TWFG, Inc.

And we know that Florida market is dealing with its own property pricing downward. And so we're doing well, better than expected. And we're being disciplined and not looking to update at this release. If we get through the second quarter with similar outcome, then yes, there's upside to the margin on guidance.

Okay, that's understood.

Moving to organic growth, Gordy, you've talked about the impact from improving availability and how it's having an impact on organic. You talked about the soft market. Maybe you can kind of help tease out if that impact is becoming less important you know, having less of an impact on organic or the same or more, and so we can kind of figure out directionally whether we should continue to kind of build in a bit of a very near-term headwind.

We have a lot of geography that TWG operates in, and not every geography has the same rate change cadence or significance. And so if we look at, you know, the balance of the calendar here, we're looking at, you know, rate, property rates, you know, we all know the cap market is softening and that eventually goes through property repricing. Our soft market cycle really started last year, second quarter, on the private passenger auto side. I would say that the property portion started softening more towards the end of the fourth quarter, early part of the first quarter. So they're kind of disconnected in the timing, but we've assumed the softening market at our full year guidance and are not expecting anything dramatic from a pricing standpoint to change that 10 to 15% guidance. As we talked maybe two years ago when we were first coming out public and the market was hard, what happens is because carriers now offer us capacity and they all have new business incentives, the next shift of the total portfolio growth becomes less dependent on retention and more driven by exposure growth. So new business overtakes policy premium retention. And we're kind of seeing that shift occurring in real time where we might be renewing at a lower average premium, but we're also writing new business and having PIF growth that's setting that pricing headwind. So for us, we're looking at that guidance as being very solid through the first quarter and what we can see through today, which is why we're maintaining that range.

That's helpful. And maybe just a last on the competitive environment. Just curious, I know you're probably more of a bundled writer, but is the GEICO initiative having an impact on the organic, or it's just too small to really move the needle?

GEICO has become more relevant in our portfolio, not less. And again, it is price advantage. So last year, Even though it was allowing us to write more business, it was also moving policies from a higher average premium to a lower average premium. We still have significant growth with GEICO, and we look at their technology platforms and the product lines that they're still not fully released in every state as going to be a net beneficiary to us as they continue to expand into new geography and open up more lines of business. So Geico has been a positive other than, like I said, the rate differential from incumbents allows us to retain the customer, allows us to write new business, but it has a lower average premium than the incumbent carriers.

Understood. Thank you.

Next question comes from the line of Brian Meredith with UBS. Your line is open.

Yeah, thanks. So Gordy, a couple questions here. First, I'm just curious, what is the organic growth of your MGA business this quarter? And are you seeing a slowdown in business moving into the non-admitted market?

As a first recap, the vast majority of our MGA is admitted.

So we're more of an admitted operation than an ENS one. and our admitted portfolios are growing. As we've been able to introduce new products in new states, as we've expanded our own product in our core state, we are able to grow PIF and premium in both the admitted programs. On the ENS side, I would say for states like California, We're seeing less dependency on the E&S homeowner's market as more of the traditional carriers are starting to open up capacity in California. That could change with some of the more recent actions from the DOI, but we've had a number of new admitted markets open up for new business in that state, which was not present last quarter. we don't really break out the organic by, by business unit. Uh, and you know, Florida has got a combination of a new business, new program, voluntary writings that aren't a part of the calculations for, uh, inorganic versus organic. Uh, our full year guidance includes basically a blend of all the different businesses coming together on a consolidated basis. So we don't really have a breakout of that in between. We do know that coming into the second quarter, we're going to have a, you know, good benefit of policies renewing in the quarter that were not present in the prior period. That acquisition is now past the 12th month. So it's going to give us an upsized organic quarter for the second quarter.

Yeah, it's terrific. Second question, contingents, any views on what contingents could look like for the year?

Great question. We're probably an outlier here.

We're being very disciplined in how we're viewing contingents. We entered the year knowing that the market was softening. and expecting combined ratios and loss ratios to eventually be impacted by the lower rate environment. So if you track our contingent line, we're currently projecting a little bit lower on a premium to contingency basis, anticipating that there should be some loss ratio degradation by the lower rate environment. So far that hasn't manifested, but we're not looking to adjust our current contingent in our forecast. We get more substantial confidence on that line after the third quarter. We get lock-in provisions and carriers then give us more substantial updates on where we're at in those profit sharing agreements. So there could be upside in the fourth quarter as we live further into the calendar year and then those loss ratio sensitive contingencies become a lot clearer. So we're taking a very disciplined approach in how we're approaching contingency in our guidance and in our forecasts. And yes, there's some upside there should the combined ratios and loss ratios stay historically good.

Gotcha. And then one last one, Gordon, I just want to go back to the good discussion you had on AI and completely agree with you. But one of the debates that I'm having with some people is you know, with AI and what's going on, not only the benefits you're seeing from an AI productivity perspective, will that over time force, call it commission rates to decline, do you think, just given the efficiencies that, you know, y'all and agencies are generating and maybe competition from, you know, AI generated aggregators and stuff?

I think it's too early to predict that that's an outcome. I did read the Chubb article that you're probably referencing. Nobody yet knows the long-term cost of the AI tools. So I think it's presumptuous to believe that all the AI tools are going to inherently create a cost savings. the amount of energy it takes to operate these server farms, and in many cases, the number of different microservice AI bots or AI agents you may have, and the token costs if you're using third-party AI. I don't know that anybody could accurately predict where the cost savings is going to be this early in the AI deployment. I think certainly over time, we believe there will be efficiencies and there will be some margin expansion opportunities, but way too early to predict that. And how does the agency economics shift the carrier commission schedules? I think that we've proven that independent agency distribution provides underwriters with a superior portfolio, better retention, better loss ratios, and I don't see them immediately directing commission expenses downward in a very competitive marketplace. The industry is so fragmented, I don't know that that would be a wise move for a carrier to be looking at agency comp as an outcome of AI, because AI is improving their infrastructure and their costs too. So they certainly might get some relief on how they can lower rate based on their expense ratios coming down. But I don't think that needs to come at the expense of distribution.

Thank you.

And our last question comes from the line of Pablo Singzon with JP Morgan. Your line is open.

Hi, thank you. First question, I just want to confirm, the reason that organic will be strong in 2Q, I think, are the four that take out books, renewing into organic, right? That's sort of the first part, and then I guess you also took out some books in the latter half of 25. Do they renew in the latter half of 26, or does everything renew at the same time, which is why 2Q is so strong?

There's a couple points there, and I'll let Janice clean up what I don't cover. Yes, we have policies renewing in the second quarter that are going to help drive organic up to high double digits. We also have a voluntary program, which is an entirely new form and distribution that was stood up from scratch, and everything that it generates is also organic, separate from the takeout. So there's takeout, takeout going into renewal, and then there's voluntary writings, which is new business production from scratch, not a renewing of a takeout policy. The takeouts are also accelerating their new business traction coming into this quarter. So that's part of my structural tailwind I'm talking about, which gives us significant confidence in the guidance we've given for the full year organic. There are policies from all the various takeouts that go into various extended periods of the calendar. And Janice is much closer to how that plays out.

Yeah. I mean, so another thing, too, is we're being disciplined on the retention rate that we're using. So on renewals and the new direct business, like what you mentioned, we're being disciplined on how much we're going to see because we haven't really seen the cancellations coming through as of yet. So I feel like, and with what we've got with the takeouts dropping off starting in July, on the June takeout and then October, November, June and October were the largest ones. And then you'll start seeing the replacements on the renewals after that point in time. And again, we have a pretty night and we're using a good, we feel like a comfortable retention rate on those.

The number of policies going into the third and fourth quarter are relatively de minimis.

Yes.

Ladies and gentlemen, that concludes the question and answer session. I would now like to turn the call back over to Gordie Bunch for closing remarks.

Thank you for attending this afternoon's call.

We appreciate all your thoughtful questions. Really, five things we want you guys to walk away with. Our business is firing on all cylinders. Total revenue up 35.3%. Just to give it up, this isn't just a quarter of luck. It's the compounding of strategic investments in technology, M&A, and the people that have helped made this company great for the last 25 years. Our organic growth is strong, really 2x the industry, and we feel very compelled by the strategic tailwinds we have coming into the second quarter and throughout the remaining part of the year. Our MGA platform is scaling. We're getting new programs and new distribution points in all the different business units. Reaffirming our full guidance for revenue growth, organic growth, and adjusted EBITDA. And our capital allocation strategy is working. $40 million of the $50 million buyback executed, three acquisitions completed. We have cash on hand, an undrawn credit facility, a fortress balance sheet to continue to carry our trajectory forward. We appreciate everybody for attending today. We look forward to our next call.

Thank you.

Ladies and gentlemen that concludes today's call. Thank you all for joining. You may now disconnect.