Ategrity Specialty Insurance Company - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered profitable growth: total revenue $101.78M, net income attributable to stockholders $17.62M, diluted EPS $0.39; adjusted diluted EPS $0.41 with a combined ratio of 88.9% versus 94.0% in Q2 2024.
• Significant estimate beats: EPS beat consensus by ~$0.10 (actual $0.41 vs $0.308; +33%), revenue beat by ~$3.6M (actual $101.78M vs $98.20M) — driven by stronger underwriting and higher net investment income; 5 EPS estimates, 1 revenue estimate.
• Gross written premiums rose 32.3% to $167.5M, with casualty +56.7% and property +3.7%; book value per share reached $11.64 at quarter-end.
• Management reaffirmed 2H 2025 outlook: mid- to high-20s GWP growth and combined ratio in the low-90s, citing “productionized underwriting” and disciplined pricing as competitive advantages.
• IPO completed in June raised $130.3M gross proceeds (7,666,667 shares), bolstering invested assets and book value; net investment income rose to $11.89M vs $5.73M YoY.

What Went Well and What Went Wrong

What Went Well

• Strong underwriting performance: combined ratio improved to 88.9% (loss ratio 58.0%, expense ratio 31.0%), reflecting lower catastrophe losses and improved acquisition cost leverage.
• Distribution and pricing execution: CEO highlighted “productionized underwriting” and technology-enabled processes; President emphasized disciplined deployment, above-technical rates in casualty, and firm property rates amid modest market softening.
• Investment income and capital strength: net investment income more than doubled to $11.89M; IPO proceeds increased invested assets to $955.266M and book value per share to $11.64.

What Went Wrong

• Property growth modest (+3.7%) as management prioritized price over volume, reduced exposure in certain coastal zones, and raised severity assumptions to reflect prospective tariff impacts on building materials and labor.
• Operating expenses, net of fee income, were 12.4% of net earned premiums — flat to slightly higher YoY due to 2024 investments in personnel, systems, and public company infrastructure.
• Casualty mix shift extends reserve tail duration; management is comfortable but acknowledged liability tail implications as casualty reaches 60–70% of mix target range.

Transcript

Speaker 6

Good afternoon, everyone, and thank you for joining us today for Ategrity's second quarter, fiscal year 2025 earnings results conference call. Speaking today are Justin Cohen, Chief Executive Officer, Chris Schenk, President and Chief Underwriting Officer, and Neelam Patel, Chief Financial Officer. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Before we begin, I would like to mention that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business, and the future financial performance of the company that are subject to risks and uncertainties.

Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to in our press release issued today and our IPO prospectus filed with the SEC. We do not undertake any obligation to update these forward-looking statements made today. Finally, the speakers may refer to certain adjusted or non-GAAP financial measures on this call. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is also available in our press release issued today. A copy of today's press release may be obtained by visiting the investor relations page of the website at investors.ategrity.com. I'll now turn the call over to Justin Cohen.

Speaker 2

Great, thank you, and good afternoon, everyone. As we kick off our first earnings call as a public company, I want to thank our new investors for their trust and support. We take very seriously our responsibility as stewards of your capital, and we are committed to delivering world-class returns over time. We're excited today to share our results for the quarter and a view into where Ategrity is headed going forward. For those new to the story, let me give first a quick introduction. We are a specialty E&S company focused on insuring small to medium-sized businesses across the U.S. We've built a proprietary productionized underwriting platform to penetrate this high-volume market with consistency, speed, and rigor. We've developed a competitive edge in how we segment, price, and process risk, and we've deployed technology and analytics to stay ahead of the market.

We call this approach productionized underwriting, and we believe it will enable us to grow profits and build market share in the E&S space. We saw evidence of that in this quarter as we produced a net income of $17.9 million, a 365% increase over last year. Our gross written premiums outpaced the market, growing 32% year over year, and our focus on rigorous and efficient underwriting contributed to a record combined ratio of 88.9%. Our loss ratio was strong at 58%, supported by solid loss performance in property, and our expense ratio was 31%, down 2.3 points year over year, while we continued to drive efficiencies. These are balanced results that translated into a 14.5% adjusted ROE for the quarter. We are certainly paying attention to the competitive pressures in E&S, and we recognize that our reported growth this quarter bucks that trend.

We are benefiting from our growth initiatives and distribution strength, as well as some barriers to entry in the small and mid-sized market. We think we will continue to see competition over time, and we will also continue to win and gain market share. You should know that we prioritize underwriting profits first and foremost. We will only grow the top line at a pace that allows us to deliver strong expected returns to our shareholders. With that, I'll turn it over to Neelam Patel, Chief Financial Officer, to walk through our financial results, and then Chris Schenk, our President and Chief Underwriting Officer, will describe how we generated these outcomes. Neelam?

Speaker 3

Thank you, Justin. This was a strong quarter for Ategrity. Adjusted net income came in at $17.9 million, up from $4.9 million in the same quarter last year. These results were driven by solid top-line growth, improving margins, and higher investment income. I'll take you through the main line items, starting with premiums. As already mentioned, our gross written premiums grew by 32% in the quarter. Net written premiums grew 38%, driven by higher retention rates year over year. Net earned premiums grew at a 20% pace, reflecting the lagged recognition of quota share reinsurance we placed in 2024. As we move through the second quarter, second half of 2025, that headwind should gradually abate. Fee income was $1.5 million versus $191,000 a year ago, reflecting increased policy fees. Historically, we hadn't implemented standard market fees, which we began doing this year.

Turning to underwriting, our underwriting income in Q2 2025 was $9.6 million, up 119% year over year. This translates into a combined ratio of 88.9%, down from 94% due to reductions in both our loss and expense ratio. The loss ratio declined 2.8 points to 58%, with strong results in our property business. In Q2 2025 we had no prior year development compared to 3.5 points in Q2 2024 that were related to a change in how we reserve for legal expenses. CAT losses represented 4.1% of net earned premiums this quarter, down from 8.8% last year, which had a very active tornado season. Our expense ratio declined 2.2 points to 31%, mainly due to lower policy acquisition costs. Policy acquisition costs as a percentage of net earned premiums declined to 18.5% from 21.1%, thanks to higher ceding commissions and a more favorable business mix.

On expenses, operating expenses as a percentage of net earned premiums was 12.4%, up marginally from last year, but roughly flat compared to Q1 of 2025. The year-over-year increase reflects the front-loaded investments we made in 2024 to support growth and transition to becoming a public company. Moving on to investment results, net investment income was $11.9 million in the second quarter, driven primarily by increased assets from our recent IPO and higher yields on our fixed income portfolio. Meanwhile, realized and unrealized gains contributed another $1.4 million. Our effective tax rate for the quarter was 21.1%. That brings us to net income of $17.6 million. Adjusted net income, which adds back IPO-related compensation costs, was $17.9 million or $0.41 per diluted share.

Turning briefly to the balance sheet, our investments grew from year-end by $180 million to $955 million, which reflects $122 million of net IPO proceeds, with the remainder coming in from operating cash flow. Book value increased by $161 million, with $115 million being attributable to the IPO and rest driven by retained earnings and a modest move up in AOCI. The quarter ended with book value per share of $11.64. With that, I will hand it over to Chris to talk about our underwriting and operating performance.

Speaker 2

Thanks, Neelam. This quarter we executed our underwriting playbook with fidelity. We delivered 32% gross written premium growth and a sub-90 combined ratio. Let me walk you through how we did that. To start, submission volume grew significantly, well in excess of our top line. The volume came from three sources: activation of new partners, launch of our new verticals and products, and increased penetration from our Midwest strategy. As submission volume grew, we maintained a conservative underwriting posture and deployed capacity with discipline. As a reminder, we operate within a technical and quantitative underwriting framework, and as such, we were able to achieve firm-wide renewal rate increases in the high single digits, with new business rate levels well above technical targets. Our quote-to-bind ratio on middle market business was in the high single digits. This is in line with plan.

It is deliberately set low because of our selective risk-taken approach. On the expense side, our service delivery center absorbed higher volumes with only marginal increases in headcount. We continued to deploy automation to reduce manual work, and there was more utilization of our pre-price and auto quote solutions. This combination of factors lowered our unit costs, and as expected, our model is delivering economies of scale while enhancing underwriting quality. A big part of what's powering our submission growth is our expanding distribution network. Since mid-2022, we have invested toward market access for emerging growth opportunities. This has resulted in a 150% increase in unique distribution relationships, with submissions growing at a much faster pace. Our earlier cohorts are ramping up across multiple products now, and we are seeing faster and deeper engagement from our recent appointments.

We believe our value proposition, built around a clearly articulated appetite, fast quote delivery, and a hassle-free digital transaction process, is resonating with all of our partners. In short, our growth was a function of an expanding distribution funnel. Our combined ratio results resulted from maintaining underwriting discipline and improving operational efficiency. These two pieces were mutually reinforcing. We are achieving lower cost at each step from submission to bind. This offsets the cost of a lower quote-to-bind ratio, which in turn empowers us to adhere to technical rates, maintain discipline, and avoid appetite creep. Let's take a look at our performance by casualty and property, which had very different growth dynamics this quarter. Starting with casualty, we produced 57% growth in gross written premium in casualty. Growth was driven by a combination of new initiatives as well as continued strength in our core segments.

First, we expanded into new verticals in casualty, most notably retail trades, launched in Q1 in our broker channel. This is now fully operational and scaling. We also saw strong momentum in our professional liability verticals. These new products launched in January reached full operating potential in Q2. This line contributed to the growth, and that is reflected in our professional services vertical. Second, we advanced our geographic expansion strategy through Project Heartland. As a reminder, Project Heartland is an initiative designed to win targeted business across 30 urban Midwest markets, built on deeply researched underwriting plans, local partnership, and tailored offering for the region. Project Heartland contributed meaningfully to Q2 growth. Altogether, retail, professional liability, Heartland, and a handful of other initiatives accounted for nearly half of the total casualty growth this quarter.

We also performed on track, or better, in our established verticals like hospitality, daycare, and residential real estate. In casualty, renewal rate change was in line with our targets and well above trend, and we saw new business rates well above technical levels. It is critical for our investors to understand that we believe we hold a clear technical and strategic advantage. We are going deeper into each of our segments and finding insights that are allowing us to capitalize on emerging opportunities well before our peers see them. As a result, we are leaning in as our competitors are pulling back from key casualty classes. Moving on to property. Despite contraction in the E&S sector, we grew property gross premiums by 4%. While there's talk of a softening market in property, we are only seeing modest pressure in a small and mid-sized space.

Competition is still rational and far less severe than the large ticket property. Our 4% growth reflected proactive rate actions implemented in Q3 last year. We held firm on substantive rate increases, pricing above technical levels, and we granted flat or down renewals only when justified by performance and exposure stability. We priced prospectively with an 18-month view on frequency and severity trends, and accordingly, we have raised our severity assumptions to reflect the pending impact of tariffs on building material and labor costs. These factors influence overall replacement costs for property. Here again, we're doing something different: deep analysis, finding insights, and taking early action to protect our economics. We believe we are leading proactively rather than waiting to react to a bad outcome. We've made a deliberate trade-off.

Accordingly, we've made a deliberate trade-off prioritizing price over volume in property, and this is consistent with our forward view of loss cost. We also took action to carefully manage our property footprint in CAT-prone geographies, raising rates to cover increasing CAT reinsurance costs. We expect to see these benefits in lower than anticipated costs, even though in the short term, it has led to stall growth in some areas. Finally, Project Heartland meaningfully contributed to our results. In the Midwest, we achieved accelerated market penetration, writing profitable business, optimizing our geographic spread, and reducing reliance on large E&S states. To wrap it up, this was a high-quality underwriting quarter marked by disciplined growth, strong pricing, and continued efficiency gains. We are scaling deliberately while maintaining technical standards and control.

This is the impact of the productionized underwriting model we have built, and we believe it positions us for consistent results going forward. Back to Justin. Thanks, Chris. This was a solid quarter for Ategrity. Profitable growth, disciplined underwriting, and clear progress on our strategic objectives. As we look ahead into the second half of 2025, our expectations are consistent with what we shared with you during the IPO process: a mid to high 20s growth rate year over year, in gross written premiums, and a combined ratio in the low 90s. That outcome assumes competitive dynamics stay consistent with what we've experienced to date. Even if competition intensifies beyond our expectations, we expect to continue taking share in the market. Meanwhile, behind the scenes, we are advancing our next phase of productionized underwriting. We're developing automation and pre-price solutions that we believe will solidify our position in the market.

We will share more with you on that as we move closer to deployment. For now, we thank you again for your support and for spending time with us today, and we look forward to updating you on our progress in the quarters ahead. Eric, you can please open it up for Q&A.

Speaker 6

At this time, I would like to remind everyone, in order to ask a question, please press star, followed by the number one on your telephone keypad. Your first question comes from the line of Alex Scott with Barclays. Please go ahead.

Speaker 4

Hi, thanks for the question. First, what I wanted to ask you is on the mix shift towards casualty. If I look at the mix year over year, it is a pretty meaningful change. I just wanted to understand, is that changing at all the duration of the liabilities and the way you have to think about the tail on the loss reserves?

Speaker 2

These actions of having more casualty business are extending the tail of the liabilities. Just to make sure that we understand the drivers, the drivers are excellent performance in our casualty business. As Chris Schenk was talking about, we did raise rates in the third quarter of last year, and that decelerated growth this year. That is what's driving that mix shift, but we are very comfortable with it. Our overall targets of casualty within the 60% to 70% range are on a clear path now.

Speaker 4

Got it. That's helpful. Can you provide us a little more color on just the update on Project Heartland? You know, how many distributors you're adding, how far along in that process, how much more growth is there to come from those initiatives?

Speaker 2

Yes. This project is really just getting going, and Chris, you want to give some details?

Speaker 4

Yes, it is. We are just starting to see the dividends from the investment last year come through. We have activated more than three dozen partners, and most of them are just starting to come online in terms of production. It is just the beginning. There is a huge runway.

Speaker 2

Got it. Thank you.

Speaker 4

Thanks, Alex.

Speaker 6

The next question comes from the line of Andrew Kligerman with TD. Please go ahead.

Speaker 0

Hey, thanks a lot. Apologize if I go over something. I had a little technical difficulty, but just getting a sense on the property component growing 3.7%. Could you clarify how much pricing was down, if at all, and then how much of that kind of lower premium level was due to you more effectively managing your PMLs or catastrophe exposures?

Speaker 2

Yep. We actually achieved meaningful rate increases in property. I'll pass it over to Chris to talk about that.

Speaker 4

Our property rate increases were in the low teens. We stayed firm on rates. We were targeting a higher number, but we made concessions to protect our renewal base. That was prudent. On new business, we held firm. We are seeing attractive rating opportunities, not just from the new Midwest business coming in, but elsewhere around the country. Generally, most of our peers are concentrating on the big E&S state. The opportunities elsewhere seem to be somewhat unaffected. Beyond just the geography, there is also the size element. Smaller business tends to be a lot more sticky. There's less of a desire to dislocate those accounts. Part of our philosophy is pricing the account right in year one so that we can maintain it for a lifetime around three years. Part of that involves pricing discipline upfront and making sure that we make the process simple downstream.

By making the process simple, it somewhat insulates you from the rate change dynamics.

Speaker 2

If we hadn't taken our view on tariffs, which we did, we could have grown more meaningfully in that area. There were certain geographic zones, coastal zones, coastal states, I should say, where we did reduce exposure, and that did drive down policy count, but it will improve our catastrophe exposure XOL costs.

Speaker 0

Thank you for that. Justin, you just mentioned tariffs. How are you thinking about the impact now that it looks like we've gotten a little more clarity there?

Speaker 2

We are anticipating that the inflationary environment still does come through on building costs. We've done the analytics to do that. If we were to find out that we were ahead of the curve and the tariffs didn't have as much of a bite, that would be a bigger opportunity for us, given that we've priced for it.

Speaker 4

Yeah. We are anticipating around mid-single-digit increases due to tariffs costs. That's a combination of building material as well as labor dynamics. If you were to isolate building material, that tends to be very sensitive to even the threat of tariffs. A majority of a lot of buildings in the E&S space tend to be frame buildings, right? We're talking about lumber prices, and even relations with Canada can affect that. There's a reality of tariffs, and then there's a threat of tariffs and what that does in the short term.

Speaker 0

Maybe if I could sneak a last one in, does Q2 kind of feel like a kind of a snapshot of what we may see in the next quarter or two in terms of premium growth? I mean, I know casualty is super robust, and you seem a bit more cautious on the property, but are these numbers that might be in the ballpark for the upcoming quarters?

Speaker 2

Yeah, Andrew. At the end of those prepared remarks, we gave a confirmation of what we had previously talked about, which was mid to high 20s% growth for 2H. That gives you a sense of what we're expecting. We also said that assumes we do not see a change in the competitive intensity in the environment, that it remains what we are seeing today, which is modest. It's different in the small and medium-sized space, but that's the premise there. That is the outlook that we confirmed.

Speaker 0

That makes a lot of sense. Sorry, I had a little technical difficulty at the beginning.

Speaker 2

Overall, just to say that we're not, as I said in the beginning of the remarks, we are not top-line focused. We really are focused on delivering alpha. You've heard that in the way that we've done that throughout this call. We are finding unique situations and opportunities that are driving growth in excess of the market, but they are not based on the beta of the market growth. That's really what we're focused on, and that's what we're endeavoring to deliver.

Speaker 0

Thank you.

Speaker 2

Thanks, Andrew.

Speaker 6

Your next question comes from the line of Pablo Sinson with JP Morgan. Please go ahead.

Speaker 1

Hi, thank you. From my seat, it's always hard to parse the drivers of growth for companies such as yourself, right? You're growing fast, pursuing a bunch of initiatives, and I realize this might be an unfair question, but I was wondering if you could provide some perspective on some metric for same-store sales growth, right? Whether it's growth from existing agencies without considering recent additions, or maybe freezing verticals or products to serve, you know, some sense of what growth is coming from what's already in the book versus what you're actively pursuing quarter to quarter.

Speaker 2

Yeah. One of the things that was mentioned in the call, just to reiterate here, is that almost half of our growth came from the new initiatives. If you back that out, you get a sense of what the same store looks like. We are seeing compounding of our existing cohort, the more recent and the older cohorts of brokers and agents. Chris, you want to add anything there?

Speaker 4

Yeah, it is hard to fully dissect it because initiatives overlap. For example, in the Midwest, as part of Project Heartland, we are gaining significant market share in our legacy verticals. Those are, you know, residential real estate, restaurants, and hotel motels. We've written those for a very long time, and we're gaining a lot of traction in the Heartland. Our offering there is strong. It's much because it's much more mature. Similarly, however, we are also seeing more, we're gaining much more market share across other geographies. In the Northwest, for example, we have seen significant growth in those classes, in our core classes.

Speaker 1

Thank you. Second question, as you think about the current economic environment and perhaps some more permanent impact from tariffs, which of your small business end markets are you most concerned about? If the economy does slow, what kind of impact are you expecting on your growth trajectory? You talked about the inflation piece, but from an economic fundamental perspective, are you assuming some headwinds there?

Speaker 4

Sure. Just to add some context around this, we are continuously studying the environment and observing new trends that are emerging. We're monitoring a number of trends. Whether or not what we react to might be a very contained few things, we have had to take action on something similar to tariffs, such as inflation in 2022. What we experienced there is initially we executed the same playbook. We saw that severities were going to increase. We priced on a prospective basis, looking 18 months out, expecting higher severities. We implemented rate increases that were meaningful. What happens is initially the market doesn't fully understand why we're an outlier. We are willing to be an outlier in that case, but the market contemplates it for a while, and eventually our competitors catch up to us and they push their rate increases.

What we experienced there is the market comes back to us in droves. We've had a few cycles like that, so that's what we are expecting here.

Speaker 2

In terms of the defensiveness of our portfolio, we may have talked about that in the past. We have a fairly defensive set of industries that we focus on: multifamily, the nonprofits, and certain others as well, gas stations and grocery stores. The ones that would have an impact would be potentially contractors, where there are, but the contractors we focus on are of a smaller scale and less economically sensitive, and then hospitality. Those would be the areas if there were to be an economic shift.

Speaker 1

Thank you both.

Speaker 2

Thank you.

Speaker 6

Your last question comes from the line of Elise Greenspan with Wells Fargo. Please go ahead.

Speaker 5

Hi, thanks. Good evening. My first question, on the 20%, sorry, mid to high 20% growth rate that you highlighted for the second half of the year, reaffirming your outlook, what's embedded within that for property versus casualty growth?

Speaker 2

We have not broken that down in terms of the guidance, but what we'll say is that we are somewhat optimistic on the property book in that we applied our rate increases in 3Q of last year. That was opportunistic in nature. What happened this year was we maintained those rate increases because of our view on tariffs. As we get towards the back end of this year, there's some potential for us to not be changing rates on those accounts, and therefore we may see some potential additional benefit there. We're not breaking down the projected growth by product yet.

Speaker 5

As part of the guide, Justin, you said that it's based on consistent competitive dynamics. Did you guys see any pricing changes in July relative to what you observed in Q2 in either property or casualty lines?

Speaker 2

No, it's been consistently marginally tightening pressure, but nothing material to talk about. There's nothing embedded within that other than to say that we can't predict where we're not in the business of predicting the beta of this market. Competitors will do what they're going to do. We're trying to lay out that we have these initiatives and these approaches that we take that are truly differentiated. Even in a tougher market, we're going to still keep winning. That's really where we want to focus. We know the top line's strong, and we're just caveating with all that.

Speaker 4

More generally, our peers, you know, there's chatter, there's discussions around that, but we're not necessarily focused in the same geographies. That is coming out of the three big E&S states, a lot of the top of our property. In a way, where we are going is fairly overlooked by the market, and the opportunities there are still great.

Speaker 2

Yes. Overall, as you know, we're a technical underwriting firm, so we have a technical rate, and we are not going to go below that. That is also important to keep in mind.

Speaker 5

I think the pay-to-incurred ratio did go up in the quarter. Was there something related to business mix or something else that impacted that in the second quarter?

Speaker 2

Are you talking sequentially or year over year?

Speaker 5

I think it went up both, so any color you could provide would be helpful.

Speaker 2

Overall, the pay-to-incurred were actually lower than our internal expectations. On a year-over-year basis, it's partly due to just the maturation of a casualty book. There is, as you're describing, some shift in having had more property previously. We were growing property pretty quickly previously, and that may be contributing to the higher that we're seeing today. You will see that transition going forward as you're seeing this deceleration in property going forward. A little bit of mix, but more just the casualty reserves, which we have been accelerating higher because of our growth rate, just starting to pay.

Speaker 5

Thank you.

Speaker 2

Great.

Speaker 6

There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Speaker 2

Thank you all very much. We appreciate your support again, and we look forward to being in touch with you in the months and quarters ahead. Thank you very much.

Speaker 6

Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.