Ryan Specialty Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 13 speakers on the call.

Operator

Good afternoon, and thank you for joining us today for Ryan Specialty Holdings Second Quarter 2023 Earnings Conference Call. In addition to this call, the company filed a press release with the SEC earlier this afternoon, which has also been posted to its website at ryonspecialty.com. On today's call, management's prepared remarks and answers to your questions may contain forward looking statements. Investors should not place undue reliance on any forward looking statement. These statements are based on management's current expectations and beliefs and are subject to risks and uncertainties that could cause actual results differ materially from those discussed today.

Operator

Listeners are encouraged to review the more detailed discussion of these risk factors contained in the company's filing with the SEC. The company assumes no duty to update such forward looking statements in the future, except as required by law. Additionally, certain non GAAP financial measures will be discussed on this call and should not be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of non GAAP financial measures to the most closely comparable measures prepared in accordance with GAAP are included in the earnings release, which is filed with the SEC and available on the company's website. With that, I'd now like to turn the call over to the Founder, Chairman and Chief Executive Officer of Ryan Specialty, Pat Ryan.

Speaker 1

Good afternoon and thank you for joining us to discuss our 2nd quarter results. With me on today's call is our President, Tim Turner our CFO, Jeremiah Bickham Our CEO of Underwriting Managers, Myles Waller and Nick Masik from Investor Relations. Orion Specialty had a great quarter with strong momentum continuing across all of our strategic, financial and operational objectives. We grew total revenue of 19.1 percent, led by organic growth of 16.1%, building on the 22.3% organic growth in the Q2 of 2022. We also achieved double digit growth in adjusted EBITDAQ and adjusted net income on a year over year basis.

Speaker 1

We saw broad based strength across our specialties, particularly in property and in many individual lines of business. The specific headwinds we noted on our prior calls were in line with our expectations and partially offset some of the very strong tailwinds we experienced in property. Overall, I'm very pleased with our performance in the quarter and throughout the first half of twenty twenty three. In addition to delivering great results, We continue to execute on our M and A strategy. In July, we completed 3 attractive and strategic acquisitions, which added scale and scope to our wholesale specialty and launched our benefits practice.

Speaker 1

The first is Socius Insurance Services. Approximately $40,000,000 of annual revenue, Solsys adds high quality talent to our professional lines and cyber teams and deepens our scale and scope in key hubs like San Francisco, Tampa and Miami. We are confident in the outlook for this business given our long And our proven ability to help firms grow on our platform through our relationships with the top 100 retail brokers, access to our proprietary products and expand carrier relationships. We also completed 2 employee benefits acquisitions, Point6 Healthcare and Ace Benefit Partners, adding just under $10,000,000 of annual revenue. These firms provide exceptional talent and foundational capabilities for Orion Specialty Benefits.

Speaker 1

We have diligently assessed opportunities in the benefits market, targeting firms that have a track record of both growth And long term margin greater than the industry average. And these medical stop loss focus firms are perfectly aligned with those attributes. Medical stop loss insurance plays a vital role by smoothing the volatility in healthcare spend through re insuring a self funded benefits plan against high cost claims. We expect medical stop loss insurance to continue to play a crucial role And financing and risk mitigation strategies, particularly as healthcare innovation accelerates and high cost drugs And gene therapies become more prevalent. We are pleased to enter this niche that boasts over $25,000,000,000 in premium in the U.

Speaker 1

S. With a 12% compound annual growth rate since 2014. We believe there's a long runway for both organic And inorganic growth and benefits and are excited to add these capabilities to our specialties. Further on the M and A front, our pipeline remains robust. We remain disciplined in our pursuit of acquisitions, Particularly in the current environment, as we will only move forward when all of our criteria are met.

Speaker 1

Each acquisition must be a strong cultural fit, strategic and accretive. We continue to make targeted investments during the quarter as we brought on additional talent to further enhance our current capabilities and developed areas where we anticipate our clients need us in the future. These investments, particularly in the recruitment of new colleagues, Offer the greatest returns for our shareholders and are part of a proven winning formula to maintain our long term growth prospects. That takes us to Accelerate 2025, our 2 year restructuring program announced earlier this year. We are making investments that will enable continued growth, drive innovation, deliver sustainable productivity increases over the long term and accelerate margin improvement.

Speaker 1

We have made solid progress in the Q2, which Jeremiah will discuss further. We remain on track to generate a targeted annual savings of at least $35,000,000 in 2025 With cumulative special charges expected to be at least $65,000,000 through the end of 2024. Throughout the Q2, the E and S marketplace remained robust. E and S continues to provide solutions that are otherwise not available for hard to place risks. As we previously noted, we've invested significantly in those lines Where we see clear opportunities to grow, in addition to bolstering the lines of business where our clients need us the most.

Speaker 1

We have also continued to expand our ability to serve brokers, agents and carriers through innovation and creating alternatives to traditional insurance placements in areas like cat property and transportation. Looking ahead, we expect favorable specialty insurance market dynamics to persist. And we remain confident 2023 will continue to be another strong year for our firm. We're in a prime position To capture broader E and S tailwinds and also further capitalize on our specific lines accelerated growth. Our differentiated business model allows us to remain ahead of the competition and our flexibility enables us to quickly adapt and pivot when market conditions shift.

Speaker 1

We continue to expand our total addressable market through innovation and strategic acquisitions and further deepen our moat with scale, scope and intellectual capital. We're able to do all of this because of our exceptional team, will consistently deliver impressive results and value for our clients, trading partners and ultimately to our shareholders. I'm pleased to turn it over to Tim. Tim?

Speaker 2

Thank you very much, Pat. As Pat noted, It was another strong quarter across our specialties as we continue to successfully execute on winning new business and producing innovative solutions for our clients. The effects of industry trends such as climate change and natural disasters, Accelerating social inflation and broad based economic inflation happening concurrently with reduced insurance capital, A pullback in underwriter appetite and market exits make for an incredibly challenging insurance market. Additionally, continuous change in the loss environment and growing uncertainty and reserve adequacy is driving more risks into the E and S marketplace, which offers significantly more freedom of rate and form. Given our specialized and industry leading team's ability to navigate the complexities of the market, we plan to continue delivering for our clients and generated another quarter of strong growth.

Speaker 2

In property, elevated levels of attritional and secondary perils, including severe Convective storms and persistent inflation from higher cost of materials and labor shortages are driving up loss costs. Additionally, market conditions, including higher reinsurance costs, Reduction in available capacity and ongoing requirements for proper valuations are driving higher retentions of risk and ultimately more volatility into the U. S. Direct property market. These factors are continuing to drive flow of new business into the E and S market.

Speaker 2

The E and S market is responding, yet it is also experiencing More conservative appetites, significant rate increases and tighter limit management, especially on coastal property, Severe convective storms, wildfire, flood and earthquake risk. We are well positioned to assist our clients in navigating the complexities of this market. Our A plus team of experts are working tirelessly to bring important and creative solutions to our retail brokers and trading partners in this challenging market. Our transportation practice continued to see substantial flow in the quarter, fueled by social inflation, Carrier need for continued rate increases and a pullback in underwriter appetite and market exits. We continue to win more than our fair share of new business and remain well positioned to capitalize on additional growth opportunities.

Speaker 2

Our casualty practice also performed very well in the quarter. We continue to see higher loss trends, inflation and reserving issues drive more flow into the E and S channel across both primary and excess casualty, particularly in lines like healthcare, habitational and real estate. And as Pat noted, We completed the acquisition of Sochis at the beginning of July and are excited about the addition of new teammates who have hit the ground running and are a clear cultural match with Ryan Specialty. Overall, our wholesale brokerage specialty Continues to successfully execute its game plan, and we see a long runway of consistent growth ahead. In our binding authority specialty, we saw another quarter of solid growth in traditional binding, which includes small commercial business and growth in personal lines despite continued capacity constraints.

Speaker 2

We continue to see further potential For panel consolidation, it's a long and steady growth opportunity, and we are well positioned to execute. Our underwriting management specialty also generated strong results, led by continued steady and profitable growth in Property and Casualty and our reinsurance MGU, Ryan Rhee. We also launched our benefits practice with the acquisitions of Point6 Healthcare and ACE Benefit Partners. Our team was extremely thoughtful in determining Where we could best add value in this large and important market and medical stop loss is where we see a clear opportunity for rapid expansion within this fast growing specialty niche. John Zurn and his team are hard at work expanding our sales force in this practice.

Speaker 2

We look forward to updating you on the progress of benefits in the quarters ahead. As we had mentioned on our prior call and as Pat just noted, The specific headwinds in certain lines in the Q2, namely public company D and O, lower external M and A volumes and transactional liability and delayed starts in construction remained in line with our expectations. We expect Any growth benefit in these three lines to be modest in the second half of the year. Turning to price. Through Q2, We remained in the prolonged stages of a historically hard market.

Speaker 2

Pricing in the E and S market largely held firm We're accelerated in many lines of business with property continuing to see the strongest rate momentum. Exceptions remain public company D and O and cyber, where we saw further pressure, as with all cycles, As pricing continues to increase and certain lines are perceived to reach pricing adequacy, we see admitted markets step back in on certain placements, particularly within large towers. But overall, we still have yet to see the standard market meaningfully impact rate or flow in the aggregate. We continue to expect the flow of business into the non admitted market to be a significant driver of Ryan Specialty's growth more so than rate. With that, I will now turn the call over to our Chief Financial Officer, Jeremiah Bickham, who will give you more detail on the financial results of our 2nd quarter.

Speaker 2

Thank you.

Speaker 3

Thank you, Tim. In Q2, we grew total revenue 19.1 percent period over period to $585,000,000 fueled by another strong quarter of organic revenue growth at 16.1% as we continue to benefit from the ongoing tailwinds in much of the E and S market, Particularly property, broad based strength in many of our individual lines and our ability to win substantial amounts of new business. Net income for Q2 2023 was $84,000,000 or $0.26 per diluted share. Adjusted net income for the quarter was 124,000,000 or $0.45 per diluted share. Adjusted EBITDAQ for the 2nd quarter grew 16.9% period over period to $194,000,000 while adjusted EBITDAC margin declined 60 basis points to 33.2%.

Speaker 3

Our EBITDAC margin was impacted by continued investments in our business, including last year's hiring and T and E continuing to return to normalized levels, both of which were partially offset by higher fiduciary investment income. Turning to our Accelerate 2025 program, We had approximately $17,000,000 of charges in the quarter as the program was able to move into full swing, slightly ahead of schedule. We remain well on track to generate annual savings of at least $35,000,000 in 20.25 with cumulative special charges projected to be at least $65,000,000 through the end of 2024. As Pat noted, we also continued to make targeted investments in the quarter, adding underwriting and broking talent to our ranks and expect consistent recruitment efforts to continue in the back half of the year. The cost of these investments, along with the annualization of our 2022 headcount growth, will continue to impact margin, but will be partially offset by These investments in talent, particularly recruiting new colleagues, offer the highest returns for our shareholders and are part of a proven winning formula to maintain our long term growth prospects.

Speaker 3

Based on our current forecast, We expect to record GAAP interest expense, which is net of interest income on our operating funds of approximately $31,000,000 in Q3 and $29,000,000 in Q4. As a quick reminder, we paid for our 3 most recently announced acquisitions at the beginning of Q3, which reduced our operating funds relative to the six thirty balance sheet. We are now guiding organic revenue growth rate 13.0%. We are maintaining our full year adjusted EBITDAQ margin guidance range of 29.0 percent to 30.0 percent. In summary, it was an excellent second quarter and first half performance by Ryan Specialty.

Speaker 3

We remain very excited for both our near and long term prospects. With that, we thank you for your time and would like to open up the call for Q and A. Operator?

Operator

Thank you. We will now be conducting a question and answer session. The first question we have is from Elyse Greenspan of Wells Fargo. Please go ahead.

Speaker 4

Hi, thanks. Good evening. My first question is on the updated organic Growth, right, 13% to 14.5%. You guys were 14.6% for the first half of the year. And It sounds like there will still be some impact of the headwinds in the second half, but we are annualizing them.

Speaker 4

So why wouldn't organic growth be stronger in the back half?

Speaker 3

Elyse, thanks for the question. So First off, just want to acknowledge we had a very good quarter that we're quite proud of and really the end to a very solid first half of the year. As you noted in our prepared remarks, we got a big boost from property this quarter. And because seasonally Q2 has the highest amount Property and Property Cat business in our portfolio, that's why. And thus, we are expecting less of a lift from Property In the second half of the year, but otherwise, we're implying that H2 will play out very similarly to H1, which Means strong growth across the board, including double digit growth contribution from our very balanced casualty portfolio as well.

Speaker 3

So overall, we feel great about where we're headed in H2 and we're very confident we can land within our increased organic growth guide range, Which we feel would represent another very solid year for Ryan Specialty.

Speaker 4

And then so Q2, Jeremiah staying there for a Q2, right, I know you guys have said, right, it's the highest property concentration quarter. Of the other three quarters, are they All pretty close from a property perspective? Or would one stand out as having a higher concentration next to the 2nd

Speaker 3

quarter? So Q2 is far and away the largest. And if you're just looking at percentage attribution of It doesn't even tell the whole story because not only does it have the highest overall property contribution, but it's the highest Cat property, quarter of the year by far. The next highest is Q4, but, we did experience A benefit in the last couple of weeks of Q4 from property rates surging. So we're not counting on the exact same Growth in Q4 proportionally as we would a quarter like Q2, if that makes sense.

Speaker 4

That does make sense. And then in terms of the M and A pipeline, you guys Highlighted some of the activity during the quarter. How does the rest of the pipeline look just in terms of other potential deals out there?

Speaker 1

Thank you, Elyse. It looks good. As I said, it's a robust pipeline. We are in discussions on additional benefits opportunities that will help round out our Offering to our clients add some significant new management talent and production talent. There's no way of knowing When?

Speaker 1

But could be quite soon. We're in serious discussions.

Speaker 4

Okay. Thank you.

Speaker 3

Thanks, Elyse.

Operator

The next question is from Weston Blumer of UBS. Please go ahead.

Speaker 5

Hi, thank you. Good evening. My first question is on the margin I mean, you raised the full year organic, but left the margin unchanged. Can you just talk to the types of investments you're making in the back half of the year and maybe what impact you're expecting within your margin guidance around normalization of T and E or wage inflation or other investments?

Speaker 3

Yes. Thank you, Weston. So as we've said for multiple quarters now, the biggest impact to our margin at the moment is our out hiring activity from last year, which we know is the right investment for our long term growth prospects and we're really confident will pay off in the long term. And with regard to the guidance, I mean, a quarter like Q2, 33.1 percent adjusted EBITDAC margin, More than anything, it makes us confident in our guide range and increases the likelihood that we'll end up at the high end of that range. And Again, just to remind everyone, we had 25% margins in 2019, so our model definitely scales.

Speaker 3

And next We won't have the same margin impact from our hiring this year. So we feel very good about margin improvement as time goes on. But in the meantime, as you said, T and E is still ramping up. It's not ramping As significantly as it was in 'twenty two relative to 'twenty one, but still an impact there. And then the biggest Impact again is just the annualization of last year's hiring.

Speaker 3

And we're not making outsized hires at that same scale, but we are Making our a more normalized maintenance and growth level of hiring this year that we're really excited about.

Speaker 5

Great. That's helpful. And the 3 M and A deals that you did in the quarter, does that impact your margin profile either favorably or adversely or maybe change the seasonality of Your EBITDAQ or revenue?

Speaker 3

They're too small to have an impact. And then generally, what we tell people is to think of Acquisitions as coming on at the same margin and the same growth rate. If there's an acquisition that is significantly different enough And significant in size enough to move the needle, we will let investors know. Great.

Speaker 5

And then last question from me. I know you have a partnership with Nationwide and they had pulled out of Leju's E and S Commercial Auto, was there any impact of that within your numbers or if you just comment on where that where your relationship is with them?

Speaker 2

Yes, we certainly noted Nationwide's withdrawal from commercial auto, but we have a wide product line And several other carriers that we can employ and to absorb that business. We're expanding our transportation department as we've mentioned before and We were ready for that change. The acquisition of Krausz and Associates really strengthened our bench And gave us a national breadth and depth and not just brokerage transportation, but underwriting. So We're looking ahead and we can absorb and make those changes without any effect.

Speaker 5

Great. Are you sizing that impact at all?

Speaker 2

We're looking at double digit growth in transportation, in underwriting and in broking. We're creating facilities, MGU's expanded binding authority product line and that really doesn't put Or have any negative impact on our ability to grow.

Speaker 5

Great. Thank you.

Operator

The next question we have is from Mike Loremski of BMO Capital Markets. Please go ahead.

Speaker 6

Hey, good evening. My question is follow-up to the question on margins Relative to the pace of hiring, I guess, are there any numbers you could help Put context to the excess pace of hiring you made. I guess, we don't have as long of a history to kind of Understand kind of we can see how many people you added in 2022 versus 2021, but we can't take a long term average. So I'm Trying to get a sense of any context you could put around like did you was the pace of hiring 5 Points more than you think is kind of normal, so we can kind of get better understand, Trying to size up the impact it's had to your margins?

Speaker 3

So I won't be able to put it in basis points for you, Mike, but think of it as over a 1.5x normal sized production class Relative to a normal year. And you're right, looking at headcount won't tell you the whole story because it's generally the Production folks that are the needle mover. One thing we can tell you and we've said this a bunch is that production classes as a cohort We'll cover their costs after 2 years and generally be margin accretive sometime in the 3rd year. So that's why we're confident that the 'twenty two class won't be weighing down margin come 'twenty four. And like I said, we're not onboarding an outsized class in 'twenty three.

Speaker 3

And if we only made normal Size hiring classes, there wouldn't be an impact in the following year. We can still scale somewhat if we're just hiring at an average level.

Speaker 6

Okay. That does help. And just sticking to margins, just want to curious, are there any other things changing on the margin, Kind of like on commission rates or I don't know just wage inflation we should be thinking about or is That would change versus 3 to 6 months ago that we should be contemplating as well?

Speaker 3

Nothing on commission rates. Those Are stable. Great question. On wage inflation, we're not immune to it because there are plenty of folks here running around on Salaries, but the majority of our comp expense is commission based, and so Does it get impacted by wage inflation the same way? So yes, it has an impact on us.

Speaker 3

I'm sure you've heard everyone talking about it, but it's not That alone wouldn't have the same margin impact that is worthy of as many references as we've made to What's happening in our comp margin right now, it's the sheer number of hires that we made last year on the production side.

Speaker 6

Okay, great. And lastly, just you gave us some good commentary about flows into the E and S marketplace and But you also talked about there being even some appetite constraints within the E and S marketplace. But just curious, Anything you've seen, any stats you want to talk about that you've seen in July, if you're seeing any change in acceleration or deceleration in And flows over the past month? Thanks.

Speaker 2

No, it's been quite steady. The flow has been measurable and increased in many lines, some deceleration as we talked about in public D and O And widely noted in cyber, but so many other lines, not just cat property, but many casualty lines continue to harden. And so the flow into the channel and our ability to capture it continues to get strength stronger. And We feel we're converting a higher percentage of that business and we've been building our bench for years To win as much of that business as we can. It's working out very well.

Speaker 6

Tim, what casualty clients are there? Are they more kind of Large account versus small account? And I promise it's my last follow-up.

Speaker 2

No problem. It's a combination of Small commercial certainly in our binding authorities and our MGUs, but it's larger brokerage business as well. Large habitational schedules In the casualty side, continue to pour into our channel. Residential construction, New York construction to name a few, Transportation, as we've mentioned, healthcare, nursing homes, assisted living, certain social And different types of healthcare, sports and entertainment continue to be a very difficult line where they need our help. Consumer products and maybe lastly public entity, real demand for Property and Casualty Solutions in the specialty side across the whole public entity sector.

Speaker 6

Thank you.

Operator

The next question We have is from Rob Cox of Goldman Sachs. Please go ahead.

Speaker 7

Hey, thanks for taking my question. So I noticed the adjusted compensation margin was down a good bit year over year despite the talent investments, but the Adjusted G and A ratio was higher than the Q1 when it's seasonally lower. So I would have thought that would be a little bit lower. I think as the Q1, if I recall correctly, was your toughest comp with respect to travel and entertainment. So is there any additional color you can provide there?

Speaker 3

Yes. A little bit of that or I shouldn't say a little, some of that is T and E And then another bit of that is professional services that increased significantly this quarter Relative to prior quarters related to a new revenue stream that just requires additional professional services over time that may Waterbed into comp if we decide to in house some of those, but for right now, they're through professional services.

Speaker 7

Got it. Thank you. And maybe just another question on The state of California, which I think is nearly 15% of

Speaker 3

the E

Speaker 7

and S market based on data that we look at, I think it's been a net drag on overall E and S industry premium since November of last year, Well, we've seen it tick up positively in the double digits in the last two months, which I suspect might be driven by personal lines and property. So I'm wondering if you see growth in California in the back half of the year and how well positioned Ryan is to potentially take advantage of some of those tailwinds if they're there?

Speaker 2

We're very well positioned in the state of California. We have multiple offices. 2 of our last large brokerage acquisitions are in the state of California. We've strengthened ourselves there, Deep benches in Property and Casualty and binding, we're building and finishing up A high net worth personal lines facility to complement what we've already been doing in personal lines. So we're there to capture that business To deliver for our clients across California and the West Coast.

Speaker 5

That's great. And maybe if

Speaker 7

I could sneak in one more on cyber. Tim, I think I noted you had recently Stated that the cyber market is getting skittish again, but I think there's still pricing declines in that market. So I guess my question is, are you growing in that market? And do you expect growth to pick up or slow down in the back half of the year?

Speaker 2

Well, there's no question there's rate deceleration and the flow has slowed a bit, but we're still capitalizing on it. It's still A very great opportunity for us. We're well positioned in binding authorities, MGUs, which Myles Willard can talk about a little further. But our cyber team is number 1 in the country and they're performing at a very high level. Our clients still need us.

Speaker 2

Myles?

Speaker 8

Yes, I'll chime in. So, we have noted deceleration in cyber previously, and there has been modest negative Change most observable on the excess layers. But please keep in mind, this was relative to market, particularly us achieving 85% Rate increase in the first half of last year. So investments by corporate risk managers have curved losses, substantial price hikes have helped create adequacy. It has brought some new capital to space.

Speaker 8

But however, despite the shift in pricing, the overall opportunity remains immense. The cyber threats persist and we're the industry is still anticipating structural growth is averaging 20% Per annum for the foreseeable future. So we're well positioned with people and product to capitalize on that.

Speaker 7

Appreciate the color. Thank you.

Operator

The next question we have is from Meyer Shields of KBW. Please go ahead.

Speaker 9

Thanks. I want to follow-up on cyber, if I can. Is there Any seasonality analogous to what we're seeing in property where cyber is a bigger factor in a particular quarter?

Speaker 8

There is not material seasonality to Cyber.

Speaker 9

Okay, perfect. And second question, I think this is probably for Jeremiah. Very significant pickup in fiduciary assets going from the end of the Q1 to the end of the second quarter. Is the seasonality that we've seen historically still a good proxy for How did you share funds all come and go?

Speaker 3

When you say recently, are you talking about First half of this year or since you've been following us? Just want to make sure I understand the question.

Speaker 9

I mean first half this year in other words. We saw a pretty big increase going from the Q1 to Q2 last year and also this year. And just wondering whether that the ebbs and flows should be roughly the same every year.

Speaker 3

I was actually talking to the Treasurer about this Earlier this week, I would classify everything that you're seeing in our fiduciary balances as normal Factors in timing that can happen. There's been no change to our DSO, no material change to business mix, Even though the different, obviously, wholesale and delegated authority do have different Payment terms and DSO, when we acquire businesses, will impact fiduciary balances, but there's nothing To read into in terms of a material change. It's normal timing factors.

Speaker 9

Okay, perfect. And then final question if I can for Tim. It sounds based on everything that we're saying that maybe TNO Growth will slow down because we're lapping normal quarters. Are you seeing competitors pull back on that? Is there a specific opportunity From that particular aspect of marketing?

Speaker 2

No, we're not seeing any real pullback on that. But I'm not sure I understood the question. Could you repeat that?

Speaker 9

Yes. I'm just wondering with Travel and entertainment, observably much more expensive. I'm wondering whether you're starting to see Some competitors say we're just going to do less of that and whether there's an opportunity for growth when that happens?

Speaker 2

No, I haven't seen that. In fact, I think it's as competitive In our space as it's ever been, we're attending events and on the road seeing our clients and our underwriters continuously. We're back to full speed ahead, and I don't see any pullback from our competitors actually.

Speaker 9

Okay. That's very helpful. Thank you.

Operator

Next question we have is from Michael Wood of Citi. Please go ahead.

Speaker 10

Hi, thanks guys. I was wondering in benefits, what capabilities you might be looking to add? Is it more medical stop loss or other areas?

Speaker 11

Yes.

Speaker 1

Medical stop loss, as I'm sure you know, is rapidly growing, Moving from fully funded benefit plans to self insured plans, and what interests us Greatly is the phenomenon of the size of employer who is moving into self insured and funding Through group captives, in other words, pooling with other employers, employer groups of similar size, characteristics. And so our strategy is an integrated health solution, Heavily driven through self insured clients Who ultimately, we believe in large numbers are going to want to be Funding that by putting up some of their own capital in group captives. So It's a process of providing services to retail brokers who may not have the resources to provide these services and frankly an ability through our professional skills of the talented team that we've assembled To bring innovative integrated health solutions coupled with The self insured plans that I talked about and then bringing a very innovative funding mechanism. So we believe that the benefit strategy that we have Excuse me, it's going to be a significant accretive To our total addressable market, we'll be picking up a lot of clients that we believe will be interested in what we're offering.

Speaker 1

And then we think we have cross selling opportunities into the P and C side. So we're very excited about that.

Speaker 10

Thanks. That's helpful. And then maybe just on the 2025 savings plan, I You mentioned this, but could we should we potentially be expecting to see savings a little bit earlier Than that or timing still the same?

Speaker 3

No. Timing is we're A little bit ahead of schedule on execution, but the material impact to the P and L is on the same schedule. So no saves this year, Some in 'twenty four, which will be reflected in our guidance next year and then the full annual $35,000,000 in 'twenty five.

Speaker 10

Thanks, guys.

Speaker 3

Thank you.

Operator

The next question we have is from Tracy Banquiglia of Barclays. Please go ahead.

Speaker 3

Tracy, do we have you?

Speaker 12

Can you hear me?

Speaker 3

We can now.

Speaker 12

Can you hear me?

Speaker 3

Yes.

Speaker 12

Okay. Sorry. It would be great to learn more about your property E and S Wholesale Brokering and Underwriting Management Capabilities. Are you more known by the market on the transactional E and S side? Or you're more known in the larger property, direct and faculty to market?

Speaker 8

Yes, Tracy, it's Myles Wolders. So I'll start on the delegated authority side. So our property capabilities Span habitational property, builders risk, renewables energy and most certainly cap property, We're able to efficiently service both the middle market as well as large accounts. Our cap practice It's predominantly shared and layered working some of the largest and most complex risks out there. And so as far as positioning and expectations, so I we've noted previously that with our results and expert teams, we increased cat capacity post Ian and I'm pleased to say we continue to add cat commitments even as recently as this week.

Speaker 8

So we've been prudent deploying our cat aggregate And that's substantial dry powder, which points a continued great contribution until the end of the year. Okay.

Speaker 2

And I would just add our brokerage capabilities are industry leading. We've been capturing a high percentage of this new business pouring into the channel. I believe our outstanding leadership team in the brokerage cat property arena Is doing a fabulous job and that was a big part of our success in the quarter. We look forward to capturing other Difficult property risk because as we move on through the year, there's much more to it than just cat wind.

Speaker 12

Okay, excellent. There is a number of new E and S carriers, including some U. K. Insurers, which may be a move to be more efficient on the Lloyd's distribution efforts. What I'd like to know is, does this move just cut one layer in that value chain, like business you would have seen anyway?

Speaker 12

Or does bypassing Lloyd's give you a new business opportunity?

Speaker 2

No, I would say that net Positive on that is it enhances and strengthens our ability to market the business. Lloyd's is obviously an industry leader in the E and S market, But there's multiple access points and there are major player in our binding authorities, our MGUs, open brokerage, London Access Points, so it's a heavy duty player and then creating these 2 E and S facilities that we've been reading about, I see that as a very positive influence on our ability to solve these catastrophic challenges.

Speaker 10

Okay. Just to be clear,

Speaker 12

is that business you would have seen anyway or is that new business that you would now see?

Speaker 2

It's a combination of new and renewal business. It just enhances our capabilities and strengthens them.

Speaker 10

Okay. Thank you.

Speaker 3

Operator, do we have another question?

Speaker 10

Ladies and gentlemen, we apologize for the delay. We'll move on to our next question, which is coming from the line of Ryan Tunis with Autonomous Research. Please proceed with your question.

Speaker 11

Hi, thanks. Good evening, guys. So just another follow-up on cyber, trying to understand Some of the businesses that are capable of moving the needle on your organic when you have sharp inflections, obviously, we know D and O can do it, You know property can do it, but is cyber one of those businesses where when you really do have big pricing swings, it's something that can notably move your headline organic

Speaker 3

So I would just say broadly, this is Jeremiah, Ryan. Cyber, think of that as a product Category, which is we've said publicly is there's no product that's more than Single digits in terms of our overall portfolio. In the case of cyber, it's low single digits versus property, which is an entire category of products Making up a very significant part of the portfolio. So they're apples and oranges really. Cyber is worth talking about it because It's an important topic for insured.

Speaker 3

It's an important weapon in the arsenal of our Professional lines team and there's a lot going on. And as Myles said, the opportunity sets big enough where we do expect that it will be a feature worth Talking about as time goes on, but it's not the it's not as material, for example, as like D and O as public D and O Over the last several quarters.

Speaker 8

And Ryan, I'll jump in. Even though rate is under pressure, we continue to find Ways to grow, renew products, new clients and incremental capacity. So we are achieving growth. And I also think it's important to note that it has been last year was a relatively benign loss year. A lot of We're looking for outcomes out of the Ukraine Russia conflict that didn't materialize, but there are increases in attacks Year over year, there have been some malware incidents.

Speaker 8

And so the threat remains a very active risk environment.

Speaker 11

Got it. And then on the property side, just trying to think about the longevity of this. So would you say that like Are carriers generally coming to market and getting the rate that they think they need on property placements this year? Or Would you characterize it more as there being some type of understanding that in the marketplace and getting to whatever their view is of rate adequacy may take multiple Renewals.

Speaker 2

I would say more of the latter. They're continuing to get increases. The losses continue to come in. As you know, global warming is not going away. It's creating more and more connective Storm activity, the wildfire phenomenon, there's just a lot of tentacles to this issue.

Speaker 2

And we see prices going up. We see capacity shrinking. What took 10 or 20 carriers to Build a $100,000,000 tower last year now takes twice as many. Most carriers are shortening their lines, tightening their terms and conditions And continuing to raise their prices. So I don't think we're anywhere near close to where the market can go.

Speaker 2

The convective storms are really doing damage to balance sheets. The modeling has been off in this area. And so we're our services and our products are needed well beyond the cat wins aspect of property.

Speaker 8

Got it. And then

Speaker 11

just one last follow-up for Jeremiah. I apologize if I missed this. But could you give us some idea what the acquired revenues are on the 3 deals you completed this quarter?

Speaker 3

It was about $40,000,000 in aggregate.

Speaker 10

Thank you. It appears we have no additional questions at this time. So I'd like to pass the floor back to management for any closing

Speaker 1

Well, thank you all very much. Good questions and thanks for your support and interest in our company. We look forward to speaking to you again at the end of the Q3. Thank you.

Speaker 10

Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect your lines at this time.

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Earnings Conference Call
Ryan Specialty Q2 2023
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