Octave Specialty Group Q3 2026 Earnings Call Transcript

Octave Specialty Group (NYSE:OSG) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Octave Specialty Group reported strong organic growth in its insurance distribution business, with revenue increasing by 35% to $58 million, driven by a 23% organic growth rate and the acquisition of Armadicare.

The specialty P&C segment, Everspan, showed significant improvement, with net premiums written and earned growing by 44% and 52%, respectively. Adjusted EBITDA to shareholders rose to $2.2 million from less than $0.1 million in the prior year.

The company expects to exceed its $45 million Insurance Distribution adjusted EBITDA guidance for the year, with ongoing strong performance and a strategic focus on expanding MGA portfolios.

Everspan’s combined ratio improved significantly, driven by a lower loss ratio and strategic repositioning of its portfolio. The company also agreed to sell its subsidiary, Providence Washington Insurance Company, to streamline operations.

Management expressed confidence in achieving positive adjusted net income per share for 2026 and maintaining strong growth in 2027, supported by a robust pipeline of MGA opportunities and strategic use of AI technology.

Corporate expenses were reduced significantly, reflecting cost-saving initiatives, and the company’s net leverage ratio improved, providing greater flexibility for strategic initiatives.

Full Transcript

OPERATOR (Moderator)

Ladies and gentlemen, good morning and welcome to the Octave Specialty Group’s third quarter 2026 earnings call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please signal the operator by pressing star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Phil Stefano, Head of Investor Relations.

Please go ahead.

Phil Stefano (Head of Investor Relations)

Thank you. Good morning and welcome to Octave Specialty Group’s third quarter 2026 call to discuss financial results. Speaking today will be Claude LeBlanc, President and Chief Executive Officer, and David Schreck, Chief Financial Officer. They will discuss the financial results of our business and the current market environment. After the prepared remarks, we’ll take your questions. Also available for Q&A today will be executives from our insurance distribution segment.

For those of you following along on the webcast, during the prepared remarks we will be highlighting several slides from the earnings presentation, which can be located on our website. Our call today includes forward-looking statements. The Company cautions investors that any forward-looking statements involve risks and uncertainties and are not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors.

These factors are described under the forward-looking statements in our earnings press release and in our most recent 10-K and 10-Q filed with the SEC. We do not undertake any obligation to update forward-looking statements. Also, in our prepared remarks or responses to questions, we may mention some non-GAAP financial measures. Reconciliation to those non-GAAP measures is included in our earnings press release, operating supplement and other materials available in the investor relations section of our website, octavegroup.com. Now I would like to turn the call over to Claude.

Claude LeBlanc (Chief Executive Officer)

Thank you, Phil, and good morning, everyone. Octave delivered a solid quarter driven by strong organic growth in our insurance distribution business, product expansion, the addition of a bolt-on team and continued expansion of our distribution and capacity relationships. Our core insurance distribution segment grew total revenue 35% in the third quarter to 58 million, driven by organic growth of 23% and the October 2025 acquisition of Armadicare.

This organic growth, which we believe is well ahead of sector peers, was consistent with our seasonally adjusted third quarter plan on a year-to-date basis. Insurance distribution’s adjusted EBITDA to shareholders has nearly tripled to 43.4 million and margins have expanded almost 9 percentage points to 22.2%. These results reflect the strength of our purposely diversified portfolio and the embedded value of our scaling MGAs. Our specialty P&C segment continued to benefit from the repositioning of its program business. Everspan delivered adjusted EBITDA to shareholders of 2.2 million, compared to less than 0.1 million in the prior year period, and net income of 1.3 million. Net premiums written and earned grew 44% and 52%, respectively. Everspan now supports 30 programs, up from 25 a year ago.

David will provide more details on the financial results for the quarter in his commentary. Overall, I am very pleased that our strategy of building a leading diversified MGA platform, combining top underwriting teams with an AI-enhanced integrated technology and data architecture, continues to gain momentum and strengthen our underlying fundamentals as our platform scales. Before commenting further on our segments, I want to start with a market backdrop to provide some context for how we are managing the business today and how we are positioning Octave for 2026 through 2027. Abundant capacity has made the P&C market more competitive. Global commercial rates declined for the ninth consecutive quarter, driven by 1) the depth of capacity from strong earnings, 2) new entrants including foreign carriers and ILS capital, and 3) the significant movement of capital into the E&S market.

Broadly, the rate dynamics we discussed last quarter persist and the U.S. and global P&C insurance markets continue to soften. Property has continued to absorb most of the pressure, as rates fell roughly 10% again in the third quarter following low- to mid-teens declines at midyear, led by the wholesale and large property segments. Turning to the London markets for the large casualty market, competition remains robust, but rates have held up better than in large property.

Our alternative classes, meanwhile, are exhibiting a low correlation to the broader P&C markets with rates holding firm. Energy remains one area we continue to view with caution. Years of compounding rate reductions have coincided with elevated loss experience. That combination is not sustainable and we are encouraged that the market is beginning to recognize it, and we are managing our exposures here accordingly. Casualty SME classes, including general liability and select specialty classes, continue to achieve rate increases ranging from mid-single to double digits and we see them as attractive opportunities for growth.

As we consider the broader market trends, it is important to remember that current rate decreases follow several years of meaningful rate increases, so most classes are softening from a position of strength. Rate adequacy across most of our classes remains strong and the portfolios we manage remain attractive for our capacity partners. Furthermore, our diversification across property, casualty, specialty and accident and health means no single pricing cycle defines our results, and A and H pulls a different cycle entirely, which I’ll come back to shortly.

As we continue to scale our business, we remain focused on specialist niches where expertise matters most and where pricing remains adequate and, in many cases, strengthening. Turning to our insurance distribution segment, we believe our continued strong organic growth at over 35% year to date reflects the diversification and the success of our rapidly scaling MGA portfolio. Our expanding portfolio, led by the class of 2024 and 2025 MGAs, are more than offsetting the market headwinds. In addition to driving growth in established lines, future organic growth will be supported by 1) bolt-on team launches as an alternative to startup MGAs and 2) the launching of adjacent products in our existing platforms.

For example, in recent weeks we announced three new programs. Year to date we have launched seven product adjacencies in the U.S., leveraging existing infrastructure, distribution relationships and underwriting talent. Another key area of growth is our A and H business which makes up about a third of our portfolio and provides a buffer against current market headwinds. Our A and H businesses are growing through new revenue opportunities supported by expanded distribution relationships while at the same time maintaining strong retention and favorable pricing. Across our A and H businesses, we are seeing an increase in premiums together with solid organic growth, including for our most recent acquisition, Armadicare.

Pricing in A and H continues to be a tailwind with double-digit rate increases due to surging healthcare costs. A and H provides us a growing earnings base that is largely uncorrelated with P&C pricing and adds further diversification to our results, and we expect this trend will continue. We are also seeing encouraging early momentum heading into the January 1 renewals, the most important renewal season for A and H. We continue to see a strong pipeline of startup MGA opportunities, particularly in the U.S. but also in Europe. Our aligned capacity partnership model, broad distribution and a technology-enabled operating platform positions us well to attract top talent. At the same time, we remain highly selective, partnering only with proven teams with strong track records that we believe can build durable businesses over the long term. As we look forward, our 2027 capacity is largely lined up and we expect to be oversubscribed, driven in large part by our track record of profitable and less volatile underwriting results.

Turning to our specialty P&C segment, Everspan’s results this quarter reflect our continued focus on disciplined underwriting, program oversight and proactive portfolio management. We’ve also begun to diversify Everspan’s routine risk portfolio, selectively expanding into package and non-cat property business to complement our existing casualty book and create a more balanced underwriting portfolio over time. We believe the diversification of the book, combined with the continued scaling of the business, will position us well for profitable growth at an attractive combined ratio.

Since the quarter end, we announced that Everspan entered into an agreement to sell its wholly owned subsidiary, Providence Washington Insurance Company. This transaction is expected to close by early next year and will simplify Everspan’s operating structure, making it more efficient while further strengthening its rating agency capital and tangible book value. The announcement does not change Everspan’s strategy, underwriting capabilities or commitment to its trading partners.

During the quarter, Everspan continued to support our insurance distribution business through the writing of two programs. Finally, an update on our operations, technology and AI. Starting with operations, as you may remember, during the fourth quarter last year we implemented a new target operating model at corporate that materially reduced our run-rate costs for 2026. We are actively exploring initiatives for further savings in 2027 as we continue the global integration of our business, and plan to implement the initial phase of a target operating model for our international operations later in the year.

During the third quarter, the market experienced another round of concern around AI disintermediating insurance distribution. Our view has not changed. The majority of lines we underwrite are complex specialty risks, and in that environment we believe AI makes MGAs more productive, not less relevant. Over time, we believe it can be a competitive differentiator across specialty insurance. We continue to execute on the data, AI and technology initiatives we laid out earlier in the year, and all of our MGAs are now on their target technology platforms.

With the rollout of our AI-driven intake across our U.S. MGAs largely complete, we are already seeing significant benefits in the form of accelerated submission vetting leading to increased underwriting velocity, which will further improve our operating leverage in the future. The same diversification that carries us through the cycle also shapes how we build technology. Our enterprise underwriting platform is designed to use AI to create proprietary bespoke tools around each MGA’s niche and expertise, all on one platform and one set of data, giving us consistent oversight while maintaining what makes each MGA uniquely competitive. This model will help our teams to choose the right risks, grow where the returns are strong and step back where pricing no longer makes sense, reinforcing the discipline that supports stable capacity and durable fee income.

I will now turn the call over to David to review our third quarter results in more detail. David.

David Trick (Executive Vice President)

Thank you, Claude, and good morning, everyone. Our third quarter consolidated results improved year over year across every key consolidated measure. For the third quarter of 2026, Octave Specialty Group reported a net loss to shareholders of 13.8 million, or $0.31 per share. This compares with the net loss from continuing operations to shareholders of 31.7 million, or $0.65 per share, in the third quarter of 2025, an improvement of 17.9 million, or $0.34 per share.

Consolidated EBITDA to shareholders was negative 1.8 million compared with negative 20.1 million in the prior year quarter, an improvement of 18.3 million. Adjusted EBITDA to shareholders was 3.3 million compared with a negative 2.9 million a year ago, an improvement of 6.2 million. Our consolidated adjusted net loss to shareholders narrowed to 1.3 million, or $0.03 per share, from 10 million, or $0.21 per share, in the third quarter of 2025, an improvement of 8.7 million, or $0.18 per share.

Drivers of the improved performance were broad based and included organic growth in our business segments, the acquisition of ArmadaCare, lower corporate expenses, and reduced interest expense. Insurance Distribution delivered another quarter of what we believe is above-market total revenue and organic growth of 35% and 23%, respectively. Year-to-date organic growth was just over 35%, and therefore we are firmly on track to exceed our full-year organic growth guidance of 25%.

Plus, we continue to expect double-digit organic growth in the fourth quarter of 2026. Revenue growth was fueled by the October 2025 acquisition of ArmadaCare and, organically, by MGAs launched in 2024 and 2025 as well as our E&S and A&E lines, which have been growing well after a few years of weakness. That growth more than made up for pockets of softness such as energy. For example, our top-line growth carried through to the bottom line. Insurance Distribution’s net loss to shareholders narrowed to $4.2 million from 5.4 million in the prior-year quarter, an improvement of 1.2 million, or 22%.

Insurance Distribution adjusted net income to shareholders was 4 million compared with an adjusted net loss of 0.8 million in the third quarter of 2025, an improvement of 4.8 million. Insurance Distribution adjusted EBITDA to shareholders rose nearly 40% to 8.3 million compared with 6 million a year ago, and the related margin grew to 14.2%, up from 13.9% in the prior-year quarter. Year-to-date adjusted EBITDA to shareholders reached 43 million. We now expect to exceed our $45 million Insurance Distribution adjusted EBITDA guidance for the year.

Beyond organic growth and the ArmadaCare contribution, other factors driving the year-over-year improvement included an increase in profit commissions reflecting the underwriting performance of our portfolio, a higher ownership position of 10% in Octave Ventures, and a $3.5 million reduction in interest expense resulting from lower debt balances and financing rates. These results are after our continued investment in de novo MGAs, which reduced EBITDA to shareholders by approximately 1.2 million this quarter, or roughly 2.1 points of margin.

We expect these businesses to move from a drag to an EBITDA contributor as they hit scale in the coming quarters. Finally, a note for those updating fourth-quarter models. Because the ArmadaCare acquisition closed on October 31, 2025, the fourth quarter is when ArmadaCare will begin impacting our organic growth calculation. October 2026 will be the last month counted as acquired revenue. November and December 2026, which now have prior-year comparisons, will be included in organic growth.

At Everspan, gross premiums written were 99 million in the third quarter, up 2% from a year ago. Net premiums written and net premiums earned were each 26 million, up 44% and 52%, respectively. Gross premiums written year to date total 297 million. Given some of the continued business mix shift and the timing of certain new program launches, our full-year gross premiums written may come in slightly under our $410 million guidance. Casualty remains the core of Everspan’s book, but we have begun to selectively add specialty and non-catastrophe property programs to diversify the mix over time.

As these programs build, we expect them to support premium growth and contribute to more consistent underwriting results. Everspan’s combined ratio for the quarter was 100.6%, a significant improvement from 112.9% in the third quarter of 2025, driven by a lower loss ratio. Everspan’s loss ratio was 57.1% in the third quarter compared to 84.5% a year ago. Pro forma for sliding scales, the loss ratios were 56.8% and 77.6%, respectively. Last year’s third quarter included 23 points—16 points net of sliding-scale impact—of adverse prior-year development from commercial auto programs in runoff and excess liability.

On an accident-year basis, our loss ratio improved 680 basis points from the third quarter of 2025 to 54.5% this quarter, reflecting the repositioning of our portfolio towards new programs with lower expected loss ratios. Everspan’s expense ratio was 43.5% in the third quarter, up from 28.4% a year ago. Excluding the sliding-scale impact in both periods, our expense ratio was 43.8% in the third quarter compared to 35.3% a year ago, reflecting higher acquisition costs associated with the growing mix of high-retention programs and higher general and administrative expenses.

G&A costs this quarter included half a million dollars of legal costs associated with the pending sale of PWIC and an additional half a million dollars of expenses due to timing differences, which together added about 4 points to expense and combined ratios. On a pro forma basis, which we reconcile in our earnings presentation, the year-to-date combined ratio was 96.7%, a sequential improvement from 97.1% in the second quarter and a further step towards our longer-term objective.

In the third quarter, Everspan produced pre-tax income of 1.4 million and adjusted EBITDA of 2.2 million. Both of these metrics are improved from breakeven results in the prior-year quarter. Year-to-date adjusted EBITDA was 5.6 million, more than double the first nine months of 2025. We’re pleased with the progress so far this year, and we believe Everspan is well positioned to meet or beat our full-year adjusted EBITDA guidance of 6 million. Lastly, as Claude mentioned, Everspan agreed to sell its wholly owned subsidiary PWIC. When the transaction closes, we expect to book a consolidated net gain on the sale of close to 4 million and an increase to Everspan’s tangible book value of approximately 11 million. Because PWIC writes little business and its needs will be covered by our other Everspan carriers, the sale will release capital and eliminate the regulatory and administrative costs of maintaining a separate entity, reflecting our focus on streamlining our operations and redeploying capital and resources in a way that will improve results.

In regards to Corporate, the actions we have been taking to reduce costs continue to impact results. Corporate expenses were 10 million in the third quarter, down from 27 million a year ago, while adjusted Corporate expenses were 7.3 million, a reduction of over 20% from 9.5 million in the prior-year quarter. Third quarter 2025 GAAP reported expenses included significant costs associated with the repositioning of the company in connection with the sale of the legacy business and costs associated with the purchase of ArmadaCare.

Year-to-date adjusted Corporate expenses were 22.5 million, down roughly 20% from 28.4 million in the first nine months of 2025. That keeps us well positioned relative to our full-year outlook of approximately 29.5 million. Turning to our outlook, we remain on track for 2026 to be the first year we expect to deliver positive adjusted net income per share, in line with or better than our guidance since launching our P&C strategy in 2021. That is a meaningful milestone reflecting the growing earnings power of the Insurance Distribution platform. Overall, we’re pleased with our progress this year and confident in how we’re positioned heading into 2027, including from a leverage standpoint.

At September 30, our net leverage ratio calculated in compliance with the terms of our credit facilities fell below three times. We believe this provides us with greater flexibility for strategic initiatives, including the buy-in of minority interests alongside other transactions such as non-core asset sales. With that, I will now turn the call back to Claude.

Claude LeBlanc (Chief Executive Officer)

Thank you, David. While we are not updating our 2026 guidance, given the progress we’ve made through the first nine months of the year across all of our metrics, as David explained, we are well positioned to meet or exceed our key guidance metrics for the year. With our capacity for 2027 largely in place and our AI underwriting platform providing support across our U.S. MGAs, we believe Insurance Distribution is poised to maintain sector-leading growth.

The progress and growth of our two operating segments, combined with the expected Corporate cost savings through integration and technology solutions, gives us continued confidence in achieving our target consolidated adjusted EBITDA to shareholders of 80 million in 2028. As we approach the end of 2026, I am encouraged by the progress we have made and increasingly confident in Octave Specialty Group’s trajectory. Our results demonstrate that we are executing against our strategy, strengthening our competitive position, and building a business with fundamental value we believe is not yet fully reflected in our market valuation. Looking ahead, our priorities remain clear: execute with discipline, capitalize on the strengths of our platform, and deliver sustained, profitable growth.

Operator, I would now like to open the call for questions.

OPERATOR (Moderator)

Thank you. We’ll now be conducting a question-and-answer session. If you’d like to ask a question at this time, please press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question is from the line of Mark Hughes with Truist Securities.

Please proceed with your questions.

Mark Hughes (Analyst)

Yeah. Thank you. Good morning, David. Did I hear you correctly? Did you say you expect to exceed the 45 million in EBITDA guidance for the Distribution segment?

David Trick (Executive Vice President)

That’s correct.

Mark Hughes (Analyst)

Okay, very good. Kind of a specific question. The servicing and other fees in the Distribution business—you were about nine and a half million in the first quarter, and it’s been kind of mid five, six million the last couple of quarters. Does that reflect some of the seasonality, kind of the strong first quarter related to ArmadaCare? And then when we think about the fourth quarter, what is kind of a reasonable level? Is it going to be more like Q2, Q3?

And again, that’s the servicing and other fees in the Distribution.

David Trick (Executive Vice President)

Yeah, Mark, that’s definitely a little bit of seasonality in the fees. As you pointed out, the biggest driver of those fees these days really is our managing agency business, the Terra. So you’ll see those fees start to level out, and I would say they’re probably more consistent going through the fourth quarter with regards to the third quarter, as opposed to other prior quarters.

Mark Hughes (Analyst)

Okay, very good. How has the loss performance been in the accident and health? Sounds like the pipeline is strong. ArmadaCare is performing well. How are they doing from a loss perspective in those programs?

Naveen

Hey Mark, this is Naveen. You know, with the strong rate environment that we’ve had in those portfolios, generally they’ve been performing in line with expectations of our carrier capacity partners, if not a little bit better than what the trend line has been, because we’ve been able to achieve double-digit rates in those portfolios. We’re seeing the benefit of that in the loss ratios as well.

Mark Hughes (Analyst)

Understood. Then on Everspan, I think you’d said 410 million, probably come in a little bit under that number. Is the growth in 4Q going to be more similar to 3Q—perhaps kind of up a bit—or is there some seasonality in 4Q?

David Trick (Executive Vice President)

Yes, not so much seasonality as it is mix of business and the timing and ramp of new programs. New programs can be a little tricky in terms of predicting how quickly they’ll ramp up. We added three new programs in the third quarter. So some of the growth in the fourth quarter I would expect to be reliant on that. And what we should see is something in line to better than third quarter. But again, it’s going to be somewhat dependent on how some of those new programs ramp up.

Mark Hughes (Analyst)

And then the earned within Everspan—you’ve been moving up a little bit faster. There’s this kind of 25, 26 million. Is that a reasonable run rate, or that ratio of earned to written? Do you think that’ll continue to be steady or increase?

David Trick (Executive Vice President)

Yeah. When I look at the year, we’re pretty consistent on a year-to-date basis in terms of the level of premium to gross. So I would expect that to maintain into the fourth quarter in terms of the relationship between net and gross. Again, ultimately that’s going to be somewhat dependent on the mix of business, but I think it’s pretty reasonable to assume that relationship holds through the fourth quarter.

Mark Hughes (Analyst)

Yeah. Okay. If I might just squeeze in one more. The pipeline in the MGA business sounds like that is pretty healthy. Just sort of curious at this point in the cycle, the dynamics around teams potentially leaving their existing spots and taking you up on your offer to give them a new home with a little more equity ownership. How are you finding the enthusiasm or willingness of teams to move and kind of buy into, you know, the Octave approach?

Claude LeBlanc (Chief Executive Officer)

Mark, I think we’re seeing still a lot of enthusiasm. I’d say we’re seeing probably more of it in the US and growing in Europe at this point in time. As I mentioned earlier, I think there’s always a year-end timing issue with some teams who may want to stick around until the first part of the year. But we’ve been in dialogue with a number of teams. We have very high standards in evaluating what will be required to join us, but I think there are a number of highly qualified teams that we expect will get to the requirements that we need.

But as we also said at the beginning of the year and midyear, we are really focused on integration this year as well as bolt-on teams as priorities as we progress the integration of our platform. I think you should expect that we will be progressing that—one or two this year and next year. I think that’s probably the mix that we’re targeting. So again, I think we can afford to be selective given what we’re targeting, and we are seeing some really good teams that qualify for our platform.

Mark Hughes (Analyst)

Appreciate it. Thank you.

Claude LeBlanc (Chief Executive Officer)

Thanks, Mark.

OPERATOR (Moderator)

Thank you. As a reminder, to ask a question today, you may press star one. The next question is from the line of Tommy McJoint with KVW. Please proceed with your question.

Tommy McJoint (Analyst)

Hey, good morning. Thanks for taking our questions. To start off, as we think about Armadicare entering into the organic revenue growth calculation, am I right in assuming that the fourth quarter impact there should be pretty minor just because it’s only two months’ impact, but then as we start to think about 2027, it sounds like the first quarter, there’s a lot of seasonal revenue that comes from that A&H business? So what can you tell us about what’s happening with Armadicare in terms of its own organic growth profile and how we think about that relative to what’s been a very strong organic growth profile for the rest of the business this year?

David Trick (Executive Vice President)

Yeah, as you indirectly point out, Armadicare’s business is definitely very seasonal. So as we enter into the fourth quarter, it’s only two months of impact. But fourth quarter is not necessarily a huge quarter for growth for a seasonal business like Armada. So it will certainly have an impact on our organic growth relative to some of our other businesses. It will probably be a smaller impact from our size as well as the growth rate. But headed into first quarter of 2027, as Claude alluded to, we’re seeing very positive signs for that business as well as other parts of our A&H business and would expect it to have a rather significant favorable impact on organic growth.

Tommy McJoint (Analyst)

Okay, got it. And then this was sort of asked in the last question, but maybe asking it a slightly different way: as we think about factoring in some inorganic growth in our models over the next couple years, it sounds like you’d probably instruct us not to expect anything too meaningful—certainly nothing the size of Armadicare—just as right now the focus is on integration, and instead maybe just think about those buy-ins of the noncontrolling interests.

But are there any other guardrails you would point us to, to make sure when we think about the inorganic contribution to the size of the total business?

Claude LeBlanc (Chief Executive Officer)

Yeah, we’ve I think said in the past we don’t really expect to have major acquisitions going forward. And you’re right, the buy-in of NCI is certainly the priority for us—that really affects ultimately the bottom line, not the top line. So I would not anticipate any significant acquisition activity. We may have opportunities for modest-size, mid-sized tuck-ins that, on a relative basis, would not have any outsized impact—certainly nowhere near the size of the transaction we did with Armadicare.

And as Claude commented on where we’ll see organic growth is the de novo portfolio as well as tuck-ins of new teams, bolt-ons of new teams adding adjacent products, and building out the business truly from an organic standpoint. I will say that in the markets we are seeing more opportunities on the inorganic side, I think, given the softening market cycle, which I think presents more opportunity. But as David spelled out, I think our focus is on the organic side.

But if we see a small, moderate-size opportunity, it’s something we could explore. And I think there will be more opportunities as we go into 2027.

Tommy McJoint (Analyst)

Thanks. And then just last one, going on to the SPC side. When we look at the prior-year development, it sounds like it was again attributed to the commercial auto business. When I look back, it’s been about three years now since there’s been really kind of any meaningful business written in that segment, and so the exit’s been underway for a few years now. Do you have any sort of line of sight as to when you might be able to finally put a cap on the development around that, or what is it with the incremental information that keeps coming in to sort of require you to continue to add to the reserves around that commercial auto development?

David Trick (Executive Vice President)

Let me first put it into context. I think our adverse development year to date, when you get rid of the impact of the first-quarter litigation settlement that we had, is about 1%. This year, 25 was about 7% and 24 is about 5%. So on a relative basis, you can see that the adverse development has, on an annualized basis, diminished significantly. And I think that’s in great part driven by the rundown and decision to exit those commercial auto books of business.

You know, the development in commercial auto—which, you know, part of the adverse development certainly is related to the commercial auto—is really just driven by the same dynamics that others are experiencing, and that’s—maybe a little overused term but true—social inflation of commercial auto, and some of the regulations, federal regulations in particular, affect loss outcomes there. But we’ve been very proactive in aggressively remediating that book and trying to close out claims on an expedited basis.

And given that I think the real last full year that we were writing commercial auto is really 24, I think those policies kind of drag into 25. So the earliest those books were really written is 2021. So I’d say that the 21 and 22 books of business at this stage are pretty much closed out, even though you could have a little bit of tail there. And the 23 and 24 books, while a bit smaller, are obviously running down, and we’re taking steps to run them down quicker in order to clip off the tail on those accident years.

OPERATOR (Moderator)

Thank you. Ladies and gentlemen, this now concludes our question-and-answer session and will also conclude today’s conference. You may now disconnect your lines. At this time, we thank you for your participation. Have a wonderful day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.