Accelerant Holdings (ARX) Q3 2025 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Accelerant Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to [ Hamed Ali Yaqorbi ], Investor Relations Associate at the Blueshirt Group. Please go ahead.

Good morning, everyone. Welcome to Accelerant Third 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 and presentation concerning our financial results for the third quarter of 2025 earlier today, and they are 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 fourth quarter of 2025 and full year 2026. 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. Before we get started, I'd like to take a moment to honor the life of our Board member, Wendy Harrington. Her sudden passing in September was deeply saddening, and our thoughts and condolences go out to her family. Thank you for joining us to discuss our third quarter results. I'm pleased to say that we had a strong quarter. We beat on both exchange written premium and adjusted EBITDA. This quarter, we've added a few new items to our quarterly earnings package. Alongside our earnings press release and 10-Q, we've provided a presentation with more detail on our company. You can find all of this material on our Investor Relations website. As a newly public company, spending a few minutes walking through our platform and how we measure success would be helpful. There are 2 sides of the Accelerant Risk Exchange, the supply side and the demand side. The supply side is driven by the specialty underwriters, our members, who underwrite specialty insurance policies. These policies fuel our exchange. The demand side consists of our risk capital partners, comprised of insurance companies, reinsurance companies and institutional investors. They pay Accelerant a fee for access to our portfolio of policies. Accelerant sits in the middle, sourcing members, monitoring them, helping them grow profitably by leveraging our technology, data and risk models. Accelerant Risk Exchange also delivers the portfolio of business to the risk capital partners efficiently. With that foundation set, let's review what we do at Accelerant in a little more detail. On the supply side, after a rigorous evaluation process, we identified the best underwriters in the small- to medium-sized specialty market and onboard them as members. They joined because of our ability to help them grow more quickly, reduce their loss ratios and increase their profits. They grow faster because our Risk Exchange provides stable long-term risk capital. Instead of spending months seeking capacity to support their underwriting, our members use that time to focus on building their business by developing new products and improving their underwriting results. On the back of that time savings, we help direct their efforts with our proprietary risk models combing their data for ways to grow their business, optimize their pricing and reduce their loss ratios. That's how we achieve a net revenue retention of 135%, which drives the growth of exchange written premium. Finally, we leverage the buying power of the Accelerant network to deliver discounts on shared services. That reduces their expenses. So our members are more profitable because of focused growth with lower loss ratios and Accelerant driven economies of scale. That's a strong value proposition. And that strong value proposition that Accelerant offers its members is why we've consistently had an industry-leading high 80s Net Promoter Score. And Accelerant's reputation as the preferred partner for the best MGAs in the world is what drives the growth in new member MGAs joining quarter after quarter. Now turning to the demand side of the Exchange. On the demand side, we aggregate that high-quality portfolio of insurance policies, and we deliver it to our risk capital partners. Risk capital partners pay us to source, manage and monitor the portfolio and then orchestrate that delivery of the portfolio in an efficient way. Why is our portfolio of business so valuable to our risk capital partners? First, it's really stable, and it's a great diversifier of more complex and volatile books of business written by most of our risk capital partners. Our portfolio is designed to be comprised of a large number of small policies with low limits and therefore, low volatility. That's really important to our risk capital partners. But diversification is only part of the value proposition for our risk capital partners. Our portfolio is highly profitable. You can best measure that using gross loss ratio, which has been in the low 50s. That attractive loss ratio leads to consistent and attractive returns for our risk capital partners. As I said, our risk capital partners come in 3 types: reinsurance companies, insurance companies and institutional investors. We want to maintain a diverse group of risk capital partners to maximize the stability and efficiency of the platform for the long run. To improve Accelerant's capital efficiency, we will seek to use third-party insurance companies for a growing proportion of the portfolio over time. Our medium-term expectation is that third-party insurance companies will represent approximately 2/3 of our portfolio. Now when we provide risk to a reinsurer or an institutional investor, the underlying policies have to be issued by an insurance company. That can either be an insurance company we own or a third-party insurance company. When we write premium through one of our own insurance companies, we often route it from our underlying insurance companies to our owned reinsurance company, Accelerant Re. Accelerant Re then seeds the consolidated global portfolio to our reinsurance and institutional investors. That makes that transfer as efficient as possible. When we write directly with a third-party insurance company, that insurer can act as a conduit to our reinsurers and institutional investors or they can retain the business net. Across third-party and owned insurance companies, we will seek to optimize the percentage of premium retained on our own balance sheet. We expect the net retention to approximate 10% in calendar year 2026. Now that measure varies on a quarterly basis because of contract inception dates and other details. We really encourage investors to look across the full year on that measure. I told you that I wanted to review how we measure success. We measure success looking at 3 KPIs on each side of the platform. On the supply side of the platform, the 3 KPIs, all of which we're seeking to maximize are exchange written premium, member count and net revenue retention. For us, net revenue retention is the growth of our pre-existing members year-over-year. On the risk capital side, we measure how profitable our risk portfolio is by using gross loss ratio. Second, we view how much we are growing third-party capital through the amount of third-party direct written premium we write. Again, we seek to optimize the amount of business written by third-party insurers. Finally, our net retention. That is the last 12-month ratio of premiums retained on Accelerant's balance sheet to the total exchange written premium. Now our net retention will never be 0. Regulatory minimums will keep the ratio in the 5% to 10% area. And one important point here, by lowering our net retention, we also lower the revenue we book in our underwriting segment. We welcome reducing the revenue in our underwriting segment as it means we have placed more risk with our risk capital partners and generated more fee-related revenue. In total, those 6 metrics capture the health of our business with insights on to how each side of the platform is operating. So given that, let's turn to this quarter's results. I'm pleased to say those 6 metrics were all strongly positive. Let's start with the supply side. Exchange written premium was $1.04 billion for the quarter. The 17% year-on-year growth is misleading. Adjusting for 2 atypical members that we'll talk about later, the year-over-year growth would have been 29%. Our member count continued to increase with 17 additions, bringing the total to 265. The best MGAs in the world continue to want to work with Accelerant. Net revenue retention was 135% for the quarter, which was in line with our expectations. Our members are winning in their markets with the help of our risk models. On the demand side, the metrics were also strong. Our gross loss ratio was a solid 50% for the quarter. Our expectation for the portfolio is that it will produce a loss ratio in the low 50s. The net retention was 7% for the quarter. Rounding out our 6 key metrics, our third-party direct written premium was $336 million or 32% of exchange written premium. That's a solid increase from the 27% in the last quarter. In Q4, we expect to have $415 million to $430 million of third-party direct written premium. Both of these numbers are slightly lower than we expected because of delays in member transitions. This is a 100% member-driven delay. Third-party insurer contracts to take these products are in place, ready for the business to flow. We are taking the steps required to solve these transition issues and are comfortable with our projections for the fourth quarter and calendar year of 2026. I talked about our medium-term expectation that 2/3 of our portfolio would be written by third-party insurance companies. We are showing great momentum in that drive. We signed up 4 new risk exchange insurers, including a Lloyd's of London facility consisting of 6 Lloyd's syndicates, Ozark Specialty Insurance Company, a division of Columbia Mutual, Incline P&C and MS Transverse. Two of those were signed up after the quarter, bringing our total number of third-party insurers to 17 as of today's date. We devoted substantial resources during the quarter towards constructing portfolios for these new partners, preparing our members' renewal flows to move away from our owned insurance companies and towards these new partners and otherwise integrating them into the risk exchange flow. We expect to write hundreds of millions of dollars of third-party direct written premium with these new partners in 2026 and overall, at least $2.1 billion with third-party insurers in total. These new partners are highly strategic to our platform. Our new Lloyd's facility will enable us to work with syndicates on a direct insurance basis, benefiting from the global licenses and rating of the Lloyd's of London platform. That should help us expand our underwriting appetite over time, allowing us to serve both our new and existing members better. On Ozark, we worked with Columbia Mutual to launch Ozark Specialty. Columbia Mutual's new insurance company, Ozark, is going to do business specifically with the Accelerant Risk Exchange. For us, this creates a new third-party insurer, but most importantly, it acts as a proof of concept in how we can bring more mutual insurance companies in to be members of Accelerant Risk Exchange over time. Both Lloyd's and Ozark will act as risk takers, both represent new avenues for meaningful third-party growth. Diversification of our third-party insurers continues. Hadron's percentage of third-party insurer premium has reduced from 58% to 54% in just 1 quarter. We expect Hadron to continue to be a smaller percentage of third-party insurer premium going forward. We expect 35% to 40% of third-party direct written premium in 2026 to go to Hadron. We expect that to be below 1/3 for the fourth quarter of 2026. Now as we think about winning in our market, we're focused on the long game. We want to deliver continued invention and durable growth. Why is our growth so strong? We believe a major source of our organic growth is our ability to generate great returns from the exchange portfolio. There are many inputs to make that happen, but the most differentiating for Accelerant is our data, data about the exposures, the policy attributes and claims in our portfolio. And there, we have made a major achievement in the last quarter by ingesting substantially more third-party exposure data, moving from 23,000 to 57,000 unique data attributes in our core data set. This breadth of data attributes is fuel for refining our risk scoring models. From a data infrastructure perspective, we're building what we think is the broadest, most usable specialty P&C data set in the world, and that's driving Accelerant's organic growth machine. We have purpose-built AI data agents transforming and enriching a continuous firehose of unstructured data, including raw policy documents, raw claims files and risk attributes. Data-driven insights delivered at the right time and right place by our platform are producing industry-leading gross loss ratios, and that's leading to strong profitable growth. To close my section of the call, I'd like to reframe the discussion again on the bigger picture. What matters for the long run is that Accelerant's platform becomes the rails on which specialty insurance runs. Everyone at Accelerant feels the momentum building in the market. Attracting the best MGAs and making them better with our data and analytics and connecting them to deep, high-quality risk capital pools, ultimately, that's where we'll win and become the leading specialty insurance platform. Ryan, our Head of Strategy, will now talk more about that growth story.

Thank you, Jeff. Our portfolio is made up of 1 million small single thousand dollar policies that generally speaking, renew annually. That being the case, we focus on year-over-year growth rates because these renewal cycles can distort sequential quarter-to-quarter numbers. As Jeff said, in Q3, we delivered over $1 billion of exchange written premium. Embedded within that were notable movements of 2 larger members. One onboarded in Q3 2024, had 2 quarters of premium show up in the single quarter right at the start of our relationship, but has since averaged out to its normal $30 million of premium per quarter. The other, which historically wrote roughly $50 million to $55 million of premium a quarter with us, came from an inherited arrangement in our Canadian expansion, and we put that into runoff at the end of Q2 as it had well below average unit economics for Accelerant. We had baked this into our expectations already. Excluding these 2 members, our exchange written premium grew 29% year-over-year. We will always prioritize the performance of the portfolio and move on from relationships that don't align with our goals. Our doing that is a testament to our ability to monitor the portfolio proactively and make real-time decisions to drive profitability. We're focused on organic growth. We want to be a predictable organic growth machine as we grow into our $250 billion-plus subject addressable market. Our algorithm is simple. Existing members grow from new volume on existing products, new products written with us and rate. Existing members typically represent 80% of our growth in any given year, just as they have this year, and at least 3/4 of that comes from volume. While rate continues to be additive to our growth, it has never been the core driver. Year-to-date, our rate is up 4% globally versus 8% last year. Our book of business is approximately 95% policies that are under $10,000 in premium. Those are really small. On such small policies, you don't typically see the large rate acceleration or de-acceleration you may see in other places. Over the last 12 months, our net revenue retention was 135%. Our cohort of existing members grew premiums by a magnitude of $1 billion. The balance of our growth comes from new members we add. In Q3, our members grew from 204 last year to 265, 30% year-over-year growth. We believe our member count growth is a good leading indicator for future exchange written premium. At the end of Q3, we had over $3 billion of annualized premium in our pipeline, a record amount. That gives us confidence in our future growth. Turning to the risk capital side. As Jeff mentioned, we've brought in some great partners. We also cycled out a few small reinsurance partners through our reinsurance renewal to make room for upsizing with some larger ones at better terms. The reinsurance partners that we cycled out collectively wrote less than 3% of exchange written premium in the last 12 months. We ended the quarter with 92 risk capital partners. Of those, 15 were third-party risk exchange insurers versus 14 last quarter. As Jeff noted, since quarter end, we added 2 others, bringing the total to 17 today. Generally speaking, third-party insurer relationships can take 18 months to form and into the lent but can ramp quickly thereafter. That gives us confidence in our ability to ramp third-party direct written premium as we look to 2026. Even once insurers are signed up, we still have to implement. It takes time to get all the proper rates, forms and filings approved by the regulator and to get the risk exchange insurer and member operational systems hooked up before any of the premium flows. In this infant stage, one of our core differentiators is our ability to arrange reinsurance. We can set that up directly with our reinsurers and institutional investors. But the speed launch, we typically run it through our owned insurance or reinsurance companies to share it with our reinsurers and institutional investors right away. In Q3, we assumed back $85 million from third-party insurers to share through our existing reinsurance pipes. The speed our balance sheets bring to this is quite helpful. We then move it to a direct reinsurance relationship without Accelerant underwriting sitting in between. That's what we've done with Hadron, the party that moved most quickly with us at the beginning and what we're doing with others. The risk takers in that setup are headlined by Allianz, QBE, Flywheel, all our reinsurance and institutional investor risk capital partners. The key here is the risk takers that have been supporting our platform from the very beginning, not how it gets piped to them. That's an efficiency maximization equation. Either way, we make the same 8% fee in exchange services. So at our core, we're a 2-sided platform that makes an 8% fee regardless of whether the premium goes through our owned insurance companies, where we make an extra 3% to 4% or a third-party insurer. In addition, we own stakes in a host of MGAs that made 17% of their exchange written premium as revenue in Q3, excluding the irregular investment gains that Jay will talk about. And with that, I'll pass the baton to Jay, our CFO, to address our financial performance.

Thanks, Ryan. Hello, everyone. I'm excited to share our third quarter performance and guidance for the fourth quarter and full year 2026. As you've heard this morning, we had a great third quarter with continued strong profitable growth and expanding margins. We placed $1.04 billion of exchange written premium, an increase of 17% year-over-year, and as Ryan mentioned, 29%, excluding the 2 members he noted. This was propelled by net revenue retention of 135% and member count growth to 265 with net additions of 17 in the quarter. That resulted in revenue of $267 million, which grew 74% year-over-year. As you've heard from Jeff today, our goal is to maximize the revenue associated with our Exchange Services and MJ operations segments while continuing to keep our net retention near our 10% target. You will see from our segment results for the quarter that we are successfully executing on that strategy. Adjusted EBITDA was $105 million, which grew over 300% year-over-year. Adjusted EBITDA margin rose to a healthy 39%, up from 17% last year. Embedded within that were 2 irregular investment gains totaling $39 million. One was $30 million from the minority sale of one of our own members that we highlighted in our guidance on our last earnings call. This flowed through as an unrealized gain of $27.6 million and a realized gain of $2.7 million in our MJ Operations segment. We also had an additional unrealized gain of $8 million in our Corporate segment associated with the valuation increase of one of our ecosystem investments that raised external capital. Both are great examples of the attractive value creation we are seeing in our historic investments in both members and our broader ecosystem enabled by the technology and services Accelerant provides to them. We do not expect to receive benefits like this in most quarters, but we do have similar investments as part of our strategy and could see additional benefits like this in the future. On an underlying basis, excluding the $39 million of investment gains, we generated EBITDA of $66 million with strong outperformance in each of our segments. This represents an increase of 153% over last year with our underlying EBITDA margin increasing to 29% from 17% in the prior period. This momentum is driven by both the strong top line premium growth as well as consistent operating leverage improvement on the expense side. Adjusted net income for the third quarter 2025 grew nicely to $80 million compared to $19 million last year, resulting in $0.38 of adjusted earnings per share. We measure adjusted net income as GAAP pretax income less profit interest distribution expenses, share-based compensation expenses and other nonoperating expenses net of tax. As we shared with you on our last earnings call and included in our S-1 below the line, there were a number of large IPO-related expenses. These amounted to $1.45 billion in the quarter, with noncash pre-IPO profit interest distribution expenses being $1.38 billion of that. The profit interest distribution expense represented certain officers and employees' interest in the predecessor entity that converted into stock at the time of the IPO. I would remind everyone that this was noncash, nondilutive to IPO investors and neutral to the balance sheet. The other $73 million consisted of $37 million of IPO and strategic transaction-related expenses, $27 million of noncash stock-based compensation, primarily related to the options granted to management at IPO and $9 million of miscellaneous expenses mostly related to enterprise resource planning system development and Mission profit interest. There are more details on these in the appendix of our investor presentation and 10-Q. So to reiterate, the $1.45 billion of costs reconciling GAAP pretax loss to adjusted net income are substantially all noncash items. On a segmental basis, we outperformed across the board. Exchange Services is the core of our business flowing from the 8% fee we make on all the premium running through our exchange. In Q3, we had revenue of $85 million, growing 34% year-over-year, well ahead of the premium growth over the same period because our take rate expanded to 8% from 7.1% this time last year. Adjusted EBITDA was $59 million at a 70% margin. We feel confident in our ability to maintain that take rate percentage at a similar level and expect it to remain stable over time. MGA Operations is the host of MGAs that we have ownership stakes in, consisting mostly of our Mission MGA incubation business. In Q3, we had revenue of $81 million with $30 million of that coming from the aforementioned investment gains. So underlying revenue was $51 million, growing 18% year-over-year. Adjusted EBITDA was $45 million or $15 million on an underlying basis, resulting in a margin of 30%. You'll notice that the underlying results are lower than the prior quarter and the third quarter of last year. That has to do with the significant outperformance of certain members in those periods rather than with what we saw in this quarter. Given the smaller cohort of members in this segment, there is inherent variability with new business and renewal patterns such that results may fluctuate quarter-to-quarter. We continue to see strong outperformance in both our maturing Mission members as well as our own members. Our performance in the segment this quarter was in line with our expectations. Our healthy operating cash flow and IPO proceeds have enabled us to maintain a strong balance sheet. At the end of the quarter, we held $547 million of cash in the entities outside of our underwriting segment, including Exchange Services and MGA Operations. Underwriting houses our own insurance and reinsurance companies. And just to say it again, our goal is to limit the use of our underwriting entities and write more business directly with third-party insurers given the capital benefits. The largest driver of Underwriting revenue is how much business we retain as net earned premium. In Q3, we had revenue of $118 million as our net retention of exchange written premium hit 7% in the last 12 months. This resulted in adjusted EBITDA of $18 million. Our earnings in the quarter were consistent with overall margin performance in prior quarters, in part driven by an improvement in the gross loss ratio of 50.1% resulting from stable overall performance across the portfolio as well as favorable prior year development, primarily on the property side. Our overall expectation of single-digit margin generation in the Underwriting segment has not changed in the medium term. We also expect in the near term that our net retention of exchange written premium will trend closer to the 10% that we have talked about this morning. So in summary, Q3 was another strong step forward with healthy underlying growth and robust acceleration of adjusted EBITDA and adjusted net income. We have a powerful mixture of hard charging organic growth embedded in our existing members and new ones continually joining our platform. As we look ahead, we wanted to provide some guidance for our fourth quarter and 2026, given the high visibility that our business model affords. In Q4 2025, we expect Exchange Written Premium of $1.06 billion to $1.1 billion, third-party direct written premium of $415 million to $430 million and adjusted EBITDA of $57 million to $62 million. At the midpoint, this would bring our full year exchange written premium to $4.18 billion and adjusted EBITDA to $270 million, including the irregular investment gains. When thinking about Q4 year-over-year growth, I would also note that we expect to write close to 0 premium with the member we proactively put into runoff, as Ryan mentioned earlier. We wrote $54 million of premium with that member in Q4 of 2024. So adjusting for this, the implied year-over-year growth to the middle of our range would be 31%. For the full year 2026, unchanged from our expectations before, we expect to deliver at least $5 billion of exchange written premium, $2.1 billion of third-party direct written premium and $269 million of adjusted EBITDA. To build for the $2.1 billion of third-party direct written premium, we have $1.8 billion under contract and flowing today, another $200 million under contract that will start flowing in the next few months and $100 million to convert from our live pipeline of more than $500 million. We are not providing a GAAP reconciliation for this guidance, including net income due to the inherent difficulty in forecasting and quantifying items such as tax rate variations, foreign currency fluctuations or onetime adjustments prior to quarter close. So with that, I think we'll open it up to questions. Thank you.

[Operator Instructions] And your first question comes from Rowland Mayor with RBC Capital Markets.

I wanted to quickly ask on the guide. I think for the Accelerant gross written premium component, it implies negative growth year-over-year. I understand that it's migrating sort of to direct on the exchange. But is there anything to know on the expense side associated with that from moving from kind of on your balance sheet to direct with the capital providers?

And -- so obviously, as we are transitioning the business to third parties directly that we will see over time the gross on the Accelerant side, the growth will moderate and eventually flat line. And yes, there will be some -- I think on the expense side, if that's what you're asking, I think we will see some of the cost shift with that as more going directly to the Exchange and not going through our Underwriting. But I think I would probably just expect to hold those margins fairly constant for the near term.

That's super helpful. Just I guess, switching a bit. The deck calls out 90 new products in the last 12 months. And I'm just curious if there's anything worth highlighting there on new exposures you're underwriting or if you're seeing demand for other new products that can come online in the next year?

Yes. Generally speaking,, thanks for the question. We're always looking to launch new products with our members. A number of those are book rolls that they're doing of products they wrote previously with someone else that they've rolled over to the Risk Exchange. And then a number of those are also obviously new product launches that we've helped design and implement with those members. Generally speaking, I wouldn't say there was some sort of appetite expansion or stretch, if that makes sense from what we've done historically. It's all still commercial SME business, et cetera. What you're seeing instead is the increasing specialization of the industry overall, right, where you're increasingly getting -- it's not just bowling alleys but it's several different types that have -- that offer several different things or amalgamations of each and each sort of a new policy to go along with that. And so it's a huge testament to our platform and our flexibility, our ability to support members in doing that. And that's what's ultimately going to lead to, I think, sustained net revenue retention at the elevated levels that we've been seeing it at.

Your next question comes from the line of Elyse Greenspan with Wells Fargo.

My first question was just about the growth outlook for next year. I think EBITDA growth is expected to be 16%, excluding right, the onetime gain on sale and gross premiums written are expected to be up around 20%. So I'm just wondering why the EBITDA growth wouldn't outgrow the premium growth.

Yes. So I think that's right. You're seeing our EBITDA number is coming in a little bit lower than the growth. Overall, Elyse, I think we feel really good about our ability to maintain the margins in the business. So I would not expect any real sort of meaningful change in that margin despite the fact that where we're sort of reiterating the '26 number, the EBITDA is slightly lower.

And just to add on to that, Elyse, right, the real thing that's happening is as we move more business to third-party insurers, right, we mix towards our Exchange Services and MGA Operations segment, our fee-based businesses that we're excited about maximizing, right? But we won't make that revenue if that makes sense when it doesn't go through Accelerant underwriting. And as Jeff highlighted in his comments, I think that's generally a good thing.

Okay. And then my second question, you guys said right, in the medium term, 2/3 of the portfolio will be third party. I guess, I was hoping you can define what you view as the medium term. And then when we get there, I know you provided some like disclosure on the contribution, right, over the next year. But what would that assume over that medium-term guide is the contribution from Hadron?

Sure. Time frame first, 3 to 5 years is what we were thinking of when we said the medium term. I hope that helps. And then the guidance was a little bit tricky on Hadron. We gave an expectation for the full year of '26, and then we gave an expectation for the fourth quarter of '26. You probably caught all that. The guidance for the fourth quarter of '26 was 33%. I guess what I would expect going forward is for that to drift gently down. And I don't really know numerically what that works out to be, but it will drift gently down as we add more and more third-party insurers.

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

Just one more on the guidance for the $2.1 billion in third-party premium in '26. So you were clear that the Hadron will be 35% to 40% of that and that you have $1.8 billion under contract, which presumably includes the Hadron piece. Maybe you can break down the breadth of that $1.8 billion and how we should think about the pacing of the uptick over the next 5 quarters.

Sure. I'll try and give you a round sense. And what I would say, my answer will rely on the fact that what happens as we transition business to these insurers is a product will move over. right? And then it's not a slow growth, right? It's a series of discontinuous jumps as the products move over. So what you can expect is you can expect acceleration through the quarters. And unfortunately, at the same time, you're going to have to moderate it for the quarterly flow of total exchange written premium, which isn't constant, as you know.

Okay. And then I thought your explanation of the similarity in economics no matter how the business gets piped was helpful. Maybe you could talk about how to think about the cash flows outside of the insurance companies. Is there any color you can share there on how that's trended?

Sure. Yes. I think we have consistently maintained a very high degree of cash flow conversion on the exchange services as well as on the MGA Operations side, definitely the driver being Exchange Services. And to be clear, what you see, for example, in the eliminations in the financials, that does not impact the cash flows. We obviously receive that cash when we transact the business. We do eliminate in terms of our net income recognition but that just means that we are hanging up that net income over sort of a longer period of time. But we are getting sort of the cash in the door upfront on that 8% fee we're generating on the risk exchange, and we do have a very high degree of conversion on it. And it will continue to grow as obviously Exchange Services EBITDA grows.

Got it. I guess could you directionally quantify cash flow conversion, either as a percentage of EBITDA or revenue in those segments?

Yes. I mean -- so we're happy to follow up and dig into that with you. I think in the current quarter, it probably would be a little bit distorted by some of the IPO expenses but certainly something we're willing to follow up and work on and dig in with you.

Your next question comes from the line of Bob Huang with Morgan Stanley.

First question is on the third-party premium, right? Given Hadron is going to be a smaller part of the third-party premium, can you maybe talk about the partner mix there? Is there any specific partner that you're expecting to see substantial growth going forward? Or is it more of a relatively even mix? Just curious as Hadron gracefully declined as a percentage of total, what are the other partners that is kind of growing, so to speak?

Sure. When I talk about growth, I think I have to talk about dollars as opposed to percentages. So Lloyd's, obviously, as we announced, we're delighted to have that facility. We expect that to become a meaningful risk exchange insurer. We've got a host of, I guess, now 17 or 16 others for a total of 17. To grow the third-party portfolio the way we're talking about, they're all going to grow substantially. Now will there be some that are -- will there be some that stand out by being small? Yes. But I don't think that there will be ones that stand out by becoming huge. There's going to be 8 to 10 partners we expect that get very large with us, roughly double.

Got it. Okay. That's very helpful. The other one is on the -- your third-party reinsurance and institutional insurance relationships. I think what you said on the prepared remarks is that the number of partners came down quarter-on-quarter marginally, but the number of reinsurance partner increased marginally. But at the same time, I think the premium growth is still continuing to be very healthy. Can you maybe help us just remind us under what circumstances would those partners be moved off the platform, under what circumstances you like usually would have situations like this?

Maybe I'll cover what actually happened this quarter. We've talked about and disclosed several of our really significant risk capital partners that are reinsurers. Each of those partners have indicated for several years that they want to grow their relationship with Accelerant in dollar terms substantially. We took this opportunity to essentially move off several, I guess it was 5, several very, very small reinsurance partners. I think collectively, they were less than 3% to 5%, less than 3% of premium. We took the opportunity to move those small players off to be able to allow our bigger partners to grow slightly faster and keep them happier. I guess the good news there, Bob, is we have enough risk capital interest to handle double the premium we write today. We have that interest now to handle a doubling. But that's the back story.

Thank you and congratulations on the quarter.

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

I just wanted to double-click on Lloyd's. I know they're an important risk capital partner, and I think there was an article out there saying in some way, you all had been declined from Lloyd's at some point during the quarter. Fast forward today, now looks like great news that you've added a Lloyd's facility as a third-party insurer. Can you just talk about what has really happened there and the overall relationship with Lloyd's?

Sure. I can't really talk about what was in the head of that author. I guess what I can say is Lloyd's, as you know, is a terrific sort of signpost for the quality of our underwriting. The other reason that having a Lloyd's relationship is really valuable to our members is the great credit quality and licenses that Lloyd's has. We've been working really hard to use our relationships at Lloyd's to create not just a reinsurance relationship, which we did with QBE but also an insurance relationship. We've been successful with both. This quarter, with our announcement, we've been successful with both. We're really delighted about that. We are reasonably close to the corporation, sort of the center of Lloyd's that acts to a degree as governance for the market. And as far as we're concerned, our relationship is incredibly strong and good.

Great. And then on -- I appreciate the life cycle comments and the slide in the deck on that. I think you all explained well why some of the premium from third-party insurers goes through Accelerant underwriting because it's operationally simplistic to use Accelerant to find reinsurance coverage. And you also say that they eventually will cede premiums to reinsurers direct. So is there a clear trend of third-party insurers accessing reinsurers direct over a period of time? Like are you actively seeing that in your book? And I also wanted to confirm that Hadron is completely accessing reinsurers direct now, which I think you all might have said in your prepared remarks.

Thanks for the question, Rob. So yes, there is a clear trend. We cited the example of Hadron specifically because as we had noted, right, originally, they started writing sort of 100% of it back through Accelerant as we set up the reinsurance pipes already there. And then we set up those same pipes with our same, right? I think I cited Allianz, QBE, Flywheel, et cetera, all of our reinsurance and institutional investor risk capital partners behind Hadron as well. And so that's been sort of the natural cadence of things, and we're seeing that with other parties as well.

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

I was hoping you could give us a little bit more insight into the regularity or lack of regularity of members being asked to leave the pool. And as the market softens, I would imagine that you'll see more folks hit the boundaries. But is this something that we should expect kind of a member or 2 leaving every quarter sort of naturally just given the process that you have? Or is it -- just how exceptional do you think it will be as part of your process?

Sure. Paul, thanks for the question. Your line was a little muffled. I think I got it. But if I missed, please correct me in the feedback. How often do we part ways with members? I would say not very often. Approximately 15 have been asked by us to retire from the platform since we started in 2018, '19. Why does that happen? Overwhelmingly, the reason that happens is because that particular MGA cannot get support from distribution. So while they thought that they would be able to attract a flow of business, once we start or once they start, it turns out that they are not able to. I would say that leaves about 5 member MGAs that have been asked to leave the risk exchange for what I would describe as underwriting or performance issues. They're mostly idiosyncratic. There are situations where a particular market or a particular product became untenable in our view. And unfortunately, there are also examples where our underwriting judgment and the ex members underwriting judgment just differed so dramatically that we decided to part ways. What is not going to cause that in our mind, Paul, is market conditions or rate levels. Here's why. I think Ryan did a good job of describing how steady our portfolio is in all ways but especially in terms of market rates. they don't oscillate like everything that we're reading about, right? They're sort of inflation to a little bit more than inflation. So when our members get into underwriting trouble, it's almost never pure rate. It's always about risk selection. And we work really hard with that data, Paul, to make sure that our risk models help them stay on the right track so that they can grow smartly. That's where that net revenue retention of 135% comes from. So I hope I hit your question right.

No, that's what I was asking and sorry for the bad connection. The -- my second question, I think that gross loss ratio is maybe the most important metric for the long-term health of the business, my opinion, obviously. It has actually gone down when others are seeing higher gross loss ratios because of competition and the like. A few thoughts on directionally why that has moved this year down and not up. Maybe is it a mix change? Is it whatever you think is going on that, that's interesting to me. It's remarkable.

Right. Well, the other remarkable thing is our portfolio, 95% of the policies have policy premiums below $10,000. That is -- you'd be the expert but I think that's extraordinarily atypical, right, of most of the portfolios that other underwriting companies carry. I guess my point for the reason that I bring up that small size is, again, insulation from a lot of different things. Insulation from rate movement, dramatic rate movement, right? We're relatively insulated there. And because the limits are so small, you don't see the liability loss trend that the rest of the industry has seen. So I would expect -- and actually looking backwards, I think the industry's performance in the small- to medium-sized market is sort of the mid-50s. So the fact that we're in the low 50s with our data model is not surprising to me. I'm confident that we can continue that level going forward. The one thing I would say, Paul, is when I say low 50s, you're going to have quarterly wiggles, as you know. This one was a positive wiggle. I wouldn't start extrapolating 50.

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

Just a quick one since there are so many questions on Hadron. I guess I just wanted to ask, last I checked, you had a surplus of about $110 million, $120 million and $250 million of A-rated type capital committed. Is that correct?

Not catching the reference for those numbers.

I think, Andrew, you might be asking about Hadron specifically as opposed to Accelerant?

Yes, Hadron specifically, like what's the -- yes, what's the stat surplus of Hadron when you're -- they're a company. So I just wanted to kind of get the numbers or the ballpark.

Yes. The group approximates $200 million, I think, Andrew.

In surplus, Jeff?

Yes. Several companies there, but yes, surplus.

Yes. I mean the last I checked, that's a pretty solid, strong number, right? I think that's something to feel really good about. I just -- because there have been so many questions, I just wanted to check on that.

The old am I crazy question. Andrew, I don't think you're crazy. Here's what I would say. I would say that Hadron is a real company staffed by really competent professionals with a fair amount of surplus that buys reinsurance really, really conservatively from people that we know incredibly well. We feel really good about that trade. Having said that, for the avoidance of doubt, and I'm not talking to you, I'm talking to everyone else in the world, Andrew, that diminishment right, of Hadron being diversified away and being a smaller and smaller part of the total will continue. But it's not because we think the Hadron relationship is a bad one. It's because diversification on both sides of the platform is great for us.

Yes. It sounds pretty solid. So I guess just kind of following up on Paul's question about the loss ratio at 50%, which is pretty strong. I'm hoping you could give kind of a texture of that. I think it was like 50.1% or 50.2%. What's the texture of that? I think Jay mentioned some favorable development in property. Could you give a sense of what the prior year development might have been in the quarter? And going forward, I think you said what gives you confidence is that kind of diversification of very small policies. But anything else like pricing, for example, you mentioned up 4%. Do you feel like pricing is ahead of loss costs and helping you to gain that confidence?

Sure. Maybe I'll handle rates first, and then we'll talk about the quarter's loss ratio second, if that's okay. Again, reiterating what you heard, blended across the book, across 22 countries, it's about 4%. What's much more important, of course, is each product by product. We feel comfortable that in the vast majority of our products or markets, the rate change is keeping up with loss trend. One of the reasons that we can be so confident there is keep in mind how attenuated our exposure to loss trend is when our limits are so small because 95% of our policies are really small. Our data and analytics let us watch to make sure that the performance is continuing as we expect on a really, really granular level. We're not hanging around waiting to see at the end of the year. This is a much more ongoing live thing because of our data capabilities. So that's why we have confidence in the loss ratio continuing to perform as it has. In terms of this particular quarter, I think you know this that Accelerant less than probably most portfolios has an expectation, especially in property about what the large loss load should be. Now for us, it's not property catastrophe. It tends to be a large loss load for fires, et cetera. As we close '23 underwriting year and '24 underwriting year starts to get more mature, what we found is those large losses didn't occur. Frankly, that portfolio performed really well, atypically well, right? And so that was flowed through the loss ratio. But again, back to what I said to Paul, you should expect low 50s going forward. You should not expect 50.

Got it. That's terrific. And if I could sneak one last one in. The MGA count is terrific at 265. You added 17 pipeline, anything you would say about the pipeline?

Yes, Andrew, at the end of the third quarter, we had over $3 billion of annualized premium in our pipeline, which was the biggest ever. So I think that gives us a lot of confidence as we look to the future.

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

Just a couple of clarifications. On the medium-term guide of 2/3 third party, is that a change in view from 3 months ago? I don't think it is but I just wanted to make sure.

It's not, Charlie. I know what you mean. I had a really bad sentence. It's not a change.

Okay. And then just curious on the expense ratio in the Underwriting segment, that's come in a fair bit lighter from, I guess, I think where you guys guided during the IPO process. Curious what's driving that and if there's any color you can share on how that should trend from here?

Yes. So I think there's a couple of things going on in the Underwriting segment. Obviously, we talked about sort of the favorability on the gross loss ratio on the property attritional piece. And then yes, 2 other things we'd highlight. Certainly, we've come in a bit lighter on the DAC. I think really sort of 2 drivers there, one being that you're seeing the impact of the higher session rates in prior quarters. in terms of relative to initial expectation. And then we did see -- we are seeing some favorability on acquisition costs just from a sort of business mix perspective. And then the last piece of that, Charlie, would be on the OpEx. We are seeing as more business goes directly to third-party insurance companies, we would expect some of that cost to migrate over time. And so that OpEx ratio might up over time. But I think as I was saying earlier in my remarks, I think for the time being, we would sort of hold -- we would guide you to hold that expense ratio relatively consistent.

And that concludes our question-and-answer session. And with that, that does conclude today's conference call. Thank you for your participation, and you may now disconnect.