and CEO, noted nothing specific in recent accident year reserve development. He agreed lower rates should improve pricing discipline but cautioned that overcapitalized competitors might not react. He described the California market as rational and similar to the broader picture, with less irrational pricing than in other markets.

Mark Hughes from Truist Securities asked if mutual competitors are engaging in cash flow underwriting due to high interest rates, requested a breakdown of the drivers for the improved current accident year loss ratio, and inquired about the trajectory of NCCI loss costs.

Answer

President and CEO Edward Rand confirmed that mutuals' underwriting is investment income-driven, allowing them to accept higher combined ratios, but warned this creates a compounding pricing gap. He attributed the loss ratio improvement to prior pricing gains outpacing severity trends, Q1 claims experience, and a better mix of business. Regarding NCCI, both Rand and executive Kevin Shook stated their focus is on their own data, viewing NCCI's as backward-looking, though Shook noted NCCI is acknowledging industry concerns about medical inflation.

Mark Hughes asked about the 10 basis point sequential increase in spreads, questioning if it signaled stabilization or was a mix issue. He also inquired if there was a notable trend of sponsors taking equity out of companies during the recent wave of refinancings.

Answer

President Logan Nicholson characterized spreads as having stabilized in the 475 to 500 basis point range for the last three quarters, attributing the small sequential change to deal mix rather than a broader trend. CEO Craig Packer responded that they are not seeing a significant wave of dividend recapitalizations; he stated that most refinancings are like-for-like transactions aimed at lowering borrowing costs, not large-scale equity extractions by sponsors.

Mark Hughes asked about the level of competition in the core middle market, the company's appetite for equity co-investments, and the expected trend for net investment activity at PNNT.

Answer

CEO Arthur Penn stated that they have not seen new competitors in the core middle market, as larger players have moved upmarket. He affirmed that equity co-investments remain a stable and important part of their strategy to capture upside. Penn also explained that PNNT's leverage is currently elevated to hold assets destined for the joint venture, but the long-term target remains a lower 1.25x to 1.3x debt-to-equity ratio.

Mark Hughes inquired about the sustainability of the high-teens returns from the PennantPark Senior Loan Fund (PSLF) joint venture and the durability of the attractive credit statistics on new investments amidst spread compression.

Answer

CEO Arthur Penn explained that the JV's strong returns are driven by leveraging lower-risk first-lien loans but could be impacted by falling interest rates or deteriorating credit performance. He also noted that while new investments have low leverage (e.g., 3.6x debt-to-EBITDA), the portfolio average is higher (mid-4s) as companies grow and utilize delayed draw facilities, which is a normal part of their lifecycle.

Mark Hughes of Truist Securities asked about the future trajectory of PIK income, which had declined sequentially, and the potential for fee income generation in a more active M&A market.

Answer

Co-CEO Brad Marshall clarified that PIK income, representing 6% of total income, declined due to one issuer rolling off PIK to pay full cash. For fee potential, he noted the portfolio's amortized cost is just above 98.5 and suggested that a normalized repayment rate of 15-25%, compared to 6% year-to-date, would significantly increase income generation from accelerated fee amortization.

Mark Hughes asked about the trend in repricing activity from portfolio companies and whether it has changed recently. He also inquired about the decision-making process for passing on deals, specifically the balance between credit concerns and competitive pressures.

Answer

Daniel Pietrzak, CIO, explained that repricing activity is driven by new deal data points and is typically seen in well-performing businesses. He noted the activity has slowed recently as spreads found a floor. Pietrzak emphasized that the primary reason for passing on deals is a focus on credit quality and structure, not just pricing. Brian Gerson, Co-President, added that with leverage in the middle of its target range, FSK feels no pressure to deploy capital.

Mark Hughes inquired about the drivers behind the sequential improvement in portfolio interest coverage, asked about amendment activity, and questioned the high percentage of fixed-rate new investments.

Answer

CEO Joshua Easterly stated that interest coverage improved from 2.1x to 2.2x, driven mostly by portfolio company earnings growth with some help from lower base rates. He noted that amendment activity was very low and primarily positive, indicating strong credit quality. He also clarified that the fixed-rate portion of new investments was attributable to a single deal, Arrowhead Pharmaceuticals, representing a $32 million funding.

The analyst asked for a quantification of the catastrophe losses in the quarter, the performance of the underlying loss ratio, and whether the improved expense ratio represents a sustainable run rate.

Answer

Management stated that catastrophe losses added 2-3 points to the combined ratio, which was higher than the typical 1 point but within expectations. The underlying loss ratio is stable, with the overall reported ratio influenced by a business mix shift towards specialty P&C lines. The current expense ratio is considered a reasonable run rate, benefiting from operating leverage, though minor fluctuations are possible.