Accelerant Holdings (ARX) Q2 2025 Earnings Report, Transcript and Summary

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Accelerant Second Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to [indiscernible], Investor Relations Associate at The Blueshirt Group. Sir, please go ahead.

Good morning, everyone. Welcome to Accelerant's Second Quarter 2025 Earnings Conference Call. Joining me today to share our results are Jeff Radke, Accelerant's Co-Founder and CEO; Jay Green, Accelerant's CFO; and Ryan Schiller, Accelerant's Head of Strategy. Their remarks will be followed by a Q&A session. We issued a press release concerning our financial results for the second quarter of 2025 earlier today and it is available on our Investor Relations website. Before we get started, I would like to remind you that our remarks today will include forward-looking statements, including those regarding our future plans, objectives, expected performance and in particular, our guidance for the third quarter of 2025. Actual results may vary materially from today's statements. Information concerning risks, uncertainties and other factors that could cause these results to differ is included in our SEC filings, including those stated in the Risk Factors section of our filings with the SEC. These forward-looking statements represent our outlook only as of the date of this call. We undertake no obligation to revise or update any forward-looking statements. Additionally, the matters we will discuss today will include both GAAP and non-GAAP financial measures related to both our consolidated results as well as our operating segments. Reconciliation of any non-GAAP financial measures to the most directly comparable GAAP measures is set forth in our earnings release. Non-GAAP financial measures should be considered in addition to, not as a substitute for GAAP measures. Finally, today's conference call is being recorded and webcast. Now I'll turn the call over to Jeff.

Good morning. I'm Jeff Radke. I'm one of the founders of Accelerant and serve as the CEO. Thank you for joining our first earnings call as a public company. It's a milestone, but more importantly, we view it as proof that the model works. Our 2-sided platform is real, it's working, it's durable. Accelerant is modernizing the specialty insurance industry through a data-driven risk exchange. Our members and risk capital partners are building around it and betting on it for the long haul. So first, thank you to our team, to our members, to our risk capital partners, to our early investors and now to those joining us today. Welcome. Let's talk about the second quarter. We had more members writing more premium for more specialty products for more risk capital partners than ever before. For the second quarter, we generated $1.1 billion in Exchange Written Premium, which brings us to $3.8 billion in Exchange Written Premium for the trailing 12 months. That business came from 248 members and was shared with 98 risk capital partners. That is 42% of Exchange Written Premium growth over the second quarter of 2024 and 61% growth over the trailing 12-month period, and all of that growth was organic. In short, the platform is singing. How are we growing this fast? We have a simple formula, an unmatched data and analytics platform in the hands of more great members writing more great specialty products and matching them with some of the most sophisticated risk capital sources around the world. We're building the best specialty insurance marketplace in the world. And looking ahead, our pipeline is robust and the network effects are compounding. But make no mistake, this isn't easy. We're making serious investments, we're executing at a high level, and we're doing so with velocity. That's the work, and that's what we think of as our edge. How do we define success? Shareholder value over the long term. And that value, it flows straight from market leadership. The stronger our position, the more rich data we generate, the deeper our insights, the greater the premium written and the faster the transactional velocity. We expect the result will be more sustainable profit. Yes, we'll look to hit the near-term milestones, but our focus, it is winning the long game. We're constantly improving the experience for our members and risk capital partners. That's how Accelerant started, give MGAs something that no one else would, treat them like the customer, not a distribution channel, not an afterthought, a true partner. It sounds obvious, but we believe nobody else does it, and that's how we broke through. Now we're building the infrastructure to make Accelerant the clear, obvious choice for MGAs and risk capital, the place where both MGAs and risk capital want to be. This is hard work. It's slow, it's gritty. We grind it out month by month, yard by yard. We figured out how to take a regulated complex, high-friction business and bring it into the modern age. So what's the bottom line? We're off to a strong start. We're ahead. We believe our data assets are unmatched, and we're getting better every day. The opportunity in front of us is massive, and we're ready. We're building an organic growth machine. Our margins are improving strongly, and the network effects are getting stronger every day. I'll now pass the call to Ryan.

Thanks, Jeff. Good morning, everyone. I'm Accelerant's Head of Strategy. I think the best place to start is what do we want to be? We want to be the rails on which specialty insurance runs. We want to be the leader in specialty insurance. And every day, we work to attract new high-quality members and risk capital partners to our platform. Accelerant is a 2-sided platform. And the fundamental issue with any 2-sided platform is how do you get attractive risk supply and risk demand there transacting on day 1. That was not easy, but that was the breakthrough of the founding team here, and now we're focused on acceleration. When we get more members, we get more data. With more data comes a stronger, more diversified portfolio and a stronger portfolio leads to more competitive tension from risk capital. And more risk capital means a better value proposition for our members. The way we win is superior market access for both our buyers and sellers risk. We have to drive confidence and trust in our platform by providing valuable data and insights. To that end, we have many initiatives underway. Picking a few in the last year, we launched machine learning-led Accelerant risk indices for select members and pointed large language models at our robust claims data to better identify claim reimbursement opportunities. These have already started to improve portfolio profitability. We improved claims subrogation rates by over 200%, increasing the underwriting profitability of the portfolio by 1% of premium for our reinsurers. That's huge. And that's part of the magic of Accelerant, serve our customers exceptionally well and aggregate usable data month in and month out. To date, we've aggregated 23,000 unique attributes across 95 million rows of data and use that to make our members and risk capital partners better. Today, we have 150-odd employees focused solely on making our technology platform better. And tomorrow, we expect to continue to focus our investments there. We are firm believers that specialty insurance is going to continue to get more specialized, not less; more disaggregated, not less. We need to be the enabler of that. As we look forward, we will look to grow wisely and continue to make careful decisions about how we prioritize our investments. But no matter what, we're focused on building deeper relationships with our risk capital partners, supporting new insurance product development and onboarding and creating more new MGAs and members. For our members, we are their #1 partner, hands down. We will do whatever we can to make our members better. For our risk capital partners, we're an access product they can't get anywhere else. It's why QBE and Tokio Marine joined the platform earlier this year. It's why in June of this year, we were able to upsize the capacity of Flywheel, a reinsurance sidecar that allows institutional investors to participate as risk capital partners on our exchange. We're still early in our journey, but we're proud of what we've achieved to date. We're demonstrating strong profitable growth. New member trends are the best they've ever been. Q2 organic growth accelerated on a percentage basis versus last year, and our platform capabilities are compounding. We're really looking forward to the journey ahead. Now I'll turn over the call to Jay to talk through the financial impact of all this.

Thanks, Ryan. Hello, everyone. I'm Accelerant, CFO. Our IPO was an important milestone for Accelerant, and I'm very pleased to share the second quarter performance and the opportunities ahead. In the second quarter, we accelerated our growth, reduced our percentage net retention and saw increasing margin expansion and profitability. Total Exchange Written Premium for the second quarter grew 42% to $1.1 billion compared to second quarter 2024, and revenue grew 68% to $219 million. Exchange Written Premium is the total gross written premium through our risk exchange, and it includes both premium written on behalf of Accelerant underwriting companies and written directly by third-party risk exchange insurers. This continued strong momentum in the quarter was fueled by a powerful combination of existing member growth as seen in our net revenue retention of 151% for the trailing 12 months and stellar new member growth. We added 16 new members in the quarter, bringing our total member count to 248 as of June 30, 2025. We are really thrilled with the momentum on both the existing member growth and the new member onboarding. An attractive aspect of our business is the embedded growth from our existing members continuing to win in each of their markets. While the front end of our funnel remains robust, we've also continued to reduce our net retention of Exchange Written Premium, which was only 6% as of the second quarter of 2025 on a trailing 12-month basis, allowing us to focus on our Exchange Services and MGA Operations segment. This lower retention was driven by additional reinsurance transactions that increased ceded premium for the quarter. While we continue to optimize our net retention and the use of capital with our risk capital partners, we expect that our net retention levels will trend toward our historic norms of approximately 10% in the future quarters. Overall, we feel great about the depth and diversification we have on the risk capital side of the risk exchange, and we continue to see very strong demand from our existing risk capital partners to expand their participation as well as new ones joining the platform. Shifting over to profitability. We are seeing continued and consistent expansion of our operating margins. Adjusted EBITDA was $63.5 million for the quarter versus $13 million for the second quarter of 2024. On an adjusted net income basis, we made $29 million in the quarter versus a net loss of $700,000 in the second quarter of 2024. And on a pretax net income basis, we made $22.3 million in the quarter versus a $4.3 million loss in the second quarter of 2024. In the last several years, we have made substantial investments in the business and have increasingly scaled our overhead costs. We expect that to continue to translate to expanding margins going forward. You'll notice that the net income results have a relatively large negative FX impact for the quarter, but this is almost entirely offset by FX-related other comprehensive income in the quarter, resulting in a net loss from FX of approximately $1 million in the quarter to shareholders' equity. We will always seek to asset liability match our currency exposure, and we have continued to do that. On a year-to-date basis through June 30, 2025, our adjusted EBITDA was $106 million versus $41 million for the first 6 months of last year, and our pretax net income was $37.8 million for the year-to-date period versus $7.7 million for the prior year period. Our consolidated adjusted EBITDA is also subject to certain noncash eliminations worth spending a moment on as they reduce consolidated earnings but represent free cash flow in the period. These eliminations relate to commissions paid to us to both Exchange Services and Mission and own members by Accelerant underwriting on behalf of the reinsurers and Flywheel investors who participate through our owned insurance companies. These primarily result in the current elimination of direct commissions from Accelerant underwriting as offset by ceding commission income adjustments that would be earned over time. For the first 6 months of 2025, this adjusted EBITDA elimination amounted to $41 million. The commissions are paid at the time the business is transacted, but the associated revenue is recognized over the life of the placed insurance policies. All of these factors are further described in our Management Discussion and Analysis section of our 10- Q. On a segmental basis, our Exchange Services segment remains the growing core of what we do. Our Exchange Services revenue was $86 million for the quarter, growing 60% over the comparable prior year quarter. Revenue in this segment amounted to 8% of our Exchange Written Premiums written in the quarter, an improvement versus 7.1% in the prior year quarter. The difference is largely mix shift. We increased our share of higher fee contracts with risk capital partners in the U.S. and Canada over the course of 2024 and now expect similar fee levels in all of our geographies. The segment's adjusted EBITDA of $56 million in the quarter grew 38% compared to $40 million in the second quarter of 2024, a strong demonstration of the momentum and increasing fee generation on our risk exchange platform. As demonstrated by the segment's adjusted EBITDA margin of 65% during the quarter, the consistent strong growth and profitability of the platform has allowed us to continue to make the technology investments that will solidify the Accelerant risk exchange as the marketplace of the future. We believe that is a great use of capital and sets us up well for continuing future margin expansion. Our MGA Operations segment had revenue of $58 million during the quarter, representing growth of 77% over the prior year's quarter, the majority of which was driven by Mission, where our member incubations continue to scale rapidly. We are extremely pleased with the progress we continue to make and the continued outperformance of both our Mission strategy and our other owned members. The segment's adjusted EBITDA was $24 million in the quarter versus $6 million over the prior year's quarter, primarily driven by outperformance in premium volumes and net commission margins within Mission. Underwriting segment's revenue was $110 million in the quarter, growing 39% over the prior year period, primarily driven by earning through our small share of net retained premium. Our insurance companies serve the important role as a conduit for placing business with the reinsurers and institutional investor risk capital providers. We expect less need for these entities going forward as more business is placed with third-party insurers directly, which will see our share of retained premium declining over time. We would also expect, as a result, that over time, the revenue growth of this segment will moderate more than the other segments that we anticipate will grow faster at more attractive expanding margins. Having that infrastructure is a great strategic capability for us even if we don't expect to use it as much in the future. For the second quarter 2025, our adjusted EBITDA in this segment was $16 million. Our gross loss ratio of 50.5% improved roughly 4 points compared to the 54.7% in the second quarter of 2024. This year-over-year improvement was driven by the impact of stable claims experience during the second quarter 2025 compared against additional reserve strengthening taken during the second quarter of 2024 on some of our pre-2023 European and U.K. lines. We believe we are well positioned on the overall book going forward as our technology continues to drive better underwriting outcomes. Overall, we feel great about the improved operating leverage of the Underwriting segment as the deferred recognition of our revenue associated with excess ceding commissions and net earned premiums catches up with overhead, driving the profitability that you see here. We expect our Underwriting segment to be breakeven to mildly profitable over the medium term. So in summary, Q2 2025 was a strong start to Accelerant's journey as a public company with accelerated organic growth and demonstrated operating leverage leading to strong adjusted EBITDA and adjusted net income growth. We have a powerful mixture of hard charging organic growth embedded in our existing members and new ones continually joining the platform. As we look ahead, we'll share our thoughts on Exchange Written Premium and adjusted EBITDA for the third quarter of 2025. In the third quarter of 2025, we estimate Exchange Written Premiums to be in the range of $1.01 billion to $1.04 billion, representing growth of between 14% and 17% over the same quarterly period in 2024. For our third quarter '25 adjusted EBITDA, we will break out our estimate to 2 components as well as the total due to the expected meaningful contribution from the sale of a minority interest of one of our own member MGAs during the quarter. We estimate third quarter 2025 adjusted EBITDA from underlying business performance, excluding this transaction, to be in the range of $41 million to $51 million, representing an increase in the range of 58% to 95% over the same quarterly period in 2024, assuming normalized underwriting portfolio performance. The sale of the minority interest in one of our own members is expected to add adjusted EBITDA from both unrealized and realized gains in the range of $25 million to $30 million during the quarter, bringing our total estimate for third quarter 2025 adjusted EBITDA to a range of $66 million to $81 million, representing an increase in the range of 154% to 210% over the same quarterly period in 2024. We are not providing a GAAP reconciliation for this quarterly guidance, including net income due to the inherent difficulty in forecasting and quantifying items such as tax rate variations, foreign currency fluctuations or a onetime adjustment prior to the quarter close. In the third quarter of '25, as further disclosed in our 10-Q, we also expect an elevated level of noncash stock-based compensation expense to be incurred in connection with our initial public offering. As disclosed in the S-1, there were RSUs and options granted in connection with the IPO. These noncash expenses totaled $50 million and $243 million, respectively, and will be expensed as they vest over the coming 4 years. Additionally, our S-1 included a detailed disclosure on the $1.38 billion noncash stock-based compensation associated with the onetime settlement of pre-IPO profit interest that were converted to common stock at IPO. The settlement of these profit interest was equity neutral and did not impact the post-IPO diluted share count. With that, we'll open the call to any questions. Thank you.

[Operator Instructions] Your first question comes from the line of Bob Wong with Morgan Stanley.

So looking back at your perspectives, a large portion of your third-party premium on the exchange and growth came from a specific party called Hadron and Altamont related company. Can you maybe tell us like what is the premium contribution to your business in 2Q '25? And further, can you tell us about the growth and overall business for the other partners you have on the exchange?

Sure. Thanks for the question. So Hadron, as we refer to it, wrote $170 million during the quarter of our Exchange Written Premium. They're a company that we trade with on an arm's length basis. Accelerant management doesn't own any equity in Hadron. They are a relatively small portion of the overall premium that we write on the risk exchange, but they are, however, a valuable partner.

Okay. Maybe just another follow-up on that specific point in terms of growth of the third-party. It seems like their growth is actually fairly strong, much better than some of your other partners. Just curious like if one, what would be the driver of that growth? Or maybe other points would be, is there possibility for Altamont or others to set up something similar to Hadron later on? So just kind of curious your thoughts in terms of growth drivers there.

Sure. Well, the first thing that perhaps I should have covered in the first part of your question is, over time, we expect Hadron to mix down as a percentage of total third-party insurer premium. Their growth has indeed been pretty impressive. They are a good partner, as I described. We like trading with them. The terms are attractive from Accelerant's perspective. But in time, other third- party insurers, we expect to take on a bigger and bigger share. If Altamont or anyone else were to create another insurance company that we felt was a great partner for the risk exchange, that would be good news from our perspective. But remember that what drives the growth in the portfolio premium is how quickly we can find and onboard those high-quality underwriting members. So if Hadron or Hadron 2 or any of the other risk exchange insurers were to not exist or were to drop off the exchange, that wouldn't constrain our growth prospects. Our growth prospects are constrained by or limited by how quickly we can find those high-quality underwriting MGAs.

Your next question comes from the line of Robert Cox with Goldman Sachs.

Maybe just a follow-up on that one. Over the longer term, do you think the portion of third-party insurers is mostly going to be composed of like fronting carriers like Hadron or do you think there's going to be a solid mix of other carriers as well?

We think there'll be a solid mix. Not surprisingly, the insurance companies that people sort of refer to as hybrid fronts are the fast movers. But we think there'll be a mix over time. we also think that it's important that there remains a diversity of risk capital types. So we tend to focus or perhaps, I should say, the analyst community tends to focus on the third-party risk exchange insurers, and they are indeed critical, but they are one leg in a 3-legged stool, the other 2 being professional reinsurers and institutional investors. And we're always going to work our hardest to make sure that we've got great diversity between those 3 types.

Got it. That's helpful. And then I just wanted to follow up on large account business, larger account commercial business, workers' compensation, I think you guys have talked about wanting to move into larger account business, maybe more volatile business over time compared to the SME type business you're doing today. How would you think about the economics in terms of take rate and adjusted EBITDA margins for the risk exchange on that larger account and more volatile business?

Sure. I'll keep going, I think, given the content of the question. You're indeed right that we think it's a natural progression that the risk exchange will move up the complexity and size scale. We also have indicated that we're thinking about adding less specialty business. You mentioned workers' comp, which I think is a great example. I suspect that as we move up incrementally up the complexity and size ladder, you will not see dramatic take rate changes in the specialty market. However, we'll try and do a great job of foreshadowing this to the extent that we're successful in the future, entering less specialty lines of business, more mass market lines of business, the take rate on the exchange will absolutely be less, and we will try and earmark that for all our investors so that they understand that we've got sort of an Accelerant specialty and Accelerant basic businesses operating.

And then just to tack on there, Rob, from a margin perspective, I don't think on either of those that you necessarily expect a different margin profile from our OpEx.

Your next question comes from the line of Charlie Lederer with BMO Capital Markets.

My first question is on the third-party carriers and Hadron just given the relationship. We can see in your filings that Accelerant reassumed risk from Hadron at least last year. Is there any difference in the balance sheet exposure you guys have on that business when you assume? Or are you retroceding that?

I think it's fair. The 8% of the premium that Accelerant reassumed from Hadron is then subject to our typical risk capital -- the risk capital provisions and support behind all of our balance sheets. So there is no difference in the quality of the business assumed or the amount of underwriting risk retained.

Got it. And then just can you walk us through the impact of the reinsurance transactions in the quarter that pushed Accelerant's net retention down to 6% of the platform? It sounded like there was a onetime item in there, but just curious if there's any color you can share?

Sorry, go ahead. I was just going to ask you, Jay to take it.

Yes. No, I think it's pretty straightforward. I mean, we had the opportunity to place more business with third-party reinsurers, and we took advantage of that. So over time, as I said in my remarks, we do think the overall retention will be closer to the 10%. But at any given point in time, we will look at the reinsurance demand from either our reinsurance counterparties, our Flywheel investors or our third-party insurance companies that we may decide to do -- to place more of it. So that's kind of what you're seeing is the retention dropping due to more business placed with risk capital providers and obviously, the more business that we place with risk capital, the lower that lowers the retention in the Underwriting segment. And that's why you're seeing, particularly in the Underwriting segment the revenue growth moderate considerably just given the higher amount of business that we're placing with third parties.

Got it. And if I could just sneak one last one in. Did you guys provide the gross loss ratio for the Underwriting segment in the quarter?

I think we did. And remembering the year-to-date off the top of my head, I think it was 51.8%.

Yes, 50.5% -- we were at 51.5% for the half year and then in the Q, just obviously you see the net, which I supposed it's not as relevant, but roughly 73%.

Your next question comes from Hristian Getsov with Wells Fargo.

I had -- for the Hadron, third-party premium, right? So you guys said it was $170 million in the quarter. So if I could back out the $170 million from the 27% that was third party, that would imply third-party premium -- written premiums of around $120 million. Could you maybe just quantify like what percentage growth that portion saw versus excluding the Hadron portion? Because I don't think we had the Hadron portion for the prior year quarter. So just trying to get a sense of how are the other capital partners growing in that business? And like how should we think about that moving forward?

My answer is going to be shaped by the fact that, I don't know the actual number by which the non-Hadron third-party insurers grew. Here's what I would say, all of our third-party insurance companies are relatively new relationships. They're all growing quickly. I don't feel like there's dramatic disproportionate moves. And I'll just refresh or repeat my comment that we would expect that Hadron's percentage of the total will go down over time. Not because Hadron is doing anything wrong or right, but rather, we just will continue to add additional third-party risk exchange insurers.

Got it. And then for my follow-up, can you talk about the updated pipeline for potential new members? I know you guys have provided like a premium-based debt, it's currently in the pipeline in terms of new members. But then maybe you could expand a little bit on what you're seeing on the supply side, particularly around the onboarding of QBE and Tokio Marine? If you could provide maybe some numbers in terms of how much capacity they're willing to give you guys and how we should expect that to grow over time?

[indiscernible] members, and I'll try and come back at the end.

Of course. So on the pipeline for members, Hristian, I think we feel really good about it. I think it's still the biggest it's ever been, and we feel that we will continue to -- as we've shown in the last few quarters, we've onboarded right more new members than we sort of ever have before. And that's a great thing, and we'll continue to look to unlock new opportunities with new members. So feeling good on the demand side or I think you said supply side, on the member side, how about that?

And then taking up the question, because those QBE, the relationship is new, percentage growth doesn't make any sense. But I will say that we've been very pleased as have they with the significant amount of premium that they are accepting. They are very pleased with how the relationship is developing both in terms of size and profitability.

Your next question comes from the line of Paul Newsome with Piper Sandler.

Maybe a step back, the theme of the quarter for most of the companies this quarter has been about sort of underlying rate of the actual insurance business versus what we think current cost inflation is. Do you have any sense of kind of the direction of the underlying profitability of the collective premium that you've been writing this quarter? And just a sense of kind of where you think the underlying profitability is?

Sure. Paul, thanks for the question. I'm just going to refresh everyone on the call about the SME nature of our portfolio, sort of naturally insulates it from the most extreme rate movements. So on the way up, we didn't experience the same sort of growth nor if the market softens or as the markets soften in various lines, would we expect to see much change. Now to give you a sense, in the EU and the U.K., that book of business from a rate -- effective rate level is sort of flat and in the U.S., we're achieving about a 7% rate increase.

And do you think that's commensurate with what's happening from a claims inflation perspective?

I think we're fine in the U.S. and in the EU, U.K., what you're seeing is a rotation out of certain classes of business, which have much larger rate reductions. We're comfortable with the mainstays of our portfolio being what -- I think in America, you could most closely call the BOP policies. We're comfortable that those classes of business are -- remain adequately rated.

Your next question comes from the line of Andrew Kligerman with TD Cowen.

So adjusted EBITDA margin rose pretty sharply to 29% year-over-year. That was well above where they had been running in recent quarters. So what drove the strength? And how do you think about the outlook for margins, both near and longer term?

Andrew, before I pass the -- before I pass your question on to Jay, who's going to do a great job giving you specifics, let me just take the bully pulpit, if I could, for a second. And just please remember that we're working really hard to reduce the revenue in the Underwriting segment, which I know sounds strange, right? The management team is working hard to reduce revenue. But in that Underwriting segment, we're working really hard to reduce that revenue. So I think most of our -- the analysis probably should be done on a segment level basis to really understand the dynamics. So having said that sort of overview, Jay?

Yes. Thanks, Jeff. So yes, I think -- so I think margin for the quarter around 27%. And I think what you're seeing is 2 things at play. One, I think underlying performance in each of the segments is very strong. And we're also seeing that sort of margin mix up, as Jeff is highlighting, as we are lowering our Accelerant retained percentage. But Andrew, if you look at the performance rate, 65% in Exchange Services, we saw some significant outperformance on the MGA operations, moving that margin up to 40%, and that was really driven by outperformance in both categories, both Mission and our own members. And Underwriting, a solid margin in the mid- teens. But we are going to continue to see that mix up more towards Exchange Services margin generation and MGA Operations margin segment as, again, we continue to lower that -- retained premium and the revenue contribution from underwriting will moderate more than -- or the growth of that revenue will moderate significantly more than the other 2 segments. So that's really the dynamic that you see at play in terms of where margins came out for the quarter.

And Jay, just one thing. Sorry, Andrew, I was just clarifying when Jay talked about the 27% margin, he was talking about year-to- date, but you are correct on the quarter to date. Yes. Sorry.

Got it. And then just my second question is just, so third-party direct written premiums rose to 27%. Retained was 6%, but you said it will probably trend towards 10%. Just curious how you expect the third-party direct percentage to trend both near and long term?

I think I feel better giving you a sense of the long term. And the reason I feel better giving you a sense of the long term is these relationships are lumpy. This quarter, we saw a lumpy reinsurance transaction, but it could just as easily have been a risk exchange insurer transaction that was lumpy. So I guess, long term, I would -- I think we've said we desire to have well-balanced spread between the 3 sources. I'm not sure I'm committing to 1/3, 1/3, 1/3, but somewhere near there feels about right. And if the risk exchange insurer was slightly larger than the others, that would be fine. But please don't look for 70%, 75% to pick percentages out of the year.

Got it. And if I could just sneak one more in. I think everybody is asking Hadron, so I should just ask one on that. The mix you touched on earlier, you'd like to see -- I forget the term that was used earlier in Q&A. But for kind of fronting oriented or hybrid front companies like Hadron, could you share any color on what proportion that is right now? And if there's an ideal proportion, I know, Jeff, you mentioned that you'd like to just see a diversified mix. But are there any numbers that you could kind of frame that or just generally provide there?

Sure. I guess maybe we'll take a step back because it might be useful given the amount of interest in Hadron. As investors see hybrid fronts show up in our various statutory filings, what they should expect or what they should think is that we are trying to find a capital-efficient way to bring portfolio -- the risk exchange portfolio to professional reinsurers and increasingly institutional investors. Institutional investors are terrific partners. And of course, they sort of by definition, don't have an insurance license. So they need a conduit to get them that business, to the extent that we have to use our Accelerant-owned insurance companies as a conduit, that has capital implications for us. So I think what I would say is, as you see risk exchange insurers appear in our various filings, if it's a company that is a traditional specialty company, I would say you, should all take comfort from the fact that we're getting sort of a vote of confidence from an industry expert to the extent that you see fronting companies or hybrid fronting companies, what you should know is that we're being successful in accessing institutional investors in a bigger and bigger way. I hope that helps.

Yes, that did help.

Your next question comes from the line of Gregory Peters with Raymond James.

For my first question, I want to go back to the sales that you called out and its impact on adjusted EBITDA. If you could just give us some -- remind us of the background behind the sale. Are there any implications on the sale on the exchange premium? And do you anticipate that as you look out going forward, that there might be other onetime sales that will be flowing through your financials?

Yes. Thanks, Greg. So no impact on our exchange rate premium. This is a member that's going to continue to write and grow with us. And we are -- so this is an own member where we have a minority stake. And the transaction will include both realized gains from a portion of our minority stake that we are selling in the transaction. But the lion's share of that transaction is a third-party stake. So we're not materially selling down our ownership stake in this member, what we're seeing, obviously, is the uplift from the revaluation associated with that sale. So -- and obviously, a transaction obviously was closing in the quarter, and we'll obviously be able to provide more details in our Q3 results.

To answer the second half of your question, Greg, and thanks for it, I don't think we would communicate or message or necessarily expect sort of more of these one-off transactions. We would think of this largely as one-off, but a good outcome for the member, and that's great.

Thank you for the clarification. And then I wanted to pivot to just the gross loss ratio and the loss ratio. And I'm sorry, Jay, if I didn't catch all your comments, but it sounded like you indicated -- you said something about a reserve issue or something like that. Just can you go back to those comments and help us understand what you were saying?

Sure. Go ahead, Jay.

Yes. So yes. So in this period -- sorry, prior quarter period, we did see some reserving on our part of our back book. So just looking at Greg, the sort of quarter-over-quarter, it was at 54% in the second quarter of 2024 and we've seen fairly stable, steady performance. We're at 50.5% for the current quarter. So it was really just highlighting that in the prior quarter, there was some additional reserving taken on that back book in the European side.

Yes. So Greg, a year ago, 54%. I don't think it's anything to sneeze at. This year's quarter, 50.5%, I think, even better. But as you try to explain the difference, that's where it came up. I don't think it's a big issue.

Your next question comes from the line of Matt O'Neill with FT Partners.

Congratulations on the IPO here. I was hoping you take a step back a little bit and I'd love to just get some thoughts around the guidance. And maybe if I could ask it in a way that you guys give us an idea of what are the things that could go right that could really drive results above kind of current expectations? And maybe as we're thinking about heading into the back half of the year and sharpening the pencils on a 2026 guide, what are the variables that you guys are most focused on? I imagine it's a lot of the top of the funnel MGA kind of additions, but would just love to hear a few more points on that.

Of course, and thanks for the question, Matt. I would say, generally speaking, as you know, our business is really driven by premium, premium, premium. So the Exchange Written Premium that goes through the platform sort of revenue is then just a result of that. And so when we look forward to the third quarter of this year and then into the future, what we're focused on is those new member additions as well as the existing members growing. And that's going to be sort of the growth algorithm, if you will, for Exchange Written Premium. Revenue is then just kind of a result that falls out. And as Jay highlighted earlier, right, and Jeff also highlighted, right, we're doing all that we can to reduce that underwriting net revenue. But for the Exchange Services and MGA Ops segment, their revenue is sort of a result of the overall premiums flowing through the business. So that's where we would look to -- and that's where we're sort of heads down focused on. The second piece of that then from an OpEx perspective is what gets you to, obviously, our EBITDA. And from an OpEx perspective, we're very, very -- we're focused on making the right investments for the business in the long term, as Jeff flagged earlier. Now we want to do our best and look to deliver sort of on short-term goals, of course. But really, what we're focused on, what I'd highlight there is we're very principally focused on how can we be the preeminent specialty insurance risk exchange, right, with that sort of foundational data and technology layer that's making this easier for both our members on the left-hand side as well as our risk capital partners on the right-hand side. The OpEx is sort of more controllable, if you will. But so really, what we're focused on though is the premiums and the members and the governor on growth being that. I don't know anything you'd add, Jay or Jeff?

No, just the take rates are really, really stable and predictable. So it comes out to what you described, Ryan, which is how fast can those existing members grow. And for next year, how much can we -- how many new members can we add.

I really appreciate that. And just to follow up a little nuance and maybe just some helpful points to make for everybody's benefit. But any sort of seasonality to be cognizant of between third and fourth quarters as we head into the back half here?

No, no significant seasonality in our book of business. I almost -- yes, we don't know. We don't focus on any classes of business where either production or loss activity would vary seasonally. So I could have just said no and moved on, but I gave you an extra sentence there.

That concludes our question-and-answer session. Ladies and gentlemen, this will conclude today's call. Thank you all for joining. You may now disconnect.