管理層發言
Ladies and gentlemen, good morning, and welcome to the Octave Specialty Group Second Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Karen Beyer, Head of Investor Relations. Please go ahead.
Thank you. Good morning, and welcome to Octave's Second Quarter 2026 Call to discuss financial results. Speaking today will be Claude LeBlanc, President and CEO; and David Trick, Chief Financial Officer. They will discuss the financial results of our business and the current market environment. After prepared remarks, we'll take your questions. Also available for Q&A today will be executives from our Insurance Distribution segment. For those of you following along on the webcast during the prepared remarks, we will be highlighting some slides from the investor presentation, which can be located on Octave's website. Our call today includes forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties, and it is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in forward-looking statements in our earnings press release and in our most recent 10-Q and 10-K filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also in our prepared remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures are included in our recent earnings press release, operating supplement and other materials available in the Investors section on our website, octavegroup.com. Now we would like to turn the call over to Mr. Claude LeBlanc.
Thank you, Karen, and good morning, everyone. I am pleased to report that Octave Group delivered another strong quarter, reflecting continued momentum across our platform and disciplined execution against our strategic priorities. Our insurance distribution business continued to scale at an attractive pace, supported by strong organic growth and the benefits of recent strategic investments. At the same time, our Specialty Insurance segment showed continued operational progress and improving financial performance. Turning to our results for the quarter. Our core insurance distribution business remains firmly on track with strong momentum demonstrated by revenue growth of 77% for the second quarter, which included organic growth of 44% and the impact of the acquisition of ArmadaCare. Our second quarter insurance distribution adjusted EBITDA was $10 million, representing a near fourfold increase year-over-year, bringing our year-to-date adjusted EBITDA to $35 million. This reflects an adjusted EBITDA margin of approximately 26%, which expanded over 12 percentage points from 13% a year ago. Based on the continued and accelerated growth of our Insurance Distribution segment, we are adjusting our 2026 guidance for our two key metrics, organic growth and adjusted EBITDA. David Trick will provide more details on all of our guidance adjustments later in the presentation. Included in these results is strong performance from our class of 2024 and 2025 MGAs, which continued their growth trajectory this quarter. We remain confident that these MGAs, which remain in the early stages of scaling, will drive material EBITDA expansion as they scale through 2028 and beyond. Our Specialty Property & Casualty segment continued to benefit from the early actions we have taken to reposition the platform, delivering adjusted EBITDA of $1.8 million for the quarter. We continue to strengthen the quality of Everspan's portfolio while positioning the company to generate increasingly attractive earnings as premium growth and underwriting improvements continue to compound. The business remains well positioned to support both third-party programs and select active sponsored opportunities while delivering sustainable long-term value for shareholders. In conjunction with this, we are investing in leadership and specialized capabilities needed to support Everspan's growth. As announced earlier this week, we have hired three new senior leaders at Everspan Group: David Kenyon, Head of Reinsurance, who recently joined the company; Bevan Greibesland, Chief Underwriting Officer; and Clay Stewart, Chief Operating Officer, who will be joining us shortly. David, Bevan and Clay each bring deep expertise in their respective fields. Together, they will strengthen our ability to scale Everspan while maintaining our focus on underwriting discipline, strong partnerships and operational excellence. Turning to the market environment. Broadly, the U.S. and global P&C insurance markets continue to soften. Property markets are being shaped by abundant capacity. The wholesale large property segment is leading the pullback with rates down 10% to 20% year-on-year, while low cat-exposed SME property markets are experiencing more muted softening. Notably, this is happening after years of increases, which gave rise to a strong technical price foundation. As a result, notwithstanding these rate reductions, price adequacy remains intact for our well-underwritten portfolios. The London market large casualty products are operating against a backdrop of robust competitive pressures, although they are demonstrating better rate resilience than large property lines. By contrast, casualty SME classes, including general liability and certain commercial auto risks, as well as targeted specialty classes, continue to show mid-single to double-digit rate progression and represent an attractive opportunity for expansion. A&H continues to benefit from constructive positive rate trends and strong secular growth in certain markets. In this market environment, our portfolio strategy remains a key differentiator. We have intentionally built a diversified platform across A&H, Specialty P&C and select property lines, giving us multiple sources of growth and reducing our dependence on any single product class or market cycle. This diversification is especially important in the current environment where our A&H businesses continue to provide a growing earnings base that is largely uncorrelated with broader P&C pricing cycles. This breadth allows us to manage concentration risk, reposition where appropriate and continue pursuing profitable growth in areas where market fundamentals remain attractive. Equally important, our MGA model is built around experienced underwriting leaders who have managed through prior market cycles. Their expertise, combined with disciplined portfolio management and strong capacity relationships, enables us to responsibly deploy underwriting capital on behalf of our partners while protecting margins and supporting sustained growth. Beyond our portfolio diversification and experienced underwriting leadership, our growth is supported by the profile of our portfolio companies and our portfolio bias towards areas where growth opportunity remains strong. Since the start of 2024, Octave has launched nine MGAs, representing 40% of our MGA portfolio. Following an MGA launch, there is an inherent strong growth trajectory, which typically continues for at least five years and in many cases well beyond that window. MGA launches typically breakeven and start to deliver positive EBITDA after 18 to 24 months. In contrast, our mature MGAs are driving growth through a deliberate proactive strategy, expanding distribution, repositioning towards the strongest underwriting opportunities and broadening capacity access within core products. We are leveraging MGA and corporate leadership expertise alongside targeted talent recruitment to drive product growth. Bolt-on teams, a strategy we're executing across multiple platforms, provides an efficient low-cost route to growth, rivaling smaller new MGA launches. Taken together, the diversity of our portfolio, the profile of our MGAs and the quality of our underwriting talent give Octave a differentiated ability to perform through market cycles. We believe that this positions us well to deliver above-market organic growth today while preserving meaningful upside as market conditions evolve. Finally, a brief update on our AI and data strategy. We view AI as both a growth enabler and an efficiency tool. Applied thoughtfully, it strengthens our underwriting capabilities, improves speed and consistency across our enterprise and helps our teams focus their time on high-value risk selection and client engagement. During the second quarter, we collaborated with Cytora to develop and launch our proprietary AI-driven underwriting platform, turning submissions into decision-ready risks, allowing us to review opportunities faster and with greater underwriting quality. It is currently active in a number of our U.S. MGAs that write management, financial and professional liability programs. To date, the results are very encouraging. In one clear example of underwriting efficiency and acceleration, we have reduced submit-to-quote time from several hours to approximately seven minutes. Over time, we expect this capability to reduce manual effort, accelerate underwriting decisions, improve service levels and bring additional MGAs to market more quickly. We expect to complete the implementation across our remaining applicable U.S. MGAs in the second half of this year. I will now turn the call over to David to review our second quarter results. David?
Thank you, Claude, and good morning, everyone. For the second quarter of 2026, Octave reported a net loss to shareholders of $14.4 million or $0.33 per share, an improvement of over $6 million or $0.09 per share compared to the net loss to shareholders of $20.5 million or $0.42 per share reported in the second quarter of 2025. Consolidated EBITDA and adjusted EBITDA to shareholders improved to a negative $1.7 million and a positive $3.7 million compared to a negative $9.8 million and negative $4.6 million, respectively, in the second quarter of 2025, representing an $8.1 million and $8.3 million improvement, respectively. The consolidated adjusted net loss to shareholders was $1.8 million or $0.04 per share compared to a loss of $10.6 million or $0.22 per share in the second quarter of 2025, an improvement of $8.7 million or $0.18 per share. The results for the quarter, led by insurance distribution, also reflect improved results at Everspan as well as our corporate operations. Total revenue for the Insurance Distribution segment grew 77% to $58.4 million in the second quarter of 2026. Organic growth of 44% and the October 2025 acquisition of ArmadaCare were the drivers of the substantial increase in revenue. Organic growth was aided by the diversity of our business, including de novo launches over the last two years in certain specialty product lines, which more than offset some of the softness we experienced in certain markets such as energy and D&F property. The Insurance Distribution segment's net loss to shareholders decreased to $3.7 million in the quarter compared to a net loss of $7.7 million in the prior year quarter, an improvement of $4 million. Insurance Distribution's adjusted EBITDA to shareholders grew nearly fourfold to $9.8 million compared to $2.5 million in the prior year period, driving related margins to 16.8% from 7.6%, respectively. Adjusted net income to shareholders swung positive to $4.6 million compared to a net loss of $3 million in the second quarter of 2025. Our insurance distribution results for the quarter were driven by a number of factors, including the October 2025 acquisition of ArmadaCare, organic growth across our diverse group of MGAs, higher profit commissions, reflecting continued underwriting discipline, the acquisition of an additional 10% of Octave Ventures at the end of the first quarter and a near $3 million reduction in interest expense resulting from both the reduction of debt and lower financing costs. Our results for the quarter also reflect our continued investment in de novo MGAs, which suppressed EBITDA to shareholders by about $1.1 million in the quarter, accounting for about two points of EBITDA margin. Turning to Everspan. Gross and net premiums written and premiums earned in the quarter were $95 million, $23 million and $22 million, down 2% and up 52% and 34%, respectively. The actions we've been taking to reposition Everspan helped bring down our current quarter loss ratio to 61.4% with our active programs running at about a 59% loss ratio. This represents a 640 basis point improvement in our reported loss ratio compared to the second quarter of 2025. Our G&A expense ratio also declined year-over-year to 9.4% from 16%, driven by lower expenses and earned premium growth. Reduction in the loss and G&A expense ratios were partially offset by higher acquisition costs due to embedded sliding scales on certain programs that we believe will provide more stable underwriting results going forward. Together, these results led to a reduction in the combined ratio to 100.6% compared to 106.7% last year, above our long-term objectives, but progress towards our goal. For the second quarter of 2026, Everspan produced pretax income of $1.2 million and adjusted EBITDA was $1.8 million, double and nearly triple, respectively, the results from the prior year period. Continued expense reduction and containment initiatives at corporate also contributed positively to our improved second quarter results. Reported GAAP corporate expenses declined from $14 million in the second quarter of 2025 to $12 million this quarter, a 14% improvement. In addition, adjusted expenses declined to $7.9 million from $8.3 million in the prior year comparable period. The difference between reported expenses and adjusted expenses in the current quarter was mainly attributable to $1.1 million of acquisition, integration, severance and restructuring expenses and $2.7 million of equity compensation. We continue to evaluate all expenses in an effort to trend our adjusted expenses downward toward our longer-term goals. Turning to guidance. We are updating several key items that reflect the continued strength of our insurance distribution business and the ongoing evolution of our platform. Within our Insurance Distribution segment, we are raising guidance for both of our key operating metrics. We now expect organic growth of 25% plus, up from our prior expectation of 20% plus and are increasing adjusted EBITDA guidance to $45 million from $40 million. These increases reflect the diversity and continued momentum of our distribution platform. At Everspan, we are revising our adjusted EBITDA guidance to $6 million from $7.5 million. This change is primarily driven by higher-than-expected acquisition costs associated with the mix of newer programs we are onboarding. While these costs impact near-term profitability, we believe these programs will produce more attractive long-term economics through lower and more stable loss ratios, supporting a stronger and more durable earnings profile over time, particularly as we build scale. $6 million of adjusted EBITDA would represent a 58% increase over 2025's adjusted EBITDA of $3.8 million. We are also updating our adjusted net income per share guidance to a range of $0.15 to $0.20 per share compared with our prior expectation of $0.50 per share. This revision reflects updated estimates for interest expense, depreciation, taxes and a more refined allocation of noncontrolling interest across the business. Importantly, our outlook continues to represent a significant milestone for the company. We expect 2026 to be the first year we generate positive adjusted net income per share, excluding the legacy financial guarantee business since launching our P&C strategy in 2021. At the midpoint of our revised guidance, this represents approximately a $0.76 per share improvement from our 2025 adjusted loss of $0.58 per share, driven by the continued growth and increasing earnings power of our insurance distribution platform. All other guidance remains unchanged. I will now turn the call back to Claude.
As we move into the second half of 2026, I'm confident in the strength, scalability and resilience of our business model. While the market environment remains dynamic, we are executing with discipline, maintaining our focus on underwriting quality, portfolio management and responsible growth. These results reinforce our confidence in Octave Group's long-term opportunity. We believe the foundation we are building positions us well to deliver sustained profitable growth and advance our vision of becoming a leading specialty insurance distribution company. Operator, I would now like to open the call to questions.
分析師問答
And our first question will come from Maxwell Fritscher with Truist Securities.
I'm calling in for Mark Hughes. How would you characterize the pipeline for start-up MGAs? And then how is the pipeline for the class of 2027 shaping up, if you have a line of sight there?
Max, yes. So where we stand for 2026, I think we indicated that we thought there would be a lower number of MGAs launched this year. We haven't launched any to date, although we still expect to, and we indicated one or two for 2026. This came off the large number that we launched in the class of 2024 and 2025, where we launched nine, representing roughly 40% of our total MGA portfolio. So it was our expectation to keep that number lower this year as we focus on the large number of MGAs launched in that period. Roughly close to 75% of our organic growth this quarter was delivered by the classes of 2024 and 2025. Those MGAs are just beginning the early stages of scaling their platforms and really taking hold of the growth and also beginning to deliver EBITDA. Roughly half the MGAs of that class are delivering EBITDA at this point in time, and we expect more to start contributing and contributing much more meaningfully as we get through to the end of the year and into 2027. So right now, as we look at the trajectory in terms of our target EBITDA looking at 2028 that we put out of $80 million, a significant percentage of that will come out of the class of 2024 and 2025. But coming back to your specific question on 2026 and 2027, we're still targeting a relatively modest number of MGAs in 2027. I think we're probably in the range of two to four in terms of launches. We do have a pipeline of start-ups that we continuously evaluate for launching. We're very selective, of course, in choosing the MGA portfolios that we're looking at. But we've also been refining our integrated operational platform that we believe will enhance our ability to launch MGAs even quicker than we've had in the past and get them to scale sooner, which has also been a major initiative that we've been focused on in 2026 and have made tremendous progress in the last number of months. So again, the pipeline is deep, but we are focused on the class of 2024 and 2025. As I mentioned in my prepared remarks, the fact that we're adding teams to those MGAs as well, and to others that we acquired, has been an alternative way to grow and scale the smaller to midsized MGA launches. We're able to get them up and running much quicker by adding teams to existing MGA platforms. That has been a key source of growth for this year as well.
Great. That's helpful. And then in terms of capacity, what are your observations around your current partners and then the market in general's appetite around providing more capacity?
Maybe I'll let Naveen Anand, who's with us this morning, answer that.
Good morning, Max. So overall, I think from a capacity standpoint, it really comes down to underwriting results, and our underwriting results and performance have generally been good. As a result, we see capacity being attractive and available to our portfolios and our platforms. We expect that we'll continue to see strong capacity support as we move forward into 2026 and certainly into 2027 across both our start-up platforms and supporting our venture businesses as well as our more established MGAs in our portfolio.
And I'd just add that we are continuing to broaden and diversify our capacity. Again, our model is a curated capacity model, and we continue to add capacity partners. Most quarters, we're adding at least one or more. So that's part of our strategy and something that we will continue to progress as we scale the platform.
And then I guess turning to rates, I'll start with non-cat property. What sort of pricing are you getting there? And then when you look at where we are in the cycle, do you think we're anywhere near the floor? What are your observations on that market?
Max, generally we're seeing rate declines in the sort of 10% to 20% range, as Claude mentioned, in certain property lines, both primarily in the large account property lines and more on the cat-exposed property lines. I expect we're still in the relatively early innings, assuming—obviously things can change quickly if there are other large catastrophe events that change the market. But at this point, we expect that they'll continue to soften as we move forward into the remainder of 2026 into 2027, particularly in cat-exposed accounts.
Yes. And as we mentioned, our portfolio is much more geared to the non-cat and non-large account SME side of the business mix. So for us, when we look at the average, it's probably closer to five to ten percent on the lower end of that range, given the business mix our portfolios are focused on. We still are having strong growth in some of our property MGAs, especially those focused on the E&S SME space. So it is a mix for us, and I'd say the price impacts are more muted, although there are a few parts of the portfolio impacted by the larger-account D&F markets that are more in line with the broader market. That is a small percentage of our portfolio.
And at Everspan, I know excess liability is a decent part of the mix there. What are your observations on pricing there? Is there any incremental competition you're seeing? If so, where do you see that coming from? And do you still think pricing is running ahead of loss trends?
Yes. Max, generally we're still seeing a positive rate environment in excess liability. It is moderating a bit as the quarter goes on, but still generally in line with and better than loss costs. Obviously, it's dependent on portfolio by portfolio. For the portfolios we have and the targets at Everspan, we're generally seeing a positive rate environment that's exceeding loss cost.
And I'd say another trend with Everspan is we are seeing a broadening of programs. I think also a sign of the times with market conditions is that we're seeing certain casualty and more specialty programs that are differentiated in the marketplace. The selection and breadth of programs have improved and the pipeline has strengthened overall. So the Everspan platform shows potential for strong growth for the year. Again, we're not chasing growth, and we're being very selective, but we are seeing a much higher quality and deeper breadth of opportunities in the program space for Everspan.
And then last one for me, and I'll hop back in the queue. Is there any associated investment or costs related to the rollout of the new AI tool to your remaining MGAs?
Yes. As I mentioned on prior calls, the implementation, customization and development of the AI tools in our platform are expected to be in the low- to mid-single-digit millions for the year. When you add the additional costs we're encountering in connection with technology upgrades and the implementation of technologies across the platform to support that, that is an additional amount also in the low- to mid-single-digit millions. Those costs are largely one-time in nature. There could be additional initiatives next year, but for this year, I think this will be one of the larger additions in terms of AI and technology in our forecast. We will see some of those costs begin to peel off early next year, and by mid-next year, I think a meaningful percentage of those costs will be discontinued. We also expect to benefit from these investments through significant cost benefits as well as revenue benefits that will more than offset the implementation costs we've incurred to date.
We'll go next to Tommy McJoynt with KBW.
With ArmadaCare and some of your other MGAs, accident and health is a major line of business for you. Market commentary tends to generalize pricing and conditions talking about the property and casualty buckets, but A&H does have some of its own drivers. Can you spend a minute and just talk about the market conditions that you're seeing in A&H and how that relates to inputs to your future organic growth opportunity in that line?
Sure, Tommy. A&H is a broad market segment. ArmadaCare is focused on the excess benefits and benefits area. Our exchange benefits platform is primarily focused on employer stop-loss, and we have other focus in ancillary lines within A&H. For our key areas, we're seeing strong secular growth and underlying trends that are driving both the ESL market and the benefits market. Those growth trends will continue to support organic growth as we move forward. In addition, we're seeing a positive rate environment in those sectors, generally in the low double-digit range, low teens to high single digits. We expect that to continue into 2026 and 2027 based on the underlying trends within those segments. A&H is an important part of our portfolio—about one-third today—and an important contributor to our results and a ballast to some of the challenges in the broader P&C cycles.
Got it. And then switching over, the Everspan book continues to charge ahead toward its mid-teens ROE at scale. Can you remind me what your definition of scale is in that business? And is there any chance that fronting economics could change for either better or worse over the coming years as you gain scale? Lastly, does that ROE target equate to a specific combined ratio relative to the 97% adjusted combined that you did in the first half of the year?
In terms of scale, the way we modeled the growth of the platform—given how we've staffed and implemented systems and technologies to support a hybrid platform, not a pure fronting platform—we have higher overhead costs associated with the business. Our target to scale was somewhere north of $500 million of premium, which we'll be approaching this year, but may not fully reach. Once we pass that, we should see much less impact from fixed cost drag on the combined ratio, earnings and EBITDA going forward. This year we'll still have a few points of drag associated with scale, but that will begin to ease next year. For this year, we're targeting premiums around $410 million, and next year I would expect us to be closer to that $500 million scale number. Regarding fronting economics, as we scale and continue to improve loss ratios and expense ratios, we would expect the economics to improve. We designed the platform as a hybrid model and have been mindful of the fronting dynamics as we've built scale.
On the combined ratio, what we've said in the past is that we're looking at a sub-95% combined ratio as a casualty-focused business. You would expect our loss ratios to be a little higher than businesses that have heavy property books, but we've added some property exposure to the portfolio, which we're starting to see benefit from in the loss ratio and expect to see further in the remainder of the year. But I would say between 90% and 95% is our target, which is a function of getting those loss ratios down and more stable and, as Claude mentioned, continuing to scale the business from an expense ratio standpoint.
And then just last question, to switch topics one more time. A lot of brokers and MGAs have been benefiting from strong profit commissions or contingents. You guys had a nice uptick in the first half of the year. Was any of the change in guidance contemplating a higher level of profit commissions? And do you have line of sight to what you think that contingent could be in the second half of the year, either on an absolute dollar basis or as a percentage of distribution revenue?
We account for our profit commissions by scaling them into the numbers we're seeing to try to avoid a lot of volatility. Based on our calculations, our original guidance included profit commissions close to the levels we're seeing today. We did bake in a little bit of additional profit commission for one of our businesses, but it wasn't material. We think we'll have a good year on profit commissions, particularly for the lines of business that are driving it, which tend to have more stable loss ratios.
And moving next to Mark Hughes with Truist Securities.
My flight hasn't left yet, so I thought I'd sneak one in. On Everspan, you described hiring some new executive talent. It sounds like your growth outlook for 2027 is pretty robust. I think you added a number of programs just this quarter. Can you talk about the quality control on that underwriting? That's obviously a point of risk for anyone with programs and new programs. What are you doing to give yourself confidence that the underwriting there is going to be high quality?
Yes. I think the talent we're bringing in strengthens our underwriting oversight considerably. Bevan has deep experience and has served as a Chief Underwriting Officer; her breadth of experience was a key attraction. She is replacing Darwin, who also had extensive experience. The broadening and depth of the team, along with our claims team—which is very important in managing our loss ratios and underwriting—has expanded dramatically over the last year. We feel very confident about the experience and depth of the team. Where additional diligence is required for programs that come in, we don't shy away from bringing in extra resources and expertise to assist in program review and underwriting. Our approach is to underwrite the full program—we are a gross line underwriter, not a pure fronting platform—so we focus on the complete program economics. Claims oversight, program monitoring and audits performed 90 days after commencement and thereafter annually, or more frequently depending on the program, give us confidence in our selection and ongoing oversight of exposures.
That concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.