Ategrity Specialty Insurance Co. Holdings (ASIC) Q2 2026 earnings call transcript

I will now turn the call over to Justin. Good evening, and thank you all for joining a Tegrity second quarter earnings call. This is Justin Cohen, and I'm joined today by Chris Schenk, our president and chief underwriting officer, and Neil Adler, our chief financial officer. A Tegrity delivered another quarter of record results, including our highest ever quarterly written premiums, underwriting income, and net income.

In a quarter in which the ENS industry contracted as a whole, we produced 23.4% growth in gross written premiums, alongside an 85.9% combined ratio, with both metrics well ahead of guidance. These results reflect the strength of our productionized underwriting platform and the discipline execution of our strategy. Growth was broad-based across both casualty and property, with more than 20% premium growth in each, driven by expanding distribution relationships, targeted regional strategies, and new products launched over the past year.

Importantly, our operating model demonstrated further scaled this quarter. The combined ratio improved three points year over year, driven primarily by our reduction in our operating expense ratio to 9.5%. As premiums have grown, our centralized underwriting platform has processed higher volumes with expanding profitability.

Turning to the market, while competitive pressure continued to intensify across portions of the ENS market, our differentiated positioning contributed to outperformance. We continued to identify attractive market segments in the small and medium-sized space that have less competition, and in which we offer unique solutions that are resonating with our growing network of distribution partners. The strengths we've built across the business are increasingly reinforcing one another, and Chris will explain how that played out this quarter later in the call.

But first, I would like to turn it over to Neil Adler, our Chief Financial Officer, to review our financial results.

Thank you, Justin. We delivered another strong quarter with adjusted net income of 33.5 million up from 17.9 million in the same quarter last year, driven by top-line growth and improving margins and continued strength and investment income. Growth-driven premiums were off 23.4% with casualty premiums up 24.7% and property premiums up 21.3%. Net-driven premiums increased 30.8%, which reflects higher retention year-over-year while net-earned premiums were up 30.9%. Fee income was 3.4 million compared to 1.5 million a year ago with growth coming from standard policy fees introduced over the course of 2025.

Our underwriting income for the quarter was 16 million up 66.9% year-over-year. That translated into a combined ratio of 85.9% compared to 88.9% last year, driven primarily by a reduction in our expense ratio. Our lost ratio came in at 58.5%, which was up a half a percentage point year-over-year, reflecting the continued shift in business towards our brokerage channel and lower catastrophe activity in prior year quarter.

Catastrophe losses were 4.3% of net-earned premiums up from 4.1% last year. We also had favorable developments this quarter equal to 0.9% of net-earned premiums.

On expenses, the overall expense ratio improves 3.5 points to 27.5%. Our operating expense ratio declined 2.9 points year-over-year to 9.5% of net-earned premiums. Their improvement reflected earned premiums growing faster than operating expenses together with higher fee income. Policy acquisition costs as a percentage of net-earned premiums also declined in the second quarter to 17.9% from 18.5%. The continued shift in our business mix towards the brokerage channel also reduced policy acquisition costs, resulting in an overall economic benefit to our margin.

Moving on to investment results. Net investment income was 12.7 million up from 11.9 million last year, reflecting a larger investment portfolio, partially offset by lower short-term interest rates. Realized and unrealized gains were 18.6 million or 14.9 million net of non-controlling interest supported by strong results in our utility and infrastructure portfolio. Our effective tax rate was 20%, bringing net income to stockholders to 33.5 million.

The jumped in net income was also 33.5 million or 67 cents per diluted share. Turning briefly to the balance sheet, cash and investments increased by 62.3 million from the first quarter to 1.2 billion, reflecting strong operating cash flow. Book value increased by 33.4 million since the first quarter driven by retained earnings and an increase in AOCI offset by the impact of shares purchased in the quarter under our stock repurchase program.

Our book value per share ended the quarter at $13.86 per share of 31% since our IPO. With that, I'll turn it over to Chris to discuss on the writing and operating performance.

Thank you, Neil. When you consider this quarter's results, record direct premium and underwriting, operating expense ratio that we believe is among the best in our peer group and continued underlying improvement in our loss performance, any one of those metrics would represent a strong quarter on its own, especially against the backdrop of an increasingly competitive market. Taken together, they speak to how the capabilities we have built are increasingly reinforcing one another and helping us overcome the usual trade off between growth, cost and underwriting quality.

This is why we believe these results are not only repeatable but sustainable over the long term. Let me explain. Starting with revenues, growth this quarter wasn't driven by a single initiative.

First, we benefited from a larger renewal portfolio. Every year, we have consistently acquired new business on our terms at the right technical rates. This compounded into our largest renewal portfolio ever entering this quarter. In addition, new business growth was broad base. On our last earnings call, I talked about the record submission volumes we're seeing across the business.

Those submissions reflected investments we have made in distribution, regional strategies and new products. Those submissions became premium this quarter. Existing distribution partners continued to place more business with us. Newer relationships became increasingly productive. Project Heartland continued to outperform our New England strategy launched in April, got off to an excellent start, property growth accelerated and our newer professional liability and management liability products contributed meaningfully.

Turning to operating expense. This quarter, we process record premium volume while simultaneously launching new products and executing new growth initiatives. Yet our underwriting expense ratio improved to 9.5%. This isn't simply a function of scale. Technology and AI are a big part of the story. Our technology platform is built on a modular architecture.

That means every capability we develop can be reused across products, channels and growth initiatives. In addition, we are increasingly benefiting from magentaic AI. This is now being used across functions ranging from marketing to governance. Notably, our architects and engineer product was brought to market earlier this month using what we estimate to be approximately 60% fewer resources because of AI.

We have all but eliminated the fixed costs of launching a new product while accelerating speed to market. We believe our underwriting model, technology design and innovations help deliver one of the lowest underwriting operating expense ratio in our peer group.

Finally, underwriting performance. Importantly, we did not need to compromise underwriting standards to achieve growth. A larger opportunity set simply allowed us to remain selective, maintain technical pricing and continue delivering fast response times to our partners. We continued to price the business using an 18-month forward view of expected loss costs rather than reacting to short-term pricing trends. That gives us confidence that our technical margins remain stable.

Our prior year reserves continue to develop favorably during the quarter. Supporting our view that our underwriting discipline continues to produce consistent outcomes over time. Taken together, these three metrics tell the story of a business that can grow faster than its peers without sacrificing underwriting quality or inflating expenses. We believe this is because our approach to the market and the way we build the business are self-reinforcing. Investments and distribution, products and technology expand our opportunity set. A larger opportunity set allows us to underwrite more selectively.

Selective underwriting generates stronger margins. Stronger margins allows us to continue investing in technology, products and distributions. And those investments further expand our opportunity set. We have intentionally built a techry to become stronger as it grows. And we believe this quarter demonstrated exactly that with that alternative back to Justin.

Thanks, Chris. This quarter demonstrated that the investments we've made over the past several years continue to translate into profitable growth. While we expect competitive pressure to continue in the ENS market, we believe our ability to identify differentiated growth opportunities and execute them through our scalable operating platform positions us to continue gaining profitable market share. Which leads to our guidance for the third quarter.

We expect to achieve further market share gains with gross written premiums growing more than 20 percentage points above the ENS market. From an underwriting margin perspective, we expect a combined ratio of approximately 87%. Representing continued year over year improvement.

Hi, Elise. Thanks.

Yeah. Thanks, Elise. This was a good top line quarter for the company and we did give that guidance and we expect to see continued momentum in both property and casualty along the lines of what you've seen in this quarter. Chris, you wanna talk about?

Yes. We are seeing a lot of momentum in property that is unusual in this market, but it is somewhat explainable. It would be primarily our strategies. So Project Heartland, the New England strategy, those are both product-centric strategies that are really unique to us, very differentiated. They take a lot of research, a lot of technology, a lot of capabilities that are not, it's not easy to follow us in those specific regions.

So that alone is contributing. When it comes to rates, we are effectively flat, low negative single digits on property and that is because we chose to protect our renewal portfolio in some key regions where it made sense for us from a portfolio balance standpoint and also because of the fact that those were accounts that were performing well. Work preserving. On new business, the pricing levels on new business is up slightly year for year. That's not a metric we have disclosed, but directionally, it is something that we keep an eye on internally to tell us how we're pricing new business.

Thanks, Elise. So this is similar and a continuation of what we discussed last quarter, which was in the past few years, we have booked our property results with a degree of prudence, expecting reported losses to come in over the course of this year. They have not materialized to the degree that we expected and that's what led to the reserve releases.

We're not providing the number itself, but what we can say is that it was an excess of our premium growth.

Yeah, it was an excess of our premium growth. We continue to remain selective. We are finding excellent opportunities on new business across all products. First of all, they are some beyond property, which tends to be the headline when there's a discussion around soft market.

There's also a soft market in management liability and to some extent, professional liability, but we continue to find unique opportunities there also.

In casualty, some say there are softening parts of that market and nevertheless, we are coming across great opportunities from not just the areas where we have a regional strategy but across country in some very low volatility jurisdictions.

And that is a factor of our distribution network who very often are in those smaller markets.

Yep, thanks. This is really driven by a mix shift and the mix shift into our brokerage channel. So we have two channels, brokerage and small business. The brokerage channel has a book loss ratio that is above the small business. So as you've seen that mix come through, that's been what's driving that. At the same time, that's also driving our commission ratio lower.

So that is an offsetting dynamic. So to a couple of elements there, but from a loss ratio perspective, it is having written greater brokerage business with a higher, that comes with a higher loss ratio. And there has been no change in our underlying loss picks by line of business and channel.

What you're seeing in our numbers were the seeds that were planted, as you were saying, back many months ago. And those seeds continue to be planted. And that is what's fueling our growth. I'll pass it to Chris to talk about that.

Yep. So I think we can take a step back and look at the regional strategy. They're not just a benefit to us. They're a benefit to our partners because we are stepping in to fill a market need that we typically identify very early on. And we also are very intentional about how we craft solutions for those markets.

So there's the initial entry. There's the initial strategy. And then there are the residual benefits that we get from that. So I mentioned we are seeing attractive business and lower volatility jurisdictions.

Those are, so we're in the Midwest. We have a very specific set of states that we characterize under the Midwest strategy.

But Wyoming is not on that list, but we're seeing business in Wyoming because we were in Nebraska. That's just an example of just how the regional strategies work. And what's beneath that is the fact that we are really solving a market problem. And by doing so, we're really becoming important to our distribution partners. And from the middle market perspective, I think that's your question was about middle market. That goes back to that earlier question on brokerage versus small business. Small business is the more micro type accounts and middle market are small accounts, but we call them in the mid-sized range. And so we have been growing in that brokerage channel in a meaningful way. And that's been part of these numbers that you're seeing here.

Yeah, we have talked about this also before, but for us small is like two gas stations and then it goes into medium ones, it goes above five. So let's say family are running three gas stations, they purchase two more.

We take a long term view and rent, so we tend to stay on those accounts. And as they grow, they move into our middle market segment. So there's some of that dynamic happening also.

It sounds like casualty was just kind of a nothing positive or negative, but any color you could share on how your casualty book is developing and how you feel about that book over the last several years. Yep, you characterized it correctly. There's nothing in the casualty book in terms of development this quarter. And as the book is developing well, our actual reports are coming in below expected. As you know, we're a quantitative firm and we do a lot of analytics around that. And the firm-wide casualty actuals are coming in below expected and that's reflective of strong performance.

Yeah, we have maintained undrained discipline on how we deploy coverage. Furthermore, we charge for the trickier coverage on the casualty side. Many of our peers do not. That ensures that as the exposure within a million dollar limit, if it is slightly higher, we are getting adequate rates. So that technical pricing discipline which can sound a little abstract really has layers to it.

And what it does though is it insulates us from some of the usual casualty pitfalls. So things like putting up salt and battery limits too liberally or deploying human trafficking limits. Those are, you know, many of our peers do not have a rule book for that. We have very, very specific prescriptive rules. So there's casualty, then there's what are you covering and how broad is that coverage? We tend to be at the conservative side, what we call sensible coverage.

And when we deploy coverage in those categories, we charge for it.

We believe we're in some unique spaces. One, because we took the time to understand them, but we're succeeding in those spaces, and this is really the catalyst, because we are providing a unique solution. We're taking the time to design the intake rules in the right way, to craft the products in the right way, and develop pricing in the right way for those markets. Most of our peers, if they're participating in those spaces, they tend to take a very generic approach.

And as a result, we are seeing more momentum and more opportunities there. There's always going to be a shift of business in and out of the space. I think the competitive advantage here is the fact that we have a machine to study that external environment and we are able to quickly, and I want to say quickly, I mean, in a matter of weeks, go from research to deployment of solutions.

Thanks for the question, Alex. So in terms of the transition, this was a scheduled expiration of a existing contract, and we were excited to have the opportunity to have Neil join our company. I've known Neil for seven years, and he is an extraordinary CFO. He's been around this business since its foundation, and he really takes a forward-looking view into how we can scale this business. As you're seeing us grow, we are looking to have a finance department that scales in the same way, so focused on automation and streamlined processes.

So that is it, Neil, is there anything you want to add about your outlook or any changes? No, it just reinforced that I've been involved in integrity since its founding, and everything I've seen since taking the reins and just been reinforcing that it's an experience finance group with established reporting and control processes.

Do you have the paid loss number in the quarter by chance? I just want to double-check my math. I don't have the dollars, but the paid to encourage you so you can back into it was in the high 50s.

Yep, that is associated with the shift to the brokerage channel, as we said previously. You also saw that retention, like net-ridden to gross, was also down at usually low quarter. But that's all associated with having more reinsurance in the brokerage channel. So those are mid-sized accounts, and we have more programs there, more reinsurance placements there. So that's what you've probably been seeing in the numbers.

Yep, we have over 30 people in our in-house claims team. We have a sophisticated staffing model that they utilize, and we make sure that we are ahead of the curve. We have actuals versus expected on claim counts, so that all feeds into that. And so we're very focused on making sure we have the right resources. We're also doing working to do some more innovative things on claims over time, which we'll introduce at a later date. But the idea is that we are well resourced for the claim volume that we are receiving, and we're also deploying technology as well. Yeah, so in parallel with our core operating system improvements, we've been deploying new capabilities product by product on a claim site.

I'd say it includes integration estimation tools. It includes an array of new functionality that allows us to get more precise on how we do case reserves, but also it allows us to handle claims in the right way and put each claim on a track to resolution. So we cross the business, including in finance. Neil mentioned we are looking to utilize the current technology to get the most benefits. But when it comes to core staffing, we're really looking for strong people, not more man hours necessarily as the password.

I will now turn the call back to Justin Cohen for closing remarks. Well, thank you so much all for your questions and for taking your time this evening. We appreciate your interest in integrity, and we look forward to having further conversations with you in the months ahead. All the best.